U-Haul Holding Co. (AMERCO) Form 10-Q Summary
Reporting period: The supplied filing is AMERCO’s quarterly report for the quarter ended December 31, 2019, representing the third quarter of fiscal 2020, not 2017 Q3 as stated in the request metadata. The filing was signed February 5, 2020. AMERCO operates through Moving and Storage, Property and Casualty Insurance, and Life Insurance segments.
Key financial metrics
| Metric | Quarter ended Dec. 31, 2019 | Quarter ended Dec. 31, 2018 | Nine months ended Dec. 31, 2019 | Nine months ended Dec. 31, 2018 |
|---|---|---|---|---|
| Revenue | $927.9 million | $919.1 million | $3.157 billion | $3.043 billion |
| Earnings from operations | $80.6 million | $138.1 million | $539.2 million | $593.8 million |
| Earnings available to common stockholders | $30.9 million | $78.6 million | $319.7 million | $370.0 million |
| Basic and diluted EPS | $1.58 | $4.01 | $16.31 | $18.89 |
| Operating margin | 8.7% | 15.0% | 17.1% | 19.5% |
| Net margin | 3.3% | 8.6% | 10.1% | 12.2% |
Cash flow and liquidity: Net cash provided by operating activities was $953.0 million for the first nine months, compared with $878.7 million in the prior-year period. Net cash used in investing activities was $1.420 billion, primarily reflecting $1.918 billion of property, plant and equipment purchases. Net cash provided by financing activities was $420.4 million. Cash and cash equivalents declined to $632.0 million from $673.7 million at March 31, 2019.
Debt and capital structure: Notes, loans and finance/capital leases payable, net, were $4.549 billion at December 31, 2019, compared with $4.163 billion at March 31, 2019. Total liabilities were $8.891 billion and stockholders’ equity was $4.103 billion. The company reported $55.5 million of available borrowing capacity under existing credit facilities, including $55.0 million available to Moving and Storage.
Material changes versus the prior comparable period
- Quarterly revenue increased 1.0%, but earnings from operations declined 41.7% and net earnings declined 60.7%. Nine-month revenue increased 3.8%, while operating earnings declined 9.2% and net earnings declined 13.6%.
- Quarterly self-moving equipment rental revenue declined $4.7 million, primarily because the prior-year period benefited from unusually high Corporate Account rental volume. Management reported growth in In-town and one-way markets.
- Self-storage revenue increased $13.3 million in the quarter and $38.8 million for the nine-month period. Average occupied units increased approximately 16% year over year, while the company added approximately 6.1 million net rentable square feet over the preceding twelve months.
- Operating expenses increased $39.6 million in the quarter and $112.9 million for the nine months, driven primarily by personnel, liability, utility, property-tax, freight and fleet-repair costs.
- Depreciation increased materially because of a larger rental fleet: quarterly rental-fleet depreciation rose $16.6 million to $129.2 million, and nine-month rental-fleet depreciation rose $42.1 million to $383.6 million.
- Interest expense increased to $40.0 million for the quarter and $118.0 million for the nine months, primarily due to increased borrowings.
- Life insurance premiums declined, while Property and Casualty Insurance premiums increased. Insurance segment earnings benefited from higher investment income and, for Life Insurance, lower benefits, but Property and Casualty Insurance experienced unfavorable loss experience.
- Accumulated other comprehensive income improved to $39.5 million from a loss of $66.7 million at March 31, 2019, primarily because of unrealized investment gains.
Guidance, outlook, risks and unusual items
- Management did not provide formal earnings guidance. Its fiscal 2020 outlook emphasizes increasing transaction volume, improving pricing and fleet utilization, maintaining investment in trucks, expanding self-storage, increasing occupancy, acquiring or developing storage locations, and investing in U-Box.
- Management estimated approximately $710 million of fiscal 2020 net investment in the truck and trailer fleet, excluding lease buyouts; $570 million had been invested through nine months. It also invested approximately $600 million in real estate acquisitions, construction, renovations and major repairs during the nine-month period.
- Net capital expenditures were $1.318 billion for the first nine months, compared with $763.5 million in the prior-year period.
- Interest-rate exposure is significant: the company reported $1.115 billion of variable-rate debt obligations. A 100-basis-point increase in LIBOR was estimated to reduce annual earnings and cash flow by approximately $8.8 million after hedging effects.
- Key risks include leverage and financing availability, fleet and facility costs, limited truck manufacturers, competition, seasonality, economic conditions, environmental and motor-carrier regulations, litigation, vehicle liability claims, reliance on independent dealers and insurance reserve development.
- Insurance reserves involve substantial actuarial uncertainty, particularly long-tailed workers’ compensation claims. Future medical inflation, legal changes or adverse claims development could require reserve strengthening.
- On April 1, 2019, the company adopted ASC 842, recognizing substantial right-of-use assets and lease liabilities. The adoption increased reported assets and liabilities and changed the accounting for future equipment sale-leasebacks, which are expected to be recorded as financing liabilities rather than sales.
- Environmental matters and ordinary-course litigation were disclosed, but management did not expect them to have a material adverse effect. No material updates to previously disclosed risk factors were reported.
Important facts for investors to verify
- Confirm the applicable period: the filing is for fiscal 2020 Q3 ended December 31, 2019, rather than 2017 Q3.
- Assess whether revenue growth and self-storage expansion can offset rising operating costs, depreciation and interest expense.
- Review the sustainability of the company’s high capital-expenditure program and its dependence on debt and lease financing.
- Evaluate liquidity after considering only $55.5 million of reported unused credit capacity and the restricted availability of insurance-subsidiary assets.
- Monitor variable-rate debt, interest-rate hedges and the potential impact of higher rates.
- Review insurance reserve adequacy, investment portfolio volatility and the effect of changes in interest rates on comprehensive income and statutory capital.
- Consider related-party transactions with Blackwater and other affiliated entities, including management fees, leases and dealer commissions.