U-Haul Holding Co (UHAL) 2015 Q3 法說會逐字稿

Welcome to the AMERCO third-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 Mr. Sebastien Reyes. Mr. Reyes, please go ahead.

Good morning everyone, and thank you for joining us today. Welcome to the AMERCO third-quarter fiscal 2015 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 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 December 31st, 2014, which is on file with the US Securities and Exchange Commission.

Participating in the call today will be Joe Shoen, Chairman of AMERCO. I will now turn the call over to Joe.

Good morning. Jason Berg, our Chief Accounting Officer, Gary Horton, our Treasury, and Rocky, our Assistant Treasurer, are all on the line and will be available for questions after the presentation that I make and Jason makes.

We continue to make investments in trucks, trailers, and self-storage product. We try to do so in a manner that smoothes operations. It's not always possible to do so. But most of you know we design and manufacture substantially all of our trailers and towing devices. Our truck investments are essentially choices made from products that existing original equipment manufacturers are offering.

Self-storage is always a mix of build, buy, or convert another structure. Over the next 12 months I anticipate we will be doing more building and converting and less buying. Building and converting is a long process, essentially a construction, and then you have a rent-up period. Investments we are making today will not cash flow until two to five years in the future, and so we have to be kind of thoughtful how we do that.

We're continuing to seek to expand our retail network of both independent dealers and company-owned and managed locations. Oxford Life and Republic Western both tracked to plan over the last 12 months and I believe will continue to do so in the near horizon.

Overall, we have teams of people in place who can manage and who want to manage. While U-Haul is always faced with strong competition and uncertainty, it is our operations teams that turn the tide, or fail to turn the tide, in that environment. I don't look for any great big changes over the immediate horizon, and I look forward to decent results.

With that, I'm going to turn it over to Jason, who'll walk you through the financials.

Thanks, Joe.

Yesterday we reported third-quarter earnings of $3.40 a share. That's compared with $2.67 a share for the same period in fiscal 2014. Throughout my presentation in order to try to minimize repetition my period-over-period comparisons are going to be to the third quarter of fiscal 2013 compared to the third quarter of fiscal 2014, unless otherwise specified.

Operating earnings for the moving and storage segment increased by $26 million. All three of our primary revenue lines for this segment improved, with the most significant increase for us coming from our equipment rental revenue. U-Haul revenues increased $51 million. That's about 12% (inaudible) quarter.

The U-Haul system continues to be able to serve additional customers. Compared to the same period last year, we have more trucks and trailers available for our customers to rent. During the last three months we added another 10 Company-owned locations and we continued to expand our independent dealer network. These investments, along with the continued focus from our team on improving the customer experience, culminated in a continuing trend of increased one-way and in-town transaction count.

Compared to January 2014, weather has not been as significant of an issue as it was. We remain cautious for the potential effect that poor weather could have on our fourth quarter. To that end, looking at preliminary results for the first month of the upcoming fourth quarter, we are continuing to see [U-Haul] revenue growth.

Capital expenditures for the first nine months of fiscal 2015 on new rental trucks and trailers was $635 million -- that's up about $123 million compared to the same nine-month period last year -- while proceeds from the sale of retired equipment were $319 million. That's an increase of about $115 million. Our projections for rental equipment growth CapEx in 2015 continue to be well north of $815 million. That's before netting any equipment sales proceeds against them.

Shifting gears to self-storage revenues, they were up about $7 million. For the first nine months of this year we've added about 1.5 million net rentable square feet. Spending on real-estate-related capital expenditures, largely acquisitions but now also shifting more to construction, was $268 million for the first nine months of this year. Last year for the same timeframe that was $256 million.

Our quoted occupancy statistics include all available rooms and locations regardless of whether or not they're brand new or have been seasoned. But in the third quarter of this year we had average occupancy of 81%, which was up about a percent compared to last year.

Operating expense at the moving and storage segment were up $16 million. That's largely due to personnel-related costs.

Our consolidated earnings from operations for the third quarter were $133 million. That's up from $106 million last year.

Cash and cash equivalents at the moving and storage segment was $713 million at December 31. At December 31 of the previous year that number was $571 million.

During the last earnings call we mentioned that we had made $127 million payment during the third quarter to reduce the senior mortgages that are coming due in July 2015. In January, after our quarter end, we paid off another $246 million of the senior mortgages out of our existing cash balances.

One last note: Yesterday afternoon the Company declared a cash dividend on our common stock of $1.00 per share to holders of record as of March 6. And this will be payable on March 17.

With that, I'd like to hand the call back to Joe.

Thanks a lot, Jason. We'll go ahead and go to questions now.

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

Congratulations on continued record results. And thank you for the dividend.

I have a couple of questions. First of all, if we look at your business on the truck rental side in four segments, with the about-town pickups being one segment, the small trucks, medium trucks and large trucks being the other three, could you give us an idea of the relative growth of those various segments, which was growing fastest?

Sure, Ian. This is Joe. It really is driven by where we add inventory. And of course that gets into quite a long discussion, but we added the most inventory as a percent of the base fleet in the pickup van, or what you called that first segment, over the last 12 months. And so we've seen the greatest proportional revenue growth there. In absolute dollars I'm not sure which one's actually grown better. I don't have that clear in my mind.

Of course, if we make the right decisions on equipment addition, the business is there. That's the art of the whole thing, of course. Looking over the next 12 months, we're likely going to make a significant investment in large trucks. And just how many of those will be replacement versus expansion will be the question that we'll see -- oversee increases. So you've got kind of the -- that would be the answer to your question a year from now. In other words, it's a little bit of a self-induced situation. But right now it would be the what you call the pickup, which is actually pickups and vans.

Okay. Looking at the pricing environment, has it been any more positive in the third quarter versus a year ago?

I'm not sure I can say versus a year ago. We've been able to get some dollar-per-transaction increases in the one-way business. And, as you know, that's a combination of both distance driven and rate. At least part of those increases have, in fact, been rate increases and that's always positive. You've followed us for, I don't know, 15 years of something. You've seen years where we couldn't get an increase in the rate, all our changes were really due to distance or changes. But what we're seeing our ability to get price increases based on rate alone.

Additionally -- and I don't know where we are on this curve, but we've seen the average rental get a little bit longer and more longer rentals, both, which has helped dollar per transactions in the [runway].

When the economy tanked in 2008, we saw rentals immediately shorten and long rentals become a smaller portion of all moves. And I think that is some halfway measure of consumer confidence, Ian. I don't have a better explanation for it than that, but -- and we may be about the end of that swap-off now. I can't really tell you for a fact if that trend is going to continue, if we're now about what would be the normalized distribution there.

Okay. And commissions as a percent of truck rental revenue actually declined somewhat. Is that because the fact on a relative base you increased Company-owned stores a little faster than the non-Company-owned or other agents?

Ian, this is Jason. There has been a slight shift to the proportion of business at Company-owned locations, which then we don't have the reported commission expense for.

Okay. All right.

But long term, Ian, there's not a plan to drive one or the other more. It's very opportunistic. And I have separate teams at the headquarters running both, but in our field operations it's the same group of people running both initiatives. And it's pretty much what opportunities present itself or where they're most successful. It's not our business plan to shift the numbers one direction or the other. We kind of like the relative circ- -- the proportions presently. We think that's somewhat responsive to the customer. And any changes you see are, I think, really just static, not a long-term plan.

Okay. And regarding the dividend, any plans to make that a permanent sort of $0.25 per quarter?

Not at this time, but it's actively discussed.

Thank you.

Jim Barrett; [CLK].

Joe and Jason, congratulations on the quarter. Joe, just to follow up on Ian's question, could you give us your current perspective on allocating capital in light of the amount of cash on the balance sheet, in light of the current performance of the business, and the current debt levels, and what you perceive as your needs going forward?

Well, that's a real mouthful. Sure. You can see we've been trying to opportunistically invest in the fleet. So where we're able to buy a vehicle, there's a vehicle available for sale that fits our fleet and we think has the right mechanics, we've been trying to buy close to what we think is the max we can absorb and then liquidate -- if we can, in advance -- vehicles we think are going to be troublesome vehicles.

And that's a little imperfect science, but we've netted on that. We've had net positive -- and particularly given the interest rate environment that's been a strategy that's worked good for us. And we're going to continue to do that over the next 12 months. Okay?

Right.

In self storage, as I indicated, you're probably going to see a little less purchasing existing as a proportion. It's really what we perceive as what's available. That could change. That's opportunistic. But that's my kind of over-30,000-foot conclusion, is we're going to see more opportunity to build. We have a bunch of build and convert in the pipeline right now.

And the problem with those is that they're -- it takes, honestly, nearly two years from when you make a decision to when you really open. And then it's going to take another one to, at the extreme end, five years to where you're really cash-flowing positive. Now, of course, I consider five years a failure, but I've had my fair share of those. If you can cash flow positive in one year you're doing a heck of a good job.

So renting up from zero is a bit of a laborious process.

So, we're trying to do plenty. We've been pushing in the build and convert over the last 12 months, so some of those projects will start to come on line here. In fact, they've been coming on line through the third quarter, but more of them will come on line going ahead. And then there will be the rent-up phase and it's just a question of how effective we are and how receptive the market is, how well we pick the location, as to how quick we get it rented up. So we're trying -- again, the good interest rate environment favors that activity, so we're going ahead with it.

We're fairly -- if you wanted to compare us to all people in the self-storage business, I think we have a few more criteria, a few different criteria, for buying an existing than they do [for the] physical plant. And then, on top of that, I think most of the larger competitors in this business perceive they have a lower cost of capital than we perceive we have. They're simply willing to pay a cap rate in many cases that we don't see as being in the best interest of our company. Not that theirs is a bad strategy; I'm not trying to be critical. I'm just [saying] relative thinking.

But we're going to -- we're putting money -- I think Jason said we're up sounded like $10 million compared to nine months last year. Is that close, Jason, on real estate?

Yes. [$12 million.]

I think that understates it, because a lot of these are projects that are committed and in process rather than completed. And so we have a bunch of stuff in process. And my intent is to continue to load more in that pipeline. And so I think that on an actual -- if you could, I don't know how to say, normalize it or something, I think we're spending a fair amount more on real estate than we were in the prior period. Okay?

Right.

$50 million or maybe $80 million a year. That's a kind of a guess, but I would call it a considerable more. And I think we view it as in the interest of the Company and the shareholders to make these investments today, because -- because we can, I guess.

So the only one you didn't ask is what happened if XYZ Storage with so many [kajillion] square feet became available and it was at a price we thought was interesting, we'd actually hit on it, absolutely. And that would be a little bump, but most, if you had a deal like that you also would probably be able to put specific financing on it within six months of acquisition. So you'd probably right your cash and availability pretty quick. That would be my guess.

Right.

So -- and most of those deals take about 35% shareholder equity. Jason?

Yes.

About 35%.

And, Joe, I certainly recognize the world can change quickly, whether it's a Lehman crisis or something more company specific. But with $700 million of cash on the balance sheet, a $300 stock price, is paying a larger dividend a possibility, given how you view the world going forward?

You know me a little bit. With me the glass is always half empty. I'm always looking for the boogeyman around the corner. So it's not my personality. Of course, I'm not the only person here. So I don't want to say no, no, a thousand times no. On the other hand, I don't want to go encourage you, because I know you're trying to give guidance to people who are fiduciaries. So it's certainly not an impossibility, but I don't see that being actively discussed.

I think we see let's go find more opportunities and let's stick with our base business, not opportunities, not investing in whatever the hell. But it's a big marketplace out there. Both the trucks and the storage just consume capital. And now, we've been putting it in there. And, Jason, could you requote what you said on truck fleet, nine months versus nine months?

We're up $123 million to $635 million this year. And we're going to finish well over $800 million for the year.

So we're hitting hard on that, Jim. And if we could hit harder I would hit harder. But our choices, or our options, are limited by what's for sale, very frankly. So we're not going to buy something that we don't think is a good fit. So we're hitting on it. And from your perspective, you probably -- you know, driving around or whatever, you can't tell we spent another $125 million on trucks, but --

Right.

-- (inaudible) see it. I think it was money well spent. I would expect we'll put some substantial money in trucks over the next 12 months. Of course on our truck business we would hope it's cash flow positive from within the first 30 days of their insertion. That would be my plan. And it doesn't always work out, but.

So I look at that, I don't think the $700 million cash is quite accurate today, but I get the general drift. Okay?

Okay. Well, that was very helpful. Thank you.

Jamie Wilen; Wilen Management.

Great quarter. Couple questions, first in truck rental. I realize you're gaining market share, but what, if you could guess, would be the organic growth rate of the truck rental business currently -- not yours, but the industry as a whole?

What I think would be a more -- maybe a better way I might be able to give you an answer -- and anything I give you here is just a guess, because there isn't good numbers. I think the bulk of our growth is organic. I don't think the bulk of our growth is costing the competitor. I don't see Penske's books, but I believe Penske's doing fine. Budget has done some what they claim is de-fleeting over the last maybe 18 months. I don't have a number in the front of my brain on it. But their fleet was never as strong as ours and so them de-fleeting isn't as big an opportunity.

I think that the bulk of the growth has been organic and that our business plan says that the organic growth is the growth to go for. Now then, what is organic growth or how am I defining that, Jamie? I would define it as penetrating into the whole market, not necessarily the market growing. In other words, it's kind of like fast foods. People only eat so much, but the question is will they eat more fast food. Only so many people move or need access to something with a lot of carrying capacity.

But, we get a lot of growth just by getting people who might have strapped a mattress to the roof of their car, honest to God, and now instead they rent something from us. Or people who might have sold their things because they didn't think they had a way to move them, then that says -- oh, heck, I could take it with me. And that's all very small gains in multiple areas. So single-woman head of households has been a hard target for us for 20 years and we continue to make inroads on that. They're almost imperceptible year over year, but if you looked at them over a 10-year period we've made great strides there.

So I would call that organic growth. In other words, it didn't come at the expense of another truck rental company.

I realize you're spending a lot of capital expenditure on new vehicles, but can you tell us the size of the fleet, your number of trucks, how it's changed from last year to this year and what your expectation is for the size of your fleet by the end of next year?

I'll let Jason try to answer the number question.

Okay. We normally report on that at the end of the year. Right now we're up over 135,000 total trucks, though. So we'll kind of give you a preview to the end of the year.

Looking ahead, I'm not so sure that the total units will increase a great deal. Again, I'm opportunistic and we're kind of fixed out six months at any given time. There's some flexibility, but because we depend on people to make the chassis and they have their constraints, we're -- I can see six months pretty clearly. But we'll be buying probably more larger trucks as a percentage of all trucks, so the dollars may very well go up, okay, not necessarily the units, Jamie.

Okay. And on the self-storage side, a couple questions. Could you tell me what percentage of your units have occupancy rates north of 90%?

That number fluctuates throughout the year. So right now, December we're typically the lower point of occupancy during the year. I think at the highest point we had over 50% of our locations there. During this part of the season we're probably closer to 40%. But we're above where we were at last year. So I think we have 50 more facilities over 90% at this time than we did last year at this time.

And currently the square footage of facilities you own as well as the square footage that you're managing?

We own -- at the end of December we had 19,616,000 net rentable square feet. We manage another 23,900,000. So combined we were at 43,527,000.

Okay. And, again, the profitability on managing it is somewhat similar to the profitability on owning the facilities?

That's a great question, so I need to answer that. I'm not sure -- I always prefer owning over managing, very frankly. And it gets a little grey because I think in every case the places we manage we also do substantial U-Haul business. And so, storage to storage, I'm not sure that managing is such a good deal. [When you] start throwing the whole rest of the operation at it, managing becomes better. But going ahead, it is not our strategy to add managed units. So I guess that says we think it's better to own.

All right. And lastly, as a shareholder we are certainly proud of the job you've done running this business. It's been incredible. And pleased with the dividend. But we do think it would be a great advantage to all of us as shareholders for trading liquidity if you could do a 5 for 1 stock split. As you can see, today we traded 9,000 shares on absolutely incredible earnings. And I think it would be much better if we had a stock in the $60 range and were trading 50,000 shares at this point in a day. So, hopefully you can consider that in future board meetings. I think it would be a great benefit to all shareholders.

Our challenge is -- we're trying to hear you on that, Jamie, and trying to get something that, as you said, would get support across all shareholders. Your comments are not lost on me, but I don't have a present plan. If I did, I would probably tell you here, because there'd be some SEC rule. But there isn't a present plan, but we're hearing you.

Okay. Thanks, Joe. Great job, fellows.

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

Well, thank you all for your support. I appreciate you being in our corner. I would also encourage you, let your friends and business associates know that we're a good source for their moving and storage needs. We need every customer we can get.

Thank you. Look forward to speaking to you again next quarter.

Thank you. The conference is now concluded, and thank you once gain for attending today's presentation. You may now disconnect.