U-Haul Holding Co (UHAL) 2012 Q2 法說會逐字稿

Good morning. I will be your conference operator today. At this time, I would like to welcome everyone to the Amerco second-quarter fiscal 2012 investors 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.

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, 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, 2011, 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.

Hello. I'm speaking to you from Phoenix. I have Jason Berg, our Chief Accounting Officer, here with me. Gary Horton is participating from our Reno office.

We brought in a good second quarter. Everybody on our side meshed well. We had volume increases and in our U-Move, our U Store It and (inaudible) moving supplies. We're continuing to manage for the future and so we are investing in replacements and some growth in our rental truck fleet. We remain very committed to self storage long-term and are continuing to modestly add to our lean inventory.

Although we continue to watch expenses, we experienced some expense growth and expect to see some more this quarter. We finished our two big quarters, so from now until April, I must be careful that we don't lose the gains we've gained so far.

Gary Horton and his team continues to be able to finance U-Move and U-Store product acquisition. He built liquidity this last quarter and plan to remain in a relatively liquid position going ahead. So I guess that means we're still hesitant a little bit.

As I told you last quarter, our business cycle is not a quarter or even a year. Our most critical resource remains personnel. The team we have them place is hard-working, very committed. The consumer continues to respond positively when we have good product and service offerings. Based on that, I expect the Company to continue to be successful certainly through the next quarter.

Jason will now go through the numbers. Then Gary, Jason and I will answer any questions.

Thanks, Joe.

Yesterday, we reported second-quarter earnings of $5.20 per share compared with $4.22 per share for the same period in fiscal 2011. For the quarter, U-Move revenues increased $44 million; that is nearly a 10% increase. The $511 million of self-moving equipment rental revenue during this quarter is the most ever reported in a single quarter for Amerco.

I would like to take a moment to dig into these results a little bit more. From a volume perspective, we're continuing to see both our in-town and one-way transactions increase year-over-year. For the quarter, we saw about a 7% increase and for the six months, we're up a little over 5%.

The number of trucks in the fleet has increased as well during the year. Comparing the fleet size at the end of the quarter this year with the same time last year, we're up approximately 3%.

Two of our performance measurements, utilization of the truck fleet and our average revenue per transaction, are both improved compared to the second quarter of last year. Our split between one-way and in-town business has remained largely unchanged from last year, as has the mix of models being rented.

While we've been able to optimize rates in certain situations where we've been unnecessarily competitive, the overall rate environment remains challenging for us. Based upon early results from October, equipment rental revenues are continuing to trend positively compared to last year.

For the first six months, capital expenditures on new rental trucks and trailers increased approximately $50 million to nearly $258 million compared to the same time last year. All proceeds from the sale of retired equipment were $110 million.

Our projections for rental equipment [growth] capital expenditures in fiscal 2012 have increased since last time we spoke from around $400 million to likely north of $480 million if our production schedule holds as we're planning. This is before netting any sales proceeds against them.

Revenues for our storage program increased a little more than $3 million for the second quarter of fiscal 2012 compared to the same time last year. The majority of the improvement is coming from occupancy gains. Spending on real estate-related CapEx, including construction, renovation, and acquisitions, was approximately $28 million for the quarter.

Our average all-in occupancy rate increased from 78% to 79% for the quarter compared to the same quarter last year. This increase came on top of 1.2 million square feet of new space that we added to the portfolio over the last 12 months.

Operating expenses at the Moving and Storage segment increased $25 million for the second quarter compared to the same time last year. As I mentioned, last quarter, we've increased equipment, maintenance, and repair spending this year on programs to refresh portions of the trailer fleet, and we also have an increase in the number of trucks in the fleet. Personnel expense has increased -- has been increasing as well, although when compared to revenues it has not decreased our operating margin.

The U-Box Portable Storage program is now available through all of our Company-owned and operated locations. This accounts for a large portion of the increase in our Other Revenues category. Conversely, we're seeing the associated operating expenses increase year-over-year as well.

Depreciation expense, net of gains on disposable of property, plant, and equipment, was up about $4 million for the quarter, while lease expense was down just over $5 million. Now, the majority of the new financing is been in the form of term loans or securitizations which are going to lead to an increase in depreciation expense this year, offset by a decrease in lease costs.

Our gains from the disposal of rental equipment decreased by about $1 million for the quarter compared to last year. That's primarily due to a small decline in the number of units sold during the quarter rather than any weakness in price. For the six months, our gains are flat.

Earnings from operations for the second quarter of fiscal 2012 were $184 million compared to $158 million last year at this time.

Now, the second quarter marked the first time this year that we saw the benefit to net income from the redemption of our preferred stock. Last year, we recorded a $3 million dividend charge against earnings compared to no dividend this quarter. Absent any analysis of opportunity costs for the funds used to redeem the shares, this benefited earnings by approximately $0.15 per share for the quarter.

Cash and short-term investments, excluding our insurance companies, was $421 million at September 30. We also had cash availability from existing borrowing facilities of an additional $300 million.

With that, I would like to hand the call back to Joe.

Thank you, Jason. Now we will go to questions and answers. Moderator?

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

Good morning gentlemen.

Good morning Ian.

Good quarter, very good quarter. (inaudible). I have a couple of questions. First of all, on the occupancy rate, I think the press release said 81%. You said 79%, or did I mishear you?

81% includes our managed properties as well. The 79% was just Company-owned locations.

Okay, 79%. So what was a year ago on Company-owned only?

78%.

On the Storage revenue, which basically I have $34.1 million or $34.8 million. That is Company, correct?

That's correct.

From the first quarter, there does not seem to be a great deal of a gain even though occupancy has improved. Is this just a slow -- sorry -- regional occupancy problem or is there trends there that I'm missing?

Well, I think, in our first quarter, we were right around $32 million and we bumped up to $34 million this quarter, so there was an increase in revenues. For the last 12 months or so, our occupancy rate has been increasing about 1% year-over-year.

This is Joe. Self-storage remains a real tough business. There's still a lot of over-capacity out there. It's regional, but there's plenty capacity and of course consumers are pinching pennies. So we're not back to where we had occupancy four years ago, and it's going to be a little while until we get there. I can't give you a date, but we're going to have to see not only our management continue to improve but we're going to have to see I think just a little bit more [spike] in the economy overall. That we're moving at all I think is positive. I don't have a good industry trend that I can relate it to, but I don't think they're beating us by a whole lot here. We're continuing to add product which is a little bit of a -- well, it's a bet on the future because the present doesn't justify (technical difficulty) 1% in occupancy doesn't justify bringing on more product because I've got at least 10 percentage points that I absolutely have unused occupancy (inaudible), excess capacity.

So nobody knows the perfect answer. I just tell you what we're doing. We're betting a little bit towards the future (technical difficulty) we're doing a little bit more than treading water. Somewheres around 75% occupancy in storage is clearly treading water. You're paying your debts, your people and your property taxes but you're not doing much else. Of course, if you get to 85%, it looks like a money machine.

Yes, a lot of leverage, of course. How much CapEx --

(multiple speakers)

How much CapEx went into storage?

For the quarter, we did $28 million and for the six months, I think we're a little over close to $50 million.

Okay. You've made a few announcements on adding locations. What was the location count at the end of the quarter and how many do you lose in a quarter? I know you announce the additions, but I'm sure you also lose a few.

We don't lose a much. We basically -- we won't lose them unless it's some sort of a condemnation. We ordinarily don't sell out the bottom. So I'm trying to think right now. You've got me a little bit -- I'm not sure we lost a single company location. We lost dealer locations, but I don't think a single company location was lost over the last six months. It was in self-storage. We're kind of opportunistically buying (inaudible) in places where we think we can get a location that fits in our group, that (technical difficulty) [place] that we like over a three to five-year time frame and I'm supporting that. But as I said before, it's really not justified by present storage revenues. It's a little bit of a bet to the future.

At the end of the first quarter, I had truck count at 101,000, trailer count 82,000, location 16,300. What are the current numbers as of the end of the second quarter?

On the truck side, we're probably just under 104,000 total trucks. Trailers and towing combined we're probably about 120,000, 121,000 units. On the locations, I think, during the quarter, we probably picked up net about 100 dealers.

I think that does me. Thank you. Oh yeah, the transactions, I notice that basically you've been saying that the split between the about-town and long-distances remain pretty constant. Transactions therefore have to be up approximately the same in both areas. So, is that correct?

Yes, for the quarter, they were both up about the same percent.

Yes, but this is not just this quarter. I'm going back to prior quarters. I would've thought there would have been a difference between about-town and long-distance or point-to-point. 'm I wondering is this business changing slightly from my perception, or your perception?

I would say, if you went back over 18 months, you'd see a slightly larger increase on the in-town versus the one-way transactions. So there's been probably a little relative growth in the in-town market, but not enough when you add it all up and total it, but it's a very significant spread. I don't think it's a trend. This has a lot to do with how we allocate our fleet and how we position ourselves in the market where we think we can optimize revenue. (multiple speakers)

Go ahead Joe.

Thank you. (Operator Instructions). Jim Barrett, CL King and Associates.

Good morning everyone. Joe, I have a few questions for you and then I think a few for Jason. In terms of pricing, I think it must have been -- it feels like it was calendar 2005 when the Company had an extremely good year, was the last time I think you said anything positive about the pricing environment. Is the pricing environment worse than it was in fiscal 2006? Is it the same? Is it better? How would you characterize it?

You might say that I can't in my mind I'm not seeing a 2006 pricing matrix. But in a general sense, what's happened is right about '06, we introduced -- we launched an entire new pricing system, a computer system, with humongous undertaking. What has happened is that system allows us to do some optimization that we don't think other participants can. In other words, we can see there's quite a bit of detail into it -- and try to find sub markets or sub markets of sub markets that could be -- could see a little bit of pricing.

I think that, overall, (technical difficulty) cost trend is probably pretty similar but our ability is little bit -- is quite a bid improved. If you looked at this from a macro point of view, we have three or four or more times as many outlets as our competitors and we serve many markets they do not serve. And so we have a lot of pricing opportunities that are unique to us. If we can get visibility and do this economically -- some of these places maybe only have 10 transactions a year in a particular (inaudible) destination pair, yet there's a bunch of them when it all adds up and you can see an increment of price in them. ] I believe that's where our gains have come.

Okay, that's interesting. Recently, I saw a headline that stated the Americans were far less mobile than they have been historically. Now, you just reported transaction growth of 7%. I know people rent trucks and trailers for a lot of other reasons besides moving, but how do I reconcile those reports with your growth? Is it mainly marketshare gains that you're achieving?

Jim, I'm not able to (inaudible) I think two years ago had a really gloom and doom forecast like moving was off 30% or some huge number like that. We just didn't see it. Even when our revenue is down, total moves weren't down so much. People switched from long-distance moves to short-distance moves. So I can't prove it, but my suspicion is a lot of these kind of claims come from people who don't have clean data. In other words, they made a change in how they count the move. Do you count a kid going to college as a move? That sort of thing.

Yes.

I think that they -- I don't get to see to that level (technical difficulty) sorts of survey. But when I go back and look at our numbers, I don't see it. Surely, we're so -- you have so much fixed costs that a 5% change in transactions would be like a torrential downpour of money on us.

Right.

Try it the other way, it would be a (inaudible) it would be a drought. We are a little bit sensitive to it. I would like to think, I remain amazed anyone does business with our competitors, but despite my amazement (multiple speakers) (technical difficulty). So I'm not at all convinced that the competitors are grossly down. Now, you may know some numbers that I don't know, but I'm not seeing -- and the way the best that we can see marketshare, we have some modest gains in some truck sizes, a modest gain nationally, but it's nothing to -- I don't think that explains the transaction increase. I think that, if a population is going to increase (inaudible) increase is people are going to get married and have kids or are going to, whatever, get a job out of state or whatever. And as they do so, if we have the right product offering, I'm more concerned am I being responsive to the loads of Baby Boomers who are now like me who all have sore backs and blah, blah, blah (inaudible) and so can I hang onto them? They've been paying a lot of bills for (inaudible) can I hang onto them? Of course, as you might imagine, I plan to do that and the same thing with single female heads of households. Can we hang onto them. So far we are doing okay hanging onto them.

Good.

But it's a very -- there's a lot of diverse solutions to people's moving problems, including Craigslist. You can go on Craigslist to liquidate the whole damn place and go buy a new one at your destination. If you're not too attached to the color of the sofa, you just buy it. So I cannot reconcile the publicly published data on mobility because if they're right, we're doing so much a better job than I think we're doing, then we should get a gold star. I just don't think we're that far ahead of everybody else.

Okay, that is helpful. Then on the financial front, Joe, is there a possibility of if the current -- the Company is obviously doing very well currently. Would you envision a day when the Company issues a common dividend and/or splits the stock?

Neither one (inaudible) I think should be ruled out. There is not one in progress.

But I think the principles of all of this are more or less understood at this end. We remain very -- I think, like a lot of US businesses, we're unclear as to what's happening at a macro level and we're -- don't want to get too close to the edge of the precipice. We're keeping up with it.

If you look over a 20-year history, we're so liquid now it's beyond comprehension. If you had told me 20 years ago we'd have this kind of liquidity, I would say that is wasteful we'd never do it. Yet in this environment, we're thinking, well, maybe it's prudent. So there's some significant opportunity costs (inaudible) maintaining all of this liquidity, but, boy, (inaudible) I guess. So we need to stay pretty liquid and I think that will be -- if someone hit us up -- if, say, the dividend discussion came up, I think liquidity would come up. But we're liquid enough to do that, so there isn't one plan [that] I wouldn't rule it out.

Okay, that's also very helpful. Jason, could you go into details on the increase in CapEx? I think you indicated next year it goes from $400 million on a gross basis to $480 million. How much of that, in broad strokes, is increasing the fleet versus real estate and is U-Box a significant percentage of that?

The increase that I gave you in my comments is all tied to trucks and trailers. So on real estate, as we've been saying, it's opportunistic, so I don't have a real firm budget or a projection on that. It's as deals are coming up, we're going through that process. So the increase that I reported was we added some additional trucks to the fleet plan here towards the end of the year.

And you're U-Box via leasing or?

This is Gary Horton. We're actually financing almost all of it directly out of cash and availability.

Well, that answers the question. Thanks everyone.

(Operator Instructions). Bob Bruce, Bruce & Co.

Hi. I've got a couple of questions. First, your thoughts on any possible buybacks of the stock? Secondly, what do you earn on your cash?

Gary, do you want to answer the cash question?

On the cash, it's very modest, anywhere from 20 to 80 basis points. It's pretty -- as you would assume, we're staying fairly liquid. Again, we're looking at buying more storage, more storage-related assets, so that is what we're earning on it right now.

Then on the buyback question, there isn't one pending. Again, we did a buyback a couple -- three or four years ago. I don't remember when. But we did one. And I think again people at the Board level understand the mechanism pretty much. But there is nothing incipient and I would know if there was I think. It doesn't mean it couldn't be done, but there's not a plan.

As far as (inaudible) I don't know that there's a whole lot of sympathy for us (inaudible) do a buyback. But at the end, that would be kind of a little bit of a group decision and I've not seen a lot of internal support for either one at the present time.

Thank you.

At this time, there no audio questions. I would like to turn the call back over to the presenters.

I want to thank you all. This is Joe. I thank you all for your continued support. I hope that you got the answers that were helpful to you.

I'll [spend] one second on my soapbox which is what we need of course is less government regulation and less litigation. Good golly, if we could redivert that energy and effort toward serving the public, we'd see a couple more percentage increase in the overall business. (inaudible) it's about.

With that, I will turn it back to Jennifer, if you have any statements that are legally required?

No. Thank you for joining us.

All right. See you all again next quarter.

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