U-Haul Holding Co (UHAL) 2016 Q2 法說會逐字稿

Good day and welcome to the AMERCO second-quarter fiscal 2016 conference call and webcast. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Sebastien Reyes, Director of Investor Relations at AMERCO. Please go ahead, Sir.

Good morning and thank you for joining us today. Welcome to the AMERCO second-quarter fiscal 2016 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 provision 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 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 Form 10-Q for the quarter ended September 30, 2015, 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, Sebastien. Good morning. I'm speaking to you today from Phoenix, Arizona. Also on the call with me is Gary Horton, AMERCO's Treasurer, and both of us will be available for questions after the prepared remarks.

Yesterday, we reported second-quarter earnings of $9.36 a share, compared to $7.98 share for the same period in fiscal 2015. All of my period-over-period comparisons are going to be for the second quarter of fiscal 2016 versus the second quarter of 2015, unless specifically noted.

Operating earnings at the moving and storage segment increased $37 million to $297 million from another good quarter of revenue growth. Equipment rental revenues increased 7% or approximately $45 million. We are continuing to see growth in transactions and revenues across both our truck and trailer fleets, as well as from the in-town and one-way moving markets.

Our team continues to expand the distribution network, adding over 350 net new independent dealers, along with 30 new Company-owned locations during the quarter. Compared to the second quarter of last year, the size of the fleet has increased nominally. The revenue growth this quarter came less from fleet expansion and more from efficiencies than what we have seen in recent quarters.

One factor that has been dampening our reported revenue growth is the foreign-exchange rate between the United States and Canada. During the second quarter of last year, the currency conversion reduced reported revenues by approximately $4 million, whereas in the second quarter of this year it reduced reported revenues -- revenues reported in US dollars, I should say, by approximately $12 million.

I have nothing new to report regarding the pricing environment. It remains competitive. [U-Move] revenue growth continued into the first month of the third quarter.

Self-storage revenues were up $9 million; that's about 17%. Our revenue growth is coming from occupancy gains at existing locations, occupancy from new facilities that we've added to the system, as well as general improvement in overall rates.

From September 30, 2014, through September 30 of this year, we've added approximately 2.7 million net rentable square feet to the system. About 1.7 million of that has come during the first six months of this year. Spending on real estate related CapEx, including construction, renovation, and acquisitions for the first six months of this year, was $276 million, compared to $181 million last year at that time.

Occupancy at the end of September was 84%. That's the same as what we reported a year ago. To fully understand this result, it's helpful to know that of the 2.7 million net rentable square feet that we added to the system over the last 12 months, about 60% of that was from acquisitions of existing storage facilities. These facilities, when we brought them online, had existing occupancy of approximately 68%.

The other 40% of the new storage growth came from our own development and that was added into the system at 0% occupancy, so these new additions serve to dilute our reported occupancy results.

Operating expenses at the moving and storage segment increased $22 million. Personnel and other general overhead cost increases were partially offset by decreases in direct operating costs associated with our U-Box program.

During the second quarter of this year, we accrued an additional $5 million in operating expenses related to the PEI litigation.

Gains from the disposal of equipment increased $11 million. We've been increasing the number of units sold during the quarter and we continue to see a strong resale market. Consolidated earnings from operations -- this includes the moving and storage business, along with our insurance operation -- for the second quarter of fiscal 2016 were $311 million, compared to $276 million last year.

We continue to have strong cash and credit availability at the moving and storage segment. It was $982 million at September 30 of this year. Our notes, loans, and capital leases payable at September 30 were approximately $2.5 billion. Last year at this time, they were $2.4 billion.

During the second quarter, we financed another pool of previously unencumbered properties for a total amount of $270 million. We continue to maintain a pool of unencumbered real estate assets that could be leveraged in the future.

During the second quarter of fiscal 2016, we declared a $3 per share cash dividend, which was paid on October 2, bringing our total cash dividends paid for fiscal 2016 to $4 a share.

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

(Operator Instructions). Ian Gilson, Zacks Investment Research.

Good morning, gentlemen. I have a couple of questions. Could you give me the equipment sales number again? Not the change, but the actual number?

Sure. Let me find that real quick for you. For the six months, we sold $379 million worth.

Okay. On the balance sheet, we have a related party asset line, which dropped from $141 million to $83.9 million. What is that and why did it decline? And where did the decline go?

Sure. That line represents a combination of notes that we've issued to related party entities, primarily Storage Acquisition Corp., SAC, entities, as well as routine receivables and payables for property management of those facilities.

During the quarter -- I believe it was during last quarter, Private Mini repaid an approximately $56 million note that was due to AMERCO during the quarter, so that accounts for the majority of that decrease.

Okay. I did notice in the notes in the Q that you still have interest income generated from SAC (inaudible), but basically all of the debt had been paid down.

There's one $50 million note remaining and that's it.

Okay. On the PEI question, you are going to an arbitration or a mediation, I think it is, in 10 days. Is that mediation on the whole question or only on the cost of the legal expenses so far?

I have to defer to what we have listed in the 10-Q. I don't know the exact specifics of what's going to be discussed there. I know that before we proceed with the full appeal, this is a court-mandated arbitration -- or a court-mandated meeting to discuss the status of the judgment.

Okay. U-Box, are the expenses cut back now in line with what you expect? Are you resuming growth or are you keeping that until it basically firms up and becomes breakeven or profitable?

We've seen revenue come down a little bit during the quarter compared to last year at this time, but we've brought expenses back to levels that we saw back in fiscal 2014 where we had a little bit more success from a contribution perspective. So, I think we continue to make up ground from the performance that we had last year.

You are just going to let that grow organically or what is the plan for that? It seems to me that there is a significant opportunity for you in that market.

We have significant resources focused on growing the program. We certainly have the capacity to expand revenue there for the near future, so I believe everyone here is still focused on that program and growing it.

Okay. Lease expense, first quarter, that's the current year; the second quarter, a significant decline with the rate change and financing that you did during the quarter. It dropped that number?

Ian, those actually -- that line represents operating leases and we haven't been doing a whole lot of operating leases here over the last three years or so. So that line continues to decrease.

Our new financing was in the form of term loans or capital leases, which capital leases that are just included in our regular debt figures and you would see that cost run through interest expense. So, we had several operating lease payoffs between the first quarter and second quarter of this year that resulted in lower operating lease expenses for the quarter compared to the first quarter and certainly compared to last year. So, overall, we've been shifting more to on-balance-sheet financing versus the off-balance sheet and you are seeing it in that line.

Okay, fine. Thank you very much.

Jim Barrett, CL King & Associates.

Good morning, everyone. Jason, the spending on real estate in the first half has slowed considerably. Should I interpret that to mean that management is finding fewer and fewer deals to do? How should I think about that?

Actually, spending on real estate has increased significantly, so I may have misspoke or perhaps you couldn't hear the comment. But for the first six months of this year, we've spent $276 million. Last year, that number was $181 million, so it has actually accelerated.

You know, I inverted the numbers. Truck disposal gains slowed fairly sharply sequentially. Any change in the fundamentals in terms of realizing that pricing on truck disposals?

I think it's more just a function of how many units were sold and I think that compared to -- I'd have to look at what we did last quarter, but we haven't seen any weakness at least quarter over quarter in the sales prices of those units, so probably more a function of the number of units sold.

Okay. And it appeared that U-Box revenues did decline, as you referenced, in the quarter. Can you go into why growth appears to have at least temporarily stalled in that business?

Sure. What we've been doing over the last year is rationalizing rates and then trying to adjust our focus on the website in how we're serving the customer. If I could put one thing to it, I think probably it's the adjustment of the rates which has had the largest dampening effect on that. There's any number of operational things that we've done at the frontlines which could direct customers to another one of our products. But my own personal opinion would be that I think rate may play the largest part there.

And you mentioned the size of the fleet was up nominally. Should I interpret that to mean that at least for the foreseeable future there won't be a need to grow the fleet further? And is the monies you are currently spending, the $426 million, what would be the annualized run rate if that is maintenance spending on trucks and trailers?

Jim, I wouldn't interpret it that way. You've seen us long enough that you know that our CapEx projections change fairly quickly and fairly frequently.

So, what's happened this year is that the growth of the fleet has flattened out and we're seeing improvements in efficiencies of the existing fleet, and as soon as the operations team finds some openings, I wouldn't put it past anyone to get back into growing the fleet.

We are going to be doing some significant rotation of trucks here towards the latter half of this year, which is going to be freshening up portions of the fleet, so we're still going to be spending a fairly significant amount into the second half of the year. That may not result in a large increase in the fleet number, though. There's going to be selling out. We may be replacing more units.

I see. And last question, can you quantify how much your rates have been up in self-storage year over year?

In general across the country, I think our rates are up approximately 3%.

Thank you very much.

Jamie Wilen, Wilen Management.

Hi, fellows. Nice quarter. Starting off on U-Box, is that currently in the black?

I think that this year it is making a contribution to earnings compared to last year, where it was very far from doing that.

Okay. And you lost money in the subsequent quarters as well last year in that business?

Yes. For the full year, we did. I think you can break that down to every quarter.

Okay. You've always done a nice job of finding other ways to make money with an existing great franchise. What other opportunities beyond U-Box are you guys toying with to create other profit centers for yourselves?

We are expanding our reach on the smaller side of the fleet. We are looking at opportunities of teaming up with self-storage operators to expand our presence in those areas. We have a number of programs aimed at reaching younger folks and introducing them to our equipment.

I wish I could give you some more specifics, but really it's utilizing the existing assets that we have in trying to reach a broader market with those. I don't think we've fully penetrated -- for example, in the self-storage market we partner with approximately 4,000 self-storage affiliates across the country and we could have a deeper relationship with those people and further grow that relationship to help them and, in turn, help us.

I don't think we've fully maximized the potential of the rental fleet yet, either. And then, we are also continuing to focus on technology he and better ways to deliver the products to the customers, both on the truck side and the storage side. I think we're -- there's things that we can do that will not only add convenience to the customer in shortening the rental process, but then that also will help us at the back end on our operating expense line items.

So everything that's been happening today -- Joe likes to make this comment. Everything that we've had success with today was started three, four, five years ago and we're continually trying to refill that with new ideas, and I don't see anyone slowing down around here with that.

Okay. On the self-storage side, you mentioned your occupancy rates and why they are not going up, because you've had some startups as well as acquisitions. But if you could look at same-store sales with taking that out of the mix and you looked at your units that you've owned that you didn't acquire in the last 18 months and didn't start up in the last 18 months, what do you believe your occupancy rate would be over those mature units?

If you use the numbers that I threw out, so we added 2.7 million square feet at an average occupancy rate blended from 0% to 68%, I think it averages out somewhere to 35% to 40%, and you were to layer that into the results that we report in the Q, that could easily translate into anywhere from 5% to 6%.

Okay. Very good. And lastly, at the annual meeting, one of the items that was voted upon was a nonbinding vote for a stock split, which was overwhelmingly approved by all the shareholders, and I thought there was a respectable chance, given limited trading volume and a $400 stock price, that something like that would be announced by the time we had this quarterly earnings.

Jamie, just to add a little color to your comment, the actual proposal that was approved by the shareholders at the annual meeting was for a stock dividend of a second class of stock. That issue was approved by the shareholders and now is being evaluated by a committee of the Board of Directors and that process is underway. I don't have anything else to report on that at this time.

Okay. It doesn't seem like to be an incredibly lengthy process that one would have to endure to come up with an opinion one way or the other.

I guess I would encourage you to make sure you reread the proposal on exactly what was proposed. It wasn't a simple stock split.

Okay. And then, lastly, the balance sheet obviously continues to improve each and every quarter. We have cash there of nearly $1 billion. Any thoughts on what we are going to do with the capital structure over the next year or so?

At the top of the list is reinvestment, and as you can see from our numbers, we are hard at that, but we do continue to accumulate cash. We did take on some excess cash this quarter from a refinancing. We have shown -- we have recently done dividends, but the focus of the organization right now continues to be in reinvesting.