U-Haul Holding Co (UHAL) 2015 Q2 法說會逐字稿

Good morning and welcome to the AMERCO second-quarter fiscal 2015 investor call and webcast. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Sebastian Reyes. Please go ahead.

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 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-Q, for the quarter ended September 30th, 2014, which is on file with the US Securities and Exchange Commission.

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

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

Yesterday we reported second-quarter earnings of $7.98 a share. That's compared to $7.06 a share for the same period in fiscal 2014.

As usual, to try to minimize repetition during my prepared comments, all of my period-over-period comparisons are going to be for the second quarter of fiscal 2015 compared to the second quarter of fiscal 2014, unless otherwise specified.

Our core moving and storage operations experienced a $34 million increase in operating earnings for the quarter. All three of our primary revenue lines for this segment improved, with the most significant increase coming from our equipment rental revenue. U-Move revenues increased $55 million, or 9%.

We saw several key measurements trend up again this quarter. Transactions from both our in-town and one-way markets for trucks, trailers, and towing devices all increased. The average number of trucks in the fleet increased. The number of independent dealers was up. And we continued to add new Company-owned locations, with 19 new U-Move locations coming online during the quarter.

I have nothing new to report regarding the pricing environment. It remains competitive.

Looking at preliminary results for the first month of the upcoming third quarter, we are continuing to see U-Move revenue growth.

Capital expenditures for the first six months of fiscal 2015 on new rental trucks and trailers were $536 million. That's $153 million increase compared to the same six-month period last year. Proceeds from the sale of retired equipment were $259 million. That's a $92 million increase.

Our projections for rental equipment growth capital expenditures in fiscal 2015 continue to be north of $850 million. That's before netting any equipment sales proceeds against them.

Sales of moving supplies through both our physical locations and on our website uhaul.com continued to trend positively. We're also continuing to grow our hitch and towing accessory sales and installation business, with revenues reflecting this.

Self storage remains a key focus of our organization. Revenues were up over $7 million for the second quarter of fiscal 2015.

From October 1, 2013 through September 30, 2014 we added approximately 2,300,000 net rentable square feet to the system, with a little over 1,100,000 of that coming during the first six months of this fiscal year.

Spending on real-estate-related capital expenditures, largely acquisitions but also including construction, was $181 million for the first six months of this year. That compares to $155 million for the same time last year.

Our quoted occupancy statistics include all available rooms and locations, regardless of whether or not they're brand new or seasoned. During the second quarter of this year we had average occupancy of 84%, which was about a 2% improvement compared to last year.

Operating expense at the moving and storage segment increased $20 million for the second quarter of fiscal 2015. Our big three operating expenses -- personnel, maintenance and repair, and liability cost estimates associated with the operation of the fleet -- accounted for the majority of the increase.

We continue to incur expenses and costs associated with expanding our U-Box program, with freight expense being one of the largest items. During our last earnings call I discussed some process disruptions associated with our rollout of the new point of sale and back office systems for this program. Most of these issues have been resolved during the second quarter, or greatly minimized.

On a related note regarding our U-Box program, I would like to refer you to our legal disclosure in the 10-Q that we filed yesterday for an update on where our litigation with PEI, more commonly referred to as PODS, stands and what possible future ramifications that may have on earnings.

Consolidated earnings from operations for the second quarter of fiscal 2015 were $276 million. That's up from $240 million for the second quarter of last year.

Cash and credit availability at the moving and storage segment was $921 million at September 30 this year compared with $713 million at the same time last year. Cash and availability balances are elevated as we prepare for third-quarter equipment purchases and continue down the road towards refinancing our upcoming real estate loan maturities.

To that point, during the quarter we paid down $127 million of the senior mortgages that were coming due in July 2015. As part of defeasance we recognized a $4.1 million charge during the quarter. We are still on track to completely pay off these obligations during the fourth quarter of this year or the first quarter of next year.

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

Thank you. (Operator Instructions) Ian Gilson; Zacks Investment Research.

Another good quarter. On the cash versus debt repayment, you've got a lot of cash available. Can you pay down early with not much of a penalty? Or is that not to the advantage at this point in time?

I'm going to hand that question over to Gary. He's in the office here with us.

What we've been doing is we have been refinancing a set of our storage assets and we have paid the defeasance and the costs, as Jason mentioned. We're so close to the first quarter, we can pay off a lot of our maturities in January of next year without defeasance. So we're very close to it, so what we've been doing is accumulating cash and, to some extent, probably paying more interest than we will. But with where rates have been it was wise. We've gone long on our refi's, as far out as 20 years and fully amortizing. So the liquidity that we've built up has actually been for next year. So that's one of the reasons why we have the cash.

Okay. Jason, on the transaction data, we've never really had much over the last few years on details about what actually the gain has been. How far can you push that? Is there anything that competitively that has enabled you to increase transactions? Where is the demand coming from?

Well, Ian, just to refer to the transaction data, what I have communicated, at least over the last year or two, is that revenue growth has been right on top of transaction growth. And so that kind of gives you a real good sense of what our overall transaction growth has been. It's pretty much mirrored our revenue growth. That's where much of our revenue growth is coming from, is just transactions versus rate.

As far as where we think that could go, we're clearly geared up for growth along those lines looking forward. We've added a significant number of distribution points. We've also added a significant number of trucks. I think that both of those factors will enable us to -- we have more than enough trucks right now to service additional business.

So our improvement in revenue this year has not been coming from utilization. So we view utilization as an opportunity once again, and on a bigger scale in fact, because we have more equipment and we have more locations. So right now I don't think that we see a cap in the near term on where we can take transaction growth.

Okay, fine. Thank you.

Jamie Wilen; Wilen Management.

Nice quarter, fellows. To follow up on the balance sheet and the refinancing, when you get all through the refinancing, when you get to, let's say, June of next year, what will the balance sheet look like? How much will you have paid off? How much cash will you be sitting with? And, again, the interest rate savings I assume is as it was before with no change there?

Gary, do you want to start off with that and I'll try to supplement?

Sure. We're looking -- I think we have $293 million of real-estate-associated debt. We have a few things that we'll be buying out on -- the recent -- excuse me -- the equipment leases and capital leases we will be paying some of those off. But, again, I would say there are a lot of dollars -- right now we've actually prefunded a lot of the maturities that are coming up next year. So, again, the older debt that we're retiring is at a higher rate. So there should be some positive impacts from that.

But as Jason was saying, you look at our CapEx, we have a lot of CapEx. We have a lot of storage that we're looking at. So I think the balance sheet would probably be a shifting from cash availability to some real estate that's available which takes about six -- probably six weeks (inaudible) and go ahead and refi and bring money in.

But, again, we are operating basically and buying all of our stuff with -- all of our equipment and locations with cash.

So, Jamie, this is Jason. At the end of last fiscal year, if you would take our on-balance-sheet debt, our off-balance-sheet debt, and net out cash, we were right about $1.7 billion. And at the end of this quarter we were at about $1.709 billion. So net of everything it hasn't changed that much. After the pay-downs -- and I think, as Gary said, the cash balances are going to serve to reduce that. So on a net basis, I don't know how big of a change there's going to be there.

Okay. And then you've always said when we're to the other side of the valley you will figure out the best way to allocate capital, whether it's through cash dividends or share repurchase or what have you. Is that still the game plan? When would you expect to be able to make a decision and start implementing that?

Well, I think the Board would consider that once we have some certainty. Gary's mentioned that some of those payoffs could possibly happen as early as our fourth quarter of the fiscal year, which would be the first quarter of the calendar year, and then consider that after the fact. A mitigating factor, or a complicating factor, is that we're always looking on the acquisition front. And while we may not have a significant one right now, we are looking along the lines of acquisitions. And people are out there looking to sell right now. So that could be something that, when we make this decision, maybe an acquisition arises. If not, I know that the Board will address the issue once those loans are paid off.

Okay. On the self storage side, do you publish at all what your rental rate is per square foot, as other people do?

No, we don't.

Could you tell us what it is?

I would say just directionally speaking I think in-place rents are probably up about 3%. Our challenge is that the rent, new product and with old product, we're also -- I would say the geography of our storage is probably different than most everyone else. So our rates are going to look a little bit different. However, just directionally speaking, I think in-place rents are probably up about 3%. Blended we're probably up closer to 2%.

And what percentage of your self storage facilities are now running over 90% occupancy?

On the owned portfolio we're 48%, 49%, which is about a -- I think last year at this time we were about 44% or 45%. So I think we picked up about 50 facilities. The average occupancy of those facilities that are over 90% is about 95%.

And when you talk about the 2% increase in occupancy rates, was that similar throughout the entire network? Or did most of that happen to newly acquired facilities?

We don't often quote that because it's a complicated number. We may have rate increases in certain areas of 5% and then we may be adding product that is lower than our average rate overall, which would bring that down. So that's why I don't have a real -- I don't quote that number because we don't do a same-store number like some of the other REITs do. So it doesn't mean quite as much because you're talking about a different pool of assets from year to year.

Okay. I was referring to occupancy rates, not rental rates.

Oh, I'm sorry. I mistook you. So what was the question, then?

The increase in occupancy rates that you had during the quarter of 2%, was that spread equally over the chain or was that -- were most of that happened in the newly acquired facilities?

Yes, I think that kind of happened across the board.

Okay. And obviously REITs have a significant advantage over us, not paying any taxes. Still any further discussion to lower the tax rate or change the corporate structure to be able to not pay as much to the federal government?

We're certainly looking at strategies to do that. I would say that converting to a REIT probably is at the top of that list right now.

And lastly, the U-Box program, obviously you had some difficulties. I'm not exactly sure what the freight difficulties are. I guess moving these things around is a bit difficult. But could you track for us kind of how much U-Box is costing us and when you would expect it to hit the breakeven level?

I think we got real close to that point last year. And I run into the same challenge we run into on every other line, which is why we don't publish profitability by product line, is that everything's kind of blended. So our best guess of throwing costs against it that we think are there, showed it probably breaking even or maybe a little bit positive last fiscal year. And then we threw some challenges at it this year to kind of take a couple steps back and we're probably a little bit below that this year now. And that's an amount that we talked about at the last quarter, somewhere in the $8 million to $10 million range that we're probably not going to get back.

But we're starting to see our trends move back to what we saw before we put the systems in. And when you think about it, just to expand on your comment about freight, what we're seeing in this business is it's largely a moving business versus a storage business for us. So then the majority of what you're doing is you're moving these boxes around the country with third-party carriers. So then just by the nature of that, that's going to be one of your largest expenses. So that's the cost that we're trying to manage to and one of the systems that we threw at that last quarter was a freight management system that let our freight costs run up through our understanding, or lack thereof, of the freight management system.

Would you expect U-Box to be in the black next fiscal year?

It's certainly what we're planning towards.

Okay. And lastly, as far as expenditures for trucks moving forward and rental equipment, seems like it's tailing off in the back half of the year. You're looking at increased utilization. Are your planned expenditures for adding to the fleet going to stay at this level? Or is this the high point and we're moving a little south now?

Well, I think I'll break that into two pieces. Growth CapEx I think probably this year will be a high point and then we may stay at this point or come down depending on demand and depending upon how we see the utilization numbers come. We've added a significant number of trucks over the course of the year and I think our focus now is shifting towards improving the utilization of what we've added.

What we will see through the end of this year and then into next year is I think we'll see our net CapEx stabilizes as we get onto a new sales schedule at this size of the fleet, so that we should see more year-over-year stabilized proceeds from sales.

So I don't think that there's a huge plan right now to -- well, we don't look out that far. I don't have a projection for the next year on fleet. I'll say that we usually address that in quarterly intervals. So what I'll say is the end of this year is probably going to be up a little bit over the same six-month period last year.

Okay. Nice quarter, fellows. Way to manage the business. Appreciate it.

Jim Barrett, [BL] King & Associates.

This is Jacob Meier calling in for Jim. I think you just answered one of the CapEx questions I had, but just wanted to elaborate a little bit. Is most of that growth? Or is that really tied to the fleet or -- and especially going forward the rest of the year?

Yes. I'd break the CapEx comments down into two pieces -- the fleet, which is a little bit more predictable than the real estate, which is certainly kind of opportunistic. So the comments that I just made were related to fleet.

Okay, great. Thanks. And I'm also looking at the margin performance for the quarter. And obviously you don't break it out, but is that mostly driven by the self-storage business, would you say?

Well, no, I'd -- if everything we held steady with last year, then I think that would be the case. But we continued to add additional storage facilities. So whereas facilities that we added two or three years ago are beginning to add value to the operating margin, we're adding new facilities which then kind of offset that. So I think that there may be a little bit of that going on, but I don't know if that's the largest part.

This quarter we're kind of spread across most of our operating expenses. We picked up a little bit of margin on personnel. We picked up a little bit of margin on our liability costs associated with operating the fleet. And then it was fairly well spread across most of our other miscellaneous type expenses, that the increases in those costs were just less than the increases in revenues for the quarter.

Okay, great. Thanks so much.

Ian Gilson; Zacks Investment Research.

Okay, couple questions. Propane is a significant part of your other sales. And given all of the declines that have happened in the energy industry of late, how is that pricing affecting you? And second question is, the number of trucks sold, did the average price, selling price, of those trucks increase? Or did the number of trucks that you sold increase to account for the difference in the revenue?

I'll hit the propane question first. Propane volume for the six months were down a little bit for the quarter and for the month were up. And our volume largely shifts with the price of propane, excluding seasonal adjustments for weather, but comparing the same periods over period, price largely dictates that. We are down on revenue for the quarter and for the month. But it's still a focus. I think we have -- we added several locations this last year. I think we're up to close to 1,100 of our locations offer propane. So it's one of our key retail sales items.

Your question on the fleet sales, the smaller portion of the fleet, we saw much of the increase come from more trucks being sold. The resale prices have been solid. That's something that we've been highlighting for folks on these calls, is that we're in a strong resale market right now. So the likelihood of there being more gains per piece of equipment is probably unlikely. But those have held steady compared to last year, maybe even a little bit better. But much of the variance or fluctuation is coming from the number of units sold.

Okay, thank you.

Jamie Wilen; Wilen Management.

Jason, I would be remiss not to mention that, even though the performance of the Company operating-wise and stock-wise has been nothing short of fantastic, after beautiful numbers you've traded all of 5,000 shares. I would love if you could make an impassioned speech to the Board that it would be really worthy to do a five-for-one or so stock split so we could have greater trading volume in our company and more people would realize who we are and how good a job we're doing. So one would hope you would reconsider a stock split. It doesn't cost the Company anything and could only be of benefit to all shareholders.

The world is spinning back on its axis. I was worried that we weren't going to get that question this time. The impassioned speeches have been made. I don't have anything else I can comment on at this time about that.

And lastly, property and casualty, the insurance, revenues up 20%. It seems like it should be very easy business for you to increase profitability and yet profits were flat. I thought that's somewhat of an easy margin business for you?

Well, nothing's easy. But I would say that the increase in that business is tied into U-Haul business as far as new sales go, because they're selling products to our moving and storage customers and other storage customers throughout the industry that may not be directly affiliated with us. So it's a business that we know. We think it's profitable. They also do the administration of claims for us. And there's several arrangements back and forth between U-Haul and Repwest to compensate the Company for those arrangements. And from time to time those arrangements may change a little bit.

So we're still very happy with the performance and overall I think they're contributing at the same level or more they have been in the past. It may just be reflected in different columns within our financial statements.

Understood. Thanks, Jason.

(Operator Instructions) Seeing no further questions, I would like to turn the conference back over to Management for closing remarks.

Thanks, Amy. I'd like to thank everyone for your interest in and support of AMERCO. I look forward to speaking to everyone again on our third-quarter investor call in early February. Thank you very much.

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