U-Haul Holding Co (UHAL) 2006 Q1 法說會逐字稿

Good afternoon. At this time I would like to welcome everyone to the AMERCO first quarter fiscal 2006 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 conference call over to Ms. Flachman. Please go ahead.

Thank you for joining us today and welcome to the AMERCO first quarter fiscal 2006 investor call.

Before we begin, I'd 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 June 30th, 2005, which is on file with the Securities and Exchange Commission. Participating in the call today will be Joe Shoen, Chairman of AMERCO.

I would now like to turn the call over to Joe Shoen.

This is Joe Shoen, and I'm speaking to you today from Phoenix, Arizona. I'll make the entire presentation for the AMERCO fiscal year 2006 first quarter investor conference call. Gary Horton, AMERCO's Treasurer, and Jason Berg, AMERCO's Chief Accounting Officer, will be available during the question and answer session.

For the quarter, earnings per share came in $1.53, compared to $1.98 per share for the same period last year. The quarter's results include a nonrecurring pre-tax charge of $35.6 million associated with the refinancings that closed in the quarter.

Our two insurance companies performed on plan. Republic Western's premium continues to decline as it exits non U-Haul related risks. Oxford Life Insurance turned in good results and, as discussed in the past two calls, is targeting an improved rating at its next AM Best review.

U-Haul performed well in the quarter. Self-moving equipment rental revenue grew about 3%, or 11.6 million in the quarter. All through the quarter, we added large trucks at the rate of 360 units a week. In late August, we will begin adding medium-sized trucks at about this same rate. These trucks are acquired via track leased financing. We continue to have positive interest from track lessors, and find the lease finance market to be strong.

Even with the truck additions that I just discussed, we still finished the quarter with one-way rental truck inventory slightly below this same period last year. This means that revenue growth was fueled by utilization and pricing. This is as we planned. Looking ahead to the second quarter, the rental truck inventory gap will close, and further fuel growth compared to the prior period.

Sales of moving related items were solid in the first quarter. Box sales grew faster than truck rental revenue. Towing accessories, strongly outperformed the same period last year, due to improved merchandise. I look for these trends to continue.

Self-storage revenue and occupancy growth are proceeding on plan. We added some managed locations during the quarter, and are methodically pursuing additional self-storage opportunities, both owned and managed. Depending upon circumstances, we will make a modest capital commitment yet this year to increasing owned self-storage.

The refinance of our Chapter 11 exit financing was well executed. Some minor additional financings will close in the second quarter. They will have little immediate impact on earnings.

The Company continues to explore initiatives directed at cost containment and reduction. For the first quarter revenue increases outpaced cost increases. Overall, AMERCO had a good first quarter and is on plan.

Today I have Jason Berg, AMERCO's Chief Accounting Officer, participating in the question and answer session. I recently promoted Jason to this position of Chief Accounting Officer. Jason is a CPA and nine-year veteran with AMERCO. Among his duties Jason's supervises the preparation and publication of AMERCO financial statements.

I will now proceed to the question and answer part of today's presentation.

[OPERATOR INSTRUCTIONS] We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Ian Gilson.

Congratulations. Good quarter. I have two questions. What was the tax impact of the debt restructuring fee, so that we can actually work back and see what the operating data was? And secondly, Joe, when you say you are adding to self-storage, are you going to be buying predominantly land, or existing facilities? Thank you.

I'm going to answer those questions in the reverse order, in order to give Gary and Jason a chance to try to get you an answer to the first question. What we are doing is, we will start, Ian, with adding additional capacity at properties we already have. But I expect we'll have some greenfield or bare land builds in process by the end of September. This is going to be, you know, one, two or three locations. It's not going to be a big mass. I'm slowly trying to take advantage of opportunities that are presented.

Do you have much in the way of bare land at the moment, Joe?

I'm sitting probably on 8 or 10 real good sites. Maybe a little more than that. 8 or 10 real good sites. It's not a lot compared to what I would have told you three years ago, Ian, but these are real class A sites. These are sites I wouldn't let go of when things were tight, because they were just too good to let go of.

Joe?

Yes, Gary, do you want to try the tax.

On the second half I have actually calculated utilizing the same tax rate as we had for the rest of it. And the charges for the early extinguishment of debt basically had a negative impact on earnings per share of about $1.03.

Thanks very much, Gary.

Your next question comes from the line of Jim Barrett.

Good afternoon, everyone. Joe, can you talk a little bit -- you certainly implied pricing was favorable. Could you provide a little bit more color on that, how you see the pricing in the industry.

The truck rental business?

Truck rental, yes.

Two things factored in here. First, I have been adding big trucks. Big trucks just have a bigger ticket. So, dollar per transaction held a little bit.

I don't have my fingertips what the impact of that was. So we saw some dollar per transaction due to shifting to some more big trucks. But inside of that, we still saw some pricing increases. And I would say that they were regional in nature.

In other words, we didn't see an overall or an across the model line bunch of price increases. But for this business, you know, if you followed us over a ten-year period of time, the past almost 24 months have been relatively good for us being able to get price increases. I expect to see that we'll see some modest price increases going ahead here now. There's always uncertainty, Jim, but --

Sure.

I think we're going to see that. If you would have asked me the same question three years ago, I wouldn't have held out much hope.

Now, on the leasing front, I spoke to someone in the car rental business the other day who said leasing expenses for the car rental companies was up very significantly year-over-year. It appears that trucks have a different supply/demand dynamic?

Gary, I'd like you to maybe handle that one.

I have Rocky here with me, who has been working quite close on the leasing, and would you take this?

Yes. Jim, what we've seen, actually, is a strong interest in the lessors, and participating in our lease program. We've actually leased more than what we had originally anticipated, just because the demand has been strong. We've seen the pricing become more favorable with each passing month.

Good.

And actually, one of the things I'll add to that, too, Jim is as we go forward, we've been noticing tightening of spreads, also offered, which keeps a more stable pricing as we go forward. We're not seeing the same thing that the car rental industry is, based on what you just said. Given where we were a year ago, we're in so much better position that we'll become a little more selective on what we accept in the lease market as well.

Good. I know, Rocky, you and I have spoken about it in that past. When I look at lease expense, especially given the comment that you're adding medium-sized trucks starting in August, and you had $33 million worth of leasing expense in the first quarter, how should, you know, in broad strokes, how should I model that number going forward?

You'll see there is about a period of about four years where we didn't do a tremendous amount of leasing beginning maybe in 2000 through 2003. We'll have a lot of leases that are expiring both this year and next year, and there wasn't a lot of adds there. If we hadn't done a lot of new leasing, we would have seen that number fall off the cliff. What we'll actually see is just a marginal increase for this fiscal year and the next.

Okay, good. Joe, I do have a question on the preferred. It would be very accretive if the Company were to retire the preferred, at least near term. I take it you see on a pretax basis higher return opportunities for the Company's cash?

We're still under discussion on that. Whether we make a move, I'm looking for something that I feel comfortable with for five or six years. Delaying that, although there's a price associated with delaying that decision, Jim, I'm not real bashful about delaying it until I'm pretty sure that preferred has been with us a long time. It's been a very stable part of the capital structure. And if we're going to get out of it, we'll be out of it for a long time. I can do the math pretty well.

We have access to the funds as you obviously can see. There's some strategic questions and if we can figure out just what they are. It's everything from tax planning, because we're becoming a taxpayer, so we may put our money into buying some trucks. We're just not absolutely positive and my time between now and the second week of September, is totally consumed by trying to rent the trucks and storage rooms. So we'll hit it pretty hard, and to kind of add to Rocky's statement on the leases, my concern all along was, what would be the depth of the market.

In other words, okay, we know how the pricing will be. But what's the depth of the market? And I have been real pleasantly surprised that the market has a lot of depth, so that I don't have to worry I need to keep a big cash reserve or borrowing reserve, you know, in the unfortunate event that the market just doesn't have depth to it. So, given the kind of figures we're talking about, there's tremendous depth in the marketplace. So we're still really absorbing what our position is on a five-year look forward.

Okay.

Joe, I would like to comment to Jim. If you looked at the end of the first quarter, we had a tremendous amount of cash. And what we did is because we have revolving features in our loans, we basically paid down those, and we did some movement around the different facilities we have, to bring down the overall cost of debt. So, we just didn't leave it there investing it. So we basically have done that. While Joe, the Board and everyone else decides exactly what they want to do.

Okay. Well, thank you both.

Thank you, Jim.

[OPERATOR INSTRUCTIONS] We will pause for just a moment to compile the Q&A roster. Your next question comes from the line of Jonathan Feldman.

Yes. The question was, you guys had talked in the past about segregating the results of the storage business separate from that of the moving business. Certainly storage business seems to be doing very well, and the public markets are trading at pretty rich multiples. Do you have any new thoughts in that regard?

I'll answer the question, then I'll let Jason or Gary continue. What we're doing right now is we're breaking up the gross revenue. We're breaking out the management fees. That's as far as we've gone, Jonathan, at this time. I don't see a change in that in the next nine months. I'm -- I have pressure on my people who do this reporting to be consistent, timely and correct.

And I don't anticipate I'm going to change much formatting in the next nine months. We're one of the people who is under this accelerated filing deadlines, and I want to be sure that I don't throw them a curve that makes it so that we have to go into an extension. We went into an extension, as you may know, for the K, and I'm deaf on that. I want the team to perform on time, as we go into this shortened timeframe over the next three quarters.

One follow-up question. Have you determined what you might use with the excess proceeds that you receive from the refinancing, in terms of your thoughts on the various pluses and minuses of, for example, retiring the preferred versus share repurchases? Or even dividends?

Sure. I would say we probably haven't got much further than you could probably outline in a half hour with a piece of paper. As Jim said, we repurchased the preferred [decree of the EPS boom] right away. That's a clear alternative. You can talk on both sides of should you repurchase shares or not. What's positive, what's not positive about that.

Additionally, as I mentioned, there's the possibility of putting more money into direct acquisition, the trucks thereby running the depreciation using them to tax plan. I have got my tax guys are making a pretty good argument for trying to do that. And then I'm kind of a little bit of the person who like to keep growing the business, so I'm looking out and seeing what opportunities are out there. We can't just endlessly sit here and debate it. So we have to do something. I'm not -- I'm not totally uncomfortable with us probably paying a little extra, depending on how you want to argue.

Paying extra for a little bit of money. Given the flexibility it affords us, and the fact that we've had such a whirlwind of different things over the last 30 months, I want to pick a course that I feel comfortable we can execute on and the look ahead, three, five, seven years, something like this, then you can -- you or anybody else who's trying to follow this can kind of have a feeling which direction we're headed.

In short, we're looking at every one of those. There's valid arguments that could be made for any one of them. I don't want to signal that I'm doing one or the other because I'm not there, okay? So don't interpret that I'm signaling something. I'm not signaling. I'm telling you it's a logical decision. It won't be made by me solely. It will be made, of course with the input of different staff people.

Then depending on what it is, we'll at least present it to the AMERCO Board for their feedback on it. It's a strategic revenue tactic at this point, I think. We've been through having to do a lot of tactical things to get to where we are. Now I say enough tactic. Now let's poke out a little bit further on the time horizon.

Thank you.

Thank you, too.

Your next question comes from the line of Ross Haberman.

Hi gentlemen. Very nice quarter. I got on a little late, and I was just wondering if you could address if, in doing that strategic analysis, what your thoughts are regarding the insurance subs, in terms of maintaining them, expanding them, or perhaps closing them down.

I don't see closing any of them. There would be -- closing them would be a sale. There's value, obviously. As I have stated before, and we talked a little bit about it here today, Oxford needs a ratings boost to have a viable business plan. Oxford's scheduled to go into AM Best early this fall, and AM Best will take however long they take to try to come back to see if they get a ratings boost, Oxford can have a business plan.

If they can't get a ratings boost, we're going to have to get Oxford affiliated with another organization that can bring a ratings to it. That's just dollars and cents. That's a foregone conclusion. If they get a ratings boost, we then have the option. Do we continue with Oxford, or do we make some other sort of strategic arrangement with Oxford? Now we've got a choice. We'll have to face that choice.

So, nothing will be decided on Oxford until we hear back from Best. I'm very positive at this point. I have seen where we are. Of course I'm familiar with our business plan. They ought to bump us two notches. They bump us two notches, we're off to the races. If they won't bump us two notches, we'll see where we're at.

Republic Western, we've been systematically reducing their premium volume. You got to separate premiums from assets and liabilities. But their premium volume, we've pretty much shrunk to where it's really U-Haul affiliated risks, in other words, risks we think we understand. It's a very modest amount of money going ahead. It's something like $16 million a year.

So, Republic Western has a finite relationship with U-Haul. What Republic Western really does for U-Haul thats big, is it adjusts our claims. We have a lot of fender-bender things with our customers striking other automobiles over a course of the year. They do the claims adjusting function. We're methodically isolating that claims adjustment function within the insurance company, so that if we decide to do something strategic with the insurance company, it won't affect the claims handling. In other words, there would be no impact on the U-Haul operation. Does that make sense?

Yes.

So we haven't done anything, but we're getting real geared up to do it, if that makes sense. We're getting to where it will be just a choice. There will be no, well, this is going to impact some other part of the U-Haul organization. It wouldn't -- we're doing another one that we're doing here this quarter, is we're doing some more cleanup on the balance sheet of Republic Western, just an asset categorization. It's seamless to you as an investor, but it makes it a much cleaner asset to a third party.

So we're doing a bunch of asset cleanup in there that will again just enhance our options. So I have been trying to build enough options so when I go to my Board of Directors and it's not just hey, we've painted ourselves into a corner, here's what we got to do. I have got three alternatives. Let's weigh them out. Let's see what really makes good sense.

And I believe I'll have that with both of these places before Christmas.

Okay. Thank you. Nice quarter.

Thank you, too.

Your next question comes from the line of Jonathan Feldman.

One follow-up question, Joe. There's been quite a lot of M&A activity in the storage sector. I wondered if you saw yourself as being a consolidator of assets, or if you had any comments on what's happening in the market there?

We're getting a lot of excess borrowing capacity together. That's for sure. That's where I live and breathe. My tax guys want me to buy more trucks. Everybody has -- there's a lot of people vying for what might we do. One of the alternatives is exactly that.

Let's step ahead here, and let's see if we can find an opportunity. You know, these get very, very specific. They're very, very asset-specific transactions, whether we would want to participate. We've looked at the book on -- any of these, that probably hit your radar screen, we've looked at the book on. We didn't jump on them, because we didn't see us putting together a favorable financing and operations plan, given what we believed the seller was going to insist on. But that's constantly changing, and we continue our normal business plan, which is bring in more managed facilities, and more what we call e-move affiliates.

Both of those programs proceeding very healthy. And they may lead to an opportunity. They may not, but they may lead to an opportunity in this consolidation, or joint venture, or some -- these are all different permutations these things come out as. We are very committed to the self-storage business, and if there's a good opportunity that makes sense for the shareholders, and that we believe we can execute on, my plan is to push it hard with the Board of Directors.

Great.

At this time there are no further questions. Are there any closing remarks?

Yes. I want to thank everybody for their support. I look forward to speaking to you again in another 90 days, and I look forward to having timely clear filings. I encourage any of you, if you've got any input, to E-mail it in here. Either care of Jennifer and she'll get to it the right person, or you can send it to myself or Jason or Gary, and we'll try to be as responsive as we can. Thank you again for your support.

Thank you. This concludes today's conference call. You may now disconnect.