U-Haul Holding Co (UHAL) 2014 Q4 法說會逐字稿

Good morning, and welcome to the AMERCO FY14 year-end conference call.

(Operator Instructions)

This event is being recorded. I would now like to turn the conference over to Sebastien Reyes. Please go ahead, sir.

Thank you, Betty. Good morning, everyone, and thank you for joining us today. 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 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and 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 factors 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 Form 10-K for the year ended March 31, 2014, which is on file with the US Securities and Exchange Commission.

Participating in the call today will be Jason Berg, Principal Financial Officer and Chief Accounting Officer of AMERCO. I will now turn the call over to Jason.

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

Yesterday, we reported fourth quarter earnings of $2 a share as compared with $1.93 per share for the same period in FY13. For the full year of FY14, we reported net earnings of $17.51 a share as compared to $13.56 per share for FY13. In our Moving and Storage segment, which includes the equipment rental and self-storage business and excludes our insurance companies, operating earnings increased by over $17 million to nearly $72 million for the fourth quarter, and for the full year we were up nearly $122 million to $585 million.

The revenue trends that we've been discussing for the last four years regarding our truck and trailer rental business have continued. For the fourth quarter, we increased these revenues by nearly $32 million, which is about 9%, and for the full year we were up $189 million, which is around 11%.

It's typically during this fiscal year recap that we discuss a few statistics regarding the size of our rental fleet. During FY14, we increased the size of the rental fleet by approximately 15,000 trucks and 11,000 trailers and towing devices, that's net of dispositions. At March 31, 2014, we had approximately 127,000 rental trucks, 98,000 trailers, and 37,000 towing devices. Looking into the upcoming year, we're going to once again cautiously evaluate the need for expanding the fleet.

Regarding our retail network, we added close to 50 new Company-owned stores in FY14, while our independent dealer network grew by approximately 1,000 locations. That brings our combined distribution network to just over 18,940 locations at March 31.

Both our in-town and one-way transactions experienced growth during the quarter and for the full year. The majority of the revenue increase can be attributed to transaction growth rather than any widespread price improvement. We continue to be surrounded by regional and national competition.

The combination of our capital investments in equipment and physical locations, along with the continued process improvements that are taking place both in our stores and on the Internet, is providing our customers with a better overall experience in renting with U-Haul. We believe that these factors are enabling us to better serve the existing demand from the self-moving market.

From what I've seen during the first month or so of FY15, we are still finding additional upside in our revenue results. As I stated earlier, we've increased the amount of equipment available to our customers. Capital Expenditures on new rental trucks and trailers increased $177 million to just under $776 million for the full year, that's compared to the previous year, while proceeds from the sale of retired equipment finished the year at $258 million.

Our initial projections for rental equipment capital expenditures in FY15 are somewhere north of $810 million, that's before netting any equipment sales proceeds against them. We are projecting that the sales of equipment will also increase in FY15, and that will bring our net capital expenditures, which is our investment in new equipment less the sales proceeds from old equipment, we will bring that number below our FY14 amount which was $518 million net.

We continue to be active on the acquisition and development front for self-storage. For FY14, this translated to an additional 40 retail storage locations, totaling over 2.1 million net rentable square feet. Through the addition of these new facilities, combined with improved occupancy of existing locations, we increased revenue by $7 million in the fourth quarter and $29 million for the year.

For FY14, our all-in average occupancy rate increased by nearly 2% finishing around 81%. This leaves us considerable room for additional self-storage revenue growth with little additional cost to accommodate it.

Spending on real estate-related items, that includes construction, renovation and acquisitions, increased $152 million this year to approximately $321 million in total. Our plans are to continue to opportunistically expand our presence in the self-storage market through acquisitions while continuing to work on our conversion and development projects.

Our operating margin at the Moving and Storage segment for all of FY14, calculated by dividing operating earnings before taking into consideration the insurance subsidiaries, dividing that by total revenues, improved by approximately 2.5% compared with FY13. As a percent of revenue, fleet-related costs, including depreciation and operating lease expenses, decreased by 1.5 points while operating expenses, again, as a percent of revenue, decreased by about 1%.

On a combined basis, the operating earnings from our life and property and casualty insurance operations improved by just under $9 million. Both segments have been able to reduce incurred policyholder benefits. It is important to remember that their fourth quarter of FY13 included a pre-tax investment gain of approximately $8.4 million that did not recur in the fourth quarter of this year.

Another important development during this last quarter was the upgrade of Oxford's financial strength rating by AM Best to A minus which is considered an excellent rating. This is [well] (inaudible) recognition of the outstanding efforts of our team at Oxford as they continue to methodically work their business plan.

Consolidated earnings from operations for the fourth quarter of FY14 were $82 million compared to $72 million in the fourth quarter of last year, and for the full year, we reported earnings from operations of $630 million on a consolidated basis versus $499 million the year before. With that, I'd like to hand the call back to Betty to begin the question-and-answer portion of the call.

Thank you. (Operator Instructions) The first question comes from Ian Gilson of Zachs Investment Research. Please go ahead, sir.

Good morning. Congratulations on another good quarter. As we look at the fourth quarter of last year versus the fourth quarter just announced, did the relative changes of the about-town versus point-to-point, was that materially different or are we maintaining equivalent growth in both sectors?

It's looking about the same. We saw a little bit stronger growth on the in-town market, but both are still continuing to grow, and fourth quarter to fourth quarter, I think we did a little better in both categories.

Okay. On (inaudible) expenditures, on the point-to-point, are we still biased towards the mid-range or has that been changing over the last year?

When you refer to mid-range are you referring to truck size or distance of move?

Truck size.

Truck size, I would say that more of our investment in fleet has been, on the one-way fleet, has certainly been on the mid-sized truck.

Okay, fine, thank you very much.

Thank you. And our next question comes from Jim Barrett of CL King & Associates. Please go ahead, sir.

Good morning. This is actually Jacob Meier calling in for Jim. Great quarter, guys. I want -- had a quick question about the mortgage that was due this upcoming next year, it looks like that had been extended out, and wanted to know what the plan was with regard to returning cash to shareholders? I believe in the past that that had been part of contingent on that maturity before looking at that. If you could discuss that a little bit and how that changes it or not?

Sure, I'm going to hand the call over to Gary to discuss that. I think what you're referring to is the July 2015 maturity of some of our senior mortgages, and he can speak to that.

We are in process right now of doing a early refinancing of some of the pools. The money from this financing will then be used to pay off the remainder of the debt that comes due in July of 2015. So the cash will not, basically, go to the shareholders, but it will go to retire the rest of the debt that is due next year.

And just to further expand on that, I think Joe Shoen's last comments regarding that is that as soon as we get past that refinancing point then with additional cash from operations or existing cash, not any cash from the refinancing piece, is that then we would take a look at the capital structure at that point and see what we wanted to do with some of those options that perhaps including dividends and what not that, I think, we're kind of holding off on that.

So to sum up what Gary said, we're still on plan for a successful refinancing with that, and we'll, hopefully, have more information as we approach the July 2015 maturity.

Okay, great. Thanks, guys.

And our next question comes from Robert Dunn of Sidoti & Company. Please go ahead.

How are you?

Good morning. Hi, Rob.

Good. I was wondering if maybe you could quantify, or at least frame, what the impact weather had in the quarter?

Early on, there was, when the storms ran through the Atlantic seaboard and down south through, like the Atlanta area, we saw a few days where the increases across the system actually flattened out. So it did have an effect for a few days. I think overall, as you can see from our results, we were able to adjust that fairly well.

But certainly the ice storms, that brings the roads to a halt. We did have to close some stores, and we saw, there was in the quarter at least, maybe there were four, five, six days where the weather did kind of pause things for a moment. However, I don't think it had a significant impact overall for the quarter.

Okay, and you talked about the trends in first quarter. Do you think you could be a bit more specific in terms of additional upside to revenue? Do you think -- you kind of had said maybe 7% to 8% was a sustainable view. Do you think that's moved up or down? Do you think it is prudent to assume maybe even a low-double-digit clip in FY15?

Well, the 7% to 8% for us is historically high. Our average growth has historically been 4.5% to 5%. Over the last three years, we've been looking at, if you add up all three years, closer to 8% growth. So in the month of April, we've seen something similar to what we've seen here the last few years.

We don't really project ahead on what we expect, but certainly all of our plans, operationally speaking, are to try to be able to service that much of an increase, but I'm not going to go out and give you a targeted growth number.

Okay, and just in assuming in that sort of revenue growth context, how do you think we should think about the leverage, particularly in the equipment rental segment?

We still have upside in utilization. This last year what we've done is we've added a significant amount of fleet, and on a broad basis, we've been able to maintain utilization within the fleet. So our goal then would be now what we've added all this equipment to kind of pick up the trajectory on utilization and start improving that.

So there's a whole lot of work to adding the amount of trucks that we've added this year and getting them distributed across the system appropriately, so we would be able to capitalize on some of that, and our first method for growth would always be improved utilization of the fleet versus simply adding equipment.

And maybe a couple of comments on the pricing room. I know you said that it was mainly transaction growth, but could you put a little context toward the pricing environment?

There's been no real change in the pricing environment. I think what we've found is that there's nothing good has ever come from us commenting on the pricing environment, so I think what we'll say is the pricing environment hasn't changed. What we're focused on is that we can improve our earnings, we can improve our revenue without necessarily having to increase prices.

We can increase utilization. If anything, we have done this last year to expanding the dealer network in the Company-owned location network, I think, has had the effect for us of improving the transaction. I think what we're seeing is that we're able to fulfill more of the existing demand that's out there by moving into more of these niche markets that we weren't in before.

Okay, great. Thanks very much.

And the next question comes from Jamie Wilen of Wilen Management. Please go ahead.

Outstanding quarter and great year, fellows. Couple questions. Could you tell us what the age of your fleet is now, now that you've bought a lot of trucks in the last two years, a lot of equipment?

We don't have an average age of the fleet. The way that we stratify trucks across our network, we typically hold our trucks longer. I would say that the overall health, and that health being measured by down trucks, trucks not being actively rented, is at one of its lowest points that we've seen historically. So I think on an overall basis the satisfaction of our customers with the equipment is at one of its highest points that we've seen.

Okay, but operating expenses, I would assume, would be lower with newer trucks and better quality of the trucks that are manufactured today?

Yes, generally, we replace trucks that need maintenance, we don't reduce maintenance per se. So with the way the fleet rotation is looking now, we're in a great spot with that. We did see repair and maintenance costs go up this year as we addressed portions of the older fleet that we did some refreshing campaigns on over the year, but your general premise is correct, that the newer the fleet, the lower the repair cost is. Now conversely, that's the higher the depreciation expense is, as well, the way we do depreciation, but does that answer your question?

Yes. And with the potential for refinancing the debt out there, any idea as the potential savings and interest cost that could occur?

We're looking at it right now. It will have the effect of lowering our interest cost a few million dollars a year for the next 10-years-plus. We're at an all-time low, and what we are choosing to do in some cases is extend the financing terms to a longer maturity, fully amortizing, and being able to do it at a very attractive rate.

Outstanding. I know you weren't talking about pricing as far as the moving business goes, but within your self-storage units as occupancy rates continue to tick higher, have you also changed a bit of your pricing in that area?

Sure, that's always taking place in a location-by-location basis. As we improve service, we then look to be, to get a fair rate for that additional service. So that's taking place across the country. Because of all of the activity that we have going on within that portfolio right now, it's hard to get kind of an overall generalized increase in rates across the country because we have so much new product coming in that I don't have a real good number I can tell you that rates are up 2% or anything like that.

All I can say is that we have probably half of our locations are at 90% or better, and at those locations, we typically are at that point because of great service and as we improve that service we'll also seek to improve the rate there.

Okay, outstanding. And lastly, any further discussion of possibly changing the corporate name as people go out and say why don't we rent a U-Haul as opposed to why don't we rent an AMERCO?

The comment has been heard by the Board. I think the comments we heard by everyone whose been on the earnings calls now for awhile, and I still don't have anything new to report to you on that.

Okay, outstanding job in managing the business, fellows, thank you.

Thank you, Jamie.

(Operator Instructions) And our next question comes from Rohit Sahni of Harbor Spring. Please go ahead.

Hi, guys. Congrats on a great quarter. I had two quick housekeeping questions, and then one question on just the outlook.

I know you don't give actual outlook for revenue growth, but could you comment briefly on just margins over the next year or two? Obviously, you've done a very nice job increasing them by over 250 basis points this year. Can we see margins showing healthy improvement as you go forward?

And then the two housekeeping questions. One is, can you just clarify, I think you said something about the CapEx guidance for 2015, can you just mention those numbers again if you did just so we have them? And then, secondly, can you just comment on what your actual net debt is now for the year end versus what it was last year?

Sure. I'll start off with, I guess, with your last question. The debt, and what I'm going to include in this is the on balance sheet, the loans, capital leases, and then also our best estimate of the liability for operating leases and their residual value guarantees. At March 31 of this year, that number was $2.165 billion; March 31 of last year that number was $1.992 billion.

And then to offset that, cash at the Moving and Storage segment at the end of the year was $464 million. Last year it was $427 million, so the net debt number would, for this year, is $1.7 billion, last year it was $1.565 billion.

Okay, great.

As far as the CapEx number, just to kind of go over what I mentioned there, our growth CapEx on fleet spending this last year was $776 million. Right now, we're predicting a slight increase in that to about a little north of $810 million. That number, for anyone who tracks our projections in the queue from quarter-to-quarter, will know that that projection changes from quarter-to-quarter as our operations team evaluates the business. So that's our best estimate as of today.

Our net CapEx number last year, so net of sales, was $518 million. We think we're going to see increased truck sales this year, so that we should be coming underneath that. I don't necessarily have a magnitude of how much below that right now, but, hopefully, we'll have a much better update for you after the first quarter when we start to see how we're able to move that volume of trucks.

For storage CapEx, this year, we almost doubled it, or just about doubled it, a little more, I guess, from -- up to $320 million. I think we were $169 million last year. I don't have a specific budget for that, other than to say that we're going to keep looking for opportunities. We could easily do another $300 million this year based upon what we have in the pipeline as far as conversion and development projects combined with a reasonable run rate.

And then, your last question was about margin projection, and we've talked about this before, we're kind of in unchartered waters on margins. If revenue were to keep increasing at the rate it is, there's no reason we shouldn't be able to try to improve upon what we've done in the past, but we do have some headwinds with the bigger fleet, the opportunity for maintenance and repair costs to go up is there.

I think we're looking at probably some increase in our insurance expense on the fleet this coming year, so we do have a couple headwinds, but it's certainly possible. It's not out of the question for further increases.

Got it. And with respect to competition, obviously, some of your large competitors are shrinking their fleet or getting smaller. Any notable trends that you're seeing in the competitive landscape that we should be aware of versus what we saw last year?

No, I don't think that there's been any significant change with our competitors. For every one that downsizes, someone else may see an opportunity to increase the size of their fleet. I'll say it, and we've said it again and again, that we're inwardly focused and the revenue improvements that we have this year weren't from anything that our competitors did.

It was from what we did which was expand locations, increase the amount of equipment to get to those locations and serve customers that likely weren't using anyone's equipment before, but now we're more of a convenient option for them. The equipment may look nicer, it may be closer to their house, the process on the Web may be easier for them to navigate. I think all of those things have contributed to people utilizing us more versus any sort of wholesale pullback by competition or any large structural increase in demand.

Got it. Okay, great. Thank you very much.

You're welcome.

And we have a follow-up question from Mr. Robert Dunn of Sidoti & Company. Please go ahead, sir.

Hi. The corporate expense in Moving and Storage fell pretty dramatically in the quarter. I was wondering if there was anything special going on there?

When you say it fell, you're comparing it versus last quarter or last year?

Quarter-over-quarter.

Yes, and that typically happens. You also see that the revenue came down, as well. Our business is a little bit cyclical, so personnel costs kind of fell. So looking at it just as a percent of revenue, we were able to improve a little bit compared to where we were at last year, but that decrease quarter-to-quarter is fairly routine for us.

Okay. And I think I missed what you said about CapEx on the storage side?

Sure. I just commented, last year we did a little over $320 million of CapEx, the year before that we did about $169 million. We don't have a specific budget for what we have to do, what we found generally is that that may lead people to do deals that aren't the greatest deals just to try to hit their investment number. So we're more opportunistic in how we deploy that capital.

We have a whole bunch of projects in the pipeline, locations that we've acquired that we have some work to do on, either adding storage to those. We've added 50 locations this year that are doing truck rentals, 40 of those already have storage. So that means we have 10 more to work on in order to get the storage up and running at those. We have several more in the pipeline, so we would love to do another $300 million this year, but I can't give you a firm projection on that because it's kind of, varies on where we find the deals.

Okay. And that would be over and above the $810 million?

Exactly.

Okay, all right, great. Thanks very much.

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

I'd like to thank everyone for their interest in following the Company. I'd like to thank the U-Haul team for all their efforts in this last quarter and this last fiscal year, and we look forward to speaking to you in our first quarter earnings call. Thank you.

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