U-Haul Holding Co (UHAL) 2010 Q2 法說會逐字稿

Good morning. My name is Jerry. I will be your conference operator today. At this time I would like to welcome everyone to the AMERCO second-quarter fiscal 2010 investor call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

I would now like to turn the call over to the Director of Investor Relations, Ms. Jennifer Flachman. Ma'am, you may begin your conference.

Thank you for joining us today and welcome to the AMERCO second-quarter fiscal 2010 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 AMERCO's business and future operating results, please refer to Form 10-Q for the quarter ended September 30, 2009 which is on file with the Securities and Exchange Commission. Participating on the call today will be Joe Shoen, AMERCO's Chairman. I'll now turn the call over to Joe.

Good morning. I am speaking to you from Phoenix, Arizona. I have Jason Berg, our Chief Accounting Officer with me here. Rocky Wardrip and Gary Horton are participating from Reno, Nevada. All of us will be available for questions during the question-and-answer period.

We put in a tremendous amount of effort again this quarter and we saw some modest improvement in results compared to last year. The improvements came late in the quarter in the form of truck rental transactions compared to the same period prior year.

I believe our efforts have been positively impacting results compared to demand for several months. My best judgment is that consumer demand is not up, but that U-Haul teams are doing a better job of saying yes to the customer. In other words, we are being available at the time, the place, with the equipment that the customer already wanted.

We reduced expenses compared to the same quarter to the same period last year and this should show better bottom line results in the third and fourth quarter. However compared to the very modest profit number we had for fiscal year '09, we have a big hill to climb and we're going to have to do in what are without a doubt our two weakest quarters for revenue.

As I've said before, U-Haul is a value proposition and I continue to believe the customer recognizes this and I believe that continues to be an overwhelming theme with the customer, they want to see see value. We are continuing to roll out initiatives designed to give our customers greater value without raising their costs.

These are all subtle variations if you can imagine, after being in business for 63 or 64 years; there's not a huge change we can make on the value proposition on a quarter by quarter basis. We are tuning it up. We are getting increased customer satisfaction as well as we can determine.

We will continue to do these initiatives for the balance of the year. The actions we took in Q4 last year to adjust the size of our fleet are producing results, as I indicated that it takes about a year to those results to trickle through and they are starting to trickle through right now.

And that has a modest effect on overall costs. We continue to have terrific liquidity. We have -- I believe I'm saying it correctly -- we have better liquidity now than we did at this same time last year and we have the continued support of our equipment lenders and lessors.

Sales of six-wheeled trucks is running a bit behind last year but not anything alarming. The pricing on those vehicles is holding firm.

Sales of four-wheel units continues on schedule. And as I related last quarter, pricing continues ahead of Q3 from '09. Our retirements continue to outpace our additions for the entire truck fleet. We will finish the year with somewhere in the 11,000 to 12,000 range for additions with disposals above that figure.

We're continuing to invest modestly in our U-Box product, our Internet-based phone system, mobile computers at the point-of-sale and reimaging of our point-of-sale facilities. By the end of Q4, we will have probably committed or posted to our books most of the expenses related to the Internet-based phone system. However, mobile computers, reimaging and new box U-Box expenditures are likely to continue into the next year. U-Haul will be very well positioned should the economic climate improve.

Competition remains very active in the truck rental market. Conventional wisdom among self storage professionals is that self storage supply is a bit ahead of demand. As I have told you, that's a very regional question and it's hard to give a nationwide pronouncement on it without just being totally vague.

I continue to believe that there's room for improvement there. I had expected us to be better in total rooms rented when we finished the quarter. I will continue to have that expectation in the next two quarters and we will see what the results actually come in at.

There's no doubt that the [trust to rental] storage market is a little bit in short supply compared to the same time two years ago. I look forward to controlling our expenses while improving customer service over the next two quarters.

I believe we know what to do there and we're steadily working at it. With that, I'll turn the call over to Jason Berg for a review of the numbers, then we will circle back for some Q&A. Thank you all.

Good morning. Yesterday we reported second-quarter earnings of $2.14 per share compared to $2.10 for the same period in fiscal 2009. U-Move revenues for the quarter decreased $12 million or just less than 3%.

The negative variance stems from pricing, model mix, average miles driven per rental transaction and exchange rate fluctuations with Canada. Conversely we saw an increase in both in-town and one-way transactions for the quarter.

Revenue results within the quarter exhibited sequential improvement with September finishing on a relatively strong note. Combined with relatively positive October results, we're cautiously optimistic about the trajectory of our U-Move revenues.

Revenues for our storage program decreased $489,000 for the second quarter of fiscal 2010 as compared to the same period last year. Our occupancy rates are down nearly 5% for the quarter to 77%.

We are still down approximately 1200 occupied rooms from where we were last year at this time. But during the quarter, we reduced this variance by approximately 100 rooms.

During the second quarter of this year, we expanded our storage portfolio by 2000 rooms. And over the last 12 months, we've added 7000 new rooms, equaling nearly 625,000 net rentable square feet.

Operating expenses for the quarter decreased just over $3 million with the majority of that taking place in the moving and storage segment. Our cost saving initiatives related to personnel, telephone directory advertising and telecommunication costs are beginning to bear fruit.

Additionally, the rotation of older trucks out of the fleet over the last several years has resulted in lower equipment repair costs today. Depreciation expense decreased nearly $10 million for the second quarter of fiscal 2010 compared with the same period last year.

Included in this change is a little over $6 million of improvements related to the disposal of our rental equipment, primarily from increases in the resale pricing of our cargo van and pickup fleet from this time last year. The remaining decrease in depreciation is related to the box truck fleet. This trend should continue through the remainder of fiscal 2010 as purchases of new trucks have slowed and our accelerated depreciation method results in lower expense as the trucks age.

Our insurance companies reported close to a $2 million decline in operating earnings for the second quarter of fiscal 2010 as compared with the same period last year. Both companies have seen their investment income results decline in relation to the decrease in short-term interest rates over the last 18 months. Our expectation is that their performance will improve over the second half of the year.

Earnings from operations for the second quarter of fiscal 2010 were $95.8 million compared with $95.5 million for the same period last year. The decline in revenue during the quarter was more than offset by reduced variable costs like rental equipment commissions and cost of goods sold, along with lower depreciation and equipment disposal costs. Cash, short-term investments and credit availability excluding the insurance company balances was $394 million at September 30, 2009. With that, I would like to hand the call back to Joe.

Thanks, Jason. We will go to the moderator and then to questions.

(Operator Instructions) Ian Gilson, Zacks Investment.

As we look at the ratios of expenses to truck rental and to total revenue, the operating expense ratio as a percent of revenue in the second quarter of last year was 62.45% and then the quarter just completed was 64.07%. So in fact, you are still -- apparently still suffering from the mismatch between revenue and expenses.

(multiple speakers) go ahead.

Can we get that ratio to be a little better? Because we're going into the second half of the year when demand does fall off because of the weather and seasonal factors and you don't appear to have that much room in cutting your operating expense number.

I will address it as Jason fiercely tries to do some calculations. Of course I get to see weekly, daily and monthly numbers which you don't get to see quite. I think what we saw is we -- you're getting a blended rate there. I believe if we looked at where we actually performed in September, that we have got that back into balance.

I don't have an exact number. I'll see if Jason can give us -- I guess he can't quote the specific numbers on that for just a month. But you're getting a blended number and these things all take a period of months to kind of work their way through.

Some of these big items like personnel, equipment maintenance, I think you can see that those are turning and those in fact have turned. A lot of miscellaneous expenses I believe I got control of probably in July.

So I believe -- you're point is well taken. I believe the steps have been taken to do that. Otherwise as you can see from the numbers, we are below the same period last year. We finished last year with pathetic results and we will be underwater if we don't do better. So I'm acutely aware of that.

I believe that the steps that have been taken -- I am counting a little bit on us having a better variance to last year on overall revenue. I believe we saw greatest variance to last year in overall revenue in the March, April, May of this and I believe that variance has been tightening and that we are now positioned to be very, very close to the same revenue as last year.

Maybe once in a while we might get a percent or so increase over last year and our cost structure is improved. So, I'm believing we are going to do okay. Although as I indicated in my prepared results, I picked the two worst quarters of the year to try to improve results, there's no question about it.

Depreciation, that included a variance of $6 million or a profit of $6 million from the sale of trucks?

We actually had a net profit for the year from trucks for the quarter and for the six months compared to a loss last year. So the improvement -- that $6 million is a variance but we ended the six months with about a one -- I think for the quarter we had about a $1.6 million gain on the sale of equipment.

Okay, so as you look at the next two quarters on sales of equipment, did the loss steepen or -- because you did have a modest increase in depreciation expense in the third and fourth quarters of last year. Are we looking for a number more like the $57 million or more like the $65 million?

When you say the $57 million, are you referring to proceeds or the (multiple speakers)

No, total depreciation in the second quarter was $56.79 million.

That number should continue to trend down through the rest of the year.

That's good. And do you have a number for trucks in service?

Total trucks in service right now are just under $100,000.

As I said in my remarks, the actions we took in Q4 of last year just simply will result in a slight lowering of that number. I don't think (inaudible) the calculation is done. But the net answer is we're selling at a slightly faster rate than we are replacing. So fleet is going to continue to decline at least for the next 100 days, at least.

But you did have a significant reduction in CapEx in the quarter?

Yes, so that kind of comes through. It's a net result of how fast you sell, how fast you add and when you add. I can't even do the calculation as they do. But from a practical point of view, [what do you got] at the point-of-sale to ramp? Sure, the number's down which means I'm banking on getting some utilization increases.

I have reasons to believe I'm going to get this increases just through a little bit more careful management. They're going to be miniscule as a percentage but overall, it's a lot. So I expect we're going to see a slightly smaller fleet doing as many or maybe a few more transactions which means I'm looking to get a utilization increase over the same period last year. And everything I see right now says we're going to be successful at that.

(Operator Instructions). There are no further questions in queue, sir.

All right, well I don't know whether to be happy or glad that we're not getting more questions. I appreciate your continued support. I feel I am naturally a glass half empty guy in a lot of ways.

But I think that we -- unless economic conditions just tragically worsen, I think we're through the worst of this and we are going ahead. We haven't cut anything that's going to cost us more to fix later and I am [privately] cautious not to do that.

So the cuts we've made I don't think are going to result in us having to play catch-up next year or the year after. Our fleet is in tip-top shape. Our consumer satisfaction is as high as I have ever seen it.

All of these things say we're going to do as well as can be done. Now how good that will be, I'm not able to really accurately predict. But it's going to be better than last year. I promise you that. I again thank you all for your continued following of our results and look forward to speaking to you again in 90 days. With that, I will return it back to the moderator.

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