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AMERCO (NASDAQ:UHAL)

Q3 2013 Earnings Call

February 07, 2013 10:00 am ET

Executives

Jennifer Flachman

Jason A. Berg - Principal Financial Officer and Chief Accounting Officer

Rocky D. Wardrip - Assistant Treasurer and Assistant Treasurer of U-Haul

Analysts

Jiang Shayn

Ian T. Gilson - Zacks Investment Research Inc.

James Wilen - Wilen Management Co., Inc.

Operator

Good morning, and welcome to the AMERCO's Third Quarter Fiscal 2013 Investor Call. [Operator Instructions] I would now like to turn the conference over to Jennifer Flachman. Please go ahead.

Jennifer Flachman

Good morning, and thank you for joining us today, and welcome to the AMERCO Third Quarter Fiscal 2013 Investor Call. Before we begin, I would like to remind everyone that certain of the statements during this call regarding general revenues, income and general growth of our business constitute forward-looking statements contemplated under the Private Securities Litigation Reform Act of 1995, and certain factors could cause actual results to differ materially from those projected. For a brief 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 31, 2012, which is on file with the Securities and Exchange Commission.

Participating in the call today will be Jason Berg. And I'll now turn the call over to Jason.

Jason A. Berg

Thanks, Jennifer. I'm speaking to you today from Phoenix, Arizona. Joe Shoen, our Chairman and CEO is not available for this morning's call. Joining me today from here in Phoenix is Gary Horton, our Treasurer; and on the phone from Reno, Nevada is Rocky Wardrip, our assistant Treasurer. All 3 of us will be available for questions after the prepared remarks.

Yesterday, we reported third quarter earnings in fiscal 2013 of $1.89 per share as compared to $0.04 a share for the same period in fiscal 2012. Included in last year's third quarter result was $1.61 non-cash charge for reserve strengthening and our property and casualty insurance subsidiary. Such a charge did not recur this year, so therefore, excluding this out of the ordinary charge, third quarter results for last year were $1.65 or just compared to $1.89 for the third quarter just ended.

To minimize repetition during my prepared comments, all of my period-over-period comparisons today are going to be for the third quarter of fiscal 2013 to the third quarter of fiscal 2012, unless specifically noted.

Excluding our insurance subsidiaries, operating earnings and our core Moving and Storage segment increased $11 million to nearly $73 million for the quarter. For the quarter, our U-Move revenues increased by about $19 million to $395 million. Transaction growth is largely responsible for the revenue increase. This growth in transactions has been facilitated by the steps we've taken to improve our customer experience and our company locations at our dealers and through our website, uhaul.com. To both support and contribute to this growth, we've continued to expand the number of rental trucks in our fleet as well. A somewhat mild winter in most of the country has not hindered the growth of U-Move revenue. Revenues from our trailer and towing device fleet are also contributing to the positive variance.

As I just mentioned, we continue to invest capital in our rental equipment fleet. For the first 9 months of fiscal 2013, CapEx on new rental trucks and trailers is $422 million. That was about an $87 million increase compared to the first 9 months of last year. Proceeds from the sale of retired equipment were $159 million as compared to $139 million last year at this time. Our projections for rental equipment growth CapEx in fiscal 2013 have increased since we last spoke. We now project total spending on new equipment for the fleet will be approximately $590 million for all of fiscal 2013. That's before net in any equipment sales proceeds against them. Our net CapEx, which is net of equipment sales, we expect this to be in the neighborhood of around $380 million for fiscal 2013.

Our self-storage operations continue to grow with revenues up just over $5 million for the quarter. The revenue growth is due to a combination of organic rent-up activity at our existing locations, along with the occupancy gains that result from the acquisition of new facilities. Now over the last 12 months, since December 2011, we've added approximately 2,100,000 net rentable square feet to the system with about 800,000 of that coming here in the third quarter of this year. Our all-in occupancy figures increased by 2% to 81% for the third quarter.

Spending on real estate-related CapEx that includes construction renovation and largely acquisitions, for the first 9 months of fiscal 2013 increased by about $60 million to $130 million for the 9-month period. We continue to actively search for new storage opportunities.

Total cost and expenses at the Moving and Storage segment increased just under $21 million for the quarter. With the majority of that coming from operating expenses, which increased about $18 million. Personnel liability cost associated with the fleet and to a lesser extent, expenses related to our U-Box growth were contributors to this increase. Cost of sales, you may note, declined. This was due to reduction of price of propane.

I want to spend a little bit of time this morning discussing our insurance company results, as there are some significant year-to-year fluctuations that deserves some explanation. I'm going to start first with our life insurance segment. In the third quarter of last year, Oxford entered into an agreement for the acquisition of a block of life insurance policies. This resulted in a onetime increase in premiums of just over $83 million, along with a similar increase in benefits to record the associated policy reserves. And as for this year, we did not have a similar acquisition in the third quarter, thus resulting in the large swing in premiums and benefits that you see for the segment. While the transaction last year did not result in any immediate impact to earnings, we have begun to see the profits from the acquisition add to Oxford's earnings during the fiscal 2013.

Also of note this year, Oxford has shifted its focus in regards to new sales within its senior segment from whole life products to fixed rate deferred annuities. Unlike the life product sales that we saw over the last couple of years, which were recorded as premium revenues, the annuities are recorded directly to the balance sheet as deposits and over time, we recognize profits through investment income spreads. Through the first 9 months of this year, Oxford has increased its net annuity deposits by about $233 million.

Our Property and Casualty segment shows a $45 million decrease in total cost and expenses for the third quarter. As I mentioned earlier, the third quarter of last year included a $48 million pre-tax charge related to excess workers comp reserves. There was no such reserve strengthening that's been necessary this year.

In the third quarter of this year, Hurricane Sandy struck the northeastern portion of United States. As we mentioned in our second quarter investor call, this temporarily affected about 100 company operated locations. Our estimated losses for rental equipment are now just under $1 million, and we recorded them as an expense during the quarter, along with our property coverage deductible, which was $250,000.

Earnings from operations for the third quarter of fiscal 2013 were $82 million as compared to $25 million for the same quarter a year ago. Of note during the third quarter, the company had a cash outflow of $97 million related to the $5 common stock dividend, which was declared and paid in November 2012. Even after this use of funds, our Moving and Storage segment had cash and short-term investments of $539 million at the end of the quarter, as compared to $309 million at the end of last fiscal year, March 31, 2012, and $406 million a year ago this time, December 31, 2011. Our unused availability from existing borrowing facilities at December 31, we had an additional $303 million of availability.

With that, I would like to hand the call back to Emily to open up our question-and-answer session.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question will come from Jiang Shayn of CL King & Associates.

Jiang Shayn

I'm on for Jim Barrett. With regards to Enterprise, I think you alluded last quarter that Enterprise entered -- with spending some hundreds of millions of dollars entering the truck rental space. I also read in your 10-Q, with regards to improving pricing. If you could give us a little bit more color on that please.

Jason A. Berg

A little more color on what, on price?

Jiang Shayn

On the pricing, yes, in the truck rental space with regard to Enterprise entering the space, with that as a backdrop. I also read that you guys are improving. You seeing improving pricing with regards to FY '13.

Jason A. Berg

Okay, I'll clarify. As far as pricing in fiscal '13, there hasn't been any significant shift in pricing for the better or for the worse. Enterprise, Joe brought them up during the last call, however, they've been in the market for some time. And I would say that there hasn't been any new effects to pricing over the last 3 months related to their presence in the market. It continues to be extremely competitive between the other 2 national competitors, our local competition. Then Enterprise is just another mix into that. Our growth right now in revenue is coming largely from transaction growth. There's a little bit of extra money that we're picking up per transaction. That can be split out between pricing, also product mix which depends upon what's our -- how many one-way rentals are we doing versus in-town rentals, one-way rentals are typically a larger dollar amount per transaction. And then if we rent larger trucks versus a smaller truck, you're going to see a little increase in that too. So it's a combination of all of those things. I'm hesitant to say that there's any significant improvement in pricing.

Jiang Shayn

Okay. With regards to the transaction growth, was this mix -- and other issues, would you be able to quantify that for modeling purposes?

Jason A. Berg

For the quarter, it was in excess of 6%.

Operator

And our next question comes from Ian Gilson of Zacks Investment Research.

Ian T. Gilson - Zacks Investment Research Inc.

I understand that all those -- the cleanup work et cetera on the East Coast is now complete. And I know that you do not transfer equipment, you let the flow of orders dictate that. But although the cost was minor, there must have been some disruption on the infrastructure to impact your business, in my opinion. Although you do say there's no real change, was that no real change year-over-year, or an estimated no real change because of the impact of Sandy?

Jason A. Berg

It was no real change in relation to the quarter and largely to Sandy. What we found was that, for the last couple of days of October, when that took place, we saw -- obviously, saw a decrease in transactions. However, in November and even trailing a little a little bit more into December, we saw that we were a little bit ahead of where we've been at, which we're kind of interpreting that as kind of a pickup of some of the transactions that we may have lost during that timeframe. You mentioned that we're -- that we've largely recovered. There's still some significant property damage. All of the centers are up and running, however, there's 2 or 3 locations that we still have some significant work to do -- to repair the storage component of the facility. And I think there's still some work going on there. However, all of them are renting equipment at this time. And does that answer your question?

Ian T. Gilson - Zacks Investment Research Inc.

Yes, do you have enough equipment that you need going out for the summer?

Jason A. Berg

Yes, I believe so. And then we do still have -- I haven't heard anything specific as far as our operations folks having an issue with that. We do still have some time to pivot, if there was a shortfall, so if that was the case, I think we could probably correct it in time.

Ian T. Gilson - Zacks Investment Research Inc.

I haven't checked recently, but could you run down the location of where you build that equipment. I know you're building them in Phoenix. You have -- you used to have a place out in L.A. Where are all those locations now?

Jason A. Berg

We have one outside Detroit, Michigan. I think in Massachusetts, we have a location. That was Philadelphia, I should say. We still have the one in -- out here by Phoenix, and then in California. And I think I'm forgetting one. And it's just not coming to me right now.

Ian T. Gilson - Zacks Investment Research Inc.

Okay, so any shortfall of equipment could be made up by building extra out of Philadelphia?

Jason A. Berg

Sure. Rocky, did you have the answer to that?

Rocky D. Wardrip

I was going to say I think Chicago was another location that we're producing at.

Operator

[Operator Instructions] And our next question will come from Jamie Wilen of Wilen Management.

James Wilen - Wilen Management Co., Inc.

The number of transactions is up by 6%. Are we adding a lot more dealers or basically all the dealers are becoming a little bit more productive?

Jason A. Berg

The dealer count is increasing at company locations. We're becoming a little bit more effective. We've added equipment to the fleet. So I think it's been a little bit across the table. For the last couple of years, we've picked up quite a bit in utilization. We've added quite a few trucks and been able to digest that without losing utilization. So we're always continuing to add dealers. I don't know exactly how many we're up now, but I suspect that we're up a few hundred since the last time we reported.

James Wilen - Wilen Management Co., Inc.

Okay. And then the number of trucks that you now have on the road, obviously, the new equipment's more expensive than the truck that's been retired. How was -- what's the size of the truck fleet that are year-over-year?

Jason A. Berg

Well, as Joe mentioned during the last call, we're going to limit our disclosure on the actual fleet count to once a year when we do our 10-K, as we've been able to get a good truck count from our competition. I would say that to your point about cost, our fleet is intentionally stratified as far as age goes because at our dealers, you're looking at a lower transaction count, whereas we have including our dealers, over 16,000 distribution points throughout the country. Our competition has maybe 1/10 of that. It necessitates the different sort of fleet and the type of fleet that we have, which kind of renders the average age, not as meaningful of a statistic.

James Wilen - Wilen Management Co., Inc.

When retired the vehicle, is there any gain, loss you've retired, whatever $150 million to $200 million this year?

Jason A. Berg

Yes, sure. And on our financial statements, we -- the gain or loss on disposal of equipment gets netted against our depreciation. However, we do break that out. And for the quarter, we had a gain of $1.8 million this year compared to about $700,000 last year. A little over $1 million of that was from a property that we sold. So the fleet game was about the same as it was last year for the quarter, about $700,000.

James Wilen - Wilen Management Co., Inc.

Jason, could you talk to the economic sensitivities of both your businesses, the truck rental and the self storage? And does housing turnover -- if that increases, how much can that move the needle? And just how each of those business are affected by the economy?

Jason A. Berg

Sure. What we found to this last cycle where we had significant issues in the housing market, that really didn't affect our transaction count much at all. We had done some things ourselves that had affected pricing. But we thought -- well we that we were fairly resilient to the economic changes that took place on the moving side. On the storage side, the closest thing that we've been able to correlate to has been just raw employment numbers in any given area. And we lost a couple of percentage points of occupancy there during that timeframe. So I would say that as far as the economy goes, the storage business maybe a little more susceptible to changes in portions of the economy versus the moving business.

James Wilen - Wilen Management Co., Inc.

Okay. And lastly, as I called in and asked to be in the U-Haul conference call, they didn't have a record of you, until I utilized the corporate name. I'm just wondering if one day we can actually change the corporate name that we're traded under to U-Haul? Just wanted to dig in, hopefully, that will happen.

Jason A. Berg

I'm carrying the Jamie Wilen flag within this building. And I took the concerns to the Board of Directors, in fact, yesterday. So it continues to be heard. It's not quite on the same frequency that I'm hearing from you. However, it is on a frequent basis that they're hearing it from me.

Operator

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

Jason A. Berg

Well, I'd like to thank everyone for participating in the call today and for your thoughtful questions. And we look forward to speaking with you in June for our year-end results. Thank you very much.

Operator

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

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