U-Haul Holding Co (UHAL) 2010 Q3 法說會逐字稿

Good morning. My name is Tracy and I will be your conference operator today. At this time, I would like to welcome everyone to the third-quarter fiscal 2010 investor conference call. (Operator Instructions). Thank you. Ms. Flachman, you may begin your conference.

Thank you for joining us today and welcome to the AMERCO third-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. 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, 2009, which is on file with the Securities and Exchange Commission.

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

Thanks, Jennifer. Good morning. I'm speaking to you from Phoenix, Arizona. Also on the call with me from New York City is Gary Horton, AMERCO's Treasurer, and from Reno, Nevada, Rocky Wardrip, AMERCO's Assistant Treasurer. We will all be available for questions after the prepared remarks. Joe Shoen, the Chairman of AMERCO, is unable to participate in today's call.

Yesterday, we reported third-quarter earnings of $0.02 per share, compared to a loss of $1.46 for the same period in fiscal 2009.

U-Move revenues for the quarter increased nearly $10 million, or just more than 3%, largely from transaction growth.

During the quarter, we experienced improvements in both our one-way and in-town truck rental transactions. With the average count of our box fleet down about 1% for the quarter, we've been able to improve our utilization.

During the first half of this fiscal year, we had been negatively affected by exchange rates with Canada. This reversed course in the third quarter, and was slightly positive.

Our revenues are still being challenged by price competition, the model mix being rented, and the average miles driven per rental transaction. We have not discerned any significant changes in the competitive landscape since we last spoke in November.

At our last earnings call, we mentioned that we were cautiously optimistic about the trajectory of our U-Move revenues. The third quarter was clearly a positive development. Our continued focus is to maintain and build upon these gains.

Revenues for our storage program increased $534,000 for the third quarter of fiscal 2010, as compared to the same period last year. We finished the quarter with more rooms occupied than the same time last year, as move-in activity has picked up modestly and move-out activity has slowed slightly.

Our occupancy rates are down nearly 4% for the quarter to 37 -- to 74%. During the third quarter of this year, we expanded our storage portfolio by 2,500 rooms, equaling over 212,000 square feet of new net rentable space.

Sales of our retail products, including moving supplies, towing accessories and installation, and propane, increased $2.4 million. The largest contributors to this improvement were moving supplies and volume growth in propane sales.

Operating expenses for the quarter decreased $17 million, caused by the reductions in the moving and storage segments. The largest declines were in personnel and equipment and repair costs.

Maintenance -- management efforts to control personnel continue to show results. Also, the rotation of older trucks out of the fleet over the last several years has led to lower equipment repair costs.

Depreciation expense decreased nearly $12 million for the third quarter of fiscal 2010, compared with the same period last year. Improvements in resale pricing of our cargo vans and pick-ups are responsible for approximately $5 million of the expense decrease. This trend should continue through the remainder of fiscal 2010. Depreciation related to the box truck fleet accounted for the remainder of the difference.

Earnings from operations for the third quarter of fiscal 2010 improved nearly $43 million, to $28.6 million. The key factors leading to this improvement were growth in moving transactions, lower required maintenance and repair spending, declining fleet costs, and an improved contribution margin from self-moving and self-storage product sales.

With that, I would like to hand the call back to our moderator to begin the question-and-answer session.

(Operator Instructions). Jim Barrett, CL King & Associates.

Jason, could you talk about the reduction in operating expenses at moving and storage? If you could, specifically talk about the reduction in personnel expense. Were their headcount reductions, or how was that achieved and how sustainable is it?

Sure, I'll break that into two major components. We have had reductions in headcount in support staff, or back-office functions, I'll call it, here at the headquarters. That took place in the middle part of this calendar year.

And then out in the field, we've had some significant efforts as far as improving scheduling. So, I wouldn't attribute any decreases in the field to significant headcount reductions. It's more just improved scheduling at the centers, trying to ensure that we have people at the centers only at the times where we have consumer demand.

I take it that means on average there are fewer hours per employees out in the field?

In most cases, yes.

And then, if you could move on to the fact that your truck maintenance expense is down. Have you closed any repair depots or is it simply also a function of personnel and newer trucks?

We've been able to, I'll call it, streamline the repair operations, which has resulted in some reduced headcount at the repair locations. I wouldn't say that there has been wholesale closings of repair facilities. That hasn't taken place.

I'd say the larger issue at hand, as far as the reduction for the quarter is, going into the slower months of October, November, and December, we were able to focus some of our efforts on removing older trucks that would've required higher maintenance during the quarter. We removed those in the second quarter into the third quarter, and we recognized some significant savings from that, as well as we've been able to reduce outside repair costs, and that is a result of a number of things.

We've been putting programs in place over the past few years to improve our preventative maintenance programs, and when we have trucks hitting the preventive maintenance when they are supposed to, that ends up in reduced outside repairs down the line.

And then, finally, is the magnitude of the reduction to the operating expenses in moving and storage, do you envision that as -- are these permanent reductions that should sustain themselves going forward?

The personnel costs, I would say that that should continue. That was certainly a smaller component of the combined decrease in operating costs for the quarter, with maintenance be a much larger component. The headcount -- I mean, the personnel costs should continue to be savings year over year, at least until the second quarter of next year, I would suspect.

On the repair and maintenance, I'm hesitant to project this same level of decrease going forward. Obviously, that's our focus. But I would pause before I told you to count that as a run rate.

And is that because your truck fleet is aging as we speak?

That's certainly part of it. And then, also, we did -- every time you take out a chunk of these trucks, it's important to see if we have any more similar to that coming up in the queue. So, I'm -- our repair operations folks believe that there is further savings, and I certainly hope that that's the case, but I wouldn't project something of this magnitude going forward every quarter.

Gary Lenhoff, Ironworks Capital Management.

Question. Can you repeat -- you said depreciation was $12 million less than the prior year's quarter, and what was the $5 million improvement due to?

$5 million of that improvement was due from improvement in pricing of the cargo van and pick-up sales that we have because we net --

Right.

-- the losses or gains on the disposal of equipment into the number, and the disposal number improved about $5 million compared to last year.

Got it. It looks like your life insurance premiums in the quarter are sizably greater than last quarter or prior-year. Can you help me out understanding what happened there?

Sure. We showed an increase in premiums from Oxford, as well as benefits, and both of those are tied into each other.

For a few years now, Oxford has been selling a final expense small life insurance policy. The premium from that is relatively small on a per-policy basis, but it's been accumulating now for several years, and that's getting to be a somewhat large number.

Also, about the halfway point of this year, Oxford launched a new single premium whole-life product, which is a much more significant premium attached to each of those policies. They've -- in their third quarter, they saw a significant amount of new premiums come through related to that. So, the majority of the premium increase that you see taking place at Oxford is related to new life insurance sales, and whenever we put up the new premiums for those policies, then there is also a significant reserve increase for the future benefits to that.

So, a large influx of cash, some non-cash reserves being put up in the current period.

So if life premiums look like they were about $10 million greater than last -- than Q2, should we be thinking that that's going to be -- that's the new base level going forward? Or is (multiple speakers) there $39 million in it for the quarter?

They're into the production of that product now for about five or six months. It looks encouraging, so we should see some increases year over year.

I'm not sure if you'll see the same magnitude next quarter. I mean, it's still a new product launch. So I don't know if I have enough experience to trend that forward, but we should be seeing certainly year-over-year improvements. I'm not sure about sequential improvements yet.

But, should -- I guess I'm asking, should we be thinking in terms of the $39 million in Q3, is that a fair estimate of going-forward revenues? Not looking to grow that by another 10, but sustaining that level?

I would certainly hope so. But like I said, it's a new product launch. They could have some hiccups in the launch as it goes out. But, that's certainly attainable. They've proven they can do it, and if everything works right, that would be the case.

Fair enough. Do the results from this quarter change your thoughts, or can you shed some light on what your thinking is with respect to net capital expenditures in Q4 and then for 2011?

We are fairly set on our fourth-quarter capital expenditures since there's quite a bit of lead time -- in order to get that off the ground. So, we should still be slightly under fourth quarter of last year as far as growth capital expenditures go on the fleet. But certainly the thought process here is that fleet investment will increase next year.

Over fiscal 2010?

Yes, over fiscal 2010. I don't know if we'll hit the same levels as we had in 2009. But certainly there's an expectation of increased investment next year.

And just, where do you see -- for 2010, where do you see net CapEx coming out?

I don't have enough comfort with the fleet plan right now to be able to tell you. But this year, I think it's going to be somewhere around 120 or 130 is what we've been saying. So -- if you add a few thousand more trucks on top of that, you can kind of do the math.

And when will the 10-Q be out?

It was filed last night.

Oh, okay. I didn't see it this morning.

It should be out. I got the confirmation back that it filed, so it should be out there.

(Operator Instructions). Ian Gilson, Zacks Investment Research, Inc..

(Multiple speakers) I think this is the first profitable third quarter in four years.

At least that much.

I've got a few small questions. First of all, is the transaction growth a sustainable trend or is it something that may be the weather versus last year or some other factors? Can we point to this as being a trend through next year? I know the fourth quarter is very iffy because it's a low quarter. But are we looking at, say, having seen the bottom and we're now on the way up?

That would be our hope. And I'll break it down into the two major categories of transactions. On the in-town transactions, we've been seeing those grow throughout the entire year. So if there's anything that would be a trend, it would be our in-town transaction growth, which has been consistent and strong for at least the last nine to 12 months.

On the one-way transactions, we started off the year down, and over the last six months we've seen it pick up quite a bit, and we're almost at the same place we were last year now because we've been able to make up for the first part of the year.

I'm a little more hesitant to say that there is a trend there. Our guys have been working very hard to grow those transactions, so it's a constant effort for them. I would say that those -- I'm less inclined to call that a trend yet, although we have had a good six months and it's looking more and more like that. But that's where we're at right now.

I guess Gary would probably know the answer. Ratio of truck purchases versus truck leases in the quarter?

Actually, Gary is -- on the way. I think I have that information. So let me take a look here, I'm sorry. Looks roughly about two -- I'm sorry. Rocky, do you happen to have the number at your fingertips while I'm looking?

I don't, Jason. But my guess would be it was probably about a 50/50 mix, Ian. There wasn't a tremendous amount of activity during the quarter, but it was probably about a 50-50 mix for the current quarter. And overall, I think we're probably still maybe somewhere in about the 60% range as far as the status of the total fleet that's leased.

Okay, and what was the truck count at the end of the quarter, excluding those subject to sale?

Including our pick-ups and cargo vans, we were right -- right under 100,000 trucks [though].

There is a new line item on the balance sheet -- the income statement, actually. Excess carrying amounts of preferred stock over consideration paid. What does that mean?

I've been waiting for someone to ask that question. But during the first nine months of the year, our property and casualty insurance subsidiary has been purchasing shares of AMERCO preferred stock for their investment portfolio on the open market.

While we haven't redeemed these shares, for accounting purposes we need to account for the purchase as a redemption. So, the difference between what they purchased them for and what we issued them for is recorded as an adjustment to earnings per share.

So that small amount represents -- I guess you'd call it the discount from what we issued the shares at, compared to what they were purchasing them at on the open market.

Does this require Board approval? And can they sell at will?

They can sell these at will. They are not redeemed. The subsidiary insurance Board approved them. The AMERCO Board is aware of the transaction.

Ross Haberman, Haberman Value Fund.

I got on a little late. Did you make any mention of what you're seeing in terms of pricing -- on the pricing side as opposed to the volume of business?

I did make a brief comment on the competitive market, and that is that we haven't seen any material shifts in the competitive market since Joe last spoke about it at the last call. So I'll let his comments stand on that, as we haven't seen any significant alterations to that.

So, [somay]. It sounds like most of what you saw was really a volume-driven improvement?

Correct. You know, we are seeing a slight change in the types of one-way transactions. People are using smaller trucks and maybe going fewer miles. So, we are not seeing a percentage-for-percentage increase in revenue on transaction growth because our average dollar per transaction has been coming down a little bit. So the growth has been transaction-driven.

Do you see that beginning to continue into the new year? Into the new calendar year, I should say.

We've seen that revenue-per-transaction variance pull back. It's been -- the negative variance has been decreasing over the last nine months. It's still slightly negative.

We're starting to run into some comparisons from last year that were also negative, so just based upon that, the numbers should start to flatten out.

How about pricing on the storage side? What are you seeing there? I guess occupancy year to year was down a little bit.

Yes, occupancy as a percentage has been down. Occupancy as an absolute number has been up, if that makes sense. We've been increasing as far as the portfolio over the last several years and we haven't been able to fill the rooms as fast as we have been putting them on, which has been leading to a watering down of our occupancy rate.

Pricing in the storage side has largely been flat. We've been able to hold rates at a natural level. Joe has much more insight into market by market. I kind of just look at the whole thing from a top-level view, and from a top-level view it appears that we've been able to hold pricing and continue to add new occupancy.

Just two technical detail questions on the balance sheet. On the asset side, related party assets of 294, what is that, and other assets of 174, what is that? On the balance sheet.

The related party assets, I'll reference you to, when you get a chance, page 20 in our 10-Q filing, which is notes receivable from related party entities, which would be SAC Holdings primarily, and we do management for them so there's -- at any given time, there's payables and receivables that go between the two companies.

On the other assets, we have some deposits related to leases, loans -- it's a whole bunch of small things, and there's a bump up in that over the last quarter because we had a shift in our deferred tax provision where we filed for a federal income tax refund and moved that out of our deferred provision and moved it into our receivable, which fell into other assets.

So if you're seeing a shift in that balance, that's primarily the biggest change.

And finally, over calendar 2010 how much debt do you think you're going to pay down, or will you continue to carry? I know the large amount of cash, cash equivalents you were concerned about being able to draw down last year, but as things moderate, will you -- I've got to assume you've got a negative carry there. Will you use some of that excess cash and pay down debt?

(Multiple speakers) I'm going to ask Gary or Rocky to answer that one.

Yes, this is Rocky. We have already made reductions of $10 million under revolving lines in January. We have another 50 that we will be making shortly to another revolving line here in February, and we have notice the trustee on the cargo van and pick-up truck securitization, that we will be prepaying that by -- amount, which is $86.6 million at par on February 25.

So you'll be paying about 140 down, about (multiple speakers)

That's correct, and we're very cognizant of maintaining adequate liquidity, but I think we're (multiple speakers)

(Multiple speakers). Is adequate liquidity, though, $100 million or -- it's not $400 million.

No. We obviously -- at December, we had $400 million and we should be fairly cash neutral during the fourth quarter because all of our truck acquisitions are basically arranged for financing, so we're just making a reduction in our cash balances, but we'll still maintain a level that will probably be somewhere north of $200 million.

$200 million in terms of net debt paid down during the year?

No, of cash and cash equivalents, so it'll probably be still north of $200 million. And the three paydowns that I mentioned, the 10, the 15, the 86, are the first phase of this. We may make some additional reductions in the revolving line later on in the quarter.

Because -- I -- is it true -- is it a current assumption that you basically have in the negative carry?

That is a correct assumption. Although on the revolving lines, it's fairly minimal. So they're LIBOR-based without a floor, and actually both facilities carry spreads around 150 bps and so it's not an outrageous negative carry on that.

One of the reasons why we're prepaying the cargo deal is that was a 5.4% deal, and certainly that type of yield is not available to us on the market with what we typically invest in.

Got it. Okay. All right, guys, the best of luck. Again, nice quarter.

Jim Barrett, CL King and Associates.

Can you talk a bit about your treatment of accelerated depreciation on your trucks and to what degree that contributed to the reduced depreciation in the quarter? How should we look at that going forward?

Sure. Just to kind of refresh everyone's memory on the depreciation, it's an accelerated model where the first year we're taking 16% of the book value off of the truck and charging it to depreciation (multiple speakers) just under to 13%, and then down to 11%, and so on.

Right now, we have -- because of the heavy leasing activity over the last 1.5 or two years, we're seeing the fleet that was added to the balance sheet begin to move down that chain, and I think for the quarter, the depreciation reduction related to the shifting down in accelerated depreciation was maybe $2.5 million to $3 million.

Assuming that we don't add any additional trucks to the balance sheet, which I don't think that that's exactly a correct assumption, but just looking at the existing balance-sheet trucks, if you were to have just those trucks move through the balance sheet next year, you'd probably see maybe a $14 million to $15 million decrease in depreciation on those units. (multiple speakers)

That's actually helpful.

We may be adding new trucks, in which case that could -- it would be very easy to shift that variance the other way.

Correct. And the comment made that capital -- gross capital expenditures are going up next year, I think Joe Shoen mentioned, I thought on the last call, that you'd have a net reduction of 5,000 units in your fleet. Is the comment today that capital expenditures are going up, is the goal now to maintain the fleet or enlarge it, and has there been a change in goal there?

I don't think there's been a significant change in the goal. The fleet is coming down slowly, and this year we really didn't add what I would call a significant number of trucks in relation to what we've done the last several years.

So, there will be some level of catch-up involved. Even if we were to do 5,000 to 8,000 trucks, that may not grow the fleet just because we still have another set of trucks that we have to de-fleet in the coming years.

So, obviously if demand increases, we would have a need to add more trucks and we would do that and we are in a position to do that. But at this point, I don't think that I've seen anything that would deviate from what Joe said at the last call. (multiple speakers)

Jim, this is Rocky. If I can add to what Jason said, I think that what you'll see us do, regardless of the acquisitions, is really control the fleet types through what we sell or remove from the fleet for sale on the back end. And that number could be the main variable, not necessarily the acquisition number.

And then, the last and least, Jason, you mentioned a tax refund. Can you tell us generally what the size of that refund is and what you'd expect the Company pay in cash taxes this year?

The refund is a carryback of some NOLs, and it's a shade over $40 million.

Our cash taxes, in comparison to what we paid this year, are obviously going to increase as our profitability has been improving. And again, the cash projection is heavily dependent upon our CapEx budget and how we decide to finance those trucks.

I see. So for the fiscal 2010 year, it's difficult to determine at this point what your cash taxes are likely to be relative to your GAAP taxes?

Our cash taxes -- I'm sorry, I thought you meant looking forward into next fiscal year. So this fiscal year, I don't have the exact number. It's a fairly small number.

Jason, this is Rocky. I think on (multiple speakers) trailing 12-month basis, Jim, that it's about -- it's around $2 million, $2.1 million, something like that.

Ian Gilson, Zacks Investment Research, Inc..

Quick question on the truck sales. Were they profitable in the quarter or just a lower loss versus a year ago?

For the quarter, I think we have a small loss. I think it was $300,000.

At this time, there are no further questions. Mr. Berg, are there any closing remarks?

I'd like to thank everyone for your participation in today's call. We appreciate your interest and support, and look forward to speaking with you at our next public event. Thank you very much.

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