U-Haul Holding Co (UHAL) 2013 Q3 法說會逐字稿

Good morning and welcome to the AMERCO's third quarter fiscal 2013 investor call. (Operator Instructions) Please note this event is being recorded. And I would now like to turn the conference over to Jennifer Flachman. Please go ahead.

Good morning and thank you for joining us today and welcome to the AMERCO third quarter fiscal 2013 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 December 31, 2012, which is on file with the Securities and Exchange Commission. Participating in the call today will be Jason Berg, and I'll now turn the call over to Jason.

Thanks, Jennifer. I'm speaking to you today from Phoenix, Arizona. Joe Shoen, our Chairman and CEO, is not available for this morning's call. Joining me today from here in Phoenix is Gary Horton, our Treasurer, and on the phone from Reno, Nevada is Rocky Wardrip, our Assistant Treasurer. All three of us will be available for questions after the prepared remarks.

Yesterday, we reported third quarter earnings in fiscal 2013 of $1.89 per share as compared to $0.04 a share for the same period in fiscal 2012. Included in last year's third quarter results was $1.61 non-cash charge for reserve strengthening and our Property and Casualty Insurance subsidiary. Such a charge did not recur this year so therefore excluding this out of the ordinary charge, third quarter results for last year were $1.65, which is compared to $1.89 for the third quarter just ended.

To minimize repetition during my prepared comments, all of my period-over-period comparisons today are going to be for the third quarter of fiscal 2013 to the third quarter of fiscal 2012 unless specifically noted. Excluding our insurance subsidiaries, operating earnings in our core Moving and Storage segment increased $11 million to nearly $73 million for the quarter. For the quarter, our U-Move revenues increased by about $19 million to $395 million. Transaction growth was largely responsible for the revenue increase. This growth in transactions has been facilitated by the steps we've taken to improve our customer experience in our Company locations, at our dealers, and through our website uhaul.com. To both support and contribute to this growth, we've continued to expand the number of rental trucks in our fleet as well. A somewhat mild winter in most of the country has not hindered the growth of U-Move revenue. Revenues from our trailer and towing device fleet are also contributing to the positive variance.

As I just mentioned, we continue to invest capital in our rental equipment fleet. For the first nine months of fiscal 2013, CapEx on new rental trucks and trailers was $422 million, that was about $87 million increase compared to the first nine months of last year. Proceeds from the sale of retired equipment were $159 million as compared to $139 million last year at this time. Our projection for rental equipment growth CapEx in fiscal 2013 have increased since we last spoke. We now project total spending on new equipment for the fleet will be approximately $590 million for all of fiscal 2013. That's before netting any equipment sales proceeds against them. Our net CapEx, which is net of equipment sales, we expect this to be in May around $380 million for fiscal 2013.

Our self-storage operations continued to grow with revenues up just over $5 million for the quarter. The revenue growth is due to a combination of organic run-up activity at our existing locations along with occupancy gains that result from the acquisition of new facilities. Over the last 12 months or since December 2011, we've added approximately 2.1 million net rentable square feet to the system with about 800,000 of that coming here in the third quarter of this year. Our all-in occupancy figures increased by 2% to 81% for the third quarter. Pending on real estate related CapEx that includes construction renovation and largely acquisitions for the first nine months of fiscal 2013 increased by about $60 million to $130 million for the nine-month period. We continue to actively search for new storage opportunities.

Total cost and expenses at the Moving and Storage segment increased just under $21 million for the quarter with the majority of that coming from operating expenses, which increased about $18 million. Our personnel liability cost associated with the fleet and to a lesser extent expenses related to our U-Box growth were contributors to this increase. Cost of sales, you may note, declined. This was due to a reduction in the price of propane.

I wanted to spend a little bit of time this morning discussing our Insurance Company results as there are some significant year-to-year fluctuations that deserve some explanation. I'm going to start first with our Life Insurance segment. In the third quarter of last year, Oxford entered into an agreement for the acquisition of a block of life insurance policies. This related in a one-time increase in premiums of just over $83 million along with a similar increase in benefits to record the associated policy reserves. Fast forward to this year and we did not have a similar acquisition in the third quarter thus resulting in the large swing in premiums and benefits that you see for the segment. While the transaction last year did not result in any immediate impact to earnings, we have begun to see the profits from the acquisition add to Oxford's earnings during fiscal 2013. Also of note this year, Oxford has shifted its focus in regards to new sales within its senior segment from whole life products to fixed rate deferred annuities. So unlike the life product sales that we saw over the last couple years, which were recorded as premium revenues, the annuities are recorded directly to the balance sheet as deposits and over time, we recognize profits through investment income spreads. Through the first nine months of this year, Oxford has increased its net annuity deposits by about $233 million.

Our Property and Casualty segment shows a $45 million decrease in total cost and expenses for the third quarter. As I mentioned earlier, the third quarter of last year included a $48 million pre-tax charge related to excess workers' comp reserves. There was no such reserve strengthening that's been necessary this year. In the third quarter of this year, Hurricane Sandy struck the Northeastern portion of the United States. As we mentioned in our second quarter investor call, this temporarily affected about 100 company-operated locations. Our estimated losses for rental equipment are now just under $1 million and we've recorded them as an expense during the quarter along with our property coverage deductible, which was $250,000.

Earnings from operations for the third quarter of fiscal 2013 were $82 million as compared to $25 million for the same quarter a year ago. Of note during the third quarter, the company had a cash outflow of $97 million related to the $5 common stock dividend, which was declared and paid in November 2012. Even after this use of funds, our Moving and Storage segment had cash and short-term investments of $539 million at the end of the quarter. That's compared to $309 million at the end of last fiscal year, March 31, 2012 and $406 million a year ago this time, December 31, 2011. Our unused availability from existing borrowing facilities at December 31, we had an additional $303 million of availability.

With that, I would like to hand the call back to Emily to open up our question-and-answer session.

Thank you. (Operator Instructions) [Jiang Shayn], CL King Associates.

Yes, good morning. Hello guys. I'm on for Jim Barrett. With regards to enterprise, I think you alluded last quarter that enterprise entered with spending hundreds of millions of dollars in the truck rental space. I also read in your 10-Q with regards to improving pricing, if you could give us a little bit more color on that, please?

I'm sorry, a little more color on what? On the price?

On the pricing, yes, in the truck rental space with regard to enterprise entering the space. With that as a backdrop, I also read that you guys are improving -- you're seeing improving pricing with regards to FY13?

Okay, I'll clarify a little bit. As far as pricing in fiscal '13, there hasn't has been any significant shifts in pricing for the better or for the worse. Enterprise, Joe brought them up during the last call, however they've been in the market for some time and I would say that there hasn't been any new effects to pricing over the last three months related to their presence in the market. It continues to be extremely competitive between the other two national competitors, our local competition in enterprise is just another mix into that.

Our growth right now in revenue is coming largely from transaction growth. There is a little bit of extra money that we're picking up per transaction that can be split out between pricing and also product mix, which depends upon what's our -- how many one-way rentals are we doing versus in-town rentals, one-way rentals are typically a larger dollar amount per transaction and then if we rent larger trucks versus the smaller trucks, you're going to see a little increase in that too. So, it's a combination of all of those things, I'm hesitant to say that there's any significant improvement in pricing.

Okay. Thank you. With regards to the transaction growth, which is mix and other issues, would you be able to quantify that for modeling purposes?

For the quarter, it was in excess of 6%.

Okay. Thank you.

Ian Gilson, Zacks Investments Research.

Very good morning, gentlemen. I understand that all of the cleaning up work et cetera on the East Coast is now complete and I know that you do not transfer equipment, you let the flow of orders dictate that. But although the cost was minor, there must have been some disruption on infrastructure to impact your business in my opinion. Although you do say there was no real change, was that no real change year-over-year or an estimated no real change because of the impact of Sandy?

It was no real change in relation to the quarter and largely to Sandy. What we found was that for the last couple days of October when that the place, we saw -- obviously we saw decrease in transactions. However, in November and even trailing a little bit more into December, we saw that we were a little bit ahead of where we've been at. which we're kind of interpreting that as kind of a pickup of some of the transactions that we may have lost during that timeframe and you mentioned that we've largely recovered. There's still some significant property damage. All of those centers are up and running, however, there's two or three locations that we still have some significant work to do to repair the storage component of the facility and I think there's still some work going on there. However, all of them are renting equipment at this time. And does that answer your question?

Yeah. Do you have enough equipment for your needs going through the summer?

I believe so and we do still have -- I haven't heard anything specific as far as our operations folks having an issue with that. We do still have some time to pivot if there was a shortfall. So if that was the case, I think we could probably correct it in time.

Okay. I haven't checked recently, but could you run down the location of where you build the equipment? I know you're building them in Phoenix, do you still have a place out in LA? Where are those locations now?

We have one outside Detroit in Michigan, I think in Massachusetts we have a location or Philadelphia I should say, we still have the one out here by Phoenix, and then in California, and I think I'm forgetting one. It's just not coming to me right now.

Okay. So any shortfall of equipment could be made up by building extra out of Philadelphia?

Sure. Rocky, did you have the answer to that?

I was going to say I think Chicago is another location that we're producing in.

Thanks very much.

(Operator Instructions) Jamie Wyland, Wyland Management.

Hey, Jason, great quarter. The number of transactions you say is up by 6%. Are we adding a lot more dealers or basically all the dealers are becoming a little bit more productive?

The dealer count is increasing. At company locations, we're becoming a little bit more effective, we've added equipment to the fleet so yeah, I think it has been a little bit across the table. For the last couple of years we've picked up quite a bit in utilization, we've added quite a few trucks and been able to digest that without losing utilization. So, we're always continuing to add dealers. I don't know exactly how many we're up now, but I suspect that we're up a few hundred since the last time we reported.

Okay. And then the number of trucks that you now have on the road, obviously the new equipment's more expensive than the truck that's being retired. How is -- what's the size of the truck fleet year-over-year?

As Joe mentioned during our last call, we're going to limit our disclosure on the actual fleet count to once a year when we do our 10-K as we haven't been able to get a good truck count from our competition. I would say that to your point about cost, our fleet is intentionally stratified as far as age goes because at our dealers, you're looking at a lower transaction count whereas we have including our dealers over 16,000 distribution points throughout the country. Our competition has maybe a tenth of that. It necessitates the different sort of fleet and the type of fleet that we have, which kind of renders average age not as meaningful of a statistic.

Okay. When you retire the vehicles, are they -- is there any gain or loss? You retired whatever, $150 million, $200 million this year?

Yes, sure. On our financial statements, the gain or loss on disposal of equipment gets netted against our depreciation, however we do break that out. And for the quarter we had a gain of $1.8 million this year compared to about $700,000 last year. A little over $1 million of that was from a property that we sold. So the fleet gain was about the same as it was last year for the quarter, about $700,000.

Jason, could you talk to the economic sensitivities of both your businesses, the truck rental and the self-storage? This housing turnover, if that increases, how much can that move the needle and just how each of those businesses are affected by the economy?

Sure. What we found through this last cycle were we had significant issues in the housing market, that really didn't affect our transaction count much at all. We have done some things ourselves that had affected pricing, but what we thought was that we were fairly resilient to the economic changes that took place on the moving side. On the storage side, the closest thing that we've been able to correlate to has been just raw employment numbers in any given area and we lost a couple of percentage points of occupancy there during that timeframe. So, I would say that as far as the economy goes, the storage business may be a little more susceptible to changes in portions of the economy versus the moving business.

Okay. And lastly as I called in and asked to be on the UHAL conference call, they didn't have a record of you till I utilized the corporate name. I was just wondering if one day we can actually change the corporate name that we're traded under to U-Haul. Just wanted you to begin, hopefully that will happen.

I'm carrying the Jamie Wyland flag within this building and I took the concerns to the Board of Directors in fact yesterday so it continues to be heard. It's not quite on the same frequency that I'm hearing from you. However, it is on a frequent basis they're hearing it from me.

Many thanks and great job of running the business. Well done.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Berg for any closing remarks.

Well, I'd like to thank everyone for participating in the call today and for your thoughtful questions and we look forward to speaking with you in June for our year-end results. Thank you very much.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.