U-Haul Holding Co (UHAL) 2005 Q4 法說會逐字稿

Good afternoon. My name is Lindsay, and I will be your conference facilitator today. At this time I would like to welcome everyone to the AMERCO 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) Ms. Flachman, you may begin your conference.

Thank you for joining us today, and welcome to the AMERCO year-end 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-K for the year ended March 31, 2005, which is on file with the Securities and Exchange Commission.

Participating in the call today will be Joe Shoen, Chairman of AMERCO. I will now turn the call over to Joe Shoen.

Hello. This is Joe Shoen speaking with you from Phoenix, Arizona. I will make the entire presentation for the AMERCO fiscal year '05 conference call today, and I will have Gary Horton and Jack Peterson standing by for the question-and-answer session.

Let's start with a financial overview. The earnings per share for the current year is $3.68 versus a loss of $0.76 per share last year. Included in this year's EPS calculation are non-recurring litigation proceeds of $1.56, included in last year's EPS calculation was $1.32 in non-recurring restructuring charges. Total revenue for the year decreased by 164 million to 2 billion from $2.2 billion in the prior year.

U-Haul self-moving revenue increased by 56.7 million to 1.4 billion, reflecting improved utilization in pricing. Declines in the average truck inventory had a negative impact on the revenue growth within our core self-moving segment, particularly in the fourth quarter.

Self-storage revenues were 114.2 million for the year compared to 247 million last year. The reasons for the decline were the deconsolidation of SAC Holding Corporation and the W.P. Carey Transactions. However, looking at all owned or managed self-storage rooms, there was an increase of about 20,000 rooms rented year-over-year. This is what I told you one year ago that we would do.

Moving and storage products and services sales followed the growth of our moving business, net of about 36 million as a result of the deconsolidation of SAC Holdings. Property management fees grew 10.1 million for the year, again due to the deconsolidation of SAC Holding and increased 1.4 million as a result of the W.P. Carey Transactions.

In our insurance companies, premiums decreased from 237 million to 151 million, reflecting a $67 million decline at our Property and Casualty Company and a $28.9 million decline at our Oxford Life Company. For the year cost and expenses decreased by 208 million to $1.8 billion. All expense and cost categories except commission expense declined for the year. The increase in commission expense is attributable to the deconsolidation of SAC Holding Corporation and the revenue growth within the self-moving segment.

Earnings from operations were 167 million, up from 126 million in the prior year. Interest expense was 73 million this year as compared to last year's 121 million. Net profit for the year was 89.4 million as compared to a loss of 2.9 million in the prior year. Overall, I am proud of the job the U-Haul team has done in fiscal year '05 and believe the Company is positioned to succeed in fiscal year '06.

As I have mentioned, we had contracted our rental fleet over the past year. As we continue to add 360 large trucks a week this summer, we will begin to slightly increase the truck rental fleet compared to the same time last year. This should allow us to see revenue growth in the 5% range. At the same time these fleet additions coupled with sales will cause a modest reduction in repair expense over the balance of the year.

Currently we are in the busy summer moving season, and we have a relative surplus of demand on certain weekends. We've recently rolled out a new version of our proprietary inventory and reservation management system, which will help us drive utilization and therefore revenue and profit.

From a self-storage front there has been substantial consolidation amongst our self-storage competitors with Storage USA about to become part of the extra space REIT. Over the near-term our plan remains to rent up the remainder of our self-storage room inventory until we achieve 90% systemwide occupancy. And we are well on the way towards that objective. At the same time we will grow our eMove self-storage affiliate network. We are currently at about 1900 affiliates and continuing to grow. The revenue here is still modest but is steadily growing as planned. This is a long journey, and we are well beyond the first step.

There is no real change in the outlook for our two insurance companies. Our property and casualty Company RepWest, got out of supervision as we have previously announced and have substantially ceased all non U-Haul related premium writings, again as planned. Oxford Life Insurance will go for a needed and deserved ratings upgrade from AM Best in late summer. A ratings upgrade will impact our strategic options positively.

Over the next few weeks and months AMERCO Treasury will complete several auxillary financings as we increase our financial flexibility and staying power. Overall the Company is very close to where we want it to be at the end of the first quarter, and we expect to continue to improve our position.

I will now open the call up for questions and answers. You can direct the call at Gary, Jack or myself. Again, my thanks for your attention.

(OPERATOR INSTRUCTIONS) Rolf Haverman (ph).

Nice year. Joe, just a quick question. You talked about the 90% goal for the occupancy of the self-storage. Where do you stand with that today? What is that number today?

I think I am somewhere around 87% systemwide today. I think we will touch 90% maybe August. The question is then going to be if storage is a little seasonal, let's say 5% seasonal, okay? It is not an exact number, but it is close. The question is going to be how we handle it going through the shoulder and through October, November, December. And I think we can hold it once we put it there. So I think we are very much on target. We have about let's say of 1000 storage places that we run -- I don't have the exact number, but it's at 675 or at or above 90% today. So we've made steady progress on that. And I believe we won't put every single store at 90% by August, but we will for a systemwide occupancy certainly be touching that somewhere probably in August.

Do the operating margins get a lot? Is that sort of a hurdle rate in terms of you get a much better operating margin?

I think 85% or 83, 85% is probably where you cross over when you start seeing some high margin incremental business. And so as a strategy here a year ago, we set the bar internally at 90% purely because it has so much positive leverage for the operating margins. Is purely why we did it; and we did a year ago. We had enough experience to believe we can run at 90%. It's like with anything, you know a motel or anything, you start to get some technical static or jam ups as you increase occupancy. Do your systems really keep up, do your people aggressively enough handle moveouts and that sorts of things? And I believe operationally we are there. It's just a question of us doing the work and we put it there. And I think if you went and compared to other major operators most of them still have their bar set at 85%. So I'm looking for that to positively impact our results.

And just one quick follow-up for the Life and the PMC insurance companies, what are your either medium or long-term goals with those? Are they -- do you want to sell them at some point? What are your goals for each of those operations?

At Oxford they need to get a rating increase in order to get them hooked up with someone who has a rating because it is a well-run, successful company. But with the rating where it is right now it really can't write new business, and it's just simply in a holding position, and we have been on a program of -- and we gotten regular rating increases -- but they need to get this next bump. Assuming AM Best gives them the next bump we can contemplate them staying with the group. If we don't get the bump, it is pretty much we're going to have to get them hooked up in some manner or form with another company that can get them that rating, because it is a good organization, just wasting it's time without a rating.

Thank you. The best of luck.

Sure. Thank you.

Ian Gilson.

Good morning, gentlemen. Could you outline for me capital spending plans outside of the truck business? Are you going to be expanding in self-storage? And I believe in the last conference call or maybe the one before that, you had mentioned that you were going to be aggressively looking to add to the dealer count. And if so, how is that going?

On the dealer count question, Ian, I'm about 35 dealers ahead of where my objective was. So I would say it is going there. It's like with anything, I have parts of the country doing better than other parts. But overall I am 35 dealers ahead of where I had programmed myself to be this week. On the self-storage we probably have 1500 rooms under construction right now. Part of the opportunity of these is for instance where we went to Las Vegas and had an application hearing with the city officials there on two properties, but they are both carry properties. So we are the property manager. We're confident we are going to build them out. But it may show as a carry CapEx, not as a U-Haul CapEx if that makes sense in the financial statement. I think that Gary is going to have us enough flexibility that where we see opportunities we can act. But I don't see us -- and you can see 9 months pretty clearly because of the ramp up it takes on construction. I don't see a tremendous amount of AMERCO funds going into construction over the next 9 months. If it was 10 million I think that is a big number. I don't think it would be anymore than that.

So you're not going to be buying real estate?

We're not buying real estate. Now that doesn't say if the deal of the day comes down the road, we are normal aggressive people. But I haven't seen the deal of the day, and right now most of that stuff is trading at pretty strong multiples. And we've been looking at the transactions that have been occurring. We haven't seen anything that we wanted to really jump into with both feet although now that Gary has refinanced our financings we could. But I don't see it happening to give you a nine-month look ahead. I don't see it happening. Things can change, but I see us 10 million or less in that over the next --.

Great. Thank you very much.

Robert Ryan (ph).

Good afternoon. Just looking at the consolidating financial statements and I just wanted to make sure that I have this right, that through nine months -- and this may be apples and oranges on account of past changes in the presentation or just the way the numbers were consolidated. But through nine months for operating earnings for the U-Haul, the U-Haul business I have 172.7 million from the December 10-Q. And then looking in the 10-K I see 140.5, 0.453, which if I take it at face value suggest a bigger, sort of seasonal decline in the current year's fourth fiscal quarter for the just reported quarter than what we've experienced in the past. But I don't know if there are any distortions in the numbers -- if this isn't an apples-to-apples comparison or if there is anything else that we need to take into account when looking at these figures.

Jack, can you try to field that one?

These were more or less apples-to-apples other than breaking out the components of revenue in more detail than we had in the December filing. So the total revenues and the total operating income would be on an apples-to-apples basis. Again, the total moving and storage operations for the fourth quarter of fiscal 2005 had a loss on the earnings from operations of (indiscernible) this year they had a loss just under 54 million last year.

Could you say those numbers one more time, Jack?

The fourth quarter of fiscal 2005, moving and storage operations had a loss of 27.1 million, and in the fourth quarter of fiscal 2004 they had a loss of 53.6 million.

Yes but can you reconcile that back to -- Robert was trying to go from our third quarter to our year end numbers. Can you straddle that? I am not getting it the way you're talking.

Maybe I have the figures wrong, but what I am looking at is just to keep it simple that the U-Haul operating income 140.5 for the year and then from the Q 153.7. This is earnings from operations.

I think that is correct. I can confirm that with you if you'd like to give me a call later.

Yes, and then I can get maybe the swing factor in what you're talking about and what I was looking at was the eMove (ph) contribution which was actually up. So when you look at it, when you look at the core business you actually see improvement year-over-year in the fiscal fourth-quarter?

That is correct.

Okay and then a bigger picture question, the Company has been working on its balance sheet for several years now, with this refinancing perhaps it has put that chapter behind it and can look in different directions. I wonder if managements given any thoughts in terms of next steps in terms of its allocation of capital.

That is in fact what we are involved in, Robert, is trying to balance that out and make a -- whatever we do make it be a very deliberate step that we feel will be comfortable with over a five-year time horizon, not just the next 18 months. And so we have a number of opportunities that are opening up to us now that we've refinanced the debt. And we essentially -- it would be a little bit of an exaggeration but the debt is essentially without covenants, which means if it is smart we can probably do it. And so the question is is can we really figure out what the smart thing to do is and then execute that? And I think that's obviously what is square in front of all of us. And we are going through it. We have not -- we have explored opportunities and talked about this and that but we really don't have a consensus yet of what way we should go, and I am a little bit -- I want to be fairly deliberate about this and not do something just because it is going to make the quarter sing. I'd like to look a little further out.

Okay and lastly the 8.5's weren't part of this most recent refinancing. Is there any comment there on the interest in refinancing those or their usefulness as a part of the capital structure longer-term?

I think that that is an obvious point of analysis. We've been analyzing it. I don't think it is a clear you must pay them down type situation. I think there are some scenarios where they make sense. But on a strict marginal cost to capital they are a high-cost piece of our capital structure now, and we have enough liquidity that should we decide to do so, we can do something. We are just trying to weigh the options in a very sober manner. One of nice things about that preferred is it’s been out there a long time and as far as I can tell the holders of it are reasonably satisfied. So they have been a very positive part of our capital structure as far as I'm concerned. So I'm not just for jumping because of the rate. But that analysis is pretty straightforward and clearly there are high marks on cost to capital right now.

All right. Thanks very much.

Scott Kirk (ph).

Hi, gentlemen. I tuned in a little late and I just wondered did you give -- I thought I heard something about 5% revenue and I wasn't sure if that was for the consolidated entity or how the forward guidance breaks out. So if you could just simplify that for me, I would appreciate it.

Well, this is Joe. I am the one who made the statement. What we've really seen is is, was speaking in the U-Haul operation -- we've been doing in the U-Haul operation is we contracted the fleet but then back as it has been announced, back somewhere around the end of March, first of April, we started to refleeting at the rate of 360 trucks a week, at the same time we are probably dropping between 80 and 100 trucks a week in normal sales. Maybe a little higher than that; maybe 120 trucks a week right now, 140. So we're starting to add and what that's going to do, the additions or the fleet in addition to improve utilization should see us somewhere, see revenue increases about 5%.

As far as premium income at the two insurance companies, Republic Western will continue to shrink although the magnitude -- right now the relative magnitude of that is going to be diminimus. So maybe they shrink $10 more million or something like this. The little bit of a wild-card is Oxford. Assuming it gets a ratings boost at the end of the summer it will be able to go out and book business. If it doesn't get a ratings increase its premium of volume is in a decline and will continue to decline. So topline revenue, U-Haul probably up 5, the other two Republic Western down for sure, Oxford not totally clear until we see the Best rating at the end of the summer.

So just given the dynamics between the three businesses really, U-Haul is so much greater it shouldn't have that much of a detraction from that, 5 maybe 4.5 in the worst-case scenario?

That's probably correct.

And have you helped us understand what kind of margin leverage you can see, Joe, as you start rolling out that 5% growth? I mean should we look at the margins about where they are, any guidance you can give us that can help me tie in the revenue and the occupancy and the fleet improvements would be very helpful.

We haven't really given you anything mathematically; I can tell you on a conceptual basis. Maybe Jack or Gary will want to jump in on this. But on a conceptual basis the marginal revenue on the new fleet, if we sell the correct older trucks, we get a marginal revenue or marginal gross margin increase because of the differential in maintenance and repair. Does that make sense?

In other words because the fleet is newer there will be less repair, maintenance, so the margin should improve?

Yes that and -- but I don't have a -- I can't tell you I don't have a percentage rate in mind. I don't know, Jack, if you or Gary has a number that is a little bit of a complicated thing because it is a two-step process, we have to sell.

Joe, this is Gary. One of the things also that you have to look at, too, is in some respects you are shaving your repair and maintenance -- actually not maintenance but repair cost for capital cost on the new equipment, which will go up. So there is -- it will have a positive impact on cash flow, but it may have a lesser -- if you look at a net net margin after capital costs, it will have some but not quite as great if you look on the operation side.

It isn't like storage, it doesn't double the margin or something like that. Storage -- when you're looking going from 85 to 90%, you're looking at pretty high contribution dollars. Trucks don't have that. They don't flip like that.

But directionally I should be thinking that the margin, that the gross level improves as the fleet renews?

Yes, I think so.

Will that flow through to the operating level?

This is Gary again. Yes, it should.

Okay, great. And then you mentioned I think Joe, earlier that demand you had seen pockets of excess demand on the weekends or something. Could you clarify that or give a little more color as to how much demand you think there is, and how quickly the new fleet will be able to capitalize on that?

I'm actually in Sacramento, California today and I have 120 unfilled reservations right now. So what happens is it is all about being able logistically to match up the size truck with the location. So it is a distribution problem at the same time it is a demand problem. Does that kind of make sense to you? So right now I am very unhappy with my distribution in the Bay area of California. I feel like I have -- I am not getting the equipment I want there and I have more equipment than I want, let's say in southern Oregon, where I am likely to be this week again. So balancing those flows is the is what drives overall utilization.

As I have said in prior calls, we've managed to eke out a modest increase in utilization for the fleet as a whole every year, and I am expecting to do so again. And so that doesn't quite answer your question on demand. I think demand is considerably above the present supply. But you've got to make it through February. You can't up fleet and down fleet. No one has ever been able to execute that with a 6-wheel truck (ph). So what you've got to do is say okay, how am I balancing it out and what am I doing vis-a-vis my competitors? obviously throwing 360 new trucks a week at this thing, obviously I think I got room. The trucks I am putting in right now are at the large end of our fleet. That particular part I think we have a lot of room in. So it gets to be a very, from my point of view, it is a very specific question. And I would say if you want to talk large trucks, demand is maybe 20% above supply.

Okay. That's helpful. And lastly and again thanks for the time, the sell side guys -- I'm not really that familiar with who covers you, but they are looking for about a $4 number in your next fiscal year. I know you haven't guided really to that at all, but can you help me understand what kind of margin improvement expectations or what kind of revenue assumptions you have maybe spoken about generally? Just give me general color that might help them get to that type of ramp on the bottom line?

I can't. I don't know if Jack or Gary if you --

I think Scott the guidance has come from these calls. I think in some cases as you look at the new fleet he is talking about 5% increase in the topline with a, what we will say is a slight increase in the margins. I don't want to put words in his mouth, but basically I think if you had questions you might want to ask the sell side guys how they got there -- most of the guidance has come through these calls.

Okay. But there's nothing you said specifically that would imply that type of margin ramp on the bottom line?

There has not been, no.

Thank you for the time.

Helen Koski (ph).

Quick question, on SAC Holdings, are you commenting on what the fourth-quarter numbers would have looked like? I know the Q is not up on the website yet, but judging by the overall occupancy rates the quarter looks good. I was just wondering if you can comment a little bit more on that.

That's a real good question. I would agree with you on the overall concept. I haven't seen final SAC Holding's numbers. I don't know, Jack, if you or Gary has. I don't know what the --

(multiple speakers) I would say no in preparation stage.

-- a full year of being completed; they are due out the end of July.

What I can tell you, Helen, is that the way we manage our rooms occupancy rates don't really vary by ownership. They are pretty consistent whether you were looking at U-Haul owned storage or SAC owned storage or W. P. Carey owned storage. In other words there is not a great deal of variation. So you are correct in assuming that they have a bump in occupancy.

Okay. Very good. And I was hoping to follow up on a previous question on the SAC Holding notes, the 8.5's.

I think the first question was on the 8.5 preferred, that's how I was answering it (multiple speakers).

Very good. I guess this is a new question. On the SAC Holding (indiscernible) have you thought of both from the positive side as well as from the negative side, what would the implications be? On taking that issue and getting it rated by one or both of the rating agencies? And I just wanted to see what your thoughts are on that issue.

Gary, do you want to touch that or do you want me to take it?

I will go ahead and take it. Helen, what we've really been doing is moving somewhat away from the ratings and having the transactions rated instead. If there is a way we could get the transaction rated without doing it on a corporate level we might consider it, but at this point we haven't really considered it at all.

I can elaborate and I have said this before is that SAC Holding people are not all that thrilled with it; they issued those notes basically as an accommodation to AMERCO. And to the extent that something like that was done AMERCO would have to do it. SAC doesn't have an ongoing interest in doing that. Although I appreciate from a holder's point of view it makes the notes more readily tradable or expands the market in some ways that I don't totally understand but I get the concept. So I think right now it is not likely to -- it certainly isn't being worked on. Let me put it that way. I should not say it is not likely to be done, but it is not being worked on. I think that over the next several months SAC just as AMERCO is taking a look at its strategic options, SAC will look at those and maybe by Christmas I could give you a better answer than I have today.

Okay and over what is your relationship if any with the rating agencies at this point? Are they still very much confused by the structure and so you feel they won't give you enough credit where credit is due?

Gary, I will let you answer that.

They have a hard time, granted. And what we're doing is we furnish them with all the public information. We are not currently making presentations to them. But we are making sure they are informed just as you would be and getting the information to them.

All right. I appreciate it. Thank you very much.

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

I would just like to thank everybody for their support and I expect we will be having another one of these calls in the near future. And I would expect to be able to report to you that things are proceeding on a steady course. So I thank you for your time and look forward to talking to you in the future.

This concludes today's AMERCO fiscal 2005 investor conference call. You may now disconnect.