U-Haul Holding Co (UHAL) 2007 Q2 法說會逐字稿

At this time, I would like to welcome everyone to the AMERCO second-quarter fiscal 2007 investor call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS).

Ms. Jennifer Flachman, you may begin your conference.

Thank you for joining us today, and welcome to the AMERCO second-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. 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 September 30, 2006, which is on file with the Securities and Exchange Commission.

Participating in the call today will be Jason Berg, Emmerich's Chief Accounting Officer. I will now turn the call over to Jason.

Thank you, Jennifer. This is Jason. I am here with Gary Horton, AMERCO's Treasurer; Rocky Wardrip, AMERCO's Assistant Treasurer. We're speaking to your today from our offices in Phoenix, Arizona. Joe Shoen, our Chairman and Chief Executive Officer, is fulfilling previously scheduled family obligations, and is unavailable for today's call.

Yesterday, we reported second-quarter earnings of $2.74 per share. Included in these results is a $0.20 per share charge for deferred loan costs that we wrote off during the quarter in relation to the amending of our real estate loan. This calculated to an adjusted earnings per share of $2.94 for the second quarter of fiscal 2007, compared to $3.16 per share for the same period in fiscal 2006.

U-Move revenues for the quarter are essentially flat -- this in spite of the fact that we experienced transaction growth in the month of September, ending the quarter on a positive note. Our growth in transactions during the quarter lends further support to our contention that negative shifts in the housing market, gas prices and interest rates do not have a material impact on demand for our U-Move products.

In our last call, we addressed the issues of fleet inventory and pricing in relation to our revenue line. First, let me update you on the status of our fleet rotation. During the first six months of our fiscal 2007, we have placed into service over 13,600 rental trucks and approximately 2,000 trailers, with over 7,700 of the new trucks entering service in the second quarter. The majority of these trucks were to add to the midsized truck inventory. We discuss the inventory shortage and our midsize fleet during the last quarterly call.

We are still planning to bring into the fleet over 9,500 additional rental vehicles during the second half of the year. Meanwhile, our asset retirement program continues to rotate a substantial number of trucks out of the fleet through sales, leaving us with a modest increase in available fleet.

Regarding pricing, we have experienced lower revenue per transaction statistics in our U-Move segment. Several factors contribute to this statistic, including model mix and one-way versus in-town distribution.

I did want to take a moment to expand on the issue of competitor pricing. In several regions of the country, we are encountering questionable competitor pricing strategies. We have found several prices for one of our competitors' one-way fleet where we have not been able to understand their economics. Using their 16-foot truck, which roughly compares to our 17-foot truck, as a point of reference, I have some examples.

From Atlanta, Georgia to Boston, Massachusetts, they allot five days and 1,345 miles for this move, and are charging $0.16 per mile. Going from Denver, Colorado to San Francisco, California, they allot six days, 1,525 miles and are charging $0.13 per mile. Finally, on a move from Portland, Oregon to Los Angeles, California, they allow for days, 1,175 miles, at an $0.08 per mile rate.

This pricing mentality may work in an environment where the assets are held short-term, like what you might find in the car rental market, but our experience over the last 30 years has shown that this does not work in the truck market. You can do some simple math and see that if you run a truck 100,000 miles at this rate, you aren't going to cover the depreciation, let alone generate a reasonable return.

We have seen challenging pricing environments before, and have strategies to deal with this. When possible, we are attempting to exert price leadership. However, in key markets, if our competitors do not follow, we counter with competitive prices.

For a portion of our first quarter and now into the second quarter, we have been addressing these competitor pricing issues, and we believe this has had some impact on our growth in revenues. However, if the aim of our competitors is to gain market share through their pricing, our strong transaction results for the quarter would appear to indicate that this strategy was unsuccessful.

In the quarter, we saw decreases in repair and maintenance costs stemming from the rotation of our fleet, offset primarily by increases in depreciation. As we have mentioned previously, the third quarter of fiscal 2006 was the first time in over 10 years the Company purchased a significant number of new trucks rather than leasing them, this being part of our tax planning strategy. This has had the effect of increasing our depreciation expense.

During the first two years of ownership, via purchase, our GAAP depreciation plus the related interest costs are greater than what the GAAP lease expense would have been, had we leased the equipment day one. We believe that this timing dynamic should be considered in evaluating our results.

Revenues for our storage program increased $1.2 million or 3.8% for the second quarter of fiscal 2007, as compared to the same period last year. The majority of this increase stems from improvements in pricing. Our rentable square feet continues to grow as we build out at existing locations and acquire new locations. We have several projects in various stations of completion or permitting that will come online in the next 12 months.

Earnings from operations for the second quarter of fiscal 2007 were $126.3 million, compared to $128.2 million for the same period last year. Cash and short-term investments, excluding the insurance companies and SAC Holding II, was $298.1 million at September 30, 2006, with additional cash availability from existing borrowing facilities of $346.4 million. AMERCO notes and loans payable were $1.2 billion at September 30, 2006.

In closing, during the quarter, our insurance companies performed according to plan, storage operations continued to add new rooms and increase occupancy, U-Move generated transaction increases and we continued to strengthen our liquidity position through the amendment of our real estate loan. Overall, we had a good quarter that we believe compares reasonably to an excellent second quarter last year. With that, I would like to hand the call back to the moderator to open up our question-and-answer session.

(OPERATOR INSTRUCTIONS). Ian Gilson.

Can you give me the fleet number at the end of the quarter compared to the same number at the end of the quarter last year, the square foot storage and the occupancy rate for the second fiscal quarter?

For the end of the quarter, we are up probably a few thousand trucks over the same quarter last year, and from the end of fiscal 2006. On the owned --

Can you give me a real number?

A few thousand trucks over year end would have been close to 95,000. We reported 93,000 at the end of the year, so a few thousand over that.

Regarding the square footage on the storage, for the quarter, the owned square footage ended at 9,853,000 square feet available, and we were at an 89.2% occupancy rate.

Is there a practical maximum occupancy rate?

When we start to get to the 90% range, it becomes a little bit more difficult to increase it past that, which is why we have increased our development programs, where we are expanding at existing facilities, we're building some new ones from the ground up and we have acquired several properties that we're converting.

Are we more or less complete on the climate changes for the existing system, or does it have some way to go?

Most of the new product that we're developing is climate-controlled. We may have some specific projects here and there, as far as converting or upgrading some of our existing facilities, but our primary focus on the storage side has always been climate-controlled.

Jim Barrett.

Could someone comment -- any changes, positive or negative, in terms of the fleet acquisition costs? I realize you only buy the chassis from the big three, but any change in the pricing of that equipment in the second half?

I'm going to hand that question off to Rocky.

We are aware of an order that we have for 4,000 units in January through March and what the prices are on the cabin chassis. We're still internally trying to quantify the box costs, but it's basically flat with what we had the last run. The last run of production that we did on our 26-foot truck -- due to some savings on the van box costs, actually the overall unit cost was down from what it was the prior run.

So overall, you're not seeing any increase? If anything, it's a drop?

We haven't seen it yet.

Then a general question on pricing. The price data I have looked at shows that in certain cities, your base cost is below budget, but your per-mileage charge is above budget. Can you comment a bit as to how you reconcile that pricing strategy with budget strategy? To what degree does the consumer do the math? Why have you settled on this strategy versus being more directly comparable with what Budget is doing?

You're talking now primarily of our in-town rentals, our (multiple speakers) 29, 39?

Yes.

What we're trying to do -- and we have had this pricing strategy for many, many years. What we're trying to do is to get the consumer to understand that the truck rental prices are affordable. What we are trying to do is maximize the amount on a per-mile basis. By utilizing this form of pricing, we are able to increase our revenue per mile. I would say that we have used it. It works for us. It appears that we have able to enter into markets where people before thought it was too expensive to rent a truck.

I also would add to that, is that convenience of location will obviously come into play there as well. Given that we're roughly probably 3 to 3.5 times larger, maybe even 4, of number of locations than our competitors, we will generally offer better convenience. That will obviously play in the consumer's role. A lot of the pricing talk that you have heard out of the Company really has not necessarily been so much in the local market. It's more in the one-way market.

Can someone comment -- the folks at Avis/Budget just completed a call at 10:00 our time, and they did complain that pricing was down in the one-way market. Can you give us some sense as to how pervasive their low pricing is, or to what degree is it simply an attempt on their part maybe to relocate or readjust their inventory?

We have a whole team dedicated to watching pricing and analyzing pricing, and what we have seen from them in particular is something that we believe to be more than just inventory allocation. On a market-by-market basis, if we see a competitor that has a special or has a glut of a certain truck in that area, we will essentially let them correct their problem and then let rates go back to where they are supposed to be.

We're not seeing that dynamic happen right now with them. These rates are holding over an extended period of time. So in that regard, we have gotten competitive with them on the one-way market in particular, and we will meet or beat their price in most situations. That kind of shows on our one-way transactions.

Last but not least, I take it we're entering a period of time when utilization is down because you're beyond your peak moving period. When does seasonal pricing become most competitive?

Well, everyone is going to be fighting for transactions now through the winter months, so it's fairly competitive now. It has been competitive during the first two quarters as well. However, there's a little bit more demand that we see there. So I guess we're expecting and we're prepared to continue with competitive pricing for as long as our competitors choose to hold their rates where they are at. We're attempting to, in certain areas, raise prices to a rate that supports the cost of the truck and the return. We would hope that they would follow. We have tried this in specific areas, and if they don't follow, we will come back down until they do.

[Gary Kenthoff].

You reported depreciation in the quarter of about $43 million. Was there any substantial gain or loss on truck sales in that number?

We did have a larger sale of pickups and vans during the quarter, and then we also had one property sale that fell in there. It was about $3 million. Otherwise, the box trucks gain or loss period over period is very similar.

I'm sorry, the gain on the property sale was $3 million, is in that number?

Correct.

It looks like net CapEx in the first six months of the fiscal year were about $320 million. Can you tell us what you expect to spend net in the second half, and then can you give us some insight into next fiscal year?

One of the things that we -- on our net CapEx, we are probably for the year -- it's a little difficult, because we acquire part of our trucks via lease and part of it via outright purchase. I would say that we are in the midst right now of upsizing our pickup and van fleet, and we're going to continue on -- the total expenditure through the whole year will be somewhere in the $100 million gross, and probably in the net it will be probably $90 million. We are also --

I'm sorry, that's for the second half?

Overall, we will probably be buying somewhere close to $180 million worth of trucks. I think what we're scheduled to buy is we have put in an order for about 4,000 of the EL size, and those will run about $27,000 apiece. So that gets you pretty close to $108 million. So it should be a couple hundred million dollars, maybe $250 million for the whole year, remainder of the year.

For the remainder of fiscal 2007?

Starting at October 1.

I'm sorry, I missed that.

Starting at October 1.

Okay. I'm still not sure I follow.

For the last six months of the year, even though right now we're in November, that was part of the problem here, is we will be there for the last six months. We will probably due somewhere in the neighborhood of $180 million to $200 million. For pickups vans, we will probably have some locations that we build and will buy, and we will have some trailers that we add to it.

So $180 million to $200 million net?

That's probably a gross number, and probably the net basis you may have another $50 million of sales.

Can you give us an insight into fiscal 2008, what we should be thinking about in terms of the range?

I think we carry that into -- we have shown that in the 10-K's and 10-Q's.

You're talking about CapEx going into fiscal 2008?

Yes. For 2008, what should we be thinking about in terms of the CapEx budget, net cash out?

Our last projection on that is we're still looking at it in the $340 million range, gross, before sales. We have not revised that yet. Now, we're going into our Fleet plan for next year, so that could change over time. But as of our last guidance on that is we're still looking at about $340 million going into next year.

Can you give me some ballpark sense of what you would need to spend on an annual basis, just to maintain the Fleet that you'll have in place at the end of the fiscal year?

I think we estimate that number to be close to $150 million to $200 million a year for a maintenance CapEx budget.

[David Post].

I've got a follow-up on the gain-on-sale question. It looks like operating income rose pretax in the quarter by about $0.13 because of the gain on sale of used equipment. Compared to last year, in each quarter, you had a loss on sale kind of in about the same range, about $0.13 a quarter. Where do you think you will be going forward? Do you think you'll have gains or losses?

On the property, I would not project in any gains from sale on property. That's fairly unusual for us. On the box trucks, you are not going to see that number change much; that's a fairly steady number. I know that we're still keeping a fairly aggressive path on our asset retirement program, which is essentially the sale of trucks. So if we surpass our goals on that, you could see a small change in it, but you shouldn't see that great of a fluctuation in it.

So essentially no gain or loss, probably, over time?

You'll have a little bit that will be caused by attrition ever year, just from vehicles that or lost or damaged from accidents, et cetera, but it should be close to breakeven. That's what our objective would be.

Another question on the competitive environment. Though it appears that Budget lost share in the quarter, just looking at some Census Bureau statistics on the number of units in the US rented and sold each quarter, it looks as though, actually, both U-Haul and Budget lost some share, obviously them more share than you, according to that government data.

To what extent do you think you're experiencing competition from that portable on-demand storage industry? Like PODS, the biggest competitor, has more units than U-Haul actually has trucks.

That's a little bit different dynamic. It is a product that's within our -- it's kind of a cross between our moving trucks and our storage product. In certain moves, that may be an effective way to move. I don't think that we have necessarily seen our revenue numbers impacted heavily by that yet. It is a market that we're watching, and we are well aware of it. But I guess we haven't seen enough yet to say that our revenue has been impacted by it yet.

It looks like in the local moves, probably you're much less expensive than they are. But in the longer, 700 mile or so moves, they seem to be comparably priced.

Again, we are looking very hard at it, because it could be a change in the mode of moving. But again, with franchisees, it's a little bit difficult to move one way, utilizing PODS.

There are no further questions at this time.

I would like to thank everyone for your support, and I look forward to talking to you at our next scheduled communication. Thank you.

This concludes today's teleconference. You may now disconnect.