AMERCO (U-Haul) Form 10-Q Summary
Reporting period: Quarter ended June 30, 2015, the first quarter of fiscal 2016. The filing is for AMERCO and consolidated entities, including U-Haul Moving and Storage, Property and Casualty Insurance, and Life Insurance. Insurance subsidiaries report on a calendar-quarter basis, with their March 31, 2015 quarter consolidated into AMERCO’s June 30, 2015 quarter. Financial statements are unaudited.
Financial Highlights
| Metric | Q1 FY2016 | Q1 FY2015 | Change |
|---|---|---|---|
| Total revenue | $884.8 million | $819.0 million | +8.0% |
| Earnings from operations | $291.1 million | $219.2 million | +32.8% |
| Operating margin | 32.9% | 26.8% | +6.1 percentage points |
| Pretax earnings | $269.0 million | $195.1 million | +37.9% |
| Net earnings available to common stockholders | $171.3 million | $124.5 million | +37.6% |
| Basic and diluted EPS | $8.74 | $6.36 | +37.4% |
| Net cash from operating activities | $367.8 million | $293.8 million | +25.2% |
- Revenue drivers: Self-moving equipment rental revenue rose to $629.3 million from $575.5 million. Self-storage revenue increased to $57.2 million from $49.1 million, and products and service sales increased to $77.3 million from $74.5 million.
- Self-storage operating indicators: Average monthly occupied square footage increased 13% year over year. Owned storage capacity grew to approximately 20.7 million square feet from 18.6 million, while average occupancy based on room count was 82.5% versus 82.3%.
- Expense performance: Total costs and expenses declined to $593.7 million from $599.8 million. Net depreciation expense declined by $10.1 million because higher depreciation was more than offset by increased gains on equipment disposals. Lease expense declined $5.4 million as the company financed more equipment on balance sheet.
- Balance sheet and liquidity: Cash and cash equivalents were $475.6 million at June 30, 2015, compared with $441.9 million at March 31, 2015. Total assets were $7.09 billion and stockholders’ equity was $2.05 billion.
- Debt: Notes, loans and leases payable totaled $2.19 billion, broadly unchanged from March 31, 2015. The company reported $85.0 million of additional availability under existing credit facilities.
- Capital investment: Gross capital expenditures were $483.0 million, offset by $30.4 million of lease proceeds and $194.1 million of equipment and property sales, producing net capital expenditures of $258.4 million versus $215.0 million in the prior-year quarter.
- Dividend: AMERCO declared a $1.00 per-share cash dividend on June 5, 2015, paid July 1, 2015.
Material Changes Versus the Prior Comparable Period
- Moving and Storage revenue increased to $814.8 million from $754.9 million, while earnings from operations before equity in insurance subsidiary earnings rose to $280.6 million from $210.8 million.
- Management attributed rental growth to a larger truck fleet, more independent dealers, additional company-owned locations, and higher truck, trailer, towing-device revenue and transaction volumes.
- Self-storage growth reflected improved occupancy and additions to the portfolio; approximately 2.1 million net rentable square feet was added over the preceding twelve months.
- Property and casualty insurance revenue increased to $14.9 million from $12.4 million, and operating earnings increased to $6.5 million from $4.0 million.
- Life Insurance revenue increased to $56.1 million from $52.6 million, but operating earnings declined to $4.2 million from $4.6 million, primarily reflecting higher benefits and losses and higher amortization of deferred acquisition costs.
- Net cash used in investing activities increased to $329.1 million from $255.9 million, while financing cash flow changed from $160.7 million provided to $1.6 million used, primarily because of lower borrowings and higher debt and capital-lease repayments.
- Interest expense declined to $22.1 million from $24.1 million, primarily due to lower borrowing costs.
Outlook, Risks, Contingencies and Unusual Items
- Fiscal 2016 outlook: Management plans to increase transaction volume and improve pricing, product availability and utilization for self-moving equipment. It expects to continue investing in truck fleet, self-storage locations and the U-Box program.
- Management estimated approximately $500 million of fiscal 2016 net truck and trailer fleet investment, excluding lease buyouts; approximately $117 million had been invested through the first quarter.
- Management expects to fund capital requirements primarily through operating cash flow, debt financing and external lease financing, but cautioned that economic conditions, competition, capital availability and used-truck prices could affect results.
- Interest-rate exposure: The company had $676.2 million of variable-rate debt and a $10.5 million variable-rate operating lease. A 100-basis-point increase in LIBOR was estimated to reduce annual earnings and cash flow by approximately $3.6 million after hedging effects.
- Legal contingency: In the PODS Enterprises trademark litigation, a judgment of $60.7 million was entered against U-Haul. Post-judgment motions remained pending as of June 30, 2015. U-Haul had obtained a stay supported by a $60.9 million supersedeas bond and had filed a protective notice of appeal. PODS also sought additional attorneys’ fees, interest, an injunction and potentially doubled damages.
- Lease commitments: The company guaranteed $52.0 million of residual values for certain operating-leased rental equipment. Total future operating-lease commitments disclosed were $184.2 million.
- Related-party exposure: Related-party assets totaled $134.7 million, including notes and receivables from entities controlled by or associated with significant stockholders. Private Mini repaid its note and accrued interest totaling $56.8 million in July 2015.
- Management stated that no material updates had occurred to the risk factors in the fiscal 2015 Form 10-K. Key risks include leverage, seasonality, competition, fleet costs and residual values, dependence on manufacturers and independent dealers, liability claims, insurance reserve development, related-party notes, environmental compliance and access to financing.
Important Facts for Investors to Verify
- Reconcile the strong earnings increase with the unusually significant gains on sales of rental equipment and assess the sustainability of used-truck market conditions.
- Monitor the PODS litigation, including final rulings on damages, interest, attorneys’ fees, injunctions and the appeal.
- Evaluate debt maturities, capital-lease obligations, variable-rate exposure and the company’s planned fleet and real-estate investment requirements.
- Assess whether self-moving transaction growth, self-storage occupancy gains and continued portfolio expansion can offset competitive and economic pressures.
- Review liquidity restrictions on insurance subsidiary assets and the company’s ability to transfer cash from regulated insurance operations.
- Review related-party notes, management agreements, leases and dealer arrangements, including the company’s stated maximum exposure to loss from related-party interests.