Business Context and Reporting Period
This filing is AMERCO’s Form 10-Q for the quarter ended June 30, 2019, the first quarter of fiscal 2020. The company operates U-Haul moving and storage businesses, Property and Casualty Insurance, and Life Insurance. The request metadata identifies “2017 Q1,” but the filing text clearly relates to 2019 and fiscal 2020.
AMERCO’s insurance subsidiaries report on a calendar-quarter basis; their results included in this filing generally relate to the quarter ended March 31, 2019. Interim results are unaudited and may not indicate full-year performance.
Key Financial Metrics
| Metric | Q1 FY2020 | Q1 FY2019 | Change |
|---|---|---|---|
| Total revenue | $1.079 billion | $1.020 billion | Up 5.9% |
| Earnings from operations | $213.9 million | $204.7 million | Up 4.5% |
| Operating margin | 19.8% | 20.1% | Down approximately 0.3 percentage points |
| Pretax earnings | $174.7 million | $169.2 million | Up 3.3% |
| Net earnings available to common stockholders | $132.4 million | $127.8 million | Up 3.6% |
| Net margin | 12.3% | 12.5% | Down approximately 0.3 percentage points |
| Basic and diluted EPS | $6.76 | $6.53 | Up 3.5% |
| Cash flow from operating activities | $380.9 million | $369.7 million | Up $11.3 million |
| Net cash used in investing activities | $732.2 million | $446.2 million | Greater use of cash |
| Net cash provided by financing activities | $192.7 million | Net cash used of $28.2 million | Improved by $220.9 million |
Revenue consisted primarily of self-moving equipment rentals of $748.6 million, self-storage revenue of $98.3 million, product and service sales of $80.0 million, and insurance and investment-related revenue. Interest expense increased to $38.9 million from $35.3 million, primarily due to higher borrowings.
Financial Position, Debt and Liquidity
- Cash and cash equivalents were $519.8 million at June 30, 2019, compared with $673.7 million at March 31, 2019.
- Total assets were $12.475 billion and stockholders’ equity was $3.869 billion at quarter-end.
- Notes, loans and finance/capital leases payable, net, totaled $4.344 billion, up from $4.163 billion at March 31, 2019.
- Operating lease liabilities were $105.0 million. Adoption of ASC 842 also added $105.4 million of operating right-of-use assets and reclassified $948.2 million of vehicle financing leases to financing right-of-use assets.
- Moving and Storage had approximately $75.0 million of additional borrowing capacity under existing credit facilities.
- Net capital expenditures were $686.5 million, compared with $360.6 million in the prior-year quarter. Gross capital expenditures included $560.7 million for rental equipment, $34.0 million for equipment lease buyouts, $217.9 million for real estate and construction, and $34.6 million for other capital expenditures.
- Management expects approximately $700 million of fiscal 2020 net investment in the truck and trailer rental fleet, excluding lease buyouts. Through the first quarter, approximately $403 million had been invested in the fleet before lease buyouts.
Material Changes Versus the Prior Comparable Period
- Self-moving equipment rental revenue increased $32.0 million, supported by growth in retail locations, independent dealers, box trucks, trailers and towing devices.
- Self-storage revenue increased $12.1 million. Average monthly occupied square footage increased 15.9%, while the company added approximately 5.8 million net rentable square feet over the preceding twelve months.
- Other revenue increased $7.5 million, primarily due to the U-Box program.
- Life insurance premiums declined $4.2 million, primarily due to lower life and Medicare supplement premiums.
- Net investment and interest income increased $11.1 million, reflecting a larger invested asset base, changes in equity values and a $3.4 million derivative gain at the Life Insurance segment.
- Operating expenses increased $37.9 million, largely due to personnel, liability costs, U-Box shipping costs and property taxes. Depreciation also increased by $14.2 million.
- Property and Casualty Insurance earnings from operations increased to $8.5 million from $2.7 million, while Life Insurance earnings from operations increased to $3.8 million from $1.9 million.
Guidance, Outlook, Risks and Unusual Items
Management did not provide specific earnings or revenue guidance. Its fiscal 2020 outlook emphasizes increasing transaction volume, pricing, product availability and equipment utilization; expanding self-storage capacity and occupancy; investing in U-Box; and continuing insurance product and senior-market expansion.
- Management expects fiscal 2020 fleet investment to be funded largely through debt financing, external lease financing and operating cash flow.
- The company adopted ASC 842 on April 1, 2019. Existing equipment sale-leasebacks were determined not to qualify as sales under the new guidance, and future similar transactions are expected to be accounted for as financial liabilities.
- Management identifies risks from leverage, interest-rate movements, competition, economic conditions, vehicle and facility maintenance costs, limited truck manufacturers, dealer-network dependence, liability claims, environmental compliance, insurance reserve estimates, litigation, regulation, seasonality and access to financing.
- A 100-basis-point increase in LIBOR was estimated to reduce annual earnings and cash flow by approximately $8.6 million after hedging effects. Variable-rate debt was approximately $1.105 billion at June 30, 2019.
- Environmental matters and ordinary-course litigation were not expected by management to have a material adverse effect, although ultimate insurance claims, environmental costs and litigation outcomes remain uncertain.
- There were no investment write-downs for other-than-temporary impairments during either comparable quarter.
Facts Investors Should Verify
- Confirm the intended reporting period: the filing is for Q1 fiscal 2020 ended June 30, 2019, not 2017 Q1.
- Assess whether higher capital expenditures and debt balances are generating sufficient rental-fleet and storage revenue growth.
- Monitor cash balances, unused credit capacity, debt maturities and the company’s reliance on debt and lease financing.
- Evaluate the sustainability of self-storage occupancy and pricing growth as recently added capacity is absorbed.
- Separate recurring operating performance from investment gains, derivative gains, real-estate disposal gains and other market-sensitive items.
- Review insurance reserve adequacy, policyholder obligations and restrictions on transferring insurance-subsidiary liquidity to non-insurance operations.