U-Haul Holding Co (UHAL) 2007 Q1 法說會逐字稿

At this time I would like to welcome everyone to the AMERCO first quarter fiscal 2007 investor call. (OPERATOR INSTRUCTIONS). Ms. Flachman, you may begin.

Thank you for joining us today, and welcome to the AMERCO first quarter fiscal 2007 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, as 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 30, 2006 which is on file with the Securities and Exchange Commission.

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

Good afternoon. This is Joe. I'm speaking to you from Fredericksburg, Virginia. I also have Gary Horton, AMERCO's Treasurer; Rocky Wardrip, AMERCO's Assistant Treasurer; and Jason Berg, AMERCO's Chief Accounting Officer on the call, and all of us will be available to answer your questions.

The first quarter earnings came in at $2.50 a share. Our gross revenue for the Moving and Storage segment increased 7.1 million, or 1.4%, compared to the same period last year.

Certain of our competition has indicated publicly that they have experienced softness in the truck rental business. We have not seen any such evidence in our self-moving business demand. For years we have tried to correlate macroeconomic indicators to the demand, and we have never seen a valid correlation between either housing starts, apartment starts, gas prices or interest rates to our revenue line. We are, however, in a consumer business and we would prefer a good housing market, low gas prices and low interest rates for our customers. Overall, when customers are squeezed, of course, it is a little bit tighter market.

U-Move revenue alone increased 6.0 million in the first quarter to 407.2 million. And that's about a 1.5% increase in the first quarter of '07 compared to the first quarter of '06. Last year in the same quarter we increased 11.5 million, or about 3%, compared to the prior time period. Based on that map we ran about $6.1 million off of last year's first quarter's pace.

The midsize portion of our fleet did not contain as much inventory as it did the prior year. We were down the approximately 5,500 tracks in that model. As we spoke on these calls, we produce trucks and bring them in and generally we get 5,000 to 7,000 of a particular size. And we ran large trucks and built them well into the first quarter.

We have been building medium-sized trucks since about the second week of June, and we're adding those trucks at something approximating 420 units a week. In the first quarter we manufactured a total of 3,100 rental trucks and 1,700 trailers, and we are on goal for our production of medium-sized tracks presently.

In the quarter the decreases in repair and maintenance expense were largely offset by increases in depreciation and lease expense. Lease expense, again is primarily related to trucks and trailers, increased 4.4 million for the first quarter of fiscal '07 compared to the same period in fiscal '06, due to the gross amount of equipment under leases, not because of an increase in the cost of leasing.

Offsetting the declines in repair and maintenance -- this offset the declines in repair and maintenance related to the -- I apologize -- an additional offset to the decline and maintenance and repair expenses was some reimaging we did of some trucks and some hitch installation which ran in the neighborhood of $2.5 million for the quarter.

In the Storage section of our business, revenue increased 1.7 million, or 5.8% for the first quarter of fiscal '07 compared to the same period last year. Our available rental space increased about 242,000 square feet for the first quarter compared to the same period last year. And that is about a 3.5% growth. So you can see we had some occupancy growth and a little bit of rate growth in the quarter. We are continuing to pursue expansion of existing facilities, and we are selectively acquiring new locations.

The final number I would like to go over with you is one that Gary Horton has tried to focus all of us on for years, and that is our equivalent of cash flow, which we call EBITDAR. So it is earnings before interest, taxes, depreciation, amortization and rentals or lease. So it incorporates our track leases. For the two comparable periods last year our EBITDAR was 180.1 million, and this year 187.6 million. If you took the lease out of it, which we don't recommend you do, but if you did, you would have EBITDA for the same two periods was 146.8 last year and this year, 149.8.

All in all, I think we had a good quarter. It is a competitive marketplace. I talked about that a little bit in my letter that accompanied the annual report this year. We are absolutely in a marketplace that is full of competent, well-financed competitors. And we are fiercely competitive ourselves. And it is a competitive marketplace. But overall we know what we're doing here, and I think that the quarter, while I understand it was apparently disappointing to some people, it is well within the range of expectations. And with that I'm going to open this up for questions.

(OPERATOR INSTRUCTIONS). Ian Gilson.

I have a question regarding the maintenance expense. I think I read that the reduction in maintenance expense offset the increase in lease, plus the increase in interest expense. Is that correct? Thus 2.5 million other expenses.

I will let Gary or Rocky --.

I think the statement, Ian, was partially offset the declines in depreciation and interest. The one thing that Joe pointed out is that on the maintenance there was an increase in the cost caused by us writing off the reimaging or imaging of some trucks and adding hitches to our smaller truck.

Would I be correct in saying that if I look at that, I'm looking at about $7 million in maintenance savings. Is that year-over-year?

That would be quarter over quarter for this year and last year. Yes.

(OPERATOR INSTRUCTIONS). Jim Barrett.

Joe, could you, if you didn't speak it already, would you comment on your general current thinking on pricing -- price competition within the industry?

Sure. And I will assume you're talking about U-Move, or did you want me to talk to storage also?

Actually, if you could talk about both that would be --.

Okay. Let me start with self-storage. In self-storage in the big number you see we got a little bit of price increase. Pricing in the self-storage business is kind of coming down to the level of service that is provided. In other words, if you can add some service features to the customer you're getting price increases, but you're not getting pricing increases just because you are there. Does that make sense?

Yes.

We got some price increases. When we do our pricing on storage we actually do it by room type or room size by location. We don't put through an increase in all 5 by 5s or all 5 by 10s. It is 5 by 5, climate controlled to a specific location.

And we're constantly benchmarking the competition, and I think that what we're experiencing is just pretty typical, which is that as you increase services or amenities, however you want to phrase it, things that the customer likes besides just the physical location, you're going to see a little bit of price increase still coming through, and we saw that. Although there can always be a specific location, because storage is so geographically specific, you could get into a competitive spiral -- a negative one at a specific location. I can't recall one we're in right now. But that doesn't mean there isn't three or four storage across the country where we have that sort of a negative thing. But generally speaking, we're getting increases as we increase the service to the customer.

In the truck rental it is a little bit more -- again, kind of ephemeral. I have spent a lot of time over the last 90 days working on this subject. And I am kind of informed right now. But it takes a long time to really get fully absorbed in the pricing. I would say our pricing was probably down a little bit in the last 90 days. And I think that some of that was by design. And you'll see our pricing hopefully kind of inch up over the next 90 days. In fact, it probably is already starting to inch up.

But again it is going to be very specific and very selective. There has not been any sort of thing like wholesale price cutting or something of that nature. But I think we let prices kind of edge a little bit higher than we should have, and we have backed them off just a little bit. And we're coming back a little bit more fine-tuned, and we're getting the price where we should get it, but we're not making as generalized an increase.

Jason or Jennifer, stop me if I get off too far, but in what you see of course is the mix of transactions, pricing and then all the models. When you see a revenue number, you're getting quite a -- it is like homogenized milk by the time you get to see the numbers. What you are -- I see the numbers weekly. I don't see them really or study them quarterly.

But we are probably going to see through to this quarter we probably had a little bit of softening up until now. Further softening from what you saw in the first quarter. And I expect we will see some firming and some upswing in the second quarter. How that will blend out in a final number at the end of September, I don't really have an absolute projection on that.

But I think that what we are seeing is this is -- it bottoms a little further than what you saw in the first quarter and it is on the upswing now. And then you'll get -- we will publish a number at the end of the quarter that will kind of be an amalgam. And if things go the way I believe they will go that we will be on the upswing certainly by September, if we're not on the upswing now.

Transaction data, which is what I see on a very, very current basis -- transaction data we are already on the upswing. I think that has a little bit to do with demand. In other words, it is telling us demand is still solid. Whenever I see a softness in overall revenue the first thing that runs through my mind is, oh, my God, don't tell demand is off. So I probe that in many markets across the country.

I do not believe demand is off. But there is some price elasticity out there, and then there is of course service elasticity. If we're not doing as good job for one reason or another, well, than the customer, they have other choices. I would say we tend to pricing and service both all through this quarter and it is starting to -- it is already showing in transactions, and I would expect it to start showing in revenue.

I was off the call for a couple of seconds, but given what you have just communicated, is it reasonable -- do you folks think you're getting marketshare at the expense of Budget, given what they are saying?

It is really hard to answer that question in a fair way, because -- maybe, maybe. We are really targeting not Budget so much as the owned and borrowed, Jim, as you know. And it is pretty hard for me to say I've got a transaction increase and it came at Budget's expense. I make say that over a 12 or 18 month period. I might be able to see that with some accuracy.

Everybody has a lot of things going on in their business. And I'm sure the Budget organization, in addition to their other financial transactions as they reorganize their division, it has all the same opportunities we do, which is distribution, maintenance, advertising. It has all those things. So there is a lot that goes into that mix, and I'm not privy to what might make them -- this statement.

Apparently then I have read some statement they made that demand was softened or had softened. It has not been our observation. Consistently our observation has been, when we are not the customer's best alternative, the customer finds other alternatives. And that could be owned and borrowed. You see? You can drive customers back into the owned and borrowed segment out of the rental segment.

We're constantly trying to finesse them out of the owned and borrowed and make them repeat customers, and get them into a buying pattern of when they want to move something they run down to the U-Haul guy or gal and rent something.

The fundamental demand I don't see any problem with. But in retrospect I wish we had done a better job in February, March, April because it would have reflected a little bit in April, May and -- I believe we have been doing a good job June and July, and I would hope it would reflect favorably now coming in through September.

But how all the numbers will shake out, we don't predict. I really don't have 100% confidence, other than transactions. And transactions I can see and they are a pretty hard number. In other words, it is pretty hard to have transaction data not reflect moves. I see that data, and that data is firmed up. And our transaction increases are actually better than they were this time last year. But we have to turn that into a revenue number, you see, and there is many a slip between the cup and the lip. We have our hands full, but this is what we do for a living, so I would expect we will bring it around.

Ian Gilson.

In the fourth quarter conference call you mentioned that your fleet mix had improved at the larger truck end.

Yes.

And you also did mention a few minutes ago that you were short in mid-range trucks. Does that mean that on a first quarter to first quarter basis the actual number of transactions declined?

It didn't decline in absolute numbers, but the relative growth was less. I'm saying that from memory, because I don't normally see -- I normally see transactions weekly or daily. But I know the trend all through the first quarter. The trend all through the first quarter was that transactions were down to my expectation, which is different than what I saw for the last six weeks. And I was working full-time on transactions. If you need to talk to the first week of June or something, I'm working on transactions. And transactions have now responded, and now I need to work on revenue. That is the way I look at it. I don't know, you may look at it differently.

As you know, I have been modeling the fleet for a number of years. And given the changes during the last fiscal year on revenue, looking only at rentals of course, it would have appeared that at a 1.5% increase in revenue first quarter '07 versus first quarter '06, and the mix change that you had spoken about, that your transactions were at best flat for the quarter as a whole.

I would say that that would be probably accurate for in town transactions. They are the smaller dollar ones. But we still had a little bump on the long way.

Regarding the -- on the fleet mix versus the U-Haul dealers, Company-owned and the independent dealers -- how does that work regarding size? Do your dealers normally have a larger proportion of the large tracks versus the Independents, or is it just mixed all over the place?

That is a very telling question. It is hard to generalize on that, but I can give you a trend that I have been fighting now the better part of 18 months, and that is there is a tremendous movement of people who are selling a residence, packing up everything they own and moving to a location that has a lower buy in for the same quality deal. They are like early retirees or something. I can't tell you what -- how they plan to make a living, but these are people in their mid-50s who have accumulated a lot of things. And then moving to communities in states like Idaho, or they are moving to -- believe it or not they are leading Fresno, California, which you might consider semi-rural, but they are leaving Fresno and going to places 40 miles outside of Fresno.

And when they do that, they take a big truck with them. And the destination where they drop is more likely going to be a dealer -- a U-Haul authorized dealer rather than a U-Haul-owned location, because of course the communities are so much smaller. So we have had a steady fight of big tracks going to smaller population-based areas. And it is a demographic, and I can't totally explain it, but I think if you think you probably anecdotally know some people who have done exactly this.

They have left Southern California and gone to someplace that is relatively rural. And they took all their things with them, and they are likely to be there for 15 years. So there has been a steady trend where the big trucks try to go to the smaller locations, which by definition are less productive. You can intuitively judge that.

We're working that. It is not a catastrophe or anything, but I think that is a very telling comment you're asking about, because you're seeing into the business. And we're trying to manage that. It is not going to respond to just one answer. We have to have many answers for these people to try to work this out so that we keep the equipment real productive. And we've got some of these big trucks now, and we want to keep them real productive because they are good revenue drivers for us.

So the answer to your question is it is all mixed up, but there is this under trend of these big trucks trying to go to less populated areas.

(OPERATOR INSTRUCTIONS). [Michael Tennenbaum].

I just had a question. You had a really nice increase in cash flow from operations from the previous year. And I just noticed that 74 million of that change had come from other assets and related party assets. I was wondering what those two items are and why they improved so much?

Jason or Rocky, one of you want to grab that?

This is Jason. Two large items in that. This year we had a $30 million interest payment from stock holdings for interest that was accrued. Then last year we had a refinancing of the debt that we had some prepaid costs that went out of cash flow. So excluding those numbers, we were still up, but that accounts for about 44 million.

Arthur Winston.

Given the cash flow in the first quarter, and now we get into the bigger quarters, do you think that in the absence of an acquisition or something like that, that the cash debt situation will be appreciably more favorable and attractive at the end of the fiscal year then when this fiscal year started?

Gary or Rocky.

Based on what we're looking at without a major expenditure acquisition, the cash and availability will potentially increase over the year. Again, that is looking at not acquiring too many of the storage locations and so on and so forth, which Joe alluded to a little bit ago, that we will be buying some of those properties. And again we're using some of our cash to buy our trucks.

(OPERATOR INSTRUCTIONS). Ian Gilson.

Just one last question. In the fourth quarter conference call you had mentioned about adding small trucks because the fleet was somewhat imbalanced. Where are you on the progress of that, and where would we expect to be at let's say the end of the second quarter?

We added 1,000 small trucks, and I think they all went in before the end of June. Jason, is that correct? So that they are all in the quarter.

We added close to 3,000 large trucks and --.

And we bought 1,000 TMs.

Yes, I think the 1,000 TMS were in before June, Joe.

Oh, they are in quarter two?

No, they are in before June -- in before June.

I thought they were in before June, yes.

They are.

But are you adding more small trucks?

We don't presently have the intention to do that. Now the capacity is there with the automaker that if we wanted to, we can do that -- GM. But presently what we're building is what we call our 14 foot truck, and we're building about 420 a week when we have a five-day work week. Our expectation is that we will be adding those steadily between now and Christmas anyway.

The other thing, Joe, that we have also done during this period -- I'm going to say on the small special use truck is on the pickups and vans we have also increase those. However are they all in, I think that is the other side of the small truck equation.

We have increased our fleet of pickups and vans, and it is still increasing a little bit. And we're probing that market. As you recall, we turn those vehicles annually. So if we don't get the response we like, we will reduce that fleet through the winter. But right now I think we can support a larger fleet there.

There are no further questions. Do you have any closing remarks?

Again, this is Joe. I would like to thank everyone for their support. Fundamentally our business is doing great. I look forward to this second quarter being a good quarter. And I look forward to talking all of you at that time.

That concludes today's AMERCO first quarter fiscal 2007 investor call. You may now disconnect.