U-Haul Holding Co (UHAL) 2005 Q3 法說會逐字稿

Good morning. My name is Sarah and I will be your conference facilitator. At this time, I would like to welcome everyone to the AMERCO third-quarter fiscal 2005 investor conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). Thank you. I would now like to turn the call over to Jennifer Flachman, Director of Investor Relations. Please go ahead, ma'am.

Thank you for joining us today and welcome to the AMERCO third-quarter fiscal 2005 investor call.

Before we begin, I would like to remind everyone that certain of the statements during this call regarding general revenues, income and general growth of our business constitute forward-looking statements contemplated under the Private Securities Litigation Reform Act of 1995 and certain factors could cause actual results to differ materially from those projected. For a brief discussion of the risks and uncertainties that may affect AMERCO's business and future operating results, please refer to Form 10-Q for the quarter ended December 31, 2004, which is on file with the Securities and Exchange Commission.

Participating in the call today will be Joe Shoen, Chairman of AMERCO, and Rocky Wardrip, assistant Treasurer of AMERCO. I will now turn the call over to Joe Shoen.

Welcome to the AMERCO third-quarter fiscal 2005 investor call. This is Joe Shoen speaking to you from Phoenix, Arizona.

As I did last quarter, I will start with a narrative of operations. Rocky Wardrip, Assistant Treasurer, will then discuss the numbers. Finally, we will take your questions.

U-Haul ended the quarter with revenue down over the same period last year. The deconsolidation of SAC Holdings and the sale of 68 properties to WP Carey lowered reported rental revenue. Apples-to-apples, however, revenue was up both in the self-move and the self-store segments. (indiscernible) rental revenue growth rate in the third quarter showed signs of improvement over the rate from the second quarter. The disruption of expected truck rental activity caused by the hurricanes in Florida appears to be returning to normal. Activity is still modestly down but it is trending up.

U-Haul is in the process of driving to expand its dealer organization. We added over 200 dealers in the third quarter. We anticipate further dealer expansion in the fourth quarter. Dealer expansion costs -- (technical difficulty) -- strategic plan.

As we have slowed the expansion of company-owned or managed locations, we've added U-Haul dealers -- (technical difficulty) -- markets where the customer is underserved. This allows U-Haul to serve customers -- (technical difficulty) -- the Company's capital.

In the self-storage part of our business, both revenue and rooms rented remained robust during the third quarter. For the entire U-Haul self storage network, we are up some 500 storage rooms rented over this same period last year.

Our systems, sales approach -- (technical difficulty) -- the leverage off the self-move customer and improved operations all are driving our self-storage occupancy gains. It looks like we have successfully held onto the gains we made through the fall and we're positioned to continue to make further gains in rooms rented this spring. For the self storage industry as a whole, occupancy increases have been hard to get over the last 12 months. Our performance is good.

U-Haul continues its strategy of growing in the self-storage industry via relationships with independent self-storage affiliates. We finished the quarter with 1,543 self-storage affiliates. This number should continue to grow in the fourth quarter. All of this has positive implications for U-Haul's competitive position.

At Oxford Life Insurance Company, Mark Haydukovich's team continues to implement their business plan. Oxford continues to seek improved ratings from A.M. Best as part of its business plan. No change is anticipated before April. Oxford booked a reserve for probable litigation losses of 6.5 million in the quarter. Despite this loss, Oxford is expected to end the year with a profit.

At Republic Western, premium volume continued to decline as planned. Benefits and losses came in above plan due to the hurricane losses in Florida. There are about 8.5 million of these losses reflected in the third quarter. As they have stated before, since Republic Western decided to no longer write non-U-Haul-related risks, we have been getting more and more confidence in our reserves. Very simply, the policies are expiring and soon there will be very little unknown liability. We can then calculate the total policy count that Republic Western has declined as planned, reflecting Republic Western's exit from writing non-U-Haul-related risks.

At AMERCO, we caught up the deferred dividends on our preferred during the third quarter. We expect to remain on a regular dividend pattern going ahead. We also put the PWC litigation behind us in the third quarter. We are continuing to focus on what we are known for.

Looking ahead, U-Haul activity typically bottoms out in the January/February time period. We are in the process now of adding 6,750 large trucks to our fleet. We should have 4,000 of these units positioned before summer, the remaining 2,750 arriving over the summer. We still have some potentially rough winter weather to ride out but so far, there has been no unexpected weather impact on U-Haul activity. Overall U-Haul operations appear to be soundly positioned at this time.

Rocky will now address some of the numbers.

Thanks, Joe.

For the 9-month period ended December 31, 2004, earnings per share were 88 cents, as compared to a loss of $1.20 per share for the same period last year. The current quarter's earnings per share were positively impacted by the litigation settlement and lower insurance expense and lower Professional Services expenses.

In aggregate, these 3 items increased earnings per share by approximately $2.12 per share in the current quarter. Conversely, the current quarter's earnings per share were negatively impacted by the hurricane losses incurred by Republic Western, additional litigation loss contingencies recognized by Oxford, and the FASB (ph) consolidation. The combined effect of these 3 items reduced earnings by approximately 49 cents per share in the current quarter.

For the 9-month period ended December 31, 2004, earnings per share were $5.25 versus $1.95 for the same period last year. Total revenue for the quarter declined by 8.4 percent to 460.5 million versus 502.6 million in the prior year. U-Haul's rental revenue increased by 5.6 million, reflecting improvement in both moving equipment rental revenue and higher same-store storage revenues. Premiums decreased to 34.6 million from 56.1 million, primarily reflecting an 80 percent decline at RepWest due to their exit from non-U-Haul lines of business.

The deconsolidation of SAC Holdings, or SAC Holding Corporation, resulted in reporting revenues being reduced by 26.5 million as compared to the December quarter of last year. For the 9-month period ended December 31, 2004, total revenue declined to 1.59 billion from 1.71 billion during the same period last year.

For the quarter, costs and expenses fell by 8.6 percent to 460.2 million. The decrease is attributable to reduced benefits and losses due to reduced premium levels, the SAC deconsolidation and reduced insurance and professional services expenses. Pretax non-insurance operations Professional Services component of costs and expenses were 6.7 million as compared to 13.9 million in the December quarter last year. Pretax non-insurance operations Professional Services are expected to be 35 to 40 million lower in the March, 2005 quarter as compared to the March, 2004 quarter.

Total costs and expenses for the 9-month period ended December 31, 2004 fell to 1.39 billion from 1.54 billion in the same period last year. Earnings from operations were 0.3 million as compared to an operating loss of 1.0 million in the December quarter last year. For the 9 months, our earnings from operations were 195.7 million as compared to 173.5 million in the same period last year.

U-Haul's operating earnings in the current quarter were 3.7 million as compared to an operating loss of 10.4 million in the same quarter last year. The improvement reflects revenue growth combined with continued cost-containment programs and lower insurance expense, due to a change in the timing of the recognition of insurance expense to track more closely with rental transaction volume, as discussed during last quarter's earnings call.

For the 9 months ended December 31, 2004, U-Haul's operating earnings increased to 172.7 million from 153.8 million during the same period in 2003. Oxford's operating loss for the quarter was 3.4 million as compared to operating earnings of 4.4 million in the prior year. The booking of additional litigation loss contingencies was responsible for the decline. For the 9-month period, Oxford's operating earnings were 2.7 million versus 7.8 million last year.

RepWest operating loss was 9.20million in the current quarter, which compares to an operating loss of 7.4 million in the prior year third quarter. For the 9-month period, RepWest operating loss was 8.7 million as compared to an operating loss of 21.8 million in the prior year.

For the quarter, EBITDA was 86.2 million as compared to 48.5 million during the same period last year. EBITDA plus rent expense was 124.7 million in the current quarter. For the 9-month period ended December 31, 2004, EBITDA was 357.2 as compared to 315.8 million during the same period last year. 9-month EBITDAR was 472.6 million versus 417.5 million last year. All of the current year EBITDA and EBITDAR numbers mentioned include litigation proceeds.

Interest expense declined from 31.2 million last year to 16.9 million during this year. The decrease reflects reduced interest expense at AMERCO due to reduced debt levels and the SAC deconsolidation. AMERCO and its legal subsidiaries' debt level declined to 696.0 million at December 31, 2004. The foothill facilities revolver availability at December 31 was 200 million. For the 9-month period, interest declined to 54 million from 92.9 million last year. Net earnings for the quarter were 21.5 million as compared to a net loss of 21.7 million in the prior year. For the 9-month period ended December 31, 2004, net earnings were 119 million as compared to 50.1 million during the first 9 months of 2003.

At this point, I will now turn it back to Joe.

Thanks, Rocky. We will go ahead now and take us to questions and answers, let the moderator go-ahead and cut in.

(OPERATOR INSTRUCTIONS). Ian Gilson with Granite Financial Group.

Good morning, gentlemen! Could you give me, Rocky, the U-Haul storage revenue and the SAC storage revenue that is consolidated for the third quarter and if you have it, for the first and second quarter and the third quarter of last year, since I appear to have slipped on those numbers?

What I have is just simply what AMERCO recognized during the third quarter for this year. I can certainly give you the numbers for last year in a second but I just don't have the SAC numbers handy at this point. This year, we recognized storage revenues of 27.8 million during the quarter.

That is just AMERCO? It does not include -- or I guess it does include the owned and managed -- the managed of SAC as well?

It would include management fees earned from those locations but not the revenues associated with it. Last year, that number was 33.8 million during the third quarter. The difference -- the impact of the Carey properties during the quarter on our recognized revenues was about 8.1 million, so if we put them on a comparable basis on a same-store, we're up about 2.1 million year-to-year -- (multiple speakers).

I wasn't quite sure (indiscernible) mentioned -- what is the total truck count?

The total truck count today is down I believe about 6,000 over the prior year. We published 94, I believe. Is that correct, Jack?

That was as of year end.

As of year end, we published 94. You know, there's a lot of -- well, I could maybe give you a little color on that, Ian. We are down a little bit in effective trucks if you count trucks for sale and if you want to know how many trucks are out on rental lots, we are down in effective count right now and we probably will stay down until the fall, although we are going to bring in, between now and August, 6700 new big trucks and a couple of thousand new light trucks and vans. Our total count will probably continue to decline; it won't start to build again, if it does build, until next fall.

But as far as truck-available-rental days, by bringing in new trucks and selling out old trucks, effective truck days available should go up, Ian. So we expect to see an opportunity to increase revenue, both in terms of renting the trucks for more days and getting a little bit of price, so we're looking for both over the next 2 quarters. We think they are both available. So even though the absolute number of trucks will be stable or slightly down, the actual -- the we think the effective time, after you subtract out down-time for maintenance -- the new truck just has less downtime for maintenance that an old truck.

Are these all GMACs?

Yes, these will all be GMC trucks.

What engine do we have in those?

They are going to be what they call an 8.1-liter gas engine. It's an evolution of I think originally their 454 motor but it's a V-8 gas engine; it's a very reliable, steady engine and the trucks will also have and Allison transmission, an Allison automatic transmission, which is pretty much the Cadillac of the industry, so to speak. It's a trouble-free transmission, relatively speaking.

Have we got rid of all those problem trucks that we had a year or so ago?

I wouldn't say we are rid of all of them. We still have some sitting on sales lots. It's a process, but we are definitely making a cut at it. These are the trucks we wanted to bring in to drop out our higher maintenance trucks, these 6700 trucks. So because it's our slow season, I can sell a little aggressively in the winter just because we have theoretically -- we have excess trucks through the winter. So we're selling a little aggressively and counting on bringing on these new trucks in a timely manner to boost the fleet going into the spring and into this summer. So I think we're positioned -- we're going to be positioned by June 1 pretty close to where we would like to be on big trucks.

Thank you very much.

Julia Gerke (ph) with Bank of New York.

Good afternoon. I just wanted to get a sense from you about any potential refinancings coming up.

Okay, I will let Rocky maybe -- I would assume you're talking about beyond the lease -- truck lease financing that's going on all the time?

Yes, I just want to know about your capital structure, whether any plans have been made yet to refinance the capital structure.

We've had discussions with asset-based lenders, cash flow lenders. We are looking at -- or we are involved in discussion with securitization lenders today, and we are evaluating all our alternatives. It appears as though it is something that is certainly going to be available to AMERCO. We are just trying to define what the right structure will be at that point.

Okay, so nothing to announce yet?

No.

(OPERATOR INSTRUCTIONS). Jim Barrett with CL King & Associates.

Good morning, everyone. Joe, I know it's the off-season, but any inklings of what the pricing environment looks like currently, or more importantly, what it may look like as we enter the busier part of the season?

Prices -- we don't have an absolute hard fix on that, I think, Jim. I think that everybody has a little excess capacity right now, and how people are going to price coming into the spring, I don't know. We are anticipating we are going to get a little bit of price, okay? That's kind of the feel of our people. But this is not a hard thing, and I think we saw a lot of what you might call disjointed pricing at the end of last summer and going into the fall. It kind of calmed down through the winter, but weather -- as demand jumps up again, people will get -- will start jumping around on pricing or not, time is all that's going to tell. We're monitoring it very closely, and nobody has a cost advantage over us. We are the largest supplier in the industry. If anybody has a cost advantage, it's probably going to be us, so I don't think we are going to see anything that's going to hurt us. The question is, how much can it help us is how I look at it right now.

So you did you indicate that, relative to last winter, the pricing environment is fairly quiet?

I would say it is, yes. Last winter, we got some price increases and we got a little bit of price increase this winter, too. But you know, these are -- as you now, a very small price increase is significant to us, so we are seeing some price increases. It's nothing here that's worryingly me at this time, although we will see when it heats up a little bit here in the spring. We are going to come out with a pretty heavy-hitting fleet by June and that will have some competitive effects. But I hope that those people all respond in a responsible way and everybody prices to get a fair price for the service we are providing.

Now, in terms of RepWest, has the commissioner of insurance in that state allowed you to terminate the policies you had down there, or let them expire?

We were down to under 10 policies in Florida at the middle of last week, and we're trying to get rid of the last couple of those. They may have gotten rid of them by today. So we are not out-out-out but we're pretty close to out-out-out. I am a little gun-shy, but we were -- the plan the middle of last week was to send somebody door-to-door to the last policyholders to see if we could just talk them out of them, you know, suggest an alternative to them, because it's just -- we are out of that business.

That sounds like a pretty low number! So, if RepWest, going forward, is now pretty much exclusively writing policies for U-Haul renters, can you give us a general sense of what the normalized operating margin should be in that business?

No. I can tell that they're probably looking premium volume next year, somewhere between 17 and $25 million would be -- I think I'm right. It's going to be a very modest number. It will have a pretty good underwriting margin business -- will be business we kind of know. We have some plans that could put another increment of revenue on top of that that we also think would have a decent profit margin. They call it an underwriting margin. It would also be a fairly short-tailed business. I hesitate to say what the profit margin is in any insurance product because -- (Multiple Speakers) -- knows, but I think that what the $64,000 question is how does our investment income, our continued benefit payout on business that is now a year or more old -- because we will still be adjudicating claims on the insurance we wrote 2 years ago probably 2 years from now -- you know, the last of the claims clean up. But as that pays out, the question is, is our investment income and our premium volume going to cover our overhead, is really I think kind of the question. At this time, on paper, it does and so we're going to have to see now just how well we are able to implement, Jim.

So I got caught, as you know, with both the hurricane -- the hurricane losses caught us real hard, and so we are way off of what we had anticipated a year ago as far as a bottom-line number. But as far as where we are on reserves or where we wanted to be, which is we think we are -- the consensus amongst every professional I can get is, we are dead on on reserves and in their opinions carry more and more weight the older and older the book of claims becomes. So they are now looking at claims for the most part that are a year old and their estimates become much more indicative of final payouts. So, we are going to, over the next several months, continue to explore ways to seed (ph) off remaining claims if we can get -- in other words, remaining insurance liabilities by matching it up with assets to the extent we can find some opportunities to do that that make pretty much sense -- because again, we are out of that business and so it just is becomes a carryover. If we can get out of it -- (Multiple Speakers) -- halfway reasonable manner, it's just more prudent. Then that allows us to cut back our overhead because part of our -- the vast majority of the people -- I think there's something like 260 people now presently at Republic Western and the vast majority of those people are in the claims handling end of the business. They are either adjusters or they are programmers who are programming for the adjusters, that sort of thing. We have a big opportunity, if we could see that a major part of this business go away (sic), that we could deal with that. So I think we're going to see an opportunity there, but I can't guarantee it. But I do think, at least on paper, what I've seen is believable that we can cover our overhead over the next 12 months from investment income, new policies written, so I'm pretty optimistic really.

Considering the tail of the policies that are written in that business, is that -- again did you indicate they have a couple of years' tail?

It depends on the business. We have kind of a bimodal distribution. We have a bunch of stuff that -- let's say it's automotive-related, which the bulk of that stuff has a couple of years left on it. Then we have a group of excess Workers' Compensation coverages. Those things theoretically are 30-year tails, so it's a bimodal distribution. If we could cede the Workers' Comp out, then we would bring it up, everything would be fairly short-tail business. The way we handle it -- we've already bifurcated the 2 books so we've a group of specialized people handling the long-tail and another group handling the automotive, which is much more analogous to the typical U-Haul claims. So, (indiscernible) the one that kind of sticks out or looks a little weird if you looked at the whole business plan is the workers' comp, and that would be the logical stuff. If we could cede that off to just kind of clean up the whole operation.

I see. Thanks a lot, Joe.

Ian Gilson with Granite Financial Group.

I forgot to ask, what was the utilization rate in storage in the third quarter?

This is Joe. I think it was 81. You know, that's a moving target at all times. They do 2 kinds of ones. I think, if you took a snapshot picture, I think it was 81 at the bottom, which would have been let's say December 31. It might have been 81.5 or something like that. Based on where we ran last summer, the indications are that we will run considerably up. If you did a blended 12-month occupancy, it's a higher number than that, Ian, and it gets a little -- you know, everybody is always trying to massage numbers to make them look more acceptable. But I think our raw number was about 81 at the end of December, which means we will run, probably run above 85 through the summer, maybe 2 or 3 points above 85.

Gideon Bernstein with Leisure Capital Management.

Good morning. Could you talk about the status of your preferred stock? You mentioned, in the last few calls, that you wouldn't be calling it for awhile but now that your cash flow has changed, is that changing your outlook on keeping that security in the market?

This is Joe. Rocky, you jump in if I put my foot in my mouth. We don't have a plan to do something with it right now. You are obviously a person who can count. We are getting people who are suggesting we ought to do that. It's not a front-burner item, Gideon, if that make sense to you. But it's always -- Rocky and the rest of the my treasury team are looking at it in a very logical manner. We think our greater near-term is to -- interest -- is in fixing the rate on our floating-rate debt and extending the maturities. That's our nearest opportunity, and we're spending more time on that, if that make sense. It's not to say that it hasn't occurred to us that there's an opportunity perhaps in the preferred, but there has been no -- there's no real effort being put on that at this time.

At this time, there are no further questions. Mr. Shoen, are there any closing remarks?

Again, I want to thank everybody for their support. I think we got a timely report out this time. I would expect us to be able to continue to timely report. As you know, the increments on this reporting due to changes in the rules -- the increments have been getting tighter and tighter. I think that Jack Peterson and his team have done a good job of getting us there and I expect you should expect timely, accurate reporting. Then on top of that, I look forward to some good results. So, my thanks for your continued support and I look forward to talking to you again.

This does conclude today's conference call. You may now disconnect.