U-Haul Holding Co (UHAL) 2014 Q1 法說會逐字稿

Good morning and welcome to the AMERCO first quarter fiscal 2014 investor call. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to Sebastian Reyes. Please go ahead sir

Good morning everyone and thank you for joining us today. Welcome to the AMERCO first quarter fiscal 2014 investor call. Before we begin I wold like to remind everyone that certain of the statements during this call regarding general revenues. income. and general growth of our business constitutes forward-looking statements contemplated under the Private Securities Litigation Reform Act of 1995. Certain factors could cause actual results to different 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 June 30th, 2013, which is on file with the Securities and Exchange Commission. Participating in the call today will be Joe Shoen, Chairman and President of AMERCO. I will now turn the call over to Joe.

Good morning everybody. I'm speaking to you from Phoenix, Arizona. On the phone this morning we also have Gary Horton, our Treasurer, Rocky Wardrip our Assistant Treasurer, and Jason Berg, our Chief Accounting Officer. They will all be available for call.

This quarter's results are based on strategic made over the past years that were implemented in the present tense by a group of quality men and women. As Jason will go into some detail, we continue to see some U-Haul transaction increases in the quarter. We are continuing to improve the quality of our customer experience and customers are responding with increased transactions. In self-storage we have been able to achieve net gains in both occupancy and in net rentable square feet and of course that's generated some revenue increase.

I'm trying to see to it that we are reinvesting appropriately in the U-Haul organization so we can continue to grow our service to the customer. U-Haul is faced with a consumer base that has rising expectations and a growing population of would be competitors. How this will all play out will of course be determined by the customer.

Our two insurance companies remain basically on plan with no big surprises. We have confident teams in both insurance companies and I look for them to continue to manage successfully. With that I will turn the call over to Jason.

Thanks, Joe. Yesterday we. reported first quarter earnings of $5.78 a share compared with $4.13 a share for the same period in fiscal 2013.

At our moving and storage segment which includes our core equipment, rental self-storage business and specifically excludes our insurance operations, operating earnings increased $47 million for the quarter to $194 million. And our operating margin which I calculate by dividing operating earnings by total he revenues increased by almost 4%. The increased profitability stems from our growth in equipment rental revenues.

For the fourth year in a row we are reporting record first quarter U-Move revenues. We had a $55 million increase this quarter compared to the same time last year. In historical terms this represents our largest first quarter increase on a dollar basis in U-Move revenue ever. The majority of this increase continues to come from our ability to handle the transaction growth from both trucks and trailers.

While pricing remains competitive we have been able to improve profitability by way of our operational efficiencies that are allowing us to serve more customers at a relatively lower cost. We continue to strategically expand the size of our rental equipment fleet and this has helped facilitate transaction growth as well. Speaking of the fleet, CapEx for the first quarter of fiscal 2014 on new rental trucks and trailers was $213 million. That's a $17 million increase compared to the same time last year.

While proceeds from the sale of retired equipment increased $31 million to a total of $93 million in proceeds. Our projections for rental equipment gross CapEx in fiscal 2014 are still in the neighborhood of approximately $525 million and, again, that's before netting any equipment sales proceeds against them. Revenue growth for our self-storage operations continues to steadily increase, revenues were up a little over $7 million for the first quarter. This is due to a 2% increase in our all-in occupancy rate during the quarter, combined with an additional 2.5 million net rentable square feet that we've added since we reported the first quarter of last year.

[Depending] on real estate related CapEx including construction renovation ands acquisitions of new facilities, for the first quarter of 2014 increased $63 million to a total of $99 million. We are going to continue to opportunistically expand our storage holdings. A couple of quick comments on operating expenses at the Moving and Storage segment which increased $28 million. Both personnel and maintenance expense grew during the quarter primarily in relation to the transactional activity. Overnighter increase had the effect of reducing our operating margin.

We continue to see revenue growth from our U-Box Portable Storage program which does lead to some additional operating costs, primarily the variable third-party shipping fees associated with customer route. Other operational costs have increased due to the fact that we have added over 40 new U-Haul storage locations to the system since the end of the first quarter of last year. On a combined basis the operating earnings from our Life, and Property and Casualty Insurance operations improved by about $4.5 million compared to last year with both segments performing at or above their current business plan.

Cash and short-term investments at the Moving and Storage segment, $507 million at the end of the quarter. That's compared to $428 million at the end of our last fiscal year, which was March 31st. Unused availability from existing borrowing facilities at the under of the quarter was an additional $75 million.

I would like to remind everyone of our upcoming virtual analyst and investor meeting. This is going to be ourself seventh annual event which is broadcast live over the Internet at AMERCO.com. This year we're going to be holding it on Thursday, August 29th at eleven o'clock Arizona time, which I believe is one o'clock Eastern Time. That's about three hours after we will be holding our live webcast of our annual shareholder meeting earlier that morning.

We will have on hand several of our key executives who will make brief presentations and then be available for questions and answers. I'd like to remind everyone this is one of our key investor outreach programs and I encourage you to participate live or you can submit your questions ahead of time to Sebastien Reyes, our Investor Relations Director ahead of time and he will get us to address them as part of the presentation. You can reach Sebastien through our Investor Relations website at www.amerco.com. With that I would like it hand the call back to Joe.

Thanks, Jason. We will go ahead now and have the operator go to the question and answer period.

(Operator Instructions). Our first question is from Jim Barrett from CL King. Please go ahead, sir.

Good morning. This is Jim Barrett from CL King.

Good morning, Jim.

Good morning. Joe, to what degree is -- I noticed you mentioned increasing competition. To what degree is the reduction in the average fleet size of your primary competitor help explain these -- the results the Company is achieving?

Are you talking about Budget?

Yes.

Okay. Well, first, Jim, I would say they're not our primary competitor, but they're part of the competitive landscape. Historically Budget and Penske been relatively similar size.

Yes.

Budget has been over the last four or five years putting more emphasis on their car rental operations as they've expanded those. And so I don't think it's a bad thing, but I don't have any evidence that says we're getting their customers and I don't have a good estimate -- maybe you do -- of how much their revenue is down so I think most of this, Jim, is really due to us doing a better job with our customer) And when we do a better job with them, they respond.

I don't think -- I think that Budget is -- has so many irons in the fire that as far as I know are all good profitable operations, that they're just deemphasizing this and not declaring surrender. They're just at this point they have other -- other things at the top of their list. I would expect that they will come back. They have been in this business a long, long time and as they change their priorities I would expect to see them come back. I think -- that's about it. So my answer is I don't have a quantitative answer and to my knowledge nobody in the organization does, but I don't think it's the big thing that's going on here.

Understood. And as I look forward over the next couple of years given what you see as market demand and customer service levels, how much of a need is there to grow the absolute size of the truck and trailer fleet over the next few years?

I think you know it would be my intention to try to aggressively expand just to keep all the spots on the checker board filled. I don't have a big desire to leave a void. So if we see a market opportunity, I think you should expect us to appropriately put equipment on that opportunity. So, you know, we do a -- repetitive analysis to try to determine where that is so I would say it would be my hope we would be able to continue to expand it somewhere near the pace we have over the last 24 months, about but I'm ready to turn that on or off depending on how the customer responds to us and so...

Okay.

I don't -- that would be my guess. My guess you could project -- that's really want you to do is project.

Yes.

That would be my best guess but we try to maintain our flexibility so if something goes awry we can back off.

Okay. And I recall, Joe, during the height of the real estate bubble you were adverse to paying current market multiples for self-storage locations. Obviously it didn't happen in this quarter, but what is your general sense as to your ability going forward to buy self-storage locations and/or existing facilities at prices that you feel are attractive? Are you starting to see prices in that area increase dramatically?

Yes. I think that what we're seeing is the REITs and the people who think they're going to open the (inaudible - background noise) to a REIT are in a feeding frenzy on storage presently. Of course, it's a 20 year investment and doing it based on present interest rates is always a risky thing to do. The REITs have a whole different capital structure than us and as near as I can tell they can get away with this.

They appear to be paying multiples of 15 to 20 times NOI that looks like what they're doing pretty routinely now. I don't have access to their books, obviously, but they seem to be doing that I don't think that's a good strategy for us personally because that would have to be in my judgment factoring in a bunch more inflation and I think you already book that so I don't think that's a good strategy for us to follow, which means we're going to -- we'll bid a bunch of deals, but we're not going to get a bunch of them because we're not going to go to that multiple quite frankly. So that's just how it's going to be.

How long it will stay that way I have no way to tell, but we still have a lot of other opportunities so we need to, in my judgment, focus on what is an opportunity for us and let them go about their business, but it's creating a lot of extremely high expectations among individual storage owners when they see these kind of multiples and we will just see where that goes. I don't have a way to answer. You're in the investment business you have a better opinion of how long people are going to want to accept the current rates of return that they're seeing and I really don't know that answer.

Understood. Well, thank you. That's very helpful.

Sure.

Our next question is from Jamie Wilen. Please go ahead.

Following up on that you are the third or fourth largest self-storage owner in the country at present?

Well, that's a hotly debated question, but we're big in the business. That's for sure. Part of our long-term strategy. So as a -- and I don't know how you're invested in us, but as you're looking at us long-term, we intend to be in the self-storage business with a national presence.

Right. And over the last two to three years the average price you paid times NOI for what you acquired was about what?

That's a good question. I don't know, Jason, if you know it. It was nowhere near 15. I could tell you that. I don't know if Jason has a number. And most everything we do is on trailing 12.

Mm-hmm.

You know, a lot of -- a lot of where these sales are taking places on forecasted next 12 months and that gets very dicey so when I say 15 or 20 times I'm saying based on trailing 12.

This is Jason. I think many of our deals have priced closer to 12. Anywhere from 12 to 14.

Okay. When I look at your numbers there's a stark difference in what you do in Canada. Your EBITDA margin as a percentage of sales versus what you do in the United States. And in the States it was 36% this quarter versus 22% in Canada. Why is there such a large difference and can you close that gap?

We're all holding our breath here to see who's going to lay their hands on that actual information. Jason is going through the data.

While you are looking for that question I will catch another one on you.

Sure.

You have under oath with SAC Holdings and the interest income went up in the quarter from last year for some reason by $5 million. What -- how could the interest income go up if the amount of the note didn't go up and what is the interest rate that they are paying ?

The interest income went up at the end of last year for some investments that were non-SAC related.

Okay.

And what's the interest rate? It hovers around 9%. 9% is a good ruled of thumb, but we would have to go to the exact documents to get every set single (multiple speakers)

Okay and back to Canada?

On Canada there's some pricing that goes on between the US operations and the Canadian operation. The -- I don't have a real good answer for you, but just in broad strokes there's the pricing and allocation issues between the entities. Overall, I think if you were to just look at the truck rental operations on their own there isn't a huge variance in the operating margin there. However, there is some things that we do a little bit differently accounting wise between the two.

Okay.

I think your question -- this is Joe again. Always the issue is did something become a step child or does it get the full attention? And that from my point of view in operations that's always the issue. The numbers fall where they fall, but we've taken steps in the last 18 months to increase our management intensity in Canada and I would expect over the next three to five years you will see that operation move ahead noticeably. So it's always a -- there's no question about we're a US-based company and that give us a little bit of prejudice towards the local operations as opposed to Canadian, but I think we have taken steps to intensify there and we will get some improved results.

Okay. And as far as your new business initiatives, U-Box, et cetera, how much is that costing you along the way and where -- when do you think that will turn from a cost to a profit center?

Well, that's what Jason and I were just talking about before the meeting. What I've been trying to do with every one of these operations is have them burn no more in direct expense than their total gross revenue, what that means is what's getting burned up is indirect or allocated overhead. So I would say marginally they're very close -- each one of those operations is close to a break even. Could be a percent plus or minus a break even but they're close to a break even. It gets very -- it's very unclear how to properly allocate overhead so I will take myself for instance.

I have spent a disproportionate amount of time on U-Box in the last 12-months and so -- I won't -- I'm not going to say this is (inaudible). I spent 30% of my time on U-Box. Well, certainly that is not proportionate to our gross revenue so, on a marginal basis it's fine, but probably if you really full costed it, we're burning up some money. From the accounting standards I'm trying to see and Jason is working with me on this to see that we're aggressive enough in our depreciation and expensing that we're not building a bow wave of unabsorbed expenses. I don't know, Jason, if you could address that.

No. I think we've been pretty conservative with our capitalizing the assets that we use towards this. I look at the U-Box program a little bit differently in that in the broad sense it is using some the same resources that we use throughout the rest of the organization so it's not just all additional cost so it is assisting in covering some of the overhead for the rest of the organization. So on a stand alone basis it isn't yet accretive to anything however I think in the grand scheme there may be some benefit to it currently.

And what's our timetable kind of varies by the operation. I believe our moving help business is clearly making us money. I don't think there's -- it's not some huge amount of money, but it's money ahead I think that the U-Box business may be two or three years out from doing something that would be worth discussing. In other words, if we make or lose a million dollars in the scheme of things, it's not -- it doesn't have a tremendous impact, but I think two, maybe three years out the numbers would be big enough that we -- if we lost money, it would be big enough to talk about, and if we made money, it would be big enough to talk about.

The -- our college box business remains relatively small and I think -- again I think we can say it's very close to a break even. Very close. It has a lot -- all these programs have a lot of IT cost in them and it gets -- we try to cost it out and then we follow the accounting rules for how fast you can write it off, but those costs are very -- they're -- they're kind of ephemeral, but there's a big -- we have a big burn on that. Last time I checked we had over a hundred programmers on staff full time and they are working on everything trying to work on new programs, at the same time keep the U-Haul boat sufficiently operational that it works. So I don't think we have an absolute knowledge of it but we are considering trying not to accumulate unexpensed costs with the thought that we would recover them in a future year. We're trying to be aggressive or conservative I guess is what Jason called it in that regard.

Okay. Very good explanation. One last thing when you talk about a million dollars here or there doesn't really move the needle, I look at -- you know, you have done and incredible job of managing these businesses from all fronts, but from a shareholder front, a million dollars here and there obviously doesn't move the needle, but there are certain things that you can do that would be of great benefit to shareholders.

You have built an iconic brand name that is so well known throughout America, and it is amazing that it would cost you next to nothing to change the corporate name that people would know you under -- as U-Haul. I don't see how it would hurt anybody for anything to do that, but it would be a great benefit to all shareholders. I would certainly give you money if you needed extra to do it, but I think you have enough to be able to change the name and I think it would really help the trading awareness for the Company as well as a three or four for one stock split because there are only 20 million shares out.

We are a $170 or so stock, one of the higher priced stocks, and additional trading volume would be of great benefit to shareholders. So I would hope those two things, which would not cost the Company much money, would -- but would be of great benefit to shareholders would be considered in the future and can you tell us if you have, indeed, discussed them and why you wouldn't do them currently?

We have discussed them. I don't know that I can say why we wouldn't do them. I'll ask you for a minute, why do you feel so strongly? You have indicated that before on the name, but what's your -- what's your experience in that regard?

Because no one knows that AMERCO is U-Haul. When -- I mean people look at their statement they say what is this AMERCO and you have to tell them that's U-Haul and people are -- people love the U-Haul business. They love to see the U-Haul trucks on the road. People would love to invest in the U-Haul Company, but they don't know that it's actually trading under a different name. I realize the symbol is U-Haul, but it is one of the world's great brand names that is unknown on Wall Street.

I would submit if Wall Street was more aware of you and you did a three for one stock split or four for one, this stock price would probably be 50% higher than it is today. You know, you have done such an incredible job of running the business, but you're kind of like a tree falling in the forest that nobody sees. Your numbers are fantastic and your market positions incredible and dominant, and as a shareholder I love to travel on the highway and see U-Haul trucks all over the place and I'm sure everyone else would, too. So I think it would have incredible benefit.

I think it would cost us nothing to do and I think we could -- we have very little coverage on Wall Street beyond CL King I think -- I think we're very worthy of getting coverage on Wall Street. We're a couple billion dollar market cap but we should be a couple billion more than that.

Okay. I appreciate your thoughts and I'll try to reflect on that.

Thank you much for your time. Appreciate it.

(Operator Instructions). We are next question would be from Nikhil Gupta from Front Four Capital. Please go ahead, sir.

Hi, guys. Good morning and congrats on a great quarter and start to the year. Just want to my sentiment with the previous investor and I also agree with him.

I think it would be extremely beneficial to the equity, it would create great liquidity and allow investors who can't buy the stock due to restrictions an opportunity to invest. But further following up on that, it seems the business is clicking on all cylinders. CapEx dollars are starting to bear fruit. Given that and your strong balance sheet sub one to 1.5 times leverage what are your thoughts on capital allocation? And more specifically how do you guys view share buy back into our regular dividend an opportunity there to reward shareholders and your employees via the ESOP?If you can give a little more color there?

Sure. This is Joe again. If you go look at our capital structure, which I think is pretty much laid out in the public documents, we have a fairly good bump coming up on our debt and it really relates to the chapter filing we did in 2002 or 2003 and until we absorb that, which is about 18 months from now, we're going to be a little bit of a burnt child who is scared of fire. In other words, we're hyper on liquidity and we want to see that absorbed and of course right now it appears like there's no way it can't be absorbed, but I've been there before so we're keeping a lot of liquidity to ensure that that is a non event basically.

And as that is processed and we're on that almost every day working on that subject. As that is processed I think we're going to be much more open to looking at the capital allocations issue. I'm not going to say what we'll do or not do, but right now I think just as a group we're still -- that's very much in the near-term memory of the organization. It doesn't want to get close to that, and while the numbers aren't big for some companies for us these are big numbers and we want to have that totally -- the path totally clear on that before we start reallocating out to other activities.

Okay. Fair enough. That's helpful. And I guess lastly regarding U-Box can you just talk a little bit about the market dynamics there. How big is that potential market, and how big of a player do you envision being there?

Well, I would expect it to be a several hundred million dollar product line for us. Now, does that mean $200 million or $6oo million? That's a good question. I wish I knew the answer to it. The -- there's a considerable amount of business there and it's some of it overlaps our business, but some of it is totally in other areas so we're very much still learning that business. We'll have a nice increase in overall revenue this year -- I don't know a percentage, Jason if you know one?

I'm not sure what our percentage would be.

We could -- we're on track to double it.

Yes. About double. And so and you would expect that for the first several years of a program if the program is working on, and so if we could double it this year, double it next year, then we'll start to get some consumer awareness.

We have almost -- we have very modest consumer awareness of the product and so that is -- gives us a lot of uncertainty about how big the market really is. I think it's going to be pretty big. And I could see it -- I could see it being $400 million, not being just crazy talk. Now, there's a lot of work would have to be done here and there and we have to increase the quality of our customer experience there because of course every time we mishandle something as we're going through this learning curve we burn a customer and we are having to try to go back and make it right by these people, but we're making unfortunate errors as we continue to expand our footprint.

Right now on the optimistic point of view we have the largest footprint in the business bar none to my knowledge. In other words, we're servicing the most geographic areas. Now, we're servicing them very thinly but part of our U-Haul strategy is to be in all markets. And so that's one of the things we're trying to do with U-Box that will make our competitors' market penetration data not necessarily relevant because we're going -- our intent is to be in markets or what they would consider two tier below their market sub markets and we think there is a lot of business in there and that's our U-Haul experience that there's all these very small towns there's business there and so we are building our model so it's -- we can just hold our costs absolutely to the minimum so we can get into these less intense or lower duty cycle markets and if we can do that, I think we'll see this business $400 million plus.

Okay. Thank you.

This will conclude our question-and-answer session. With that I would like to turn the call back over to management for closing remarks.

Well, thank you all again for joining us and thanks for supporting our efforts. As Jason said, we're going to have our investor webcast on Thursday, August 29 and I look forward to anybody who has the time to log on there. We'll try to make it worth your time. Thank you again.

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