Filing Context and Reporting Period
This Form 10-Q is filed by AMERCO, the parent company of U-Haul, for the quarter ended September 30, 2019, representing the second quarter of fiscal 2020, and the six months then ended. The provided request metadata identifies “U-Haul Holding Co” and “2017 Q2,” which does not match the filing text.
AMERCO reports three segments: Moving and Storage, Property and Casualty Insurance, and Life Insurance. Insurance subsidiaries report on calendar-quarter periods and are consolidated using results through June 30, 2019 for the quarter and six-month comparisons.
Financial Performance and Position
| Metric | Quarter Ended September 30, 2019 | Quarter Ended September 30, 2018 | Change |
|---|---|---|---|
| Revenue | $1.150 billion | $1.105 billion | +4.1% |
| Earnings from operations | $244.7 million | $250.9 million | -2.5% |
| Pretax earnings | $205.4 million | $215.7 million | -4.8% |
| Earnings available to common stockholders | $156.3 million | $163.5 million | -4.4% |
| Basic and diluted EPS | $7.97 | $8.35 | -4.6% |
| Operating margin | 21.3% | 22.7% | Down 140 basis points |
| Metric | Six Months Ended September 30, 2019 | Six Months Ended September 30, 2018 | Change |
|---|---|---|---|
| Revenue | $2.229 billion | $2.124 billion | +5.0% |
| Earnings from operations | $458.6 million | $455.6 million | +0.6% |
| Pretax earnings | $380.1 million | $384.9 million | -1.2% |
| Earnings available to common stockholders | $288.7 million | $291.4 million | -0.9% |
| Basic and diluted EPS | $14.73 | $14.87 | -0.9% |
| Operating margin | 20.6% | 21.5% | Down approximately 90 basis points |
- Quarterly revenue growth was led by self-moving equipment rentals of $804.3 million, up $22.6 million, and self-storage revenue of $105.0 million, up $13.5 million.
- Self-storage occupied units increased 17%, or approximately 47,000 units, during the quarter. The company added approximately 6.1 million net rentable square feet over the preceding twelve months.
- Quarterly operating expenses increased $36.1 million, while depreciation increased $18.9 million. Management cited higher personnel, liability, property-tax, repair and fleet-related costs.
- At September 30, 2019, total assets were $12.856 billion, total liabilities were $8.798 billion, and stockholders’ equity was $4.058 billion.
- Cash and cash equivalents were $525.2 million, compared with $673.7 million at March 31, 2019.
- Net notes, loans and finance/capital leases payable were $4.498 billion, compared with $4.163 billion at March 31, 2019. Available borrowing capacity under existing credit facilities was $60.0 million.
Cash Flow, Capital Allocation and Liquidity
- Six-month cash provided by operating activities was $737.8 million, compared with $702.7 million in the prior-year period.
- Cash used in investing activities was $1.252 billion, including $1.589 billion of property, plant and equipment purchases.
- Net capital expenditures were $1.188 billion, compared with $684.6 million in the prior-year period. Purchases included $1.037 billion of rental equipment, $56.2 million of equipment lease buyouts, and $423.4 million of real estate, construction and renovations.
- Cash provided by financing activities was $361.4 million, including $658.7 million of credit-facility borrowings, partially offset by $143.6 million of repayments and $180.9 million of finance or capital lease payments.
- The company paid $19.6 million of common-stock dividends during the six months. A $21.6 million dividend from Repwest was received by AMERCO.
- Management expects fiscal 2020 truck and trailer fleet reinvestment of approximately $710 million, net of equipment sales, excluding lease buyouts. Approximately $640 million had been invested through six months.
Material Changes Versus the Prior Comparable Period
- Moving and Storage revenue increased 4.2% in the quarter and 4.8% in the first six months, but segment earnings before equity in insurance subsidiaries declined because operating expenses and depreciation grew faster than revenue.
- Property and Casualty Insurance revenue increased to $23.5 million from $20.5 million for the comparable quarter, and operating earnings increased to $9.1 million from $7.9 million.
- Life Insurance premiums declined to $32.4 million from $35.9 million for the comparable quarter, while operating earnings declined to $6.9 million from $7.5 million.
- Net investment and interest income increased to $33.1 million from $28.2 million in the quarter and to $68.8 million from $52.8 million for the six-month period.
- Interest expense increased to $39.1 million from $35.0 million in the quarter and to $78.0 million from $70.3 million for the six-month period, primarily due to increased borrowings.
- The company adopted ASC 842 lease accounting on April 1, 2019. Adoption added approximately $105.4 million of operating lease right-of-use assets and liabilities and reclassified approximately $948.2 million related to vehicle financing leases into finance right-of-use assets.
- Accumulated other comprehensive income improved to $17.2 million from a loss of $66.7 million at March 31, 2019, primarily due to unrealized investment gains.
Outlook, Commentary, Risks and Unusual Items
- Management plans to increase transaction volume and improve pricing, product availability and utilization for self-moving equipment rentals; expand self-storage locations and occupancy; and continue investment in U-Box.
- Management is pursuing acquisitions, development and redevelopment of self-storage properties when projects meet long-term and financial objectives.
- No specific consolidated revenue or earnings guidance was provided. The filing states that fiscal 2020 fleet investment, storage projects and financing will depend on capital availability, rental demand, used-truck markets, weather, permitting and acquisition opportunities.
- Management identifies risks from competition, leverage, economic conditions, fleet and facility costs, limited truck manufacturers, interest-rate exposure, reliance on independent dealers, liability claims, environmental compliance, litigation, regulation, seasonality and information systems.
- A 100-basis-point increase in LIBOR was estimated to reduce annual earnings and cash flow by approximately $8.7 million after hedging. Variable-rate debt obligations totaled approximately $1.117 billion.
- Environmental matters and ordinary-course litigation are disclosed; management does not expect them to have a material adverse effect based on currently available information.
- The filing states that no investment write-downs were recorded in the quarter or six-month period. Results include gains on rental-equipment and real-estate disposals, including increased real-estate gains primarily related to a property condemnation.
- Management concluded that disclosure controls were effective at a reasonable assurance level and reported no material changes in internal control over financial reporting.
Important Facts for Investors to Verify
- Confirm the applicable issuer and period: the filing is AMERCO’s fiscal 2020 second-quarter report, not a 2017 Q2 filing for an entity named U-Haul Holding Co.
- Reconcile the substantial increase in capital expenditures and debt with fleet growth, storage expansion and expected operating cash generation.
- Monitor whether cost inflation, depreciation and interest expense continue to outpace revenue growth and pressure operating margins.
- Assess the sustainability of self-storage occupancy and newly added rentable capacity, including the reported 5.5% occupancy at the time new capacity was added.
- Review debt maturities, available borrowing capacity, variable-rate exposure and the effect of lease accounting on leverage and cash-flow presentation.
- Evaluate insurance reserve adequacy, life-insurance assumptions, investment portfolio valuation and the restricted availability of insurance-subsidiary assets.
- Review related-party management, lease and dealer arrangements involving Blackwater and other affiliated entities.