U-Haul Holding Co (UHAL) 2008 Q2 法說會逐字稿

Good morning. My name is Crystal, and I will be your conference operator today. At this time I would like to welcome everyone to the AMERCO second-quarter fiscal 2008 investor conference call. (OPERATOR INSTRUCTIONS). Thank you. Ms. Flachman, you may begin your conference.

Thank you for joining us today, and welcome to the AMERCO second-quarter fiscal 2008 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, 2007, which is on file with the Securities and Exchange Commission.

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

Good morning. This is Jason. I am speaking you to you from our offices in Phoenix, Arizona. Also on the call with me are Gary Horton, AMERCO's Treasurer, and Rocky Wardrip, AMERCO's Assistant treasurer. Joe Shoen, our Chairman and Chief Executive Officer, is unavailable for today's call.

Yesterday we reported second-quarter earnings of $2.39 per share compared to $2.74 for the same period in fiscal 2007. I would like to remind everyone listening that the second quarter of last year included a $0.20 per share charge for deferred loan costs we wrote off in relation to the amending of our real estate loan. This calculates to an adjusted earnings per share of $2.94 for the second quarter of fiscal 2007.

eMove revenues for the quarter decreased $5.9 million. We're still experiencing a negative trend in one way revenue per transaction, resulting primarily from softness in pricing. Additionally one way transactions continued to lag behind last year's results. Within the quarter we have seen instances of improvement in this area, but not consistent enough for us to believe that we are out of the woods regarding this issue.

We're continuing to refine the new rate setting system implemented in July. Early results are showing some improvement.

It is worthwhile to note that our in-town moving business continues to show transaction and revenue gains. However, since these are smaller transactions individually in terms of revenue, improvements are less pronounced in our results.

For the quarter total truck rental transactions, including both one-way and in-town, are up compared to the same period last year. We continue to perceive concern from the investment community regarding the effect of the housing market on-demand for rental equipment. Our view on this remains unchanged. While a positive housing market is preferred, we do not view these conditions as leading to an assumption that demand for our products and services is reduced. Our organization is focused on finding ways to better serve the customers who are available. This includes a portion of the market which for one reason or another has not previously utilized our rental equipment. We commonly refer to this market as owned and borrowed and believe that there are opportunities still available to us here.

Approximately two years ago we initiated an aggressive suite rotation program designed to inject a significant number of new trucks into the fleet. Since that time we have placed into service nearly 40,000 box trucks, and we have doubled the average size of our pickup and cargo van fleet.

During this quarter we added over 4000 new box trucks. Given the seasonality of our moving business, our production schedule is geared more towards the first six months of the fiscal year with production leveling off in the second half. This accelerated pace of fleet acquisitions over approximately the last three years was due largely to several years before that lacking our typical rotation activity. The pace of acquisitions over these last few years has been greater than what we would have expect under a normal fleet maintenance schedule.

In the quarter we saw decreases in repair and maintenance stemming from the rotation of our fleet. During the fourth quarter of last year and the first quarter of this year, we saw some of these savings partially offset by increased spending during the implementation phase of our new computer paced repair and maintenance inspection program. With a large portion of the fleet already through the first electronic maintenance check, these costs should reduce over time, resulting in greater recognition of maintenance and repair savings resulting from the newer fleet.

Revenues for our storage program increased 2.1% for the second quarter of fiscal 2008 as compared with the same period last year. The majority of this increase stems from improvements in pricing. During the quarter we acquired two storage locations that added over 127,000 square feet to our portfolio, along with several of our own construction projects adding just over 70,000 square feet during the quarter. Our average number of rooms occupied is up nominally over last year and last quarter; however, our occupancy as a percentage of total rooms available to rent is down 2.7% from the second quarter of fiscal 2007.

Our quartered occupancy statistics consider all available storage rooms, and we do not adjust for same-store comparisons. While a portion of our occupancy rate decline can be attributed to the new rooms coming online during the year, we are also seeing some effect of the organization's focus on the truck rental revenue issues reducing focus on our storage programs.

Earnings from operations for the second quarter of fiscal 2008 were $109.1 million compared to $126.3 million for the same period last year. The most significant drivers of this decrease continue to be depreciation expense and eMove revenues. Cash and short-term investments, excluding the insurance subsidiaries and SAC Holding too, was $185.2 million at September 30, 2007 with additional cash availability from existing borrowing facilities of $353.3 million.

Additionally we have $94 million in escrow accounts set aside to fund the remainder of the fiscal 2008 fleet acquisitions.

AMERCO notes and loans payables were $1,452,000,000 at September 30, 2007.

In closing, we had another tough quarter for eMove revenues. We're now heading into the slowest half of the year, and we will see what the weather brings us. Last year was relatively mild, so any deviations from that this year could impact our upcoming results.

Looking ahead, we hope that the incremental transaction and pricing improvements we have begun to see will continue. Also, our current liquidity position enables us to address both customer service and growth opportunities as they arise. This is our primary business. We have no choice but to continue to reinvest in it.

And with that, I would like to hand the call back to the moderator to open up our question-and-answer session. Moderator, do we have any questions yet?

Jim Barrett.

When you look forward and you mentioned in the Q how much you are spending on CapEx over the next three years and when you specifically look at your maintenance and repair expense, is there a point in time in the future when given the expected age of the fleet that you would expect a certain drop in your maintenance and repair?

In other words, you have 40,000 new trucks now. You have 100,000 truck fleet. How does the composition of that fleet look in two or three years relative to what you are spending on repair right now?

I alluded to it in the prepared comments. I think we're starting to get to the point where we may be able to return to more of a maintenance schedule for our fleet acquisitions. Whereas the rate of growth and the number of acquisitions of new trucks that we do could slow down. At that point, when we get back onto the fleet acquisition schedule, more of a maintenance schedule, I think the savings that we see from adding new trucks to the fleet will taper off over time.

Well, is the -- returning to more of a maintenance schedule, Jason, is that consistent with spending a net $400 million per year for the next three years in capital expenditures?

It is relatively close. That is assuming the same level of pickup and cargo van acquisitions. So that is real close to a maintenance schedule.

And to address your point on the repair and maintenance expense, just to clarify, when we are back on a normal maintenance acquisition schedule, the repair and maintenance cost reductions that we see -- that we're seeing now from upgrading the fleet, those savings will begin to decline.

In other words, you have fewer savings going forward?

We will have fewer savings related to putting new trucks into the fleet. There's always programs looking to improve efficiencies in the repair and maintenance process. What we're seeing right now in savings is primarily from putting new trucks into the fleet and taking out the older trucks.

So when we look forward at the operating expense line for moving and storage, should we assume that that increases with inflation, or is the Company possibly anticipating a flat to reduced number on that line?

I would think that the repair and maintenance portion of that line is likely to continue to decrease slightly over at least the next two years.

Ross Haberman.

Could you talk a little bit about the pricing you are getting on the storage spaces, what kind of trends you are seeing there and your expectations there?

We have had a relatively good pricing environment on the storage side. Over the last I would say nine months encompassing the calendar year, we have been able to get some rate increases through on average in the 4% to 5% range on maybe half of our storage locations.

Basically all of the revenue increase that you are seeing in that line right now is due to pricing increases at some of our more mature facilities. Our opportunity here is going to be to get back some focus to these programs and increase the occupancy at these. Although I have not seen anything or heard anything yet that we're running up against a wall on the price increases.

So you can raise it next year 3% to 5%, or what is your expectation?

Well, that is going to depend a lot upon the occupancy at the individual locations, as well as the local competition. What we have seen over the last nine months and perhaps even looking back to last year is that 3% to 5% has historically been something that we have been able to get to as we ramp up services at these locations. And right now I cannot say that I have seen anything that would say that that could not happen next year, but it is really going to depend on a location by location basis. And if we can push our occupancy numbers up, then that does give us the ability to adjust rates.

And I am sorry, I just missed it. What were capital expenditure expectations for this fiscal year?

For this fiscal year, I think we said that we were going to spend at least $400 million on trucks, somewhere in the I think 50 to $80 million range in real estate, property plants and equipment, and we're on pace for that right now.

(OPERATOR INSTRUCTIONS). [Gene Koh].

Just as a follow-up on that CapEx, is that $400 million net of sale of fleet as well?

Yes.

Jason?

Yes?

I think that in there that is the gross expenditure, and that would be offset by the sale, primarily of pickups and vans.

In the past I think you had said that -- my understanding is that the stock buyback program expired in October. If that is correct, do you have any plans to revisit that buyback program in the future?

Gary, do you want to respond to that?

We actually have about $35 million remaining, and I believe that it is something that we will be looking at through the next quarter and looking at it going back into the market if it makes sense at that time.

I think it was $32 million, which was the amount left unused when the program expired to clarify.

Jim Barrett.

Jason, can you give us any details as to how your new pricing software is benefiting the managers in setting price? Just how does that work?

I'm hesitant to get down to the flat level of detail. I have not necessarily been out there sitting next to them. I have had some high-level discussions with the people who have been implementing it. The sense that I get from them is that it is really still in its infancy and that there is a lot that there are still learning about it, and we do have quite a ways to go before they are fully utilizing it. So I don't have a lot of color that I can provide you on that one, Jim.

Alternatively relative to our last conference call, it is management more or less optimistic that this software will be effective? Or has there been any change in the prospects of the software aiding the pricing picture?

I don't get a sense that anyone has lost any excitement about it. I think that there is -- it is a tool that is evolving, and I still get the insight from people that there is a lot of excitement around it. And we have seen some improvements on it, and it has led to some successes. But I don't think that we are at a point where we're going to say that it is a complete success, but there are no plans to stop using it.

Has it been expanded across the country, or is it still geographically used?

No, it is used throughout the country now.

Okay. And then on an entirely separate subject, could you talk about used trucks for a minute? In the current economic environment, a) it looked like you sold a lot of property according to the cash-flow statement. But used trucks specifically, is the demand up or down? Is the price realization up or down or the same? Could you comment on that?

Sure. The sales of used trucks has been brisk. It has been well above last year, somewhere on the order of 15 to 20% over last year. So the price that we're getting for them really depends upon the era of truck that we are selling. So now we are moving into some trucks are a little bit newer than what we have been selling over the last few years. But we have not seen any weakness in that market yet. The box trucks again are up approximately 20% from last year, and then our pickup and van sales are also significantly above last year.

Ian Gilson.

Joe, do we have any idea as to how much the discounting has cost in lost revenue, if you like, looking at last year versus this year? And have we got any sort of view as to how long that level of discounting will continue? What would have to change for it to get back to a more normal pricing environment?

You know, we are expecting this whole cycle over planning on perhaps a three to five-year cycle of pricing is what our team has seen in the past. So that is kind of what we're prepared to deal with in this case.

As far as an exact number of how much it has cost us as far as discounting goes, if you look at our total transaction numbers being up a couple of points overall, you could take the difference from last year to this year and say that it cost us at least that much. I don't have a better number for you than that.

And going forward? Getting better? Remaining the same?

Well, you know we are going to start running into a mathematical situation where we are going up against a second half of last year that was not terribly good. So we may see some improvement just based upon it was not very good last year, so it should look a little bit better this year. And, as I mentioned, we have seen instances where we have had spots within a month a few weeks at a time here and there where we're running up over last year. So that is encouraging, but again it is not enough where we think we are out of the woods yet.

Okay. Thank you.

(OPERATOR INSTRUCTIONS). [Michael Tannenbaum].

I have a question regarding operating expenses. It appears that they rose only 1% in the quarter versus almost 5% each of the last two quarters. And your comment or Joe's comment made on the last quarter was that they would rise 3% to 4% for quite awhile over the next few quarters. What do you attribute this slowdown to and increases in operating expenditures?

You mean the reduced increase that we saw? I think we are 50 basis points over the second quarter of last year. Moving into this quarter, I mentioned one of the largest things that affects our numbers is the repair and maintenance costs. And those numbers, the first quarter of this year and the fourth quarter of last year, we implemented the electronic paste repair and maintenance inspection system. In putting a large piece of our fleet through that system in the first -- in those two quarters led to some repair and maintenance costs getting compressed into those two quarters.

Now that we are kind of past the bulk of the fleet going through that program, we don't have that extra glut of repair and maintenance cost for that. So now we're going back to seeing some of the savings from putting the new trucks into the fleet. So it looks a little bit more like what we saw last year in this quarter.

Okay, great. And I had an insurance business related question. It seemed like the profits were about 18% revenue, and that has been the highest margin in the last -- in recent memory. Does that reflect the change in profitability or some onetime benefits?

It is more of a change in profitability. There was not any significant onetime issues at either of the insurance companies. I think you are seeing probably the bulk of that coming through in some more reasonable experience from Republic Western. Whereas in previous years they have had some negative developments in the reserves, we are at a point now where we're a little bit more comfortable with those reserves, and we have not seen the same level of negative development. So it's the level of revenue that they have. Any increase in their loss ratio really tends to spread that operating margin quite a bit. I think that is what we're seeing there.

Okay. And then I had one question about pricing which had just been asked. Budget Truck had seen kind of an acceleration in pricing going down in the last quarter from the previous year, and I was kind of wondering why even with easier comps why you think the situation is going to improve?

Well, I have access to our data. I do not have have access to detailed breakouts of theirs. You know they have three segments and one of those being commercial. For us we're primarily residential moving. And just from what we have seen over the last three months and continue to seek is that we have seen some incremental improvements that if you compare the quarter, the six months or the trailing 12 months, the trends, while still negative on revenue per transaction, have been getting better. So we're continuing to push that.

Okay. I guess that is it. Thank you.

(OPERATOR INSTRUCTIONS). At this time there are no questions.

In closing, we would like to thank you for your continued support and interest and look forward to our next scheduled communication. Thank you.

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