U-Haul Holding Co (UHAL) 2008 Q4 法說會逐字稿

Good afternoon. My name is Erica, and I will be your conference operator today. At this time I would like to welcome everyone to the AMERCO fourth quarter and fiscal 2008 year end conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there is be a question and answer session. (OPERATOR INSTRUCTIONS) Thank you.

Ms. Flachman, you may begin your conference.

Thank you for joining us today and welcome to the fourth quarter fiscal 2008 year end investor call. 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 10K for the year ended March 31st, 2008, which is on file with the Securities and Exchange Commission. Participating in the call today will be Joe Shoen, AMERCO'S Chairman and CEO, and I'll now turn the call over to Joe.

Good morning, thank you, Jennifer. I'm speaking to you from our Phoenix, Arizona, offices. I have Jason Berg here in the room with me, and Gary Horton and Rocky Wardrip are connected on the phone from Reno. They will all be available to answer questions at the end of my remarks. We just reported on what in retrospect was a tough year for rentals. There continues to come to me speculation that increasing residential foreclosures are conversely decreasing home sales are significant drivers for our moving and storage business. Our analysis indicates that, on the contrary, while general economic conditions affect our business, that those two specifics are not really measurable drivers. Our belief is that we're affected by general economic conditions and then our own level of performance. So I look forward to us faring well this coming year in a tough market.

Sustainability is a word that's all over the news. The candidates are all mouthing it. We're trying to make sure that we're positioned properly in that discussion. And from a macro viewpoint I believe our rental business clearly enhances the sustainability of the communities we serve. U-Haul truck and trailer rentals are a relatively efficient method for the occasional transport of household goods. We're working to communicate this fact and to position U-Haul as part of the solution and not part of the problem. As more government intervention becomes a reality it may be important how we are viewed. Although presently, there's not enough specifics for anybody to get their teeth into. You're all seen the numbers, both our insurance companies performed close to plan and they both are performing close to plan as we go ahead.

I think the truck and trailer rental business will stay tough during the year ahead, because I think general economic conditions are going to be basically tough on the year ahead. We plan to continue strong truck and trailer investment over the next six months at least. We've been working to position our fleet. I believe our fleet presently is in as good condition as I have ever seen it in 25 years. Likewise we plan to continue steady investment in self-storage. This remains a solid industry in a -- part of the foundation of the company. With that, I'll go ahead and go to the question and answer session. Moderator?

(OPERATOR INSTRUCTIONS) We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Jim Barrett.

Good morning, everyone.

Hi, Jim.

Joe, a question for you on pricing. There was some mention that there was incremental improvement. Is that more a function of the competition easing back, or do you attribute that to your new rate system or a combination of the above? And is it continuing into the summer?

It's a combination of the above. My -- it should continue into the summer. We're still learning our rate system. It's going to take us -- it's quite a little learning experience. We're still learning it. As we learn it, we find little pockets of opportunity. I think that the budget organization has backed off a little bit on just less than full cost of the pricing. I think they've backed off on that a little bit. And we've been trying to communicate that to them very strongly. Because we believe that of course, that it serves no one, including the customer, Jim. The --

Right.

I'm not in any -- as you know, I don't have any pipeline to them particularly. And there's a lot of prices up there. But I worked really hard starting about in January for -- to tell my fuel people float the price up and give them at least a month to match the price, just in case they don't get it. In other words -- And so I feel [forced thought that] they gave away a little bit of transactions by doing that.

Right.

But I think that if we communicated that we have a genuine willingness to see a little bit of price increase that it would benefit everybody, including ultimately, the customer. So I think it's a little bit of everything. And -- but not -- no one thing that I could give you a benchmark or something that would be easy for you to ascertain. At the same time this whole fuel thing is in the news and everything. And of course, all our trucks burn fuel.

Right.

So in an immeasurable way that probably made consumers possibly more price sensitive. I don't have anything concrete on that. And we're of course, every day talking with customers to ask about fuel economy or MPG, and as I think I reported to that group, we began putting fuel economy gauges in our new production trucks about this time last year. This thing -- was obvious this was coming. And that's been reasonably well received by customers. I had -- in the last two weeks a truck and had his young son and the whole trip his son get goading him he got out of the green field economy -- So that drives our customers, their kids talking to him. They appreciate it. The father reported it in a positive manner. He thought we were trying to be at least on his side in this deal. So there's a number of factors all coming together.

I think what it's going to do is make for a hard market. It's going to be an opportunity for us to keep the prices from dropping back down. Always in the summer -- it should be the easiest time to hold prices because of course demand the greater. The real test will be next October if people get skittish again. And I'm committed to being very deliberate about that and not just knee-jerking down. And at the same time hunt out the pockets where another service provider. Let's get a price that's above the cost of doing business. Let's not just because in neighboring markets, maybe we get priced down to nonsustainable levels. I'm encouraging our people not to apply that in markets where it's just there's no reason at all to do that. But always our business has a little bit of price pressure because of course we're the economical moving alternative. So this isn't something I can -- as you know, I can't say we're going to raise prices 5%. It doesn't work that way.

But on balance I'm a lot better about it than if than if we had this conversation 12 months ago. And I also feel that the pricing system, the computer system we put in about this time last year, that we've not come anywhere near mastering it and there's potential in it. And my job and the job of my subordinates is of course to realize that potential. So I'm guardedly positive about it.

Okay. And the 21,000 trucks that you plan to add this year. I know in the last call you talked about possibly about tempering CapEx spending if you didn't see -- start seeing a payback. Is the additional of 21,000 trucks evidence that you're starting to see a payback on that planned investment?

Yes, we saw a little bit of a positive change in utilization. And utilization over a long -- a view greater than a quarter or a year. Utilization is a big key to how the economics turns out. So we got a little bit of a strengthening utilization and the way we report our fleet size, our fleet is actually down a little bit over last year, because we've been a little bit more aggressively putting trucks up for sale. And that's a combination of where we feel the repair tradeoff is versus the other tradeoff. So -- and that's one I didn't mention of course is the for sale truck business.

The paper this morning had gloom and doom article about they can't -- you can't get a trade in on your used pick-up truck. Well, those are fully optioned trucks that went out for $35,000 into a consumer market. We're not seeing that kind of pricing pressure in the market where we're selling trucks. The market we're selling trucks is work trucks. And we're selling a truck in a market where due to, I'd say, environmental reasons, the price of the new equipment is just -- continues to escalate. So people in the used truck end of the deal they just know they're getting a good deal. That's about all there is to it. They know they're getting a good deal. So we haven't seen that. But we're watching that because as you know, we turn a decent number of pick-ups and vans. If that market -- that resale market was to get soft, we wouldn't want -- sitting on our hands. But we're monitoring that every day. And that doesn't so far appear to be where it's going to be affected. But again the trucks we're selling are work trucks. They're white, they have a big interior. They're just a basic let's go to work and get work done type vehicle. So I think we're okay at least going out six or 12 months.

Okay. And then finally, the cost of your fleet in this upcoming year. How will it compare to your cost of fleet in the prior year?

You want -- Let me see. Are you asking financing cost, repair costs?

I was referring to financing costs. Yes.

Okay. I'll let either Gary or Rocky answer that question.

Despite the fact in a spreads overall in the market have been somewhat higher than the last few years, the drop in treasuries has resulted in our financing cost to be actually less than what we had seen in the prior two years.

Thank you, both.

-- vehicle perspective we've been stable in that regard.

There's also been positive things that have been put into place. The government stimulus program has actually helped overall.

Okay. Thanks again.

Thank you, Jim.

Your next question comes from the line of Ian Gilson.

Good morning, gentlemen. I've got a couple of questions. Could you go through why the tax rate and the fourth quarter was so different from the other three quarters which those three quarters were very similar to each other? And what adjustments were in there and how this carries through the next year?

I'll let Jason address that, Ian.

Hi, Ian. The fourth quarter tax adjustment was at the life insurance company. It had to do with the implementation of FIN 48. It's a one-time adjustment. Our tax run rate is -- should be closer to 39% of a go-forward basis. I wouldn't use the fourth quarter number or even our 12-month number as a projection. I would use what we've seen over the last several years, which is closer to 39%.

Okay. Okay. What were truck sales during the quarter? Number and dollars?

Okay. I'll let Jason address that. He's going through his numbers here. Flipping through his book, so it'll take him just a minute, Ian. I'll put a plug in for Jason here. We had -- always when you go to close the books, there's some numbers flop this way and that way. Most of the things were kind of like that tax adjustment. They flopped in a way that wasn't a catastrophe. And I think that comes from keeping a conservative set of books. And I believe Jason is doing that. So I think that's positive for all of us.

Ian, for the quarter we sold approximately 2,500 box trucks and another 1,000 pick-ups and vans. That was about a 10% increase over last year at this time.

But that's light. You only show 1,000 pick-ups and vans for the quarter. That's for the annual run rate, Ian. We slowed down pick-ups and vans because we were having trouble getting replacement vehicles, and we should accelerate them a little bit in the second quarter. We're turning, in that combined fleet, almost 8,000 vehicles a year. So a more number I would have looked for it to have been was closer to 2,000 pick-up and vans and we deliberately withheld them from the sales market.

Okay. Are we basically finished the restructuring the fleet as far as size is concerned? I know we had been adjusting that at -- is that adjustment still going on?

I think we're real close, Ian. We, as I -- I don't remember if I went over with this group, but a strike at American Axle postponed us receiving 3,000 10-foot box trucks and that's probably going to cost us $5 million or $6 million in gross. It's a little speculative now. But the delay in getting them -- we were scheduled of the gotten them six or eight weeks ago and they're starting to come in next week. So that's costing up top line growth. But as far as just the overall mix, it's starting to level out which I think also means that in dollars per transaction the way you see it in an aggregate form is probably going to be less influenced by the fleet decisions and more influenced by pricing decisions.

Okay. On the casualty company, I noticed there was a pick-up in the reported revenue from the prior quarters.

I'm going to let Jason address that again. He's flipping through, so he gives you a --

In general, the increase that we're seeing at republic western is that we're offering U-Haul customers a new additional liability program that they can purchase along with their rental transaction. And we've seen a pretty nice increase in that for the year.

Okay. Great. Thanks very much.

Thank you, Ian.

(OPERATOR INSTRUCTIONS) You have a follow-up question from Mr. Jim Barrett.

Joe, in terms of your self-storage business, have you seen any difference in occupancy and just general end demand in those states with significant housing problems, like California, Arizona, Nevada, Florida, as opposed to more benign parts of the country?

I'm going to let Jason speak to it and then I'll jump in on it. Go ahead, Jason.

Jim, we've been looking over the last couple months at some of our larger markets and comparing it with foreclosure rates in those areas. So areas like California, Arizona, Nevada, Texas, and Florida, and then also in the Detroit area, and we haven't technically speaking been able to find a statistical correlation there. And some markets that have high foreclosure rates like Florida, we've seen our occupancy rates come down. In other areas like Arizona, California -- I'm sorry, Las Vegas and Houston areas where the foreclosure rates are elevated, we've seen the occupancy rates stay flat or go up a little bit. Just looking at the numbers part, I haven't been able to draw any conclusions from foreclosures in our significant areas.

Jim, I kind of agree with what Jason said. I see it -- I don't go look at it quite that way. I've driven my field force very hard on truck and trailer utilization over the last 12 months, and -- which -- and have slipped in storage if that makes sense. In other words I get -- just so many balls. And I think I need to get a little better balance, and I started making that correction about six weeks ago. I think there's a little more in the storage that -- and I might -- that might cost me a few million dollars in top line U-Haul, but I make bottom line by a little bit more attention to the storage project. And ordinarily, I see this on a store-by-store basis. But I think we could get a little bit more gain out of the storage. A little bit more gain that fell to the bottom line out of the storage by getting a little better balance on how I'm directing the field force and I'm working towards that.

Houston is a good example. We have nice direction through most of that area. And a decent -- we got a little gain there. So there's never a right or a wrong until you see it in hindsight. But I think that just a little bit more shading in favor of the self-storage even if it costs me some dollars off the top line in the new move might just overall be the right prescription and that's kind of the way I'm headed. You won't be able to see that as the top line in moving, because it'll be imperceptible. But I think it's a subtle shift that's appropriate and I'm trying to make it.

Okay. Capacity utilization aside, what are the general pricing trends in self-storage?

I'd say we're -- if you've got occupancy, you can get a gain. But it's reduced over the same time last year. The market is very much driven by service. In other words, just being there isn't enough, Jim. If you provide the service, people will still pay. There's got to be an end to that, particularly if the economy contracts or something. But our experience is if we'll provide a higher level of service that we'll get a modest amount of rate out of it. And if all we do is stay stagnant, we won't get a rate increase, where three or four years ago we'd have gotten a rate increase just because we were there, I think.

Very clearly today, if you want a rate increase and you need to step something up with the exception of some few markets that are because of land use regulation are artificially the supply's constrained. But there's an adequate supply of self-storage out there. There's a lot of people with reasonably well-located facilities. So to distinguish yourself to the customer, you need to have value-added services. We're very cognizant of that and we hit on it daily.

Okay. Great. Thanks again, Joe.

You have a follow-up question from Mr. Ian Gilson.

I noticed that we've had more disasters in the last year, 60 days than any other time that I can remember in the United States. And I know that you offer some free storage in those areas and have done consistently over the years. But I've never heard the other -- or what is the retention rate by offering that. I know it has a modest cost to you. But how does it benefit you? Could you go through that a minute?

Sure. And I won't give you the exact numbers for two reasons. One, I don't know them off the top of my head. And two, if I knew them I wouldn't tell anybody, because I wouldn't want our competitor to know them. Okay? But sure you get some retention. And oftentimes, pretty decent. What we're doing is offering people 30 days free storage and most people this event is going to cause a longer than 30 days dislocation, Ian. So they might move in. We give them 30 days. They'll be there for a period longer than 30 days. So it's a handshake and a greeting that gets them in the door. At the same time, land use regulation remains the single biggest obstacle we have in the self-storage business going ahead. And I think this positions U-Haul favorably in many communities.

People hear about us and look upon us and think that the people are acting in a locally supportive fashion as opposed to taking the money out of the community and transporting it to Phoenix, Arizona, where it then goes to God knows where. So it's gotten us a benefit from not just a public relations but very specifically land use regulation a local government issue. I think it's helped us, and as you indicated the marginal cost is fairly modest. Of course, all those offers are subject to availability. If we have no rooms, we can't give a room away. And if you're really up on your facility, you should always have one or two or three rooms you could give away at your marginal cost being essentially $10 or something, some -- the cost of processing the transaction. We're continuing it because we believe it works. We study it. We study it facility-by-facility and event-by-event. So we're not just on automatic pilot on the thing.

We had some anecdotal experiences out of Katrina. In Houston where we had people calmy move in and then their lives were so discombobulated that they eventually went bad and we had to go into the whole foreclosure and sales process, which is a money loser. So, not every time does it turn out right, particularly these situations where you see a local -- it's a localized flood, a localized twister sets down. It doesn't so discombobulate the economy that people lose their bearings. Katrina did some of that. We had people just literally lose their bearings. But most of these, these people are well grounded. And whatever they're able to salvage from the disaster and store with us, they place a value on and they're going to pay their rent and they're going to get their lives going again. So on balance, we believe it's a positive thing to do. And I don't see where we would cease it in the future. But I can assure you if we have one room left, that room is probably not headed towards a free month. Okay. But on the other hand, that occurrence is not the norm. The norm is, is we have rooms. And we're just on the margin letting people use them.

You mentioned again a couple times and it seems to -- or I get the sense that it is a concern about local land use regulations. Is this hampering your growth? You did mention earlier about capital placement into self-storage.

I thinks the everybody's. It's just a fact. It's not unusual, Ian. In fact I'd say, the norm is from the time you identify an acquisition and get agreement with the seller for a piece of bare ground, the norm -- the absolute bottom is it will take you a year to get a building permit. On the long end, it could be three years. And these are considered by the local land use planners as normal delays, or normal time frames, and then what they allow to do to the property is -- I don't know what you want to say, is highly subjective. And if they -- we have a project going in Florida right now, one on the planning committee wants to see us move the two story part where the one story part is and vice versa. She just thinks it looks better. She has no other reason than that. And she has the power to do that.

But for a whole bunch of things, it kind of makes it less efficient to manage on an ongoing basis. And in a perfect world you wouldn't do it that way. But she's about a hair's breath away from getting her way just purely because she just thinks it looks better. No compensation of what service we provide or those things, and that's very frustrating. So the more accepted you are at the local level, the more likely you are to get these discretionary considerations to go your way as opposed to the other way. And we believe it's important to build that reservoir of goodwill. I wish we had more of it. And if I could buy it at a defined price, I'd go out and try to buy some.

-- an idea of how much land that you have that is undeveloped at this stage?

Oh, you mean projects that we own the dirt, but we haven't got a permit on? Gosh.

No projects that you don't have a building on.

Oh, no. No. Part of the problem is a lot of our projects like the one in Florida, we bought four acres of budding and existing site, and we consider it in our records it would show as a site with a building on it. But it's a site that's underbuilt, in other words. So, no, I don't have that number.

Okay. Thank you.

Your next question comes from the line of Bob [Bruce].

Hi, Joe.

Hi, Bob.

I just wondered what you're going to do with your cash. What you're going to do if anything about your preferred. And also could you speak to your stock repurchase? How that's going. And how you look at it in the future if the price stays in this area.

Gary, I'm going to let you take a first run at that question. Three things, what are we going to do with our cash, what are we going to do with the preferred and where's the stock repurchase now, where is it heading? Gary Horton?

I'm sorry, Joe. Right now our cash is around $150 million. And we have some availability of debt. So we get about $275 million. We are constantly looking at opportunities to buy storage, to enhance our fleet, and at the same time maintain a cushion of liquidity. Having gone through one thing, we sure are not going to go through it again. The other one is I think in the price range that you see the stock, we will continue to go selectively into the market and buy back stock, and use some of our cash for that. As far as the preferred rate now, it is one that we consistently look at. Once you have redeemed it for example, if you've used your money for that. You've basically permanently eaten into your availability. Right now it would cost us about $156 million to buy it all back. And I think that would cut into our liquidity and cash resources more than we would feel would be prudent at this time.

Bob, I basically echo his sentiments. I think he said it better than I could.

Okay, thank you.

You have a follow-up question from Mr. Jim Barrett.

Joe, somewhere in the 10K there was a mention the company was evaluating temporary storage. What are your thoughts on how well [pod] has done and how interesting an opportunity that might be?

I think it's a real interesting opportunity. We were one of the people who reviewed pods when they were available for sale, and at least got as familiar as any other bidder did on that. We're in the self-storage market and we're in the self-move market and that particular product offering touches both markets, Jim. We're running market probes and made that decision probably I'm going to guess last October, December, somewhere in that time frame. So some of that stuff is actually starting to hit where we'll be serving a few customers through the summer. And then we're going to take a good look at that in the fall and see what does our intelligence tell us to do.

I believe it's going to lean real hard towards entering that market. Assuming we enter the market, we'll enter it a slightly different than what that organization has done. They've done a wonderful job and I would never take -- On the other hand, they're living with all their early decisions, and I don't need to make the same decisions if I have 20/20 hindsight. So we have some opinions and we're trying to get real customer feedback on our opinions to see if our opinions are -- if they are, we'll go into it. I don't think it's going to burn a lot of capital this year, or we would have commented on it. But if we decide to go -- really jump in the water, it will burn some capital up next fiscal year.

You probably know me a little bit. I'm not a timid person. But I'm fairly conservative. And so until I have a pretty good reason, it's hard to get me to cut loose some money. But I have put personnel on it. And we have some trucks and we have some boxes and we're in some markets that we determined for reasons that we believe were good. We have certain test markets that we're -- we'll be offering and we presently and we'll continue to offer through the summer this product, and see if we can get ourselves to where we can have a business plan that we can see real light at the end of the tunnel. I think that it makes just basic common sense for us to be in it. But since we're business, of course, we have to say are we going to make -- can we reasonably forecast money doing it. And it's not clear that anybody in that business today is making money to speak of. It's just not because they're doing some business. Whether they're actually making a living or whether they can reasonably forecast on a three to five year time horizon or something that they're going to be making profits, I don't think that's near as clear.

But there's a lot of consumer interest in the product and service combination and there's a lot of people out there offering it. So it's everybody from -- I think United Van Lines has an offering in it. Of course the pods organization does. There's now Pack Rat out of the Carolinas. There's a variety of local or regional people in the business. So there's a lot of interest in it. And we're one of those interested people.

Okay. Okay. Well, thanks again.

Alright. Thank you.

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

Sure. I want to thank everybody for being on the call. I do not want to appear to too somber on here, but we need to be deliberate in this market that we're in. U-Haul has a long history of being here on good days and bad days. And if this market tightens up, which depending on who you consider to be the appropriate presidential candidate and appropriate course of action, you'll all have varying opinions about. But if this market tightens up, I want to be sure we're positioned strongly and securely for myself or the other shareholders and for the people who work there. And I believe we're there and I believe having a somber attitude is appropriate.

But that doesn't mean that I'm anywhere near -- a sober attitude might be it, I have a sober attitude. I believe we'll have a decent year in a tight market. And that the underlying businesses are all very solid, and oftentimes, and Gary kind of eluded to it, if you're holding cash in that market, an opportunity may just come your way. So we're going to hold some cash, and if an opportunity comes our way, we want to be able to at least be a contender and acting on that opportunity. So I thank you all for your attention here today and look forward to speaking to you again in the future.

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