Q2 2023 Amerco Earnings Call
Transactions.
Self storage remains strong.
Of course as I as I have been saying for the past two years, there will be a crunch in many storage markets eventually.
I am endeavoring to invest in markets, we believe still have unfilled demand.
Pitches moving supplies sort of follow you move.
But they are currently outperforming yet.
Our moving help businesses up.
Customer support is substantial.
So as you saw in the financials, we're seeing a lot of cost pressures just as you and your customers are.
For us its vehicle repair expense.
Personnel expense.
Cost of acquiring new truck chassis.
Cost of bare land cost of construction utilities and property taxes.
Jason has done a good job with our funding. So we are not borrowing so much at the new higher rates.
Continued focus on expenses by our teams is going to help.
We've not really implemented on cost savings in my judgment.
There is still under served you move demand.
We have not been successful in tapping into it.
We are of course committed to locating serving more customers.
You should expect us to continue to work on the liquidity of our stock.
Jason is presently attempting to line up a second analyst.
If you have someone you would recommend dropped Jason and email.
I appreciate your continued support and I encourage you to visit our stores. Thank you.
Thanks, Joe This is Jason yesterday, we reported second quarter earnings of $17 95, a share compared to $20 90, a share for the same period in fiscal 2020.
My comparisons this morning will be for the second quarter of this year to the second quarter of last year unless otherwise noted.
Starting off with equipment rental revenue, we saw a decrease of 1% or approximately $17 million.
In town transactions and revenue continued to improve during the quarter.
However declines in one way business.
As Joe mentioned more than offset that.
We are seeing reduced one way moving activity for trucks trailers, and new boxes, and just to clarify Jon's comment about U box.
For the second quarter revenue was still up for you box. However, so far into the third quarter. It has flattened out.
On the capital expenditure front the flow of new equipment has improved for certain archrock models.
We have invested $718 million for the first six months of this year in new truck purchases.
Paired with $564 million last.
Last year at this time.
There's still uncertainty surrounding the delivery schedules for receiving equipment for manufacturers.
During our last earnings call and reduced our forecasted gross fleet Capex number down from one 5 billion.
This quarter I am further reducing it now to just under $1 4 billion.
Proceeds from the sale of retired equipment increased by $25 million to a total of $325 million for the six months.
Sales proceeds from pickups and cargo vans have increased compared to last year.
While we have purposely slowed the sales of box trucks for now.
Resale values remained strong throughout the quarter, but have begun to show signs of weakening.
Performance of self storage remains strong storage revenues were up $32 million, which is about a 21% increase.
Looking at our occupied unit count at the end of September we had an increase of 61000 occupied rooms compared to September of last year.
In addition to the increased occupancy we experienced nearly 10% growth in average revenue per foot.
Our occupancy ratio across the entire portfolio of stores locations increased 1% to 85% year over year.
Within that group of properties about 84% of our storage locations are operating at or above 80% occupancy as of September 30th.
And of those properties their average occupancy is at 95%.
Our plans for expanding our network of company locations continues with self storage being a focal point of each new store.
For the first six months of this year, we have invested $584 million in real estate acquisitions, along with self storage and <unk> warehouse development, that's up from $444 million last year.
Over the last 12 months, we've added 70000, new storage units, which translates to about $5 4 million net rentable square feet.
We currently have about $5 8 million new square feet being developed across 131 projects.
And then we haven't an additional 146 or so projects, where we own the land or buildings, but we havent started the construction yet.
I would expect these.
<unk> to result in approximately $8 7 million net rentable square feet.
And then we have close to 100 additional deals currently in escrow that we're evaluating.
And the moving and storage segment, we saw expense growth outpaced revenue growth leading to a decrease in our operating margin.
This resulted in operating earnings in our moving and storage segment decreasing $41 million to $515 million for the quarter.
Operating expenses increased $114 million, we highlighted in the press release, the $34 million increase in fleet repair and maintenance.
Challenge there continues to be the lag in our fleet rotation program combined with the increase in miles driven by the fleet over the last several quarters.
Personnel costs increased by $29 million at a rate faster than revenue this quarter and thats due primarily to head count increases.
The next largest increase with freight cost both through our U box moving product as well as cost of shipping our product amongst ourselves and to our customers. We are starting to see moderation of free freight costs.
Other increases came from what I'd call property level costs, such as utilities property taxes, and non fleet maintenance or building maintenance.
Beyond beyond that payment processing fees fleet license expense and professional services were all higher.
Outside of our normal cost discipline, we have not yet address the growth of operating expenses in a meaningful way.
Given the direction of revenue I would expect that this posture is going to change as we move into the second half of our third quarter and into the fourth quarter.
Our two insurance segments reported a combined decrease in operating earnings of nearly $16 million.
Accounting conventions related to their investment portfolios led to over $11 million of this decrease.
The combination of Mark to market rules and expected credit loss allowances all of it noncash.
Thanks to our Treasury team, we continue to have a strong cash and liquidity balance at September 30 of this year, we had at the moving and storage segment $3.175 billion of cash and available credit.
After the quarter end the company announced several corporate actions, including the changing the name of America to U haul holding company.
We expect that to be completed by the end of the calendar year.
We also have the creation of a new class of Nonvoting shares and then a nine for one dividend of these shares to our existing <unk> shareholders of record as of November <unk> of this year.
The shares began trading this morning.
The Board also announced a regular dividend policy for the new class of shares at <unk> <unk> per share per quarter with the first dividend taking place.
In this third quarter coming up.
With that I'd like to hand, the call back to our operator, Joe to begin the question and answer portion of the call.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
Joe while we wait for the questions to get into queue I'll ask a few that have come in before the call. These are from Craig Inman.
Artisan partners.
The first question is where does the company stand regarding catching up on fleet rotation and how if at all is managements view of the size of the fleet changing as we see a slowdown in move in economic activity.
Let me address that a little bit.
We're still not getting.
Sufficient new vehicles or ordinary replace.
And this is of course throwing a little.
Wrench in the works.
We don't have.
And the expectation that in the next 12 months.
The Ford and General Motors organizations will.
Be able to produce.
What we have requested and.
Purchases.
On the overall fleet size.
We may see just a little contraction.
Of course, it gets very specific.
To do this but I think we may see a little contraction there.
And both the.
Assigned box truck fleet.
And in the pickup and van.
Hello.
Good node.
You all have heard that.
Last mile delivery companies are a little bit.
Stressed in this time of year ordinarily, we get a fair amount of business from them.
To the extent that business has dropped off we've been able to replace it with.
The normal consumer business.
Total debt.
On that note.
Pretty straightforward fashion I'm happy to report that.
The second question from Craig is does the company plan to payout larger cash dividends going forward beyond what was announced.
There is no plan that I'm aware of that doesn't preclude it but.
But this is for us at least this was quite a flurry of activity.
The declared dividend policy.
Comes out to something like $1 44 on the old share basis, So it's very comparable.
To kind of what was done before but was done totally on a.
Subjective basis with this now has a pattern and something people can look forward.
And finally did the board consider and creating a new share class without voting right that those shares might trade at a material discount to the shares carrying voting rights.
The actual.
Structure was done by an independent committee of the board, which I was not a member of.
Of course this was part of their charge was to consider such matters.
The hope is of course to increase the liquidity.
Yeah.
Italy, perhaps positively impact the share price.
Overall.
And our first live question today will come from Brian marks with Zacks investment Research. Please go ahead.
Actually this is Steven Ralston from Zacks investment research.
Steven.
Hi, how are you okay.
Sure.
Even though that your tone seems to be on the.
Concern side.
Aylwin.
Michael only concerned about the quarter.
The.
Equipment rentals, obviously, the U box, which is trailing that.
I should say mimicking that.
Could you expand upon it about.
The demand and pricing in other words, you usually use your statistics of volume of transactions and average revenue per transaction.
And.
Obviously, you probably have seen this many times before with decades of experience management has.
Do you track certain things like new single home sales or existing home sales that might account for this.
Are there other variables that you used to.
Guide your expectations of vol.
Volume and pricing in the equipment rentals.
Stephen This is Jason I'll start off and I'll, let Joe quick clean up my answer to.
As far as statistics that we're tracking.
On revenue per transaction the components that go into that the largest one in our miles per transaction at then revenue per mile or rate.
In the one way business during the quarter.
The rate continued to improve compared to the same time last year. When we did see a decrease in the average number of miles driven so those largely offset each other.
How much of the decrease in the one way revenue came from a decrease in transactions.
On the.
Income business, we saw similar.
Changes however, our transactions were up for the entire business.
As far as correlating our business to macroeconomic factors, we've done that in the past and haven't found anything we're taking a fresh look at that now.
It's been quite some time since we've seen.
Hi.
Interest rates on mortgages shifts so dramatically in such a short period of time.
I think that.
Reserves look.
But I can't tell you definitively that thats behind any of the changes right now.
Mhm.
I might add to that.
We've seen that.
Some people in the country are less optimistic.
The travel shorter distances, it's about that simple. So you can imagine if it was.
Your son or daughter, leaving the home they might stay in town rather than try to go through a detailed job.
So we will see that.
Phil move because there.
Moving out of the home.
Instead of it being a $400 rental from Phoenix delay or something like that.
100 dollar rentals.
One side of Phoenix to Tempe.
The underlying drivers, which are marriages divorce burst deaths.
These sorts of things promotions the motions.
Those go on there'll be a little flurry of activity and some more.
Markets people do big layoffs.
There we soon run out of trucks. So they can do they can lay off 10000 people, but we only have.
800 trucks, so they wipe us out theres no more upside at that point in fact, it disrupts sources.
So.
We'll see a little bit of that kind of activity and we've probably seen I know for sure we're seeing.
But we don't it doesn't really turn out to be like a benefit exactly.
So we're going to continue I think.
Based on what we will loosely call consumer optimism, we're going to continue to see people pulling their horns.
So.
<unk>.
In their activity and that will reflect itself.
Less miles traveled.
We're going to have the opportunity because of course, the cost of new vehicles are going up to the point they actually sell us though.
Were costing us more so we're going to have to see how some price you see.
Make that work out.
The customers tolerating some price increases I don't know.
And the final analysis.
Cover enough of a price increase.
The good news on the truck equivalent side is generally speaking both Ford and Chevrolet are making a terrific product right now so it's a very durable product and it will have a good economic life, but.
The downside is there.
Jackson prices.
Okay.
Greater than the national rate of inflation.
Mhm.
Yes.
In a way it is unexplored territory I did see a statistics now it isn't totally comparable because it's.
Just the rates on U S treasuries, which don't perfectly mimic the increase in mortgage rates with their close.
And what I saw was that this rapid decline in the treasury market.
Historically said.
It's the greatest increase since I can't believe this $17 88.
The change in rates.
Short period of time.
So we are entering.
Some very new territory.
Okay.
But then again it seems like.
Statistics as you said.
The correlation with the with you host a.
Truck rentals.
Is sort of like hit and Miss it doesn't have a high probability of Carl.
Good correlation right that's right we run all of those numbers until you're blue in the face I kind of lost interest in them.
Because I've just had no luck doing it.
So I say, okay. Great. This is how it's going to kind of play out now our job is to find more customers and if you looked at a 20 or 30 year track record we've constantly outpaced.
Population growth, which would be at the bottom given that most of our businesses with consumers at the bottom of the dealers.
The biggest drivers.
Population and costly.
Costly outpaced it because we've found a slightly different twist on the use of the product and application for the customer and they have responded and given us more transactions. So of course, that's why I focused on now.
That won't happen.
The one quarter, but were.
We're on it as much as.
We're on it I think.
A little slow on the draw it's what Jason said, we're a little slow on the draw on expenses.
How big of that we're going to be able to put in and Youre seeing the same forces we are.
Okay.
Just one last question is is this enabling you in any way to better reposition your fleet around the United States.
Actually not but.
We've heard of.
Real strong initiative over the last 18 months.
Add a bunch of.
Young bright people into that part of the company.
And I think that.
We're making modest gains.
Thing doesn't move very fast to the Ebola a tiny move as a very positive effect on revenue.
I think we're going to see some help kind of an interesting thing last year at this time.
We were able to ramp to the last mile people.
Truck that was 801000 miles from where they wanted to go get it and bring it to the market.
Then they would leave it where we wanted it which that was up.
When wind Okay. This year theyre not quite that desperate for additional trucks and so we're not getting that little boost we got that just about this time last year, we had a real nice boost from that so.
So we're not seeing that but these are the kinds of things so they're all.
Small maneuvers, but they can some to be significant.
I can assure you people.
We're motivated to find the right.
And thank you for taking my questions.
Our next question will come from Jamie Wilen with Wilen management. Please go ahead.
Thank you first off I'd like to give you a hardie thank you for.
Changing the name to U haul doing a stock split initiating a quarterly dividend. Thank you. Thank you. Thank you.
Youre welcome.
A couple questions first as you.
Box is.
Trending more flattish than growth is that a function of.
The industry that it's in or is there more competition out there in that industry for them.
I'll try that.
I don't think it's a competitive situation, there's not good intelligence on competitors, but I do not believe it is a competitive situations I believe it's the U box gets more long distance moves as a percentage of moves then the U haul business dose okay.
When.
U haul ceased long one way moves.
Soften.
<unk>, that's like almost all of their moves or these longer moves.
So I think it's just that simple.
Of course, we're looking are we doing something in pricing. This we're actually getting a tiny increments better freight pricing, which allows us.
To pass that.
Onto the consumer.
Lower price overall.
So that's running for us over the last 60 days maybe.
And Theres a lot of forecasted so thats going to continue to stay low.
Softer thats been a nightmare with west 24 months, but it's coming around.
I think it's just simply that's now.
On the other side, what I told my teams is.
The market is so much bigger than this.
There is no reason to be flat in other words.
Theyre doing a tiny percentage of the transactions go out there and let's shake the trees are trying to more customers for whom we're a good solution.
And I expect that we'll get that turned around.
Can you talk about the dynamics of the U box business as far as the.
The rent per square footage that you get versus a self storage unit and the length of time that the U box.
Unit tends to stay.
In that.
Earnings, earning range for how many months that happens.
Yes, generally well above market given out anything that I think that.
Our competitors with care about.
The new box rates depends on how high you can stack up.
If youre stacking them too high it's about like self storage.
As you gain three high for high and in some cases Wi Fi that is.
All incremental gains.
So if you can get the.
Height.
<unk>, Hi, pure economics of the storage of the U box.
Absolutely improves.
Okay.
<unk>.
Length of stay is a little confusing because.
Everyone.
<unk> is a one month tenant.
Because we give you 30 days.
Storage included in the.
Purchased because youre going to have it at your home for a few days then you may store where.
For a week at our warehouses in Tempe, then we ship it to San Antonio.
It's where we cannot warehouse there and then on the Port we re delivered to your house, so that shows US a month of storage.
In our statistics, it's in many ways, it's just simply moving it.
Debate back and forth how to count that.
Once the people actually store in other words they are not just it's.
It's not just in transit in our move once they actually store.
There are about like our longer term self storage customers theyre going to stay a while.
Three to five years with an extraordinary launch day.
Yes.
These people most of these people are.
Solvent, we have a higher percentage of credit card.
<unk>.
Sure.
Once they are in storage there.
How much more predictable.
Okay.
Saying that U box can be sitting in your storage for years.
Yes.
Okay.
Thanks, Eric.
Yes.
I understood Okay.
Okay.
On the self storage side.
As rates have increased.
Things are filling up more quickly what is the timeframe before.
Unit on average becomes cash flow positive today versus.
Two or three years ago Jason.
The occupancy point is still it's still about the same which is.
70% were paying the bills, 80% and above we are starting to make some money.
We have for the most part and the locations opened in the last two years I think we've seen about an.
An acceleration of about 10 points of occupancy each year versus what we would normally see.
But I think we're starting to see the velocity of that slow as far as how quickly. These locations are filling up I think there was a COVID-19 boost to occupancy.
When we were pricing new deals, we never changed our discipline as far as assuming a five year ramp up.
So.
If that does continue to flow.
Still fall within our pricing range.
But.
To get back to your question typically its around year three to four and I would say that maybe that during cover thats accelerated almost 12 months.
Okay.
And then lastly, with the with the change in value of your bond portfolio and so I think it's a couple of hundred million dollars from beginning of the year till now only a portion of that flows through to the income statement.
Yes so.
On that the our property and casualty company holds common stocks unaffiliated companies.
So the change in market value of your common stock portfolio gets run through income. So thats why you see this large.
The decrease I think we actually posted negative investment income as you can believe that at the P&C company because I think there was an $8 $5 million decrease in the market value of our common stock.
At the life insurance company, we don't have common stock so over there doesn't fit the liability profile.
However, with the.
The change in interest rates.
We do have an allowance for it.
Expected credit losses the.
The account call it seasonal.
That number went up I think about $253 million during the quarter. So another noncash adjustment we hold we're still in a position where we can hold our investments to maturity. So we don't expect that to result in any losses, but you can see that.
The life segment.
There.
Comprehensive income actually went our accumulated other comprehensive income went negative for the quarter.
Again, if we don't sell the investments we won't recognize realize those losses, okay, but I don't think we've quite answer the question that I don't know if you can.
He is suggesting we lost it.
As much as $200 million.
Bond value due to interest rate changes I don't think thats.
Yes, correct.
Over the last year.
Value of those bonds because of the interest rate swings in market have resulted in.
And a decrease on the books of that much now the closer they get to maturity those unrealized losses come off or as interest rates come down.
And as I said.
Don't intend to sell those bonds at this point, so we wont be recognizing those losses.
Yes, the life insurance company and they're all matched against the risk.
Unless we have a.
A big run that's not statistically forecast.
To kind of be just.
Much Ado about nothing.
Yes.
Seeing a little bit of it.
The increase in.
North Dakota lapses or withdrawals.
Not at this point.
Causing a bunch of them.
Here on our side.
That company is overcapitalized by most measures.
It's going to have to sell bonds.
Okay. Thank you and I look forward to asking for the U haul conference call during the next quarter.
Okay.
This will conclude our question and answer session I would like to turn the conference back over to management for any closing remarks.
Okay.
Okay.
Well. Thank you all for your support.
Again, if anybody knows.
And analysts too.
Looking to add or.
Company to follow.
In addition to Jason or Jason to him one of the other adjacent will take cold calls from analysts I don't think they do such a thing.
It's readily accepted I think we.
Yes.
The point of debate several times that we need additional borrowing to get this to go to.
The way you all would like to see it so we're going to keep working at that altogether.
I look forward to seeing you again.
Andy days, our next quarterly call.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.