U-Haul Holding Co (UHAL) 2011 Q2 法說會逐字稿

Good morning. My name is to Sunika, and I will be your conference operator today. At this time, I would like to welcome everyone to the AMERCO second-quarter fiscal 2011 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). Thank you. I would now like to turn the call over to Ms. Jennifer Flachman. You may begin.

Thank you for joining us today, and welcome to the AMERCO second-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 September 30, 2010, which is on file with the Securities and Exchange Commission.

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

Hello, welcome. I'm speaking to you from Phoenix, Arizona. I have Jason Berg, our Chief Accounting Officer, here with me, and Gary Horton, our Chief Financial Officer, is present via the telephone.

The last 24 months have been a financial roller coaster. Through it all, we have tried to manage with an eye toward the future. This, of course, has meant continuing to invest in our U-Haul rental equipment and our self-storage product. Additionally, we are continuing to push the portable storage arena and in vehicle sharing. Portable storage looks like it will join the U-Haul product line across North America between now and this coming summer. We are now in our third iteration of vehicle sharing technology and we are starting to have a very workable system.

We have held extremely tight in expenses the past 24 months. You may see some catch-up in the second half of this year. Our Reno, Nevada finance group headed by Gary Horton just closed a $155 million rental truck securitization. This was very well received by lenders. However, we are continuing to maintain a conservative liquidity position.

We implemented an updated U-Haul.com website in August. As some of you know, we do all our website work in-house. I think we have a winner here and I encourage you to log on and take a look for yourself.

Like a lot of companies, our business cycle is not one quarter or one year. Our most critical resource remains personnel. The team we have in place is top notch and working hard. Based on that, I expect us to continue to be successful. With that, I will turn it over to Jason for the numbers.

Thank you, Joe. Yesterday, we reported second-quarter earnings of $4.22 per share compared with $2.14 per share for the same period in fiscal 2010. U-Move revenues for the quarter increased just under $40 million or 9%. We are continuing to see transaction growth for both in town and one-way moves.

Two key performance measurements, utilization of the truck fleet and our average revenue per transaction, are both increasing. The average number of trucks in our rental fleet was during the quarter (technical difficulty) last year.

Meanwhile, our total (technical difficulty) are up 60%. (technical difficulty) equipment. Average revenue per transaction is up. This is not to say that overall pricing in the market has improved though.

Revenues and total rooms occupied are both up in our self-storage program. Revenues for our storage program increased nearly $3.25 million and our average number of rooms occupied during the quarter increased approximately 6%. Last year at this time, I was reporting a 5% decrease in our occupancy ratio and a decrease of over 1200 occupied rooms.

This year, our all-in occupancy rate for the quarter were 78%, which was an increase of 1% compared to last year. And our occupied rooms increased nearly 7,000 from this time last year.

We are continuing to add new product to the portfolio. During the second quarter, we have added over 1600 rooms, which translates into about 168,000 net rentable square feet.

Our consolidated operating expenses for the second quarter of fiscal 2011 decreased $3.5 million compared to the same time last year. The improvement came from the Moving and Storage segment and was due in large part to our liability costs associated with the rental equipment fleet.

As previous years incurred loss experience develops over time, we're able to improve our estimates of what the ultimate costs will be for these prior periods. The resulting of refinements we made in the estimates of these liabilities were recorded into our income statement and resulted in a positive fluctuation of nearly $5 million compared to the second quarter of fiscal 2010.

Depreciation expense, as reported, decreased over $12 million for the second quarter of fiscal 2011. Nearly half of the decrease was due to improvements in our gain on the disposal of property, plant and equipment. This variance may begin to lessen going forward as it was around the third and fourth quarters of last year that we begin to see improvement in the resale market for our cargo vans and pickups. As a result of these developments, earnings from operations for the second quarter of fiscal 2011 were $158 million compared to $96 million in the second quarter of fiscal 2010.

Cash and short-term investments, excluding our insurance companies, was $286 million at September 30, 2010 with additional cash availability from existing borrowing facilities of $235 million.

In addition to this liquidity, last Friday, as Joe mentioned, we closed on a new fleet securitization loan that will cover $155 million of new truck acquisitions.

Capital expenditures on new rental trucks and trailers in the first six months of 2011 increased by approximately $60 million, while proceeds from the sale of retired equipment increased approximately $32 million.

The projection that we include in our 10-Q is for net capital expenditures. This takes our gross investment in the rental suite and subtracts the proceeds from the sale of older equipment. We are still protecting this number to be around $210 million for fiscal 2011.

Through the first six months of this year, we are somewhere around $90 million. Spending on real estate-related items, including construction, renovation and acquisitions, increased $15 million compared to the first six months of last year.

I would like to remind everyone or let those new to the Company know that our results are cyclical throughout the year with our best quarters being the first and second when the preponderance of moves takes place. The third and fourth quarters, we're heading into our typically our toughest from an earnings perspective as moving revenues normally trend down during the winter months.

Last year, we reported much improved results for the third and fourth quarters, so it's our challenge to try to meet these expectations again this year. With that, I'd like to hand the call back to Joe.

Thanks very much, Jason. We'll go now to the question and answer session. Operator?

(Operator Instructions). Jim Barrett.

This is Jim Barrett from CL King. Good morning, Joe. Let's see. Could you tell us about the 9% increase in Moving and Storage? Can you quantify that and tell us how much of it was transaction growth versus mix and other issues?

I can't break out mix, no. But, we had decent transaction growth and we -- across the -- it was across the fleet both ways there, but I'm trying to think. I don't know if I can even give -- I don't have a number on mix, but I don't think mix was a big player. I'm trying to just put myself back a year ago.

But our -- we don't have a big mix change since then. So I wouldn't say it was a tremendous big mix. I think if you look back over the last six months, the comparable period had very weak one-ways, okay? So -- that -- that gain -- so that wasn't a model mix gain, but (technical difficulty) you see much more strength come back in the one-ways than we had seen a year ago at this time.

Now, as Jason indicated, we're now going to go up against a couple quarters where we saw some of this transaction growth last year. So, it's a little less certain what sort of top line is going to really happen. And frankly, I'm watching it week to week because I don't really -- I don't have a prediction.

And Joe, Avis-Budget reported last night. They alluded to the fact their revenues were up 5% in their truck rental business; that pricing on average rose about 1%. With that as backdrop, you indicated I thought that you had yet to see any improvement in pricing. Can you give us more color on that?

Jim, as you recall, we, almost four years ago now, put in a whole new pricing system, a big investment, a big change for us. And that allows us to try to more actually address submarkets, really tiny markets, okay? But there's a lot of them.

And, there's no question we got a bump in dollar per transaction. Some of that was pricing, and some of it was mileage, okay?

I don't know -- I didn't -- this, the Budget's call that -- typically they talk about days utilized. And we don't use that measurement, so I don't really have a comparable number there, but mileage is up a little bit as well as income. So it's a little bit of both.

Okay. Okay, then, finally, you may have alluded to it, but I am not sure I caught the entire first part of the conference call. Is the recent debt taken on to buy new trucks -- does that mean that you are increasing the size of the fleet beyond the current size? Is that the plan looking out six months to a year?

Well, our first one is to get back to where we were. If you recall, two years ago January, we pretty much reduced our commitment to fleet, and so we're going to play catch-up here for several months. I don't think we will get fully caught up till next spring, although, I believe at the end of October, we actually broke even with the year ago.

That's correct.

So, but that was still down maybe 1,000 trucks. It gets a little complicated with how sales go and everything, but I'm hoping to -- that wouldn't hurt my feelings if we could pick up 1,000 net between now and next spring. And I would say we should do that. The used truck sale market is also good right now. So we are not hanging onto something we don't need to hang on to. So, we're kind of being a little opportunistic there.

Okay, Joe. Thank you very much.

(Operator Instructions). Ian Gilson.

The call was breaking up a little bit, particularly in the beginning. So there were some things I didn't get. Talk about the liquidity, and then I missed the rest of it.

You're coming through clear now, Ian.

Yes.

Okay. My comment on that was that Gary got a, what I think -- what looks to me to be a good financing in here last week that closed. But even with the fact that he was being pretty well-received in the debt markets, we are still going to hold a lot of liquidity for us historically. So, and of course, that's a -- arguably a drag on earnings because we are maintaining this liquidity, which costs us something. And, it also means that we are still being a little bit conservative on capital expenditures, although we're out spending money again, but we are not quite -- haven't lost our mind yet, Ian, so we are -- but we are -- we want to keep a hedge.

We are still very unclear as to what 24 months from now looks like. And so, we're going to, at least in the near term, continue to maintain what, for us, is historically a lot of liquidity. Jason gave a number to it. What number did you give, Jason?

Yes, on cash and availability right now is just over $520 million at September 30.

That excludes the investment in the insurance companies?

That's correct.

Okay.

And Jason, does that also exclude the $155 million of new liquidity for trucks?

You're correct, Gary.

So there's another $155 million that basically will cover the acquisitions up -- of new trucks until about April of next year.

Okay. You had spent $90 million in trucks, you got $210 million total for the year, so you've got a $120 million to spend, and you borrowed $155 million. So that takes care of that. Doesn't it?

Yes, it does, and it takes care of some of the trucks actually into next fiscal year.

Okay, okay. Going through the numbers, one of the reasons I track net sales is to look at it as a percentage of a truck rental revenue. And that number actually declined from the level of the first quarter and from the level of the year ago. Has there been a change in there, I presume, that the propane number may have changed somewhat?

Yes, Ian, the propane number is a little bit soft, but it's across the board, and that's kind of one of these things that isn't what we would expect. We would expect to see that number track better with the truck rental revenue.

Of course, I'm very interested in the specifics of our program. But I really think it reflects the overall marketplace, customers' uncertainty, that sort of stuff.

I continue to go through our programs. I can assure you the people who are managing those programs are -- feel very much under pressure from me to have their results near or exceed the truck revenue, but so far we haven't gotten traction on that. So, that's a real astute observation, and while I am trying to turn that, I don't have any -- I don't have a solution right now in hand.

Okay. Oxford Life's revenue have been growing. I believe last year you introduced a new product. But, the net income from Oxford actually declined year over year. When can we expect that to turn around?

Right now I think our expectations for Oxford is that by the end of the year, they should probably be about the same place net income-wise that they were at last year.

The new product that they are selling, the single premium whole life product which has a little bit of a different accounting to it, it's really more like an annuity-type product than a life insurance product. That profitability is spread over the life of the policies, which in general, is seven to 10 years. So, as they begin to get a little bit more math to that, a little more economy of scale, we're going to start to see that be accretive.

Right now, it's a rounding number right now, but I would expect if they keep putting on somewhere between $40 million to $50 million a year, then we should start seeing something that's going to make a difference here toward the end of next year.

Okay. On Republic, you had mentioned in the past, a few years ago, about the long-tail liabilities of Republic. Where do we stand on that?

We continue to feel like we're at the best place that we have been reserve-wise on their liabilities. And that includes the older-tail stuff which would be like the workers compensation business.

The development on that has moderated somewhat from the past years. We're continuing to strengthen the reserves where we can. So their results have been relatively flat. But we're taking a very conservative stance on those reserves. So, we continue to think that we're in a great spot historically on those reserves.

Okay, fine. Thank you.

(Operator Instructions). Robert Bruce.

I ask this question every time. The preferred stock, which is -- seems to be very expensive since it's an after-tax payment on the preferred, do you have any intention of retiring that? It seems like awful expensive money.

Robert, this is Joe. You sound like you work with Gary. I think this goes back to our fundamental risk aversion, which we -- a burnt child is scared of fire, okay? We are keeping real liquid. And we're paying a little bit of a price for it. I was -- we continue to have good reception in debt markets, but as you know, we are dependent on debt markets. We have to go back and continue to roll debt.

We have very -- you know, a pretty decent maturity schedule. We don't have a lot of surprises, but the way that markets have been so nontraditional I guess would be a pleasant way to say that, we have been keeping ourselves, by our standards, is overly liquid.

Now, of course, if something went wrong, this would look very prudent. So far, it's just been a drag on earnings. And I don't see that changing. I don't see our policy changing, certainly over the next 90 days, but it's -- there's advocates for your position in our organization, and they are reasonably vocal. There's no prohibition against us, Gary. You correct me if I'm wrong. We wish to pay that down; that's just a simple election we make, correct?

That is correct. So, we can pay it down, but at the present time, we do not have that plan. And again, I think it goes clearly back to us being risk-averse.

Thank you.

Jim Barrett.

Joe, I had a follow-up question on portable storage and your comment that it would be across the US by next summer. Can you tell us how much of an investment in capital that will require? And to what extent will it require an investment in marketing spending and related SG&A costs to launch that service?

I don't think the SG&A is going to be real big. It's a little difficult to give you a real accurate number, but I would -- and Jason you jump in if you think I'm whacked. I think we're $40 million minus in that at this time on a fair basis.

You know, I'm trying to allocate some of the capital -- it's using some facilities and stuff that maybe we weren't using before. But trying to be in a somewhat of a fair way of looking at it, I would say we're using about $40 million of capital. It's not a great amount of SG&A.

I don't foresee a big expense in markets. We are attempting to do a lot of that via our website and our existing point-of-sale. We have regularly been absorbing into the income statement, our software development. So I think that stuff is typically over 24, 36 months if I happen to be correct there, Jason?

Yes.

So we do a little amortization on that, but it's not -- we're trying to make sure we don't build a bow wave of expenses ahead of us.

So, but of course, it's consuming more values than it is creating right now. There's no question it's some kind of a drag on the company. I couldn't give you an absolute accurate number. I can give you a lot of specific information but nothing that will add up to a number that would be a Company-wide number. So, I think it's going to grow. I think it's a -- I think the consumer wants it. And to the extent they want it, it's our task to figure out how to provide it at a profit, which is what we're doing.

We've retooled some things. We think we have a little bit better way of going about it to try to get us some costs or economies that maybe everybody in the business doesn't enjoy.

To my knowledge, Jim, the one providing it is making an accounting profit. Now, there may be somebody -- they don't share their books with me, but I don't believe anybody who is doing this is making a -- is booking a what you would call a profit. Although there's a lot of people generating a lot of gross revenue. I'm a little interested in developing a profit. So, I'm proceeding a little bit gingerly, and as a result, we are now at way over 200 locations.

I may be -- we may be 225 locations right now in the United States and Canada offering service. And I would expect we will be offering the service three or four times that amount by summer. But I don't think it's going to be a big kick up in money. I mean $10 million or less of investment, so maybe that stuff has an average life of four years would be a guess; $2.5 million a year thrown right against expenses. That's a guess for property, plant and equipment.

The personnel complement is the big one where I think we can save some money. And I don't have a forecast to how that's going to go over the next year or two, but I'm looking to cap or lower our present personnel complement to that; I think we can do it on a more traditional U-Haul do-it-yourself method, but I haven't got all the bugs worked out of that, but we're hard at it. We have at least a kernel of an approach of how to do that.

And, based upon those 200 locations, are you in, what, 25% of the US now?

Oh no, we're -- well that's -- of course it's a liar's contest to what the radius is of any location --

True, yes.

But we are in every city that you consider major. It's probably not where you live, though; you know how that always goes. But we are in -- we're above that if -- let's say -- I don't know a Pods claims, but let's say Pods claims that they are covering 60% of the country. If they are covering 60%, I'm covering 70%, okay? I've got a broader distribution than anybody else.

But I -- but it's a little bit of a liar's contest on how big a radius you draw around any point, and I think economics if you were real careful about it, would cause you to constrict the radius rather than expand the radius of service, Jim.

And so maybe none of us -- maybe we're all at 25%. Maybe you're being pretty accurate there, okay? But I don't have a -- I can tell you I'm in more places, but I can't give you an honest answer because I don't think we know the radius of coverage yet.

I think we've -- somewhat ignorantly, most of the people in the business are using 25 or 50 miles for a radius. I think that's grossly too big to be economically viable. So, we are conceptually tightening it down, but I don't have a calculation.

Okay. And how would you describe pricing in that business? And has Pod responded competitively to the fact that U-Haul has entered the business? I mean I would think that they view you as a very serious competitor.

Well, it's very interesting. A huge portion of their revenues is in parking that thing at a location and people using it for on-site storage, and we're not targeting that market at all.

So, they may be just happy about us being here because we're going to expand the marketplace. I don't -- we don't have any communication with them presently. Since -- when they were purchased here about two years ago, we -- our contacts with them kind of expired, so we don't have any -- there's no give and take with them. We're not in any kind of a conversation with them, so all of that, all I see is publicly reported information which is fairly anecdotal.

I think they are still growing as far as I know. So, and we don't see them as -- we don't see them as the biggest problem out there, although they've done a great job.

I don't want to take anything away from them or make light of them. But they're very, very much for on-site storage. And we have made a decision to just not emphasize that at all. That would be real collateral. If that was 10% of our revenues, I would be floored. I don't think it's anywhere approaching 10%. And I'll bet with them, it's 30% to 40%.

And then finally, Joe, can you give us a general sense of when you would expect to break out portable storage as a separate segment?

As soon as we got enough money to (multiple speakers)

Okay. A fair answer. Okay, well thank you very much.

Thank you, too.

Ian Gilson.

Going through my notes, I see that you may have commented about transactions, and what I have here is that transactions increased by 6%. Is that a correct number?

Yes it is, Ian.

Okay, great. Thank you.

There are no further questions at this time. Mr. Shoen, would you like to have any closing remarks?

Sure. I want to thank everybody for participating. I apologize for the whatever is going on with the phones. We couldn't figure out -- we don't know what's causing it, but I apologize for it and whether it's -- wherever it is we won't have it next call. I can assure you of that. I like -- I appreciate your support and look forward to talking to you again in 90 days.

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