U-Haul Holding Co (UHAL) 2011 Q1 法說會逐字稿

Good morning. My name is Tierra, and I will be your conference operator today. At this time, I would like to welcome everyone to AMERCO's first-quarter fiscal 2011 investor conference 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). Thank you. Ms. Flachman, you may begin your conference.

Thank you for joining us today, and welcome to the AMERCO first-quarter fiscal 2011 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 June 30, 2010, which is on file with the Securities and Exchange Commission. Participating in the call today will be Joe Shoen, Chairman of AMERCO. I'll now turn the call over to Joe.

Good morning, and welcome to the first-quarter AMERCO investor call. I'm speaking to you from Phoenix. I have Jason Berg, Rocky Wardrip, and Gary Horton also on the line.

As you saw from the numbers, this quarter, we saw a lot of things come into alignment in the U-Haul organization. First of all, everyone at U-Haul did a good job. This was reflected in distribution of our rental equipment, which was as good as we have had in several years. Customer satisfaction has been growing positively over the last 18 months.

Throughout the Company, we are beginning to master the rate system that we installed four years ago. The VoIP phone system we installed over the last 24 months gave us cost decreases and customer service improvements in the June quarter. As a result of a decision we made a year or more ago, we had favorable numbers in maintenance, depreciation, and lease expense.

The next big thing that worked well was the moving customer was receptive to our good work. I don't know if that means they were more optimistic. We're still a little closer on it, but there was just simply a little more business out there.

Our self-storage results continue to lag behind our self-move results. Of course, we are working to improve performance. I think we are second to none, but still we are not getting the result we want there.

To me, the entire enterprise still feels a lot like a pan of water balanced on the edge of a ruler. There are many factors still developing that can affect transactions, gross and net income. I do not expect them all to break our way. Of course, I am working on them, but I don't expect them to break our way.

The Company remains staffed with a hard-working team of experienced personnel at nearly every position. However, we were staffed that way in the rough quarters we had a year ago.

With that, I will turn the call over to Jason for a discussion of the numbers.

Thanks, Joe. Yesterday, we reported first-quarter earnings of $3.26 per share compared with $1.01 per share for the same period in fiscal 2010.

U-Move revenues for the quarter increased over $46 million or just over 12%. While our results from the first quarter of last year were disappointing, the improvement that we've seen in the first quarter of this year is more than just the result of an easy comparable. We've experienced transaction growth for both in town and one-way moves. Additionally, we have seen that our average revenue per transaction was positive compared to last year at this time.

While it's difficult to attribute this to any one specific cause, that statistic is influenced by the average number of miles driven per transaction, which were up; the mix of equipment rented; and the rental rates charged.

Competitive pressures in the markets still remain. With our average fleet size down a few thousand trucks on average during the quarter compared to the same period last year, our team has been able to improve the utilization of the fleet.

We are continuing to see improvement in the self-storage business with both revenues and total rooms rented up over the same period last year.

Revenues for our storage program increased over $1 million, and our average number of rooms occupied during the quarter increased nearly 5%. Our all-in occupancy rates for the quarter were even with the first quarter of last year. This occupancy rate continues to be somewhat diluted by the addition of new product.

In the last 12 months, we have added 7400 rooms and 592,000 net rentable square feet. Of this amount, nearly 1800 rooms and 150,000 net rentable square feet came online during the first quarter of this year.

Sales of our retail products, including moving supplies, towing accessories, and related services and propane, increased $5.5 million during the first quarter of fiscal 2011. We saw improvements during the quarter in each of these major product categories.

Consolidated operating expenses for the first quarter of 2011 decreased just over $5 million compared to the same period last year. The improvement came from the Moving and Storage segment and was primarily due to reduced maintenance and repair costs. These costs generally tend to decrease when we are able to remove older, more maintenance-heavy trucks out of the active fleet.

Based upon what we know as of today, our expectation would be for that these costs would moderate, and the year-over-year reductions that we have seen in recent quarters will begin to level off.

Depreciation expense, as reported, decreased over $14 million for the first quarter of fiscal 2011. Nearly $10 million of the decrease was due to improvements in our gain on the disposal of property, plant and equipment.

As a result of these developments, earnings from operations for the first quarter of fiscal 2011 were $128 million compared to $59 million in the first quarter of fiscal 2010.

Cash and short-term investments, excluding our insurance companies, was $254 million at June 30, 2010, and we had additional cash availability from existing borrowing facilities of $202 million.

Looking at our Moving and Storage capital expenditures for a moment, in the first quarter of fiscal 2011, we invested nearly the same amount in new rental equipment as we did last year at this time.

Spending on real estate-related items, including construction, renovation, and acquisitions, increased $8 million compared to the first quarter of last year. This was primarily from the purchase of new locations.

Our plans for fiscal 2011 as of today are for fleet spending to increase approximately $150 million over fiscal 2010 amounts, with the year-over-year variances beginning in the second quarter and extending through the end of the fiscal year.

The operating earnings at our insurance subsidiaries were up $795,000 for the first quarter of fiscal 2011 compared to the same time last year.

Oxford continues to generate new sales from its single premium life insurance product, resulting in noticeable premium and benefit increases in our consolidated financial results. While this new business immediately increases both the premiums and benefits, it has a minimal impact on current earnings as the profits from these new policies are recognized over the lifetimes of the policy.

I would like to remind everyone listening that we will be holding our fourth annual virtual analyst meeting over the Internet on Thursday, August 26. This is a great opportunity to hear about our programs in greater detail and have access to the executives responsible for them. In addition to prepared presentations, we will have a live question-and-answer session. We look forward to your participation in this event. With that, I would like to hand the call back to Joe.

Thanks, Jason. Let's go ahead and go to any questions we have. Moderator, would you go to the questions?

(Operator Instructions). Ian Gilson, Zacks Investment.

Congratulations on the team on doing such a great job. Can you hear me?

Yes. Thank you, Ian.

Oh, okay. I had a problem with Oxford, and basically, the quarterly progression of revenue. I don't know why it goes up and down by so much. Could you sort of go through that with me and give me a better handle on how I can forecast the revenue from Oxford?

Sure. This is Jason. I made a comment at the end of my prepared remarks about Oxford, and the reason for the increases in the premiums and the benefits has been that they introduced a new single premium whole life product, which is a product that has a relatively large single premium upfront, somewhat similar to an annuity-type product. But we recognize that premium immediately into the income statement.

That increase, when they ramped up those sales, it increased their revenue rather substantially over the last three quarters. Their net income over that same time period has been fairly flat, so we fully expect sales of that product to continue at a current pace. However, there's -- I'm hesitant to project that out at the same rate.

So, I think you can kind of project what their earnings have been, and you shouldn't see much of a change in their earnings in the near term. But you could see their revenue and benefits continue to be a little bit choppy.

Okay. But if you recognize a premium upfront, and earnings are basically unchanged, you must be recognizing some expense up front as well.

Correct. What we're doing is we are increasing our insurance reserve immediately, so then there's going to be a spread that's going to develop over time as we recognize investment income and have a change in reserve related to the investment income from that single premium.

Okay. Now you've also (multiple speakers) I believe a new Medicare medical insurance?

Well, there's been changes in the standardized Medicare plans throughout the country, so all Medicare insurers -- Medicare supplement insurers -- have had to come to market with new standardized plans. And Oxford is part of that group that has refiled their standardized plans and is still in the market for new business.

Okay. Is that an older product that just has been reorganized because of the health bill?

It's certainly an older product and it's been reorganized, not necessarily from the national legislation, but it's a standardized plan across almost every state.

Okay. Thank you.

Jim Barrett.

Good morning, everyone. Joe, it may be in the Q, but, the 12% increase in Moving and Storage, which must be close to a record for you going back at least the last four or five years -- can you tell us how much of that was transaction growth; how much was pricing and mix?

I'll let Jason have a cut at it, and then I'll see if I agree with him.

I'm going to say that year over year, the transaction growth was more than half of the increase. Mix was part of it. And the good news is, is that -- I shouldn't say that -- and there was also a little bit of price. So, I'd give over half of it to transactions. I don't know Jason, would you do more than half for transactions?

I would say, Jim, it is probably close to two-thirds.

Yes, maybe. Because we had a strong transaction quarter-over-quarter number.

Okay. Do you have, even anecdotally, why the transaction growth was so strong?

You know, Jim, of course we had a crummy quarter last year, okay?

Correct.

So, if you go back and compare this to two or three years ago, it's not quite as stellar a performance, but a bunch of our stuff kind of lined up, is the truth. And I think we ended up saying yes to more customers who had wanted to do business with us in prior quarters but for one reason or another, we couldn't get a value equation communicated to them that they thought was acceptable. So that's why I mentioned our pricing system and our distribution. We had trucks where we wanted them. And we always have excess demand in certain points in the first quarter, and this year we have a little less of that, not because the demand was down, but we had a slightly better distribution of the equipment, so I think that helped.

But I think there's some degree of optimism out there in the ranks of our customers where they were willing to move. We just -- people were -- if you compared it to a year ago, and I can't give you a specific because I don't have one, but people were just more willing to move a distance.

Right.

So, and, you know, I think we've talked about that, that where we saw declines was more in the one-way moves all through this last 24 months.

Right.

So, we got some pickups in the one-way moves in this quarter. And of course, they're a -- the average transaction size is a considerable multiple of an in-town move, so it affects the top line real fast when we get some of that business.

It was an impressive top-line performance. Now, growing the fleet by $150 million, is that going to keep the fleet static, shrink it or grow it?

Right now, that's -- we're still shrinking the fleet because of decisions we made basically February, a year and four months ago. We're attempting to stabilize the fleet -- Jason, do you have a -- you have a fleet calculation -- it's very specific. But we're down a little bit over this same time last year.

And we're down a couple thousand trucks compared to where we were at last year.

So, I'm trying to push back up to that number, and because of the leads and lags and bolts, probably won't get there until almost next May.

Okay. And --

So we're spending more money on trucks, basically.

Yes, understood. And then, Jason, you mentioned the operating expenses in Moving and Storage would moderate and level off. I take it you were referring to on a year-over-year basis?

Yes, and that comment was geared specifically towards the maintenance and repair costs, which we have seen decreasing on a quarter-over-quarter basis. And at a certain point, that number begins -- that decrease begins to slow down. And I think we're probably coming into a time period where that decrease is going to begin to slow down year over year.

So, the $5 million or $6 million decline in operating expenses that we saw in the quarter, year over year, you're suggesting that number is likely to shrink a bit below $5 million on a year-over-year basis going forward?

This is Joe. Absolutely. You can't forecast -- you multiply that times 4, it (inaudible); that's not what's going to happen. We're not going to see a -- in my judgment -- a decrease for the year that looks anything like the decrease for the quarter, times 4.

Okay. Okay, well thank you, both, very much.

Oh, I appreciate your [help].

(Operator Instructions). Gary Lenhoff.

Thanks. Jason, the CapEx number, you said $150 million more than last year for vehicles. Is that -- what is the net number that you are comparing that to for 2010?

Well, that's actually going to be -- I'm assuming about the same dollar amount of sales, so on a gross basis, I think last year, we were -- truck purchases probably grow somewhere around $220 million.

Right.

So we'll be north of that by about $150 million.

Okay. And can you maybe shed a little bit more light on the liability insurance benefits that you are enjoying -- the magnitude this quarter and what you expect to see going forward?

For the quarter, we saw about a $3 million decrease compared to last year. And I would expect for the year that number annualized to come in maybe $8 million to $10 million down.

And that's just experience based. Is that correct?

Correct. That could change throughout the year. If we see change in the activity of losses in the fleet, then that number could certainly shrink.

Sure. Okay; okay. And then just last question, I think I know the answer, but I just want to be sure. In the Q, you note the change in the value of your hedges, of a loss of $12 million. That's related to the interest rate hedges; is that correct?

That's correct.

Okay, great. Thanks so much.

At this time, there are no further questions.

Well, I want to thank everybody for participating in the call. I look forward to talking to you on the virtual analysts call towards the end of this month. Again, if you have questions or you want to address things specifically to more of the executive team, they will be available. And look forward to talking with all of you. Thank you, again.

Ladies and gentlemen, that does conclude today's conference call. You may now disconnect.