U-Haul Holding Co (UHAL) 2011 Q3 法說會逐字稿

Good morning. My name is Felicia and I will be your conference operator today. At this time, I would like to welcome everyone to the AMERCO third-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. Ms. Flachman, you may begin.

Thank you for joining us today, and welcome to the AMERCO third-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 Forms 10-Q for the quarter ended December 31, 2010, 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'll 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 this morning is Gary Horton, AMERCO's Treasurer; and from Reno, Nevada, Rocky Wardrip, AMERCO's Assistant Treasurer. We will be available for questions after the prepared remarks. Joe Shoen, the Chairman of AMERCO, was not able to participate in today's call.

Yesterday, we reported third-quarter earnings of $0.80 per share compared with $0.02 per share for the same period in fiscal 2010. U-Move revenues for the third quarter increased nearly $22 million or almost 7%. We've had improvements in trucks, trailers, specialty rental items, as well as in both our one-way and in-town markets. Year-over-year transactions continue to grow, with about a 2% increase for the quarter. Additionally, utilization of the truck fleet and our average revenue per transaction are both improving.

For the first time this fiscal year, we saw an increase in the average number of trucks in the rental fleet when compared to the same time last year. We were up about 1,000 units. We feel like we're doing what is necessary to capture our share of the increase in consumer demand, but we're still not ready to say that pricing in the market has improved across the board.

We are continuing to see marked improvement in our storage revenues, as we're beginning to get occupancy back up at existing facilities, as well as ramping up new locations. Revenues for our storage program increased $2,700,000 for the quarter. It is fair to say that in general terms, we've been able to earn occupancy and revenue gains without any material discounting. Each market is unique, and while we may need to be more competitive in certain areas, based upon local competition, on average, we've been able to maintain or even slightly increase our rates this year.

For the quarter, our all-in occupancy rate increased just over 1% to 75%, as compared to the same time last year. What is encouraging is that our absorption rate, or what I call the spread between the amount of new storage space made available and the amount of total space rent, it has been positive.

From December 31, 2009 through December 31, 2010, we've added nearly 630,000 net rentable square feet to the storage portfolio. Meanwhile, comparing our third quarter of fiscal 2011 to the same quarter last year, we've increased the average number of occupied square feet by 648,000. Operating expenses at the Moving and Storage segment increased almost $7.5 million for the third quarter of fiscal 2011 compared with the same time last year.

We are continuing to see our liability costs associated with the rental equipment fleet decrease. However, as we mentioned in last quarter's call, we thought that certain costs may have reached their low point and could start increasing. During the quarter, we saw both equipment, maintenance, and personnel expense increase, although as a percent of revenues, they remained flat with last year.

Also, as our U-Box portable storage program begins to gain traction, we're seeing increases in other revenue as well as the associated operating expenses. So far, there's been no material impact to our earnings yet from this program.

Depreciation expense decreased over $6 million for the third quarter. Approximately $2 million of that decrease was from improvements and our gain on the disposal of property, plant and equipment. As I noted last quarter, this variance is beginning to diminish, as it was around the third quarter and fourth quarter of last year that we began to see improvements in the resell market for our cargo vans and pickups.

Premiums in our Life Insurance segment increased just over $35 million in the quarter. During the third quarter of fiscal 2011, we entered into two separate reinsurance agreements, whereby we assumed a block of final expense life policies as well as some Medicare supplement policies. The assumption of the reserve liability associated with the life insurance policies resulted in a one-time increase in premiums for the quarter of just under $31 million, as well as an increase in benefit expense for about the same amount. So the net effect on earnings for the quarter was nil.

The Medicare supplement transaction did not have the same accounting treatment; rather, the premiums from that agreement will be earned over time as the policy owners remit their payments. Profits that we expect from these transactions will be recognized over the remaining life of the underlying policies; so there is no one-time gain or charge related to these transactions.

Earnings from operations for the third quarter of fiscal 2011 were $51 million compared to $29 million in the third quarter of last year. Our cash and short-term investments, excluding the insurance companies, was $372 million at December 31, 2010. We also had additional cash availability from existing borrowing facilities of another $321 million.

Capital expenditures on new rental trucks and trailers in the first nine months of fiscal 2011 increased by approximately $90 million. All proceeds from the sale of retired equipment increased approximately $31 million. The rental equipment CapEx projection that we include in our 10-Q is for net capital expenditures. This takes our growth investment in the rental fleet and subtracts the proceeds from the sale of equipment. We are still projecting this number to be around $210 million for the full fiscal year. Through the first nine months of this year, we're at about $115 million.

Spending on real estate-related items, including construction, renovation and acquisitions, increased $17 million compared to the first nine months of fiscal 2010. As most of you are acutely aware, there is a significant amount of weather-related disturbance across much of the country. While we started January off on a positive note, the weather is displacing some of our business. It's likely, we hope, that this may only postpone or delay transactions; however, it does raise the likelihood that some business can be lost.

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.

This is Jim Barrett. Good morning, Jason, Gary, Rocky. (multiple speakers) Let's see. Jason, could you dissect the revenue growth? How much of it was from transactions versus the revenues per trip?

We had about a 2% increase in transactions, so the remainder is associated with revenue per transaction and then the mix of trucks.

Jim, this is Gary. That may not be a price, per se, but a increase, for example, in miles traveled.

So, is a recovering economy, Gary, seem -- appear to be correlating with your customers taking longer trips and therefore paying you more?

Our miles per transaction are up a little bit. I wouldn't say that [it's] a significant amount. As Joe has mentioned in the last couple of calls, what we're doing is we're trying to optimize the rates that we have in areas that we didn't have to be quite as competitive as we were being.

So when I speak to the folks who actually are doing the day-to-day management of the rates, they're still unwilling to say that we're going head-to-head with the other large competitors, but the rates are still extremely competitive. But what we're trying to do is take our pricing system and increase the rates in areas that we haven't -- that we shouldn't have to be quite so competitive in.

Okay. And Jason, I think you touched upon -- in fact, in the quarterly results, you did experience an increase in maintenance and repair expense. Have we reached an inflection point with that metrics, given the inherent aging of the fleet? Should we expect -- and the fact that the fleet is now a little bit larger, should we expect to see that number creep up on a going-forward basis?

I think in absolute dollars, that number could increase a bit. If revenue stays where it's at as a percent, it may not have an effect on margins.

Much of what we've seen in the past has been the rotation of older trucks out of the fleet. And we've got most of those out now where we're back to more of a normalized schedule. So, right now, what we're doing some special programs on trailers, which is going to increase it a little bit here over the next quarter or so. But from what we see today, I wouldn't expect any significant increases; but what we're trying to tell people is those numbers are unlikely to keep going down.

Okay. And then, finally, just in a very general sense, I know Joe has mentioned in the past that during these -- when the winter storms are bad, you tend not to recoup a lot of that revenue. And I'm just trying to understand, what sort of transactions would not come back? Because it would seem to me that bad weather would delay but not eliminate the business for you.

Well, it -- I think for the most part, it does. But what it does is it kind of reopens the transaction, where now -- in a normal course of business, we would have a certain amount of transactions that are going to take place each weekend. And now, when you postpone or delay, you're pushing more and more transactions into those weekends, which creates availability issues, which then creates the opportunity for business to find other ways of moving. So I think that's our biggest concern there.

That's actually very helpful. Thank you very much.

(Operator Instructions). The next question is a follow-up from the line of Jim Barrett with CL King & Associates.

Hi, again, Jason. The Company is obviously generating a tremendous amount of cash right now. Given your comment that I thought you said that the fleet had essentially normalized, can you give us any even directional sense as to what your next CapEx -- your net CapEx is likely to be next year? Since you're closing out on this year?

It's still a little too early for that. I would say that we've mapped production out maybe into June or so. This year's production, net of sales, which we predict to be around $210 million, I would say is probably closer to what is a normal schedule for us. So if that helps at all with you projecting forward, I would say this year looks much more normal than fiscal '10 did.

This is the normalized year.

Speaking of CapEx, could you comment on the current pricing in used trucks?

Sure. The majority -- if we have any fluctuations in proceeds from the sale of equipment, it's typically from our cargo van and pickup fleet. And those prices began to return to normal -- or what I would call what our normal has been -- last third and fourth quarters. So that's why our gain on the disposal of equipment is beginning to flatten out year-over-year. It's still a gain, though. So, that pricing has remained fairly static over the last, say, nine months or so.

On the box truck fleet, that's a much less material item, as far as our sales go. And I haven't seen any significant swings in the prices of those vehicles.

You have not?

No.

Okay. And in terms of self-storage locations, can you comment to what degree -- as this recession seems to drag on, certainly, in the real estate market, in certain parts of the country -- what sort of pricing are you seeing, as you attempt to expand your self-storage business, in terms of acquiring either greenfield locations or existing self-storage locations?

Sure. As far as -- well, first, I'm going to touch on part of your comment, and that is -- the majority of what is going -- the additions to our portfolio now are from acquired properties. In comparison to what we've done historically, construction of new storage is a far smaller component of the net additions to the storage portfolio.

In an overall sense, pricing has been fairly resilient for us here, as -- generalizing pricing across the entire portfolio, we haven't seen a decrease in price per square foot. As Joe would tell you, it's very much a market-by-market battle, so in any specific market, we could be discounting in order to lease something up.

Our focus is much more on increasing services to customers. And if you can increase the service to the customer, then you can increase the rate. So that's certainly our focus right now in the field.

Okay. So you're really referring to the pricing of your self-storage service. I was actually -- that's very helpful, but I was also interested in also finding out to what degree, as you go out to acquire properties, are the multiples and the value you're receiving -- are you paying less to get an asset than you were a year ago?

Sorry, I misunderstood your question.

That's okay.

And the answer to that is, what we're going after today is certainly cheaper than what we were getting two to three years ago. And new construction in the storage industry has certainly slowed significantly, because there just isn't financing available for it and there hasn't been over the last year or so. Gary was certainly telling us that the financing for existing facilities is coming back. But what we've been paying for our new facilities is certainly down from what it's been.

When you mention value, that's more of a longer-term picture. And certainly, the prices today make much more sense on the value proposition.

Okay. My general sense is when you acquired self-storage properties, it's generally been a single location at a time or maybe one or two locations at a time. Is it probable that going forward, you may make more significant acquisitions in that space, especially given where the prices are right now?

If the opportunities come up, we will look at them. We're not averse to doing that; it's just that we haven't found the right deal yet.

Okay. And then, finally, last but not least, can you give us an update on the U-Box expansion?

Sure. I think where we're at today is we're in over 200 markets. We're continuing to expand that into areas that there's demand for it.

The revenue growth -- you can see the other revenue line increase, and much of that increase is from the U-Box program. However, what I'll say is that much of the increase in some of our operating expenses is also from the U-Box line. So the net cash flow from operating that program yet still isn't that positive. And then when you factor in the amount that we've spent on it yet, the overall program isn't positive yet.

But should I conclude from the fact that you're continuing to expand, that you're encouraged by what you've seen in your first 200 markets?

I think that's a fair statement.

Okay. Okay, well, thank you again.

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

I'd like to thank you 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. Thanks.

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