U-Haul Holding Co (UHAL) 2011 Q4 法說會逐字稿

Good morning, my name is Krista, and I will be your conference operator today. At this time I would like to welcome everyone to the Amerco Q4 and fiscal 2011 year-end Investor conference call.

All phone 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.

Miss Jennifer Flachman, you may begin the conference.

Thank you for joining us today. And welcome to the Amerco fourth quarter and fiscal 2011 year-end investor call.

Before we begin I would like to remind everyone that certain of the statements during this call regarding general revenue, 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-K for the quarter ended March 31, 2011, 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.

Good morning, I'm here on the phone and will also have Gary Horton, Jason Berg, and Rocky Wardrip for the question-and-answer session.

We reported a banner year. Many things came together. I'll walk you through it by product line just a little bit. Our Truck Rentals grew due to some real transaction growth. We also expanded the fleet and expanded our outlets by about 300 dealers. At the same time we did a better job in customer service at both our U-Haul centers and our U-Haul dealers. All these factors go into why there was transaction growth.

Trailer rentals also grew due to some fleet additions and benefited by the same addition of dealers and the customer service improvements. Our retail sales programs have struggled most of the past fiscal year. Our customers remain very tight with their money, there are many competitive offerings in boxes, propane, and hitch installation. Overall customers still appear conservative to me.

Our self-storage results are still running behind my expectations. We added some square foot in the most recent year, and locations. I intend to do the same thing in 2013. You should expect us to add some square foot existing, in other words build out, and then also add some actual additional outlets.

The self-storage market remains over built in many parts of the United States. It is my estimate that it will take - - still take a period of years for many areas to get back to occupancies that we saw four years ago. Both of our insurance companies performed as forecasted last year and I would expect them to be on plan again this year. Overall the moving market remains very tight. Many consumers remain uncertain about the future. I would say in this regard, U-Haul is no different than many other retail enterprises.

On an upbeat note, we are expanding our U-Box product offering. Some of you may recall that we've been slowly rolling this product out. We are now offering the U-Box products at over 1,200 outlets across the United States and Canada. And I would expect by this time next year that several hundred more outlets are added. We will continue to grow this, and this will require some capital commitment.

Our Collegeboxes moving program for college students is also seeing some positive customer response. I expect we will grow our product offering here over the next 12 months. Our investment in this operation will mainly be in information technology. And ordinarily we do a pretty good job of expensing it as is appropriate and not overcapitalizing our information/technology expenditures.

I want to thank each of you for your support in fiscal 2012, I look forward to your support in 2013, and look forward to talking to you on our annual - -

Virtual analyst meeting.

Our virtual analyst meeting here towards the end of the summer. I will turn it over to Jason now.

Thanks, Joe. Good morning.

Yesterday we reported fourth quarter earnings of $0.52 per share compared with a loss of $0.43 per share for the same period in fiscal 2010. For the full year of fiscal 2011, we reported net earnings at $8.80 per share compared with $2.74 a share in fiscal 2010. This is a record year in several regards, not the least of which was the - - we reported the highest level of e-Move revenue ever at the Company. e-Move revenues for the fourth quarter increased just over $19 million, or 6%. For the full year we had $127 million increase or about 9%.

We had improvements in trucks, trailers, and specialty rental items, as well as in both our one-way and in-town markets. Total truck rental transactions grew at nearly 6% over the course of the year. Utilization of the truck fleet and our average revenue per transaction also are both improved. We finished the fiscal year with an increase of approximately 3,000 trucks and 5,000 trailers compared to March 31, 2010. Demand for our equipment was steady throughout the year, and our team continues to do an excellent job of saying yes to the customer. Capital expenditures on new rental trucks and trailers increased nearly $170 million to just under $390 million for fiscal 2011 compared to a year before.

Proceeds from the sale of retired equipment were nearly $180 million. Our initial projections for rental equipment, CapEx, in fiscal 2012 are in the neighborhood of $370 million. Our storage program continues to expand and improve. Revenues for our storage program increased just over $3 million in the fourth quarter compared to the same time last year. And for the full year, we had $10 million increase. On average, we've been able to maintain or even slightly increase our rates. For the quarter, our all-in occupancy rate increased just about 1% to 74% as compared to the same time last year. From March 31, 2010, through March 31, 2011, we added over 820,000 net rentable square feet to our storage portfolio. Over that same time period, we've increased the average amount of occupied square feet by about 610,000. Spending on real estate-related items including construction, renovation, and acquisitions increased $18 million year-over-year.

Operating expenses at the Moving and Storage segment increased $2 million in the fourth quarter of fiscal 2011 compared to the same time last year. Our liability costs associated with the rental equipment fleet are continuing to decrease. As we have discussed over our last couple of earnings calls, certain costs have reached their low point and could start increasing on an absolute dollar basis. During the quarter, we saw both equipment maintenance and personnel costs increase. Although as a percent of revenues they remain relatively flat or just down from last year. Depreciation expense decreased nearly $5 million for the fourth quarter of fiscal 2011. Approximately $3.6 million of that decrease was from improvements and our gain on the disposable property plant and equipment.

As I did last quarter, I'd like to further explain our Life Insurance segment results. Premiums in our Life Insurance segment increased more than $72 million in fiscal 2011 compared to fiscal 2010. During the third quarter of this year, we entered into two separate reinsurance agreements whereby we assumed a block of final expense life insurance policies, as well as some medicare supplement policies. The assumption of the liabilities associated with the life insurance acquisition resulted in a one-time increase in premiums of approximately $31 million, as well as an increase in benefit expense for about the same amount. So the net effect on earnings was nothing.

The medicare supplement transaction did not have the same accounting treatment, rather the premiums from that agreement will be earned over the time of the policyholder's remit their payments. The profits that we expect from these transactions are going to be recognized over the remaining life of the underlying policies. The remainder of the premium increases for the year and the quarter were related to sales of our single premium whole life product and from the new medicare supplement block. Earnings from operations for the fourth quarter of fiscal 2011 were $40 million compared to $10 million in the fourth quarter of fiscal 2010.

For fiscal 2011, we reported for the full year, we reported earning of $377 million, earnings from operations I should say of $377 million compared with $193 million in fiscal 2010. Cash and short-term investments excluding our insurance operations was $323 million at March 31, 2011. We also had additional cash availability from existing borrowing facilities of another $273 million. On June 1 of this year, we redeemed our Series A preferred stock at par value plus the accrued dividends. The total amount paid pursuant to this redemption was just under $156 million. In our June 30, 2011 10-Q, we will report the last quarter of dividend payments related to this preferred stock. This redemption will eliminate nearly $13 million in annual dividends on a go-forward basis.

With that I'd like to hand the call back to Joe.

Okay. I think we're ready for questions. If anybody has them, if the moderator will take over.

(Operator Instructions) We'll pause for a brief moment to compile the Q&A roster.

Our first question comes from the line of Ian Gilson from Zacks Investment Research. Your line is open.

Good morning, gentlemen.

Good morning, Ian.

Congratulations on a superb quarter. Looking at the quarterly results on Moving and Storage, your operating income went from $7.5 million a year ago for the quarter to $38 million for the quarter just ended. Why such a big jump on a good increase in revenue, but you're certainly not - - what did you do on costs in that quarter that was so spectacular?

Ian, this is Jason. If I could just point out a couple of things. In the fourth quarter of last year, in our review of our equipment, we ended up taking an additional $9 million charge into operating expenses that we did not have that same charge this year. We also saw another decrease in depreciation expense, although that's kind of flattening out. And the gain on disposable equipment increased as well.

And then on top of that, you include the increase in revenues. On the other key expense items like personnel, and maintenance and repair costs, we were largely able to hold our own from the fourth quarter of last year to this year. So, as a percent of revenue I think personnel was actually a 0.5 point under where it was last year. So we picked up a little bit of margin on the personnel costs, not quite so on the maintenance and repair costs.

Okay. Now do you have, not for the year but for the fourth quarter, the room count, square foot occupied, occupancy rate?

Sure, we were at for the quarter, I think we were at about 75% occupancy, 74% occupancy. The room count at total occupied rooms at March 31 was just around 114,000, and the room count of available rooms was right around 153,000. And that would include our on balance sheet owned storage facilities.

Room count?

Our room count at the end of the third quarter was what, 407,000? That's total owned and managed?

He's distinguishing two deals. We have owned and managed room count which is up in the - - the big number. Then we have the room count for the rooms that are all on our balance sheet 100%. So you - - say those numbers once again.

So, Ian, for the number that you're looking at which is total owned and managed rooms. At the end of the quarter, we had right around 411,000 rooms available, and occupied we had just over 312,000 rooms occupied.

Okay. On the same basis, the square footage at the end of the quarter?

Square footage available was 36.3 million. Square footage occupied was 28.4 million.

Okay. Good, good. I like to keep everything on a consistent basis. Okay, great. Thank you very much.

Thank you, too, Ian.

Your next question comes from the line of Jim Barrett from C. L. King & Associates. Your line is now open.

Good morning, everyone.

Good morning, Jim.

Joe, could you talk a bit about the customer service improvements? I mean, obviously, you have a lot more new trucks in the fleet. Have there been other programs, other incentives to your branch management to improve customer service?

Sure. We've been running pretty steadily a program that we internally call Wow program. It's designed of course to raise our level of customer service both at our company-operated locations and in our dealers. As you recall, our business, our truck rental business, is about 50/50 between those two outlets total. So, just raising it to one or the other. The programs are a little different because, of course, in our Company, (inaudible-static) to our employees, we have a less direct relationship with.

Right.

I think that the bunch of small things, there's no one thing, but it's - - it's letting the customer know (inaudible-static) to be held accountable at all levels of the Company. As you know, for several years, I've posted my own personal cell phone. And now everyone at U-Haul in the line management posts their cell phone conspicuously, their personal cell phone. What they're telling the customers they're willing to take care of the problem whenever it occurs, which of course sometimes is nights and weekends. I think that the customer appreciates people being willing to be held accountable, and it also sharpens up our game, very frankly.

In addition to that, we've been running - - I think it's our fourth year, for what we call Unedited Customer Reviews at all our locations and centers for our customers, we poll our customers after the transaction, they write up, we post and categorize by location. So that other customers can see how we did with our last customer. And it helps so we can see and we can sharpen our game.

Understood. Okay.

All that stuff is just - - it just kind of accumulating, and it came together very nicely in the - - in the year just passed.

As a follow-up to that, do you believe you're taking market share from your rental competitors? Or do you feel the entire industry is experiencing - - or do you have a way of knowing whether the entire industry is up to the degree that U-Haul is up?

I have no idea on the Penske organization. On budget I have just what they said, I'm not real certain what their last one was. But I think they weren't real optimistic. So I don't think that overall the grouping is up a whole lot. In other words, census data which I've cautioned us all on before, seems to - - reports wide (inaudible) year-to-year, that's not our experience. Our experience is that they're very much more modulated. I think we're penetrating a little bit more into the peripheral markets.

We expanded locations, Jim, and we added equipment both. And so those caused us to get into some markets, smaller markets, or more peripheral markets. So we're able to do so and keep our utilization. I don't think we booked share. That would be my guess. We didn't take much share at all. Maybe none. But we just - - we just found some little cracks and crevices where there was not enough (inaudible-static).

I see. Okay. Then could you expand upon U-Box? I thought I heard you say you're currently in 1,200 locations?

Yes.

Can you tell us how the rollout' s going? I mean, how many locations are going to be there when you're fully rolled out? And how much capital do you need to get there? And is this a problem - - a business that's inherently going to be as profitable as your core truck rental business, or more profitable?

We have no idea on the profitability. I don't believe anybody who's offering this product is reporting an accounting profit. And now - - again, they don't all share their numbers with you. So I don't think anybody's got a good, - - it's clear that some consumers want this product, Jim. We'll provide it, and we're going to keep reinventing our system until we get a system that does this at a price that the customer's willing to pay. We could also get a profit. Now I have some opinions about that and I think we've made big strides over the last 12 months at better understanding where we can find a profit in this.

Right.

So I - - I fully expect we're going to make decent money at it. It's pretty hard to say compared to the truck or not, but a little bit like the light truck rental, the investment you're going to see for investment is that it's not as obviously equipment-dependent as others. And there's a real estate component to this because part of this ends up being storage. And I - -

I see.

So the places we've built over the last probably 24 months, we've built (inaudible-static). Now that kind of gets approved with all the financials. In other words, I am speaking to how much capital is allocated to the U-Box product. But it's really - - because they aren't stand-alone facility. Our strategy is to do this at our U-Haul locations. Ultimately I expect we'll have it at all 1,480 U-Haul-managed locations, and at hundreds if not thousands of our dealers.

We fully intend to cover North America with this product, and I don't think there's any doubt we'll have coverage. At 1,200 outlets, we're a big mobile business. Now that doesn't mean we're - - (inaudible-static). Again, I don't see their numbers, and we're still very embryonic. But we're steadily making progress. I think the customer wants us to do it and they expect us to figure out how to do it at a profit.

Okay. It sounds like a promising venture. And this may be a question for Jason. But in reading the 10-K it appeared that if your net capital expenditures, less any lease buy-backs, was only going to be slightly above what was spent in fiscal 2011. Does that mean barring any extraordinary transactions, for example on the real estate side, that we're looking at free cash flow comparable to what was achieved in 2011?

Yes, I think that, that's a good assumption to start with. It could easily go up. That would assume that we don't do any better on operations next year than how we're doing this year. And that assumption in the K, I did assume a little bit smaller amount in sales. So we're actually - - the plan is to produce a little bit more on the equipment side.

I'm sorry, you assumed less sale of assets?

Yes. A little bit less sale of assets.

Actually, that was my final question, Jason. I think you semi-answered that. You achieved $23 million in net gains on the disposal of equipment this past year. Is for planning purposes, you're now assuming, what, somewhat less than that in fiscal 2012? Is that what you're saying?

Yes, a little bit. We had a very fortunate year this year as far as the pick-up in cargo van sales goes. So, - - I think just for planning purposes, I ratcheted that number down a little bit.

Okay. And truck sales, truck pricing is still holding up, improving, decreasing, staying the same?

Jim, as you recalled four years ago, we went to a whole new pricing system, and we continue to just move away from everybody else. I would say that to an extent we're not comparable which is what I would like to say. But what we're - - what we're doing is we're optimizing in some markets we never optimized in before.

Okay.

And that's - - it's real hard to say that pricing' s any better. Consumers are still, are still very conservative - - just maybe one step above - - the same stuff you read or that I read in the magazines or the newspapers about general retail customers, it's what we're seeing. People are apprehensive still. And until that goes away, don't expect to get away with cutting in very much as far as pricing. If we based today, it's on markets we were under priced in. That would be probably what they say.

Understood. Well, thank you both very much. I appreciate it.

Thank you, too.

(Operator Instructions) Our next question comes from the line of Ross Hoverman from Hoverman. Your line is open.

Good morning, gentlemen. Nice year.

Thank you.

A quick question for Jason. Jason, the 370 you threw out for capital expenditures for 2012. Could you break that down between truck purchases and then these other endeavors? I think you said you needed to spend quite a bit of money on U-Box, and there was another issue or another project or two within that, as well.

The 370 is actually just for trucks and trailers.

Okay.

So then on top of that, we could - - I think this last year for real estate-related CapEx, we may have spent around $65 million. And that number, it fluctuates largely based upon what's available in the market. And we've seen some positive things there. So it's hard to project out on that number. So the 370 is tied just to the trucks and trailers.

But Joe was talking about spending or potentially spending quite a bit. I think, was it, on U-box? Then there was another project which said we'll need a lot of money. I'm not sure how much is going to be needed - -

Right. Ross, I misspoke if I said that. Our investment in it will be entirely IT which means mostly expense. Now we have to capitalize part of it according to the rules, but we're not going to capitalize any more than is required by the regulations with the Federal government.

Okay.

It's very speculative. So that will go right through the income statement primarily. As to U-Box, the investment's going to be kind of varied a little bit in the real estate. And so that's why Jason's hedging. We could go $100 million on real estate, up from 60 last year, very easily. It's a little bit opportunism if we get some good opportunities, we're going strike so long as we're financed.

So in the financial markets, they've been receptive. So long as all that's going, we shouldn't pass up opportunities, and I don't intend to pass them up. But on the other hand, we're not, there's not some huge transaction. If one came up, we'd sure look at it, but we don't have anything like that on the horizon. These are all individual sites and they kind of - - you get one and then you miss the next four, then you get one type thing.

Should you view this U-Box as a separate sort of operating line? And how much did it actually lose I guess in 2011?

We don't leave it as a separate operating line. And we're actually operating it out of our locations. So it gets reflected in our overall results and probably by this time next year, we'll probably have something, we can give you some top line information. But it's - - anything I would say on profitability now would be a wild approximation.

We've spent some money and this year, we spent money last year. I expect we'll spend money in the current year. It's mainly in putting in equipment. So we have forklift's, some trucks, that sort of thing. That stuff starts to add up over time. But it's not, compared to our U-Haul expenditure, it's just a tiny nothing.

Got it. And just one final question for Jason. Jason, the refinancing of the preferred $156 million. Will you just pay that out of cash, your cash balances, or will you go out and basically reborrow that and refinance it with additional borrowings?

It was paid out of cash on hand at June 1.

Okay. So I think how accretive will that be?

Well, I think for next year, for fiscal 2012, we're going to have one quarter of dividends. So then if you were to just prorate that, I think for next year that's about $0.45 to $0.50.

I'm sorry, repeat that, I'm sorry, I lost it - - For next year it would be around I think $0.45 to $0.50. Okay. Thanks, guys. Again, the best of luck.

Thank you.

There are no further questions in queue at this time. I will turn the call back to Joe Shown for any closing remarks.

Again, thanks for your support. We'll do a virtual analysts call. Jennifer will of course send out invitations to everybody. I look forward to speaking with you at that time.

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