U-Haul Holding Co (UHAL) 2009 Q2 法說會逐字稿

Good morning. My name is Ruth, and I will be your conference operator today. At this time I would like to welcome everyone to the AMERCO second-quarter fiscal 2009 investor conference call. (Operator Instructions). Ms. Flachman, Director of Investor Relations, you may begin your conference.

Thank you for joining us today, and welcome to the AMERCO second-quarter fiscal 2009 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, 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 September 30, 2008, which is on file with the Securities and Exchange Commission.

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

Good morning. I'm speaking to you from Phoenix, Arizona, and I'm joined here by Jason Berg, our Chief Accounting Officer, and Gary Horton, our Chief of Finance. Rocky Wardrip, our Assistant Treasurer, is participating via phone from Reno. We will all be available to answer questions.

I'm going to have Jason start by just walking through the numbers, and we will go straight into the question-and-answer. Jason?

Good morning. Yesterday we reported second-quarter earnings of $2.10 per share compared to $2.39 for the same period in fiscal 2008. eMove revenues for the quarter increased $3.5 million. For the quarter and for the first six months of this fiscal year, we have been operating with fewer trucks than last year at this time. For the quarter our truck count was down about 3.5% compared to the same period last year, and for the six months, we were down about 4%.

As Joe mentioned in our last quarterly call, we have had issues with one of our suppliers fulfilling their product delivery commitments to us for small box trucks. This shortage continued into the second quarter. We estimate the lost revenues due to this shortfall to be in the $6 million to $7 million million range for the last six months.

Despite this comparative decrease in inventory, we were able to increase total truck rental transactions for the second quarter of fiscal 2009 as compared to the same period last year. We did this through improvements in utilization. Increased truck and trailer transactions drove the eMove revenue increase for the quarter.

Competitor rates continue to have a negative influence on our revenues. While our revenue per transaction statistics over the last two quarters indicate a softening trend in price declines, competitive rate pressures still weigh on our results. Our competitors' actions, combined with the current economic stress affecting our customers, could dampen our revenues in the near-term.

During the quarter we added over 5600 new box trucks to the fleet and replaced approximately 1200 pickups and cargo vans. For the first six months of fiscal 2009, we have invested approximately $375 million in new rental equipment compared to approximately $390 million last year during the same six-month period.

We have increased our finance allocation to operating leases this year, funding approximately $242 million compared to $130 million last year at this time. In our GAAP cash-flow statement, we met operating leases fundings against equipment purchases. Our current plans for the last six months of this year include investing approximately $140 million in new rental equipment.

Our initial projections assumed used equipment sales in the neighborhood of $150 million to $160 million for the full year. This projection may fall short based upon the current price trends of the used truck market.

Continuing on with the used truck market, our loss on the disposal of rental equipment has increased $6.4 million during the second quarter of fiscal 2009 compared with the same period last year. This increase is nearly $12 million for the first six months of this year.

While I cannot accurately project what these losses will look like over the last six months of this fiscal year, we will continue to see this negative year-over-year fluctuation continue.

Revenues for our storage program decreased 1.3% for the second quarter of fiscal 2009 as compared to the same period last year. Our occupancy rates are down 4.7% to 81.8 for the quarter. This variance is arrived at through two factors.

First, we have fewer rooms rented this year than last year. Our average number of rooms occupied has decreased 2.2% for the quarter. Second, our average number of available rooms has increased almost 3.5% compared to the same quarter last year. Our quoted occupancy statistics consider all available storage rooms, and we do not adjust for same-store comparisons. We have had some new projects come online over the last 12 months during the ramp-up phase. These have added new rooms faster than we can rent them, leading to some dilution of our occupancy rate.

Earnings from operations for the second quarter of fiscal 2009 were $95.5 million compared to $109.1 million for the same period last year. The most significant drivers of this decrease are depreciation and equipment lease expense and the loss on the disposal of equipment. Net cash provided by operating activities for the first six months of fiscal 2009 were $245.4 million compared with $279.7 million for the same period last year.

Last year included nearly $40 million of repayments received on related party assets, primarily from SAC Holdings. Excluding these non-recurring payments, operating cash flows at the Moving and Storage segment for the first six months of this year were essentially flat year-over-year and down approximately 5% for the second quarter.

Cash and short-term investments, excluding the insurance companies, was $345.8 million at September 30, 2008 with additional cash availability from existing borrowing facilities of $67.7 million.

AMERCO notes and loans payable were $1,575,000,000 at September 30, 2008.

Regarding our rental equipment operating leases, using the average cost of our fleet-related debt as the discount rate, the present value of our minimum lease payments and residual value guarantees was $625.3 million at September 30, 2008.

With that, I would like to hand the call back over to Joe.

Thanks very much, Jason. We will go to questions and answers now.

(Operator Instructions). Ross Haberman.

I was wondering, in the quarter, did you end up settling up with your supplier on the trucks, or does there continue to be a shortfall going into this next quarter as well? Or I guess there was a strike, and you were caught short in terms of truck supplies. Has all that caught up by now?

Yes, it is. It has caught back up now. So the loss that we have is history. It will roll forward, but it should not accrete, and so I think that is the question you're trying to find out.

Right.

Are we going to see more of that? No, I do not believe so.

And just one, what are you seeing on pricing for the storage business? I just know personally what I'm seeing at least in the Northeast that prices are coming down it seems like at least from what I have seen in the Northeast here. What are you -- are you seeing that phenomena nationwide?

We run a standard promotion, which is a 30-day free move-in for a one-way truck or trailer customer. That is our standard promotion, and pricing is always a combination of discounts and the real price.

We do not do another price promotion. In other words, we do not do pay six get one free. There is a lot of different variations out there. Public storage, for instance, has a very standard $1 move-in. So is the same as our 30-day free. It's just another way to give the discount.

I don't see discounts up. We have not yet lowered prices at more than one or two stores, if at one or two. I cannot recall one. We are very -- I don't know what you want to say -- obstinate on that. So I'm not seeing prices decline.

Obviously this is a very geographically specific business, and whenever somebody is in your exact geographic area, it is very common for a guy to get the idea, look, if I drop my price, I will get all the business.

And so I would expect to see some of that, especially given all the product that came on board in the last three or four years. I think we should just expect to see it.

My experience is, if you get right down to it, that will not get them the rooms. Now if they stay consistently 30% below you, sure, you are going to have to make some adjustment. But so far we have not seen that drastically affecting consumer behavior. Although in specific cases, it is present. Even when prices were going up, we would have a competitor built literally across the street, and to lure business they would rent all the rooms at 50% off or something.

It is destructive. We actively encourage people in the self-storage business to maintain prices obviously. So we're not about to be the one who has the reputation for dumping prices.

Just one question. Does JPMorgan have a big storage operation, and are they more competitive than any of the other ones?

It is Gary. Would you repeat your question, again?

Does JPMorgan Bank have a division that owns storage businesses, and are they more competitive than anybody else?

I did not know they had such a division, so I apologize. Now there may be a JPMorgan person on the line, and if they know, I would appreciate them speaking up. Could you give me any more color on that?

No, I just happened to see that just personally I have got some space out on Long Island, and it was supposedly bought by a division of JPMorgan.

Well, you have got me.

I did not mean to stump you.

Well, you've stumped me.

With all the different pieces of JPMorgan out of the private equity side and so on and so forth, it could be possible. But I have not heard of any.

Anybody who has got into a storage property in the last four years will be suicidal if they drop prices.

No, no, I mean I'm just seeing -- and here is what I was getting at -- I'm seeing advertisements at least locally in the Northeast, basically lowering monthly prices, giving the first half off on in the first three or four months. Things like that and that is why I asked the question.

Those have been out there. They may be just advertising them harder. But this idea of, if you will do a multi-month contract, we will give you some kind of discount, it is always boiling.

Now I don't know any of the majors doing that. But again, that is done all the time, and I would not just get panicked. I would --

No, no, I'm just wondering if that is a trend that you're beginning to see more and more? (multiple speakers) -- given what seems to be a temporary overcapacity.

I would same no, but after your question, I will go do some digging.

Jim Barrett.

Joe, did you mention pricing in the self-move truck sector? You didn't mention it was weak or soft. Is it getting worse, or is it just remaining as difficult as it has been for the past year or so?

I think we could argue it is better than it was a year, a year and a half ago. It still is, Jim, that people who are struggling to do business will go five or 10 back if you respirate. They will ask you a question like, are you a member of AARP or a member of AAA or a member of -- are you a packer fan? That was the best one I have ever been asked. And if so, we have a discount today.

Well, that gets fought out at the individual location level, and of course, the problem is my people will match most of those too. So if you say that somebody gave you an AARP discount or a AAA discount or a military discount, my person will attempt to chime in and match the incentive.

So there has not been a lot of creativity in pricing. We have stabilized some pricing just because with the pricing programming we put in two years ago, we have been able to get incredibly more specific. And so we keep finding a little pocket we can that we were either underpriced or for one reason or another we can get another 5% or 7% out of, and so we're able to balance it.

But if you talk say, let's say we were talking the Boston/New York corridor or DC/Atlanta corridor, I don't think those are any different than they were a year ago.

I see. And can you talk generally about the Company's competitive position in self-move truck at this juncture? Do you feel better about it when you look down the road, the same, worse?

Well, I would not want to be the other guy, let me put it that way. Not that I don't have my opportunities. We're relatively well-positioned. Our fleet is in terrific condition. We're always unhappy with our distribution, but that is our job to be unhappy about. We could still use a few more small trucks, but we're adding them, and we're trying to probe demand without oversupplying it. Everybody is faced with this declining truck price, and we are -- it is impacting us, but it has got to be less than the other guy because the other guy's truck is going out at $10,000 to $15,000, which means it needs to be financed.

So ours, as you know, our average truck is going out around $3500, which means it is a cash transaction. There's not a lot of financing out there for little guys wanting to buy a used $15,000 truck.

So everybody has picked their strategy. We have to sell based on our strategy somewhere, you know, 8% to 12% of our fleet a year. The other guy has to turn 30%, 35% of his fleet a year.

So there is -- my experience is, is in rocks in times, our strategy is a better strategy. But I think they got a nice boost during all this boom of the last six years, so they probably made a few bucks that we missed.

But it is a -- I'm fairly comfortable with where we are. I'm always looking to see how can we lower our costs. Because you are going to sell so much. I mean I'm out there encouraging them to sell more. We're going to sell so much; now we have to get our costs down below our income.

Speaking of that, your operating expenses were down $3 million in Moving and Storage. Is that a reasonable expectation going forward? I assume that is reduced truck maintenance?

I'm going to ask Jason a little bit. He is signaling me, so he wants to make sure I do not say it wrong.

Jim, on the operating expense, a whole bunch of things go into there. I would say that most of our costs we have been able to hold the line on as far as, say, like personnel expense and things like that. We do have some costs that are going up, property tax and things like that.

And we have had I would say over the last couple of years positive experience as far as losses, casualty losses in the truck fleet or liability losses. So there's some component of that that is also keeping that operating expense line down.

In other words, we got a boost because we have not had as bad an insurance experience over the last 18 months as maybe we had 36 or 48 months ago on a per transaction basis, and we have got a haircut on selling some equipment. Year-over-year it is pretty significant, the haircut we're taking there. So those are both netting against each other in that cost.

At the same time, we have improved our truck maintenance line year-over-year, and last year was an improvement over the year before. So I do not want to oversimplify it, but yes, we're holding our own.

One pleasant thing is we may not get smacked as hard. We were planning on getting hit real hard with utility expenses, and it looks like some of that stuff is not going to materialize perhaps, which that will certainly put a smile on my face because we were seeing a lot of 30% jumps there. So I think maybe we'll get that. As you know, we do not buy the fuel our customer uses, but the customer does.

So to the extent that the fuel price stays down, the customer -- they do not exactly perceive it as a rate decrease, but it is a cost decrease, which makes them -- it makes this more affordable, this whole enterprise more affordable to them. So that is a macro positive.

Okay. Good.

This is going to be a tough market for awhile, Jim. I don't want to be pessimistic, but I do not want to sugarcoat it either. It's going to be a tough market for awhile. It is going to squeeze everybody. And competitively I don't know everybody's cost structures, but I'm pretty familiar with mine. And it's going to squeeze me. So they are going to get squeezed, too.

I hear you. And then last but not least, your truck acquisition cost, does that matter, the sort of values you're seeing to buy new self-storage properties, have they started to erode on both fronts, come down on both fronts?

The truck acquisition cost is not coming down; it is going up.

Going up, okay.

The automakers are not going to pass along anything to a fleet buyer. They have made that abundantly clear.

On the self-storage front, the construction costs has not ebbed yet. So we're seeing just a tiny bit of cracking in acquisitions that are existing. In other words, people have held onto unrealistic multiples, Jim, for 18 months past the time, and they are now going -- they are now starting to come around.

And also in that business, there's a lot of refinancing that needs to reoccur there just on a normal basis. And as that refinancing is more difficult to execute, that has a strong downward effect on total pricing. So I would expect that we will see some good deals out there or relatively better deals out there, particularly if you're looking at having the property five, seven, 10 years after you buy it, which, as you know, that is our strategy. So even if we bought something and all we did was tread water for a year or two or three, it is a building block, and we would not shy away from it.

We have not bought where we thought we were going to flat cash flow negative lose money, which is how a lot of this stuff has been priced. So you're looking at three to five years to being there before you were ever going to make any money. So we have stayed out of that, and it has cost us opportunities. But I think those opportunities are going to swing our way again.

(Operator Instructions). Ian Gilson.

Your question or rather your answer about having caught up on the truck count, is that catching up on past deliveries so that your truck count is now where you want it, or are they just delivering what you are ordering?

They are just delivering what we are ordering. We're still maybe 3000 or 4000 trucks down, Ian, from even a year ago. But, of course, that's because I have been taking trucks out of the fleet a little bit aggressively because I was getting a better margin in my belief by doing that. Okay? But there's a little more business out there, but not a lot. As you have seen, we have been struggling to hold topline really for 18 months now or 16, 17 months at least. We have been struggling to hold topline.

So our fleet is somewheres around where it ought to be. It is pretty hard to tell 2000 or 3000 trucks. It is really pretty hard to tell. But we're somewheres where we could be. We could maybe use a little boost in our small truck inventory. We might find some markets, pockets there where we increase total revenue. And then, of course, we have some normal replacements to do. We're wearing the things out everyday, and we drive millions of miles everyday. So we're always wearing them out.

But we are in a lot better position than -- Jason said we put in 5000 some-odd trucks in the quarter, so -- big trucks, I mean you know moving trucks. That is a lot of equipment. So it did not come in on the timeline, which is what really hurt us. These small trucks came in late because of the way the strike affected General Motors and then how they ramped back up was -- did not make any sense to us because their ramp-up further delayed at the time that they are saying and crying that they have no customers, while we were standing there with money and could not get any trucks.

So that cost us, and it all carried through to the end of the year $6 million or $7 million off the topline, which is a significant thing to us.

Did you sell fewer trucks than you normally did because of this lack of deliveries?

No, we went ahead and kept the truck sales going. We were actually selling a different sized truck than the one we were bringing in, so that in our decision model, the two did not relate.

[Robert Bruce].

Could you bring us up-to-date on your stock repurchases plan, and do you have any thoughts on a dividend on the common stock?

There is no plan on a dividend of the common stock. On stock repurchase I think we're basically -- we're adopting a more conservative track than we were even four months ago. We're trying to conserve cash. You can see that if you look at our liquidity. It is an all-time high in the history of the Corporation. We do not -- you know more about what is going to happen macro-wise probably than we do. It is just true. And we do not know what is going to happen, what availability there is going to be out there. As you know, we are a burnt child, so we're scared of fire, and we do not want to get within visibility of a shortfall. We are whatever you want to call it. If you had Gary Horton and I in a room, that would be -- the Frankenstein in the closet would be that. So we're going to stay a long, long ways away from that, maybe too far you could argue, but having been there once, we do not want to go there again. So we're going to just kind of hoard cash a little bit here until we see a better picture.

Ross Haberman.

Just a couple of quick numbers questions for Gary. Gary, what availability -- I think you said in the press release you had about $400 million. I guess that is the moving division, $413 million in cash. Is that correct?

That is correct. We had $345 million of cash and another 67.7 -- $68 million in availability.

And over the next year or so, I think the 126 million which you said, is that the sole amortization requirements over the next year?

That is correct.

Okay.

And that is echoing, Joe, is that we have made sure that we have no refinance risks. We look in the marketplace there's a lot of companies that have not said much about their refinance risk. But in trying to read through their statements, I would say there's a lot of people that have a time to raise money and where people are not lending money to a great extent. We don't have that position.

I'm sorry, just going back to the cash, you said you had 360 in cash and then --?

345.

Sorry, 345 in cash and the balance in availability?

That is correct, and we test our availability periodically to make sure that we do have the availability. The worst thing you ever could do is go to the cupboard and find out it was bare. But we have drawn down, and we will pay back and drawdown just to make sure that the lines still work.

Will you -- I know you have historically had real estate. Is any of it at this point excess, and will you sell any of it over the next year or so, or is the market for such a thing basically dead so even if you wanted to given the market you could not at the moment?

We primarily are a buy and hold. But we do periodically sell parcels off I believe from our real estate board. We just authorized a couple of locations. But again, they are not what I would say a lot of money. You know, there are couple of million here, a couple of million there.

Where we have got our biggest bang is like last year we got a pretty good bang, and that was because we do not want to sell it but Columbia University wanted it more than, you know, and so they paid us a lot of money for it.

Well, as they say, everything has its price.

Well, in some cases everything has its price, except when they tell you you don't have any other option but to take the cash, you take the cash. And we had two of those last year.

And one quick question for Joe. Joe, in the storage space, are you actively looking for new locations to buy or to build? And if so, are overall prices for the units coming down?

Yes, we are actively looking to buy and build. Build, we have not seen any decrease in costs. In acquisitions we are just now -- we have got two or three in the hopper now that may close that people are starting to get in the realm of reasonableness. People are not going to give away their assets, but people have been asking multiples that are reflective of the multiples that public storage enjoys as a REIT, and that just simply is unrealistic on a location by location basis. And, of course, if we pay those rates, we never will ever make any money. So it took us out of the market. And I think we're back in the market as a buyer because we are real buyer, and so I would expect to see that we will do a little bit of that. We have a budget for it and --

What's sort of the average asking prices or multiple or cap rates today? (multiple speakers) -- do you have a range?

They are all over the board, but we're seeing on a net rentable square foot people are asking, let's say, excluding Manhattan and bizarre markets like that, but people are asking $120 a square foot in the high range to 85 in the low range. But we are not starting to see properties come in at $65 a foot. At $65 a foot, there is a lot more flexibility and a lot less risk. And --

That is purchase price per square foot?

Per net rentable.

Okay.

And that means roughly if you are going to -- well, it all translates into a rate in the marketplace in occupancy which according to our business plan we can make a living. We cannot make a living paying people 16 times their cash flow, and that has been a very typical ask for the last four years. People ask 16 times forward projecting, okay? And it is bologna from our point of view.

Now it may work for somebody else's business plan, but in our business plan, that is a nonstarter, and we have looked at literally thousands of locations. I'm sure we look at three to five locations a day.

So there's a lot of people floating stuff. But in this market, we should expect to see, I don't know, 6000 to 8000 locations change hands annually. I don't think that's an unrealistic figure just based on normal churn in the marketplace. And the question is, if the changing hands are a multiple or a price that we think we could make a living at, then the question is, does it fit into our network and are we interested? And we, of course, have our criteria, which are different than some other people's.

So 10 to 12 times cash flow, is that more palatable?

Yes, I think when you are at 10 to 12 times, you are in more sustainable -- it's a business proposition, and you're not speculating. That is what I would say.

Okay.

You know, this thing gets on hard times if you go -- and that is trailing 12, not the projection (multiple speakers) real cash flow. But if this gets on hard times, we have seen lots of times that these properties have traded at 8 times. So if this gets on hard times, then that would be a buying opportunity.

Got it. Okay. Thank you.

(Operator Instructions). Ian Gilson.

A question for Gary. Cost of funds out there, Gary, short-term, what is it like?

We have not done anything brand-new. But we have some revolvers, I believe, that we are borrowing today at 3.99%.

How about on leasing?

Huh?

How about on leasing?

Under leasing, it is very interesting because I just have one that I have gotten approved by the finance committee, and I believe, and it may have adjusted down somewhat, but it was at 481 would be the implicit rate.

Mr. Shoen, if you would like to make any closing remarks, you may do so at this time.

Alright. Well, thank you all very much for your support. We will try to continue to be candid. This is a dynamic marketplace, and you all probably know it better than I do. And so predictions are hard to make, but our base business is a need-driven business. It is not a want. And our business has some inherent stability when things start tightening up. So I'm very optimistic about the future, but I expect the near-term one, two or three years to be tight for a little bit.

So my thanks for your time. Look forward to talking to you again in 90 days.

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