U-Haul Holding Co (UHAL) 2009 Q3 法說會逐字稿

Good morning. My name is Stephanie, and I will be the conference operator today. At this time, I would like to welcome everyone to the AMERCO third-quarter fiscal 2009 investor call. (Operator Instructions). Thank you. At this time, I would like to turn the call over to Ms. Jennifer Flachman. Ma'am, you may begin the call.

Thank you for joining us today, and welcome to the AMERCO third-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 December 31, 2008, which is on file with the Securities and Exchange Commission.

Participating on the call today will be Joe Shoen, AMERCO's Chairman. I will now turn the call over to Joe.

Good day. I am speaking to you from Phoenix. I have Jason Berg, our Chief Accounting Officer; Gary Horton, our Chief Financial Officer; and Rocky Wardrip, all on the line with us. And they will be available for questions after the remarks.

We finished a rough quarter here ending December. November was poor. December was worse. The good news is that January is firming up, or has firmed up. We continue to trim expenses, and have reduced some CapEx, much as we have been doing over the last six months to 12 months on expenses. The CapEx reduction is really going to just show up here in the fourth quarter.

Year to date, we are up slightly in total transactions, and that is composed of us being up a modest amount in what we call in-town track transactions and down -- slightly less transactions in one-way truck transactions. Unfortunately, this nets to a revenue decline, as in-town transactions have a lower dollar value per transaction. So total customers is up; total dollars is down.

U-Haul remains a need-based business. Our point-of-sale teams are focused on wowing our customers with superior service. We have been through troughs before. We will get through this one. I expect us to maintain or improved our competitive [position] through this process.

Both Republic Western and Oxford Insurance Companies are on plan. Their investment portfolios are very solid. I do not look for any surprises as they finish the year.

Of course, I am monitoring our liquidity. I intend to keep us highly liquid in the near-term. This has been our strategy for 18 months. If you look at a 20-year history of this Company, you would see we have never been as liquid as we have been in the last 18 months. And of course, a burnt child is scared of fire, and we are trying to be extremely prudent, and I believe we are.

I will go ahead now and turn it over to Jason Berg, our Chief Accounting Officer. He will go through the numbers. Then we will go to Q&A.

Thank you, Joe. Good morning. Yesterday, we reported a third-quarter loss of $1.46 per share compared to a $0.69 loss for the same period in fiscal 2008.

U-Move revenues for the quarter decreased $15 million. For the quarter and for the first nine months of this fiscal year, we have been operating with fewer trucks on average than last year at this time. For the quarter, our average box truck count was down a few hundred units compared to the same period last year. And for the nine months on average, we have been down about 3%. However, by the end of December, our box truck fleet was up about 1,200 units compared to the same date the previous year.

Several factors contributed to the decline in revenue for the quarter. First, we experienced a decrease in overall transactions during the quarter, led by one-way rentals. One factor that we know influenced the decrease in activity was the comparatively worse weather large portions of the country experienced during December and parts of November. The revenue and transaction declines we saw in the third quarter were not nationwide, as we had several areas that saw revenue increases in the system.

Another issue likely interacting with our results are the uncertain conditions in our economy. It is reasonable to consider that the negative consumer sentiment prevalent through much of the country has not been conducive to our attempts at increasing revenue. While we do not have any special insight into our competitors' financial results, our own assessment of the marketplace is that while our revenue results are down, we are in a comparatively better position than others.

Secondarily, our revenue results for the quarter were subject to fluctuations in currency conversion as we translated our Canadian operations to the US dollar. In the third quarter of last year, there was unusual weakness in the US dollar compared to the Canadian dollar. This has since reversed, and the variance in conversion rates magnified our U-Move revenue decrease by approximately $4 million for the quarter.

This had a minimal effect on our results for the first two quarters of this year. However, if currency rates continue where they are at currently, we could see this continue to have some impact on our reported revenues to the second quarter of next year.

During the first nine months of fiscal 2009, we replaced nearly 16,600 new box trucks and added over 4,500 trailers to the fleet. For the first nine months of both fiscal 2009 and 2008, we invested approximately $439 million each year in new rental equipment. This is gross before netting equipment sales and the effects of financing.

We have increased our finance allocation to operating leases this year, funding approximately $265 million compared to nearly $130 million last year at this time. Our current plans for the last quarter of this fiscal year include investing approximately $90 million in new rental equipment. With our fleet in the best condition it has been in for at least the last 10 years, our initial projections for fiscal 2010 indicate we may reduce our capital expenditures on new rental equipment substantially if business conditions warrant.

Through the first nine months of this year, we have recognized approximately $103 million from the sales of our rental equipment compared to approximately $117 million last year at this time.

Continuing on with the used truck market, the pickup and cargo van resale market has softened, resulting in a reduced gain on the sale of these units.

Revenues for our storage program decreased 2% for the third quarter of fiscal 2009 as compared to the same period last year. Our occupancy rates are down 4.6% to 78% for the quarter.

The variance is arrived at through two -- first, we have fewer rooms rented this year than last. Our average number of rooms occupied has decreased approximately 2% for the quarter. Comparing to the third quarter of this year with the same period last year, we saw nearly identical new move-in activity for our company-owned locations. However, we experienced a 2.5% increase in moveouts.

Second, our average number of available rooms has increased 4% compared to the same quarter last year. Our quoted occupancies statistics consider all available storage rooms. We do not adjust for same-store comparisons. We have completed several new projects over the last year. These have added large groups of new rooms to the portfolio, and are still in the rent-up phase, leading to some dilution of our occupancy rate.

Looking at total costs and expenses for the quarter, we are recognizing positive prior-year loss experience on our portion of the self-insured liability risk related to the rental fleet. As previous years' incurred loss experience develops over time, we are able to improve our estimates of what the ultimate costs will be for these prior periods. The resulting refinements we make in these estimates of liabilities are recorded into our income statement. The decrease in operating expenses for the moving and storage segment for the quarter is largely a result of these improvements.

Losses from operations for the third quarter of fiscal 2009 were $14 million compared to earnings of $8 million for the same period last year. The most significant drivers of this decrease continue to be equipment-related costs, including depreciation, lease expense and the loss on disposal of equipment, combined now with the decline in U-Move revenue.

Net cash provided by operating activities for the first nine months of fiscal 2009 were $253 million compared with $303 million for the same period last year. Last year included nearly $40 million of repayments received on related party assets, primarily from SAC Holdings, leaving the remainder of operations down approximately $10 million.

Cash and short-term investments excluding the insurance companies were $273 million at December 31, 2008, with additional cash availability from existing borrowing facilities of just over $42 million.

AMERCO notes and loans payable were $1.560 billion at December 31, 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 $629 million at December 31, 2008.

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

Ladies and gentlemen, this is the operator. Our apologies. Your person seems to have temporarily disconnected. If you'll hold on the line for just a few more minutes, I will have him back on line as soon as possible. Thank you.

All right. Can we go to the questions and answers now, please?

(Operator Instructions). Ross Haberman, Haberman Funds.

Did you just go over -- I didn't quite understand -- in the quarterly results, what expenses -- you talked about whether -- and you talked about drop off in your mix of business. Could you go over maybe what items, if any, were one-time or less recurring in the quarterly results, please?

That's a good question. I'm going to let Jason Polk add little bit, then I will chime in if I think you need something else.

Sure. I will touch on the expense -- in the operating expense number. We have -- I mentioned the insurance change in estimates that we had, as we have improving experience on losses -- liability losses in the fleet. That number for the quarter -- let me get it for you. So it was about $2.5 million to $3 million for the quarter.

That was additional expense that won't recur?

No, that's a reduction in expense.

Is that responsive to your question, Ross, or do you want to -- maybe you --

Any other items, or that was really it?

Well, again, we had the foreign currency translation which, depending on what happens with the currency, we will either see it for the next three quarters or not. And Jason tried to just give us a heads-up on that. That was --

How much was that again? I'm sorry.

That was $4 million.

It was additional expense?

It reduced revenue by about $4 million.

-- in our Canadian operations. We have to adjust their revenue based on the relative strength of the two currencies every time we report. And the two currencies have been pretty much parity for the prior year, and now the Canadian currency has essentially declined relative to us. And so we -- our business didn't change, but our reported revenue changed.

Got it. Okay. So if the dollar gets weaker, that could be a couple million dollars plus, right?

What's really happened, Ross -- it's Gary -- is it actually -- it's really improved a year ago. It was very strong against the US dollar. And now it has gone back to more of a traditional value to the US dollar. So you are back to the 1.20 (multiple speakers) -- yes, which is -- if you look back over the last 10 years, it has been about that, with the exception of a year ago, when it was on parity with the US dollar.

Okay, just one final question. The depreciation line, I guess that was combined with the losses on disposal. You showed $68 million of costs. What was the actual depreciation, if you could break that out between, I guess, the loss versus the depreciation?

The depreciation of equipment for the quarter -- let me get that, one second. The depreciation for the quarter on rental equipment was just over $55 million compared to just about $50 million last year.

Okay. So there was a loss of like $13 million on disposal of trucks, I guess?

Well, we also have building depreciation in there as well, combined with a losses on equipment. Are you talking about the quarter for the nine months?

The quarter. I am looking at the $68 million you had on your press release.

Right. Then we had depreciation on non-rental equipment of approximately $8 million, and then the remainder is loss on disposal.

Will those losses moderate over time? I guess you had about a $5 million loss --

This is Joe talking. Yes, over time, they tend to -- we try to drive them to be zero. In other words, we are trying to get a net zero. So we always are looking at what residual amount do we have, what rate are we depreciating, things like that.

So I don't think it is going to be zero this year. But next year, it is trending towards that. We reduced some residuals -- I don't know, eight months ago, Jason? About eight months ago.

Do you play around with your depreciation? I mean, just looking at it this quarter, you had a $5 million loss. At what point do you increase your depreciation rate (multiple speakers) so you have a zero, close to a zero?

Yes, we typically would reduce residual. We typically don't change the rate. This gets to be very specific, and we wanted to -- we do this in a very measured fashion, because -- but what we are trying to do is get that number to be plus or minus zero.

We want operations theoretically to reflect operations, and not reflect the used truck market. So we are headed -- I think we're currently in a better situation on that than a year ago. There has been some declines in used truck values, and we had to reflect them in our residuals. They are modest on a per truck basis, but when you are selling thousands of trucks, it becomes a significant amount of money.

A bigger real effect has been the softness in the pickup and van resale market. Every year, we sell 6,000 or 7,000 pickups and vans. And that market, which we -- and we are going to book (technical difficulty) a gain. But we have booked substantial gains in some prior periods in that. That market has gotten real soft as kind of a reflection of the overall automobile market.

So that -- look for real economic impact, we will have a greater real economic impact for the 12 months ended this March in what has happened in the resell market of the pickups and vans. We are still selling them at a slight gain, because we are pretty aggressive on our values there, always fearing we could get caught short.

And we also do those -- typically those vehicles are held less than 18 months. And when you start depreciating something and you're only going out 18 months, you are able to be -- it's a lot more certain what the residuals will be then when you're projecting out 10 years. And so the pickups and vans we will still show a slight gain, but it's down from the gains we've experienced over the last several years.

Gary Lenhoff, Ironworks.

Jason, can you clarify that? Did you say that your losses on disposition of equipment in the quarter were about $5 million?

That's right.

Can you tell us what that number is for the full year, for the nine months?

Yes. For the full year, it's about $15 million.

Okay. And Joe, can you talk about the current environment for sales of vehicles? Have things gotten softer in January from November to December, about the same or better?

It's not gotten any worse in January. I don't have in front of me, and I am trying to remember right now if it's [not] on the uptick. November and December were just lousy. And they were lousy in every single segment of our business, whether it was sales or rental -- they were just lousy.

Rentals has shown a decided improvement in January. It's still not where we want it to be, but it's not got the extreme negative impact that December had. I honestly don't know where truck sales are today.

We responded with a bunch of things that I don't want to go through because we want to surprise our competitors with them. But we responded with a bunch of things that we believe will improve our van and pickup sales 12 months going ahead. In other words, how you set this up, the exact options you put on the vehicles -- these are all your best guess as to what is going to help you in the resale market.

So we have changed up a bunch of things we think that will give us a little bit of a -- another shot out of the gate. When we are [reselling] (technical difficulty) pickups, we are up against all other large fleets. And so it's a commodity, and anything you can do to distinguish it is helpful.

But I would expect the pickup and van market to mirror general auto sales from a macro point of view. They did for the past five years, and general auto sales are in a trough right now. But still, we had depreciated them enough that we are still in the money on them.

On the box trucks, it is a much different marketplace because it is a nonfinanced market. Most of those trucks are going out for $3,500 or less -- typical sales, just the person walks in with either a check or literally with cash to buy a truck. So it is a whole different segment of the market.

And that has stayed good through October, where we saw the pickups and vans -- softness in them clear back to the middle of last the summer. We saw some softness in January -- I mean, November and December in our big trucks -- or our box trucks, we call them -- sales. I would expect that to firm back up -- about like general consumer confidence, which I think is improving -- in the spring.

We have never seen an inability to sell those trucks. In other words, we have been selling those trucks for 20 years that I have participated in. And generally speaking, if you reduce the price $300, that is considered a discount, and you can move the merchandise if that's what it takes. And so I don't know, Jason, if you have a number that we might be off (multiple speakers)

A couple percentage points.

A couple percentage points were off -- is [what] we are getting for the trucks. But it's not a substantial amount of money.

What I would like to push on, because we do sell a lot of trucks. And on an annualized basis, we probably have $115 million worth of additional cash generated through the sale of these older trucks. So it is still, even it being down a little bit, you still are generating a tremendous amount of cash every year, year in, year out.

And we also, with the pickups and vans, we buy them right. And as everyone has pointed out, our gains are less than what they have been in prior years, which had the effect of basically offsetting any of the losses on what we call scrapouts or basically trucks that are basically go to the scrap metal file.

So the (technical difficulty) market is there. But if you look at the overall [total] piece that you bring in, it is still very, very substantial, and it is more of the (inaudible).

Great. That's really helpful. One other question. Jason,

Are you still there?

Apparently, we lost his line.

Why don't you give us the next caller and let him dial back in.

He is now back in queue. One moment, Mr. Lenhoff -- get you back in queue, sir. Your line is reopened.

I appreciate it. I did get the entire answer. That was the important part. Another question -- it looks like, Jason, if I total up what you outlined in the 10-Q, you are going to spend about $65 million in net CapEx in Q4 between equipment and storage. Is that about right?

Yes, I think that is in the neighborhood. And that is net of truck sales.

Correct. Okay. Can you ballpark a number? Given what you see out there in the environment today, and what you are thinking for the rest of the year, can you ballpark a CapEx, a net CapEx number for fiscal 2010?

No. The reason is -- this is Joe speaking -- is I am just holding everything close and I am not going to -- we will be coming down, but I don't want to tell people it stopped. Depending on how financing goes and how business goes, I don't want to be too short term on my outlook. So what we are doing is we have shortened all our commitments and basically run them all out this fall. So we have very little commitments. (multiple speakers)

But I am still trying to develop opportunities. I still believe there is opportunities, particularly in the truck fleet. Of course, as you wear them out, you have a simple opportunity. It's the cost of maintenance versus the cost of depreciation and interest. And so at a point, you are in the money to buy it, assuming there is liquidity in the market place. And we are holding what for us is a lot of liquidity, and we are going to continue to hold that -- is our intent.

So even if we -- we might make a few dollars by rotating some trucks, we may elect, if there isn't current liquidity -- in other words, if we don't have good lease proposals or good financing proposals, we may just opt out of that investment in any given quarter. And we are trying to remain very flexible there. Long term, it's a good thing to continue to rotate vehicles. But we are fairly risk-averse in this liquidity issue.

What we actually are at now, which is very, very good, is we are at a discretionary level of CapEx. We can -- we have replaced a tremendous amount of it. Our fleet is refreshed. And we are able to look at it and make sure that the financing and/or liquidity is in place before we go out and make large commitments going forward for more trucks. We are actually, in that respect, in a very, very good position. We have gotten lease and loan proposals in, and we are in the process of awarding those and having people go through their credit approvals.

But again, we really don't need to buy a lot of trucks and/or trailers and/or storage right now. We are in a pretty decent shape from that standpoint.

Okay, great. And last question -- you are reporting your insurance operations I believe as of the end of the third calendar quarter, the quarter ending last September. Is that correct?

That's right.

Okay. Can you comment on -- I mean, given what's happened in fixed income markets, etc., can you talk about the -- are there realized or unrealized losses in your investment portfolios for the quarter you just reported? And can you give us some flavor for what you are going to see when you report the fourth quarter, given what has gone on in the investment market?

Sure. I will just go about that -- just technically speaking, if there is anything significant that happens in the insurance subsidiaries in intervening quarter that we have information on but have not reported, we would list that as a subsequent event. So if there was anything material that had happened in those portfolios, we would be disclosing that in the Q. So there hasn't been anything material disclosed in that in the queue, related to their investment portfolios.

So with respect to the corporate bond portfolios, for example, there haven't been any realized or unrealized losses of any magnitude?

Well, sure. We have unrealized losses in those, but as far as recognizing them as other than temporary impairments, we have had very minimal. I think the number that we have in the Q for this year is somewhere around $400,000.

Can you give us some idea of what the size of the unrealized losses might be?

Yes. Let me turn in the Q. On page 4 of the Q, we have our statement of comprehensive income. And there is a line item on there that reflects the unrealized gain or loss on investments. And that's almost exclusively the insurance company.

So for the nine months, the change in that has been a $10 million increase in the unrealized loss from March 31 -- well, their December 31, 2007, through September 30.

Okay. And Jason, can you estimate what that number may be for the fourth quarter?

I think actually September was perhaps a little bit worse than December as far as bond valuations go. So that number may get a little bit better by the time we hit December.

(Operator Instructions). Ross Haberman.

Could you talk about competition, pricing, Avis, where they stand? And if they go away, how beneficial will that be?

Okay, sure. This is Joe. The market remains fairly competitive, and the customer, of course, as we have told people before -- the biggest thing is customers can go back into owned and borrowed. In other words, use a truck from work or borrow a truck from a friend or some other -- there's a whole host of ways that people move when they don't rent from anybody. So always what we don't want to do is lose the customer back into a non-financial transaction to move.

But I think what your question is addressed to is what's our competitive position or our rate position vis-a-vis the Avis, Budget organization and the Penske organization. And I would say it's largely -- remain unchanged. We are the choo-choo, rah-rah guys for let's try to hold rates.

But the simple fact is that those other organizations pursue what they want to pursue. You can do a quick deal, go on the Web site and quote three of our rates and three of their rates. You can form an opinion. Three is a small sample, but if you did 20, you'd be probably pretty accurate.

So I expect that those people will continue to rely on price because they are short in other factors that matter to the customer. And we will continue to respond with a better product, more convenient, and I think that that strategy has proven to be workable for us. And we intend to continue with that strategy in the near term. So it is no less competitive at all.

Now, if Budget is going away, you know something I don't know. So that would be the first one. The Budget organization has gone through many permutations over the last 20 years (multiple speakers). And so I have no reason to believe they are going away.

And if they went away, I don't know that we know really what the effect would be, because, again, they won't just disappear off the planet Earth. If they have an ownership change or they have -- somehow reconfigure their operations, I would expect that in some manner or form that they will continue to go ahead.

Now, if you took the longer term view of this, we have seen any number of better capitalized companies come in and exit this marketplace because there's a lot more to it than being able to finance yourself into a fleet of trucks. This really is a service business. We are not in the financial leasing business. This is a customer service business. And while we make a mistake, it is a business that we are in. We are in the customer service business.

And as I indicated in my prepared remarks, what I'm concentrating on right now is getting my point of sale people to wow the customer. The customer is beat up. The customer is discouraged. We all know that. We see it on the TV.

So I want them, when they come into our store in and they are basically stressed out for whatever reason because they are moving, I want our people to make them feel good because they will move again in three or four or five years, and I want to be their first choice at that time.

So I believe that we are always going to see cycles in the marketplace. This is a cycle. We are going to come through it with as good a competitive position, and hopefully a better one, because hopefully our competitors will succumb to the discouragement of the general economy. And I have seen signs that they are doing that, that they are reducing service. Of course, the customer is paying for service, so if you're going to reduce service and expect the income to go up, I don't see where the value equation is there. And I would expect that that will fail.

And just one final question. If we continue to have this slack economic environment, what is your prognosis for your summer -- your higher peak quarters? Are you putting any sort of flavor on it yet?

No. And if it stays lousy, what we will do is reduce CapEx and reduce inputs to the fleet and maybe instead of -- we've grown the fleet of 1,500 or 2,000 trucks; we might shrink the fleet 1,500 or 2,000. That will affect liquidity faster than it affects profitability, because profitability has a lot of other components to it. So I think we are going to see a decent summer, unless something -- we see further deterioration.

If we see further deterioration, I am not -- I don't think any more in charge of that or anymore wise on that than any number of other people. If we see further deterioration, well, it could affect us.

Again, we saw a lousy December and a lousy November. But January has come back. So what does that mean for sure? Well, it's always masked by weather. It is always masked in my mind by our own core behavior. I see all of our core behavior, you see. And so I am always saying, well, if we would have jigged when we jogged, we would have done better.

I have a number of initiatives in that I believe are worthy of a 1% or 2% transaction increase. And that is what I am totally driving on now. But I have had that attitude for the last 12 months, and I haven't gotten it. Or let me say -- it hasn't netted out. Maybe I got it. Maybe I got one and lost two. You see, there's a lot of hidden things in that whole deal that are more easily assessed in the rearview mirror than they are prospectively.

So we are planning for a repeat basically of last year. And then we are working for an improved situation, I guess.

There are no further questions in queue.

All right. I thank you very much for your time. I appreciate your support. I guarantee you that everybody here is working hard and has a basic comprehension of the issues that we are dealing with. And I expect us to have a decent calendar 2009. So thank you again.

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