U-Haul Holding Co (UHAL) 2014 Q3 法說會逐字稿

Good morning, and welcome to the AMERCO third-quarter fiscal 2014 investors conference call. (operator instructions). Please note this event is being recorded. Now I would like to turn the conference over to Sebastien Reyes. Mr. Reyes, please go ahead.

Good morning, everyone, and thank you for joining us today. Welcome to the AMERCO third-quarter fiscal 2014 investor call. Before we begin, I would like to remind everyone that certain of the statements during this call including, without limitation, statements regarding revenue, expenses, income, and general growth of our business may constitute forward-looking statements within the meaning of the Safe Harbor provisions of Section 27-A of the Securities Act of 1933 as amended in section 21-E of the Securities Exchange Act of 1934 as amended.

Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Certain statements could cause actual results to differ materially from those projected. For a discussion of the risks and uncertainties that may affect AMERCO's business and future operating results, please refer to our most recent Form 10-K filing with the US Securities and Exchange Commission and any update as may be provided in Form 10-Q for the quarter ended December 31, 2013. Joining me here today is Jason Berg, Chief Accounting Officer of AMERCO. I'll now turn the call over to Jason.

Thanks, Sebastien. Good morning. I'm speaking to you today from Phoenix, Arizona. Also on the call with me from the offices in Reno, Nevada, are Gary Horton, AMERCO's Treasurer; and Rocky Wardrip, AMERCO's Assistant Treasurer. All three of us will be available for questions after these prepared remarks.

Yesterday we reported third-quarter earnings of [$2.67] a share, as compared with $1.89 per share for the same period in fiscal 2013. To try to minimize repetition during my prepared comments, all of my period-over-period comparisons will be for the third quarter of fiscal 2014 to the third quarter of fiscal 2013 unless specifically noted.

Excluding our insurance subsidiaries, operating earnings at our core moving and storage operating segment increased $19 million to just over $92 million for the quarter. For the quarter, our U-Move revenues increased over $41 million to a total of $436 million. While we may be seeing some modest improvement in pricing in certain narrow market segments, our revenue growth is still coming overwhelmingly from transaction growth. As we've discussed for several quarters now, we are improving the customer experience. We are reinvesting in the equipment fleet, as we've been adding trucks, trailers, and towing devices, and I'll have a little bit more on this in a bit.

We've not wavered from our focus on refining our Internet processes, and we are expanding the number of retail outlets from which customers can do business with us. In just the first nine months of this year, we've opened 43 new Company moving centers; 26 of those already have storage product up and running. Similarly, our independent dealer network continues to expand as well, adding over 700 locations in the last nine months. More so than last year, our team in the field is having to deal with challenges presented by poor weather. We experienced some of this in December and, to a greater extent, in January. It's unclear at this time exactly how much of an effect this will have on our results for the fourth quarter. Notwithstanding the weather, it is important to note that through January we are continuing to see growth in our equipment rental revenues.

As I mentioned, we are continuing to invest capital in our rental equipment fleet. For the first nine months of fiscal 2014, capital expenditures on new rental trucks and trailers were $512 million. That's a $90 million increase compared to the first nine months of last year. Proceeds from the sale of retired equipment were $204 million. Our projections for rental equipment gross capital expenditures in fiscal 2014 have increased since we last spoke during our second-quarter earnings call. We now project total spending on new equipment for the fleet to be at least $770 million; that's before netting any equivalent sales proceeds against them. Our expectations for net capital expenditures, which offset purchase outflows and sales inflows, have also increased since our last earnings call to approximately $470 million. As a point of reference, our gross capital expenditures for equipment last year were just under $600 million, and our net CapEx was around $391 million.

Our self storage operations continue to grow, with revenues up $7 million. The revenue growth is due to a combination of organic rent-up activity at existing locations along with occupancy gains resulting from the acquisition of new facilities. Since December 2012 -- so over the last 12 months -- we've added approximately 2,100,000 net rentable square feet to the system, with about 750,000 of that coming during the third quarter of this year. Our occupancy results increased by 2% to 80% for the third quarter; that's average occupancy during the three months.

Spending on real estate-related CapEx, including construction, renovation, and the acquisition of new facilities, for the first nine months of fiscal 2014 has increased by approximately $126 million to a total of $256 million compared to the same nine-month period last year. We continue to actively search for new opportunities but remain disciplined when pricing them. Our investment horizon tends to be much longer than that of our truck and storage competitors.

Total cost and expenses at the moving and storage segment increased by $44 million for the quarter. Operating expenses accounted for almost $29 million of this increase. The most significant increases were related to personnel costs, maintenance on rental equipment, and the costs associated with our U-Box program. In relation to operating margin, the increase in personnel, and also in our combined lease and depreciation expense line, was slower than our growth in revenue, resulting in an expansion of our operating margin for the quarter.

Switching gears for a moment to talk about our insurance companies, on a combined basis the operating earnings from our life insurance and property and casualty insurance operations improved by $4,700,000 during the quarter. Both segments have grown total revenues and have reduced incurred policyholder benefits. Our insurance companies report on a three-month lag in order to conform with our state regulatory reporting requirements, so their fourth quarter is has already ended; it ended on December 31. In looking ahead to our next quarter, our fourth-quarter, it is important to remember that their fourth quarter of last year, fiscal 2013, included a pre-tax investment gain of approximately $8.4 million. That gain will not recur in the fourth quarter of this current year.

During the third quarter, the Company declared a cash dividend on our common stock of $1.00 per share to holders of record on January 10 of this year, and that's going to be payable on February 14.

With that, I'd like to hand the call back to Keith, our operator, to begin the question-and-answer portion of the call.

(operator instructions). Jim Barrett, CLK & Associates.

This is Jim Barrett from CL King. You know, Jason, you may have touched upon this in your summary. But when you step back, what has -- what have been the major factors that have changed that has enabled the Company not only to make money in the December quarter but to make a significant amount of money? I know prior to 2010, when you made $0.02 in the quarter, more often than not it was a money-losing quarter. So from your perspective, what has changed over the last several years?

Sure. Thanks Jim. What's been driving the operating margin, the operating earnings, has been our ability to increase top-line revenue. We discussed for years on these calls and also at your investor conferences the operating leverage built in to the organization. And we've been successful for a number of reasons, and Joe talks about this every time.

As long as we continue to serve the customer better, we think that there is untapped business out there that we can get. People who aren't using any rental equipment at all currently -- if we can communicate our value proposition to them, we are going to have additional transactions. So back-office improvements with our distribution and rate system have put the equipment in the right places. Usually during this time of the year, there is an abundance of equipment. So, typically, you don't have a problem serving the customers that come to you; although we still have the busy times at the end of the month, and we've been able to handle those a little bit better than we have been handling them in the past. And I really think our ability to expand the number of locations, adding the convenience factor to customers -- I can't help but think that that's had an enormous impact on the amount of business coming to us.

Okay. And you did mention that your business was up in January in spite of the weather. Is it -- has it been maintaining this trend that we've been seeing over the last several quarters in terms of transaction growth?

Yes, I'm not going to get into the details of that other than to say that we have been dealing with some of the challenges presented by the weather. But we have still been able to keep positive trend on revenues so far in the first 30 days.

Okay. Well, thank you very much.

Ian Gilson, Zacks Investment Research.

I noticed that you changed the data for the storage facilities from the way it was presented in prior quarters. I presume that prior quarters included the managed but not owned facilities. Or what is the change there?

In the press release disclosure, we had been presenting both owned and managed, and now we have limited our disclosure to just the owned facilities. But I'd be more than happy to answer any questions that you might have about the total portfolio.

Okay. The managed portion does not seem to have grown very much. Is that basically because of investment decisions by the third parties, or are they also self-managing some of those facilities?

The position we are in today at AMERCO is that we have enough capital to grow the storage business on our own without having to resort to any off-balance-sheet arrangements. So the vast majority of the growth in self storage is taking place on balance sheet at AMERCO. The third-party facilities that we managed, I think in the last couple of years they've opened a handful. I think this year maybe one or two in the whole nine months. So the vast majority of the growth, almost all of it, is taking place at U-Haul.

Okay. Going back a few years, the casualty insurance business built up its reserve base and [took] charges against earnings to cover liabilities of prior insurance. Are those working out? How much of a tail do we have left?

Sure. The reserve increase that you are referencing took place at Repwest, and it was somewhere in the magnitude of $50 million or so, give or take. And that was covering what we refer to as excess workers comp reinsurance treaties, where we were the reinsurer for workers compensation claims after they cleared a certain self-retention level. At that point in time, when we took that charge, we noted that we tried to be as conservative as we could in recording that. And so far now, a couple of years after the fact, it looks like our estimates are still holding up, and we haven't had to make any significant adjustment to those reserves. So a couple of years out, it looks positive, but those claims can last 30 years. So we are attempting to work those down as fast as we can through settlements or just managing those claims, but we still have a long way to go.

But what's the probability of reversing some of those charges and actually generating a positive income?

If that was to take place, I would think that we'd be several years out because some key assumptions would have to change from what we're seeing today. So I'm just not seeing that today. But without getting into details, I mean, for a business like this where you're paying people a continuing payment over time because they are sick, unfortunately things will have to happen to them for us to have to release reserves. So I don't think we are planning on that happening. We're planning on the worst-case scenario; and if something works out a little bit better in the next 10 or 15 years, we might see some of that come back.

Okay. And as you look at the fourth quarter and the acquisition of equipment, how does it look between leasing and borrowing and buying at this point in time?

Gary or Rocky, do you want to cover that question?

Rocky is here. He'll take that.

Everything that we're doing right now will either be in a buy scenario; or if we do a lease, it will be a capital lease because we need to retain the tax benefits associated with those acquisitions just because of our level of earnings.

So you're looking at depreciation as a positive factor in that decision?

Yes, the [makers] depreciation. And we are paying a little bit of a price on our tax position right now because of government subsidies effectively during the 2008, 2009, 2010 period that allowed for accelerated write-offs. So we are trying to generate as much tax shield as we can through the acquisition of the equipment.

Okay. Thank you.

Jamie Wyland, Wyland Management.

Outstanding quarter, fellas. A couple of questions. In the revenue growth, you say most of it was transaction growth. Can you kind of give us a ballpark percentage of how much was transaction and how much was pricing?

I would say that transaction growth is almost on top of the revenue growth percentage. So it's very similar.

Okay. And as you've netted out how much your capital expenditures are purchases versus sales, how much has your fleet actually grown this year net net? Are you just replacing what is -- has been aged, or is it an upgrade in the fleet?

We've been growing the fleet this year. So as far as the total number -- outside the annual reporting, we don't report on actual fleet numbers, but I would say that we are up 7000 to 8000 units compared to last year.

Okay. That's on a base of --?

I think our last reported truck count was 112,000.

And let's see. a couple -- in the property and casualty segment, you are now earning a very decent return. Is there any reason that your profitability has increased so much in that area?

Well, I spoke to Ian about the excess workers comp charge here since the last question. And what was happening with that segment several years ago was that we were kind of leading in development every year, and we finally just did a complete review of that and took one large adjustment to it. So we haven't had those kind of incremental year-over-year charges that we were seeing before. So that's kind of been taken care of, and it looks like we may have hit the mark on the right reserve number there, at least from what we know today.

And then on top of that, Repwest, all of their new business is related to moving and -- to our moving and storage business. So it's selling additional protection packages associated with equipment rentals or tenant insurance with our storage product. And as our business trends up, then their business will generally trend up right along with it. So I think it's a combination of those two things have led to the improved earnings at Repwest.

Okay. You're doing such an incredible job that the only problem I see you having moving forward is how to manage your capital structure. And you (inaudible) a huge amount of cash on the balance sheet and huge cash flow. Can you talk a little bit about your plans for altering the capital structure, whether it's the debt that you have, buying back shares, instituting a regular dividend, et cetera?

Yes. The last couple calls, Joe has alluded to this, and that is our July 2015 senior mortgage maturity, which is kind of our last big maturity bubble, Joe and the Board have taken a cautious tone in our capital structure until we work our way through that. And Gary has -- he's been working his plan on refinancing that and continues to move ahead with that. And I think after that point there is going to be a hard look at the capital structure. We are certainly running with more cash and availability now than we ever have. I know Rocky and Gary have managed the cash operations of this Company with a fraction of what we have today, and we can do just fine with that. So I still think that we are probably a year and a half out from any significant changes, and it might be even a little bit after that after we kind of see the lay of the land. But that's the best answer that I'd give you today.

What's preventing you from refinancing those mortgages now?

Gary, do you want to speak to that?

With a lot of fixed-rate debt, you end up with a prepayment as very large. And when you look at where your current one-year treasuries are versus what we finance at, it's a fairly large hit. And what we are basically doing is managing that and working it down. I think next year about this time, there will be a lot of different things that we have done as far as refinancing and paying down the debt. And we have been using a lot of the cash to go ahead and pay for our new acquisition of fleet and of properties. So we basically have been going pretty much unencumbered on a great deal of the trucks and of the storage.

And how much debt is coming due in March 2015?

It's actually July of 2015. There's two CMBS maturities that are roughly around $366 million if they go to full maturity. As Gary mentioned, we are trying to refinance those, and we'll do that in advance and try to minimize for the seasons. There is also about a three-month window -- or actually a six-month window on those where there would be no defeasance too.

So your $300 million or so of mortgage debt, given you've got $600 million of cash on the balance sheet, that's kind of defining how you are going -- it seems like a small amount to have that shape your capital structure so far into the future.

Well, there is other maturities in addition to those amounts that are maturing on that particular day. I believe the total maturities that year are in excess of $500 million.

Okay. And lastly, I know I've asked before, but any commentary on changing the name to U-Haul? Or, given that you are already a $220 stock split with only 20 million shares outstanding, doing a 4- or 5-for-1 stock split to make any more publicly traded companies both in terms of name recognition and in terms of trading availability?

On both of those issues, they've been discussed -- the stock split more so than the name change. I think we're fairly -- we have fairly clear direction internally on the stock split that I wouldn't be looking forward to that happening in the near term. And then on the name change, we just haven't taken any action on that yet either, but it's not something that we completely dismissed yet.

Okay. Great job in managing the business, fellas. Well done.

Thank you. And there are no more questions at the present time, so I would like to turn the call back over to management for any closing comments.

I'd like to thank everyone for your interest in and support of AMERCO and look forward to speaking to you again during our next earnings call, which is going to take place the last week of May. And it's going to be about a week, week and a half earlier than it normally is. During that call, we will cover our fourth-quarter and annual results. Thank you very much.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may all disconnect. Have a nice day.