AMERCO (U-Haul) Form 10-Q Summary
Business context and reporting period
This filing is AMERCO’s quarterly report for the quarter ended September 30, 2020, representing the second quarter of fiscal 2021. The request metadata identifies “2018 Q2,” but the filing text clearly reports fiscal 2021 and compares results with fiscal 2020. AMERCO operates through Moving and Storage, Property and Casualty Insurance, and Life Insurance segments under the U-Haul brand in the United States and Canada. Insurance subsidiaries report on a calendar-year basis and are consolidated using results through June 30, 2020.
Key financial metrics
| Metric | Q2 FY2021 | Q2 FY2020 | Change |
|---|---|---|---|
| Total revenue | $1.325 billion | $1.150 billion | 15.2% increase |
| Earnings from operations | $391.8 million | $244.7 million | 60.1% increase |
| Earnings available to common stockholders | $266.4 million | $156.3 million | 70.4% increase |
| Basic and diluted EPS | $13.58 | $7.97 | 70.4% increase |
| Operating margin | 29.6% | 21.3% | Improved |
| Net margin | 20.1% | 13.6% | Improved |
For the six months ended September 30, 2020, revenue was $2.312 billion versus $2.229 billion, earnings from operations were $545.9 million versus $458.6 million, and earnings available to common stockholders were $354.1 million versus $288.7 million. Six-month EPS was $18.06 versus $14.73. Operating margin increased to approximately 23.6% from 20.6%, and net margin increased to approximately 15.3% from 13.0%.
- Q2 Moving and Storage revenue was $1.245 billion, up from $1.070 billion; segment earnings from operations before equity earnings were $374.0 million versus $229.0 million.
- Self-moving equipment rental revenue increased $126.7 million, self-storage revenue increased $10.3 million, and product and service sales increased $25.5 million year over year.
- Average monthly occupied self-storage units increased 15%, or approximately 50,000 units, in Q2. Owned storage capacity increased 11% over the preceding twelve months to approximately 44.0 million square feet.
- Q2 Property and Casualty Insurance revenue declined to $22.7 million from $23.5 million, while operating earnings increased to $12.1 million from $9.1 million.
- Q2 Life Insurance revenue declined to $59.6 million from $59.9 million, while operating earnings declined to $6.0 million from $6.9 million.
- Cash and cash equivalents were $1.216 billion at September 30, 2020, compared with $494.4 million at March 31, 2020.
- Net cash provided by operating activities for the six months was $1.002 billion, compared with $737.8 million in the prior-year period.
- Net cash used in investing activities was $359.9 million, compared with $1.252 billion, primarily because property and equipment purchases declined to $662.3 million from $1.589 billion.
- Net cash provided by financing activities was $74.8 million, compared with $361.4 million. Debt and finance/capital lease obligations, net of issuance costs, totaled $4.701 billion at September 30, 2020.
- Total assets were $14.123 billion and stockholders’ equity was $4.606 billion at September 30, 2020.
Material changes versus the prior comparable period
- Rental demand recovered sharply during Q2 after a COVID-19-related decline in the first quarter. Management reported year-over-year rental revenue increases of approximately 11% in July, 14% in August, and 24% in September.
- Moving and Storage operating performance benefited from higher rental transactions, more retail locations and independent dealers, increased fleet availability, stronger storage occupancy, and higher sales of hitches, moving supplies, and propane.
- Operating expenses increased in Q2 by $27.6 million on a consolidated basis, including higher liability costs, property taxes, and U-Box shipping costs. Fleet repair costs declined, and higher used-equipment resale values increased disposal gains.
- Fleet depreciation decreased because COVID-19-related manufacturer delays slowed new truck production. Depreciation on other assets increased, and real estate disposal losses rose due in part to roof replacement write-offs.
- Six-month self-moving revenue growth was modest because a 13% first-quarter decline was largely offset by a 16% second-quarter increase.
- Net investment and interest income declined $18.5 million for the six months, reflecting lower interest rates, investment valuation changes, derivative losses, and credit-loss expense.
- The company adopted ASU 2016-13 on April 1, 2020, resulting in a $2.9 million reduction to opening retained earnings. The adoption produced a total credit-loss allowance of $7.0 million at September 30, 2020.
Guidance, outlook, risks, contingencies, and unusual items
- Management expects to continue emphasizing rental transaction volume, pricing, product availability, utilization, storage occupancy, U-Box investment, and expansion of the dealer and storage networks.
- Management estimated approximately $430 million of fiscal 2021 net investment in the truck and trailer fleet, excluding lease buyouts; approximately $85 million had been invested through the first six months.
- Net capital expenditures for Moving and Storage were $347.9 million for the six months, compared with $1.188 billion in the prior-year period. Management slowed storage development and acquisitions to preserve liquidity.
- Management expects approximately $381 million of federal tax refunds from CARES Act-related net operating loss carrybacks and depreciation adjustments. Approximately $109.3 million had been received through September 30, 2020; future legislation could delay or reduce the refunds.
- COVID-19 continues to create risks to demand, operating costs, workforce conditions, equipment supply, auction proceeds, financing access, liquidity, and future results. Management states that a prolonged or worsening pandemic could materially adversely affect fiscal 2021 results, financial position, and liquidity.
- Available borrowing capacity under existing credit facilities was $130.0 million at September 30, 2020. A $200.0 million secured facility entered into in May 2020 had a $90.7 million balance at quarter-end and was paid off in October 2020.
- Variable-rate debt obligations totaled $1.224 billion. A 100-basis-point increase in LIBOR was estimated to reduce annual earnings and cash flow by $9.0 million after hedging effects.
- Other risks include substantial leverage, dependence on a limited number of truck manufacturers, used-equipment resale values, seasonality, competition, dealer relationships, vehicle liability claims, environmental matters, insurance regulation, litigation, and reliance on automated systems and internet infrastructure.
- Management reported no material changes to previously disclosed risk factors, no material litigation matters beyond ordinary-course claims, and effective disclosure controls at quarter-end.
Important facts investors should verify
- Confirm that the intended period is the September 30, 2020 fiscal 2021 quarter rather than “2018 Q2” stated in the request metadata.
- Assess whether the sharp Q2 rental recovery and storage occupancy gains persisted after September 30, 2020.
- Monitor COVID-19 effects on rental demand, equipment production, commercial auction activity, capital expenditures, and liquidity.
- Reconcile the company’s $1.216 billion cash balance with restricted insurance-company liquidity and the $4.701 billion debt balance.
- Verify receipt and timing of the remaining CARES Act-related tax refunds and their effect on cash flow.
- Evaluate the sustainability of unusually strong Q2 margins, including the contribution from higher used-equipment resale values and lower fleet depreciation.
- Review insurance subsidiary capital restrictions, policyholder obligations, investment portfolio credit exposure, and the effect of future accounting changes for long-duration insurance contracts.