AMERCO Form 10-Q Summary
Reporting period: Quarter ended June 30, 2020, AMERCO’s first quarter of fiscal 2021. The request metadata identifies “2018 Q1,” but the filing content is a 2020 Form 10-Q for AMERCO, the parent of U-Haul. The financial statements are unaudited. Insurance subsidiaries report on a calendar-quarter basis, creating a three-month reporting lag.
Business Context
AMERCO operates through three reportable segments: Moving and Storage, Property and Casualty Insurance, and Life Insurance. Moving and Storage includes U-Haul truck and trailer rentals, self-storage, portable storage, moving supplies, towing accessories, propane, and related services in the United States and Canada.
Key Financial Metrics
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Total revenue | $987.2 million | $1,079.2 million | Down 8.5% |
| Earnings from operations | $154.1 million | $213.9 million | Down 28.0% |
| Pretax earnings | $114.3 million | $174.7 million | Down 34.6% |
| Earnings available to common stockholders | $87.7 million | $132.4 million | Down 33.8% |
| Basic and diluted EPS | $4.47 | $6.76 | Down 33.9% |
| Operating margin | 15.6% | 19.8% | Down 4.2 points |
| Net margin | 8.9% | 12.3% | Down 3.4 points |
| Operating cash flow | $330.1 million | $380.9 million | Down $50.8 million |
| Capital expenditures | $249.7 million | $847.2 million | Down $597.5 million |
| Net capital expenditures | $173.3 million | $686.5 million | Down $513.2 million |
| Cash and cash equivalents at period end | $825.1 million | $519.8 million | Up $305.2 million year over year |
Revenue Detail and Material Changes
- Self-moving equipment rental revenue declined to $654.3 million from $748.6 million. Management attributed the decline to COVID-19-related government restrictions and customer caution. Revenue was approximately 30% below prior year in April, 8% below in May, and 4% below in June.
- Self-storage revenue increased 10.9% to $109.0 million. Average occupied units increased 15%, or approximately 44,000 units, while net rentable square footage increased approximately 14% over the prior twelve months.
- Moving and self-storage product and service sales increased 14.2% to $91.4 million, driven by higher hitch, moving-supply, and propane sales.
- Life insurance premiums decreased to $30.9 million from $32.7 million. Property and casualty insurance premiums increased modestly to $13.7 million from $13.4 million.
- Net investment and interest income fell to $17.0 million from $35.7 million, reflecting changes in equity values, a $7.9 million realized derivative loss associated with fixed indexed annuities, and credit-loss effects from the new accounting standard.
- Total costs and expenses decreased $32.2 million. Moving and Storage operating expenses declined $42.4 million, including a $27.8 million reduction in fleet repair costs. However, gains from rental-equipment disposals decreased $15.6 million because commercial auto-auction activity declined.
- Depreciation increased to $165.7 million from $140.6 million, including higher depreciation on the rental fleet and buildings and improvements.
Liquidity, Debt and Cash Flow
- Cash and cash equivalents were $825.1 million at June 30, 2020, compared with $494.4 million at March 31, 2020.
- Operating cash flow was $330.1 million, versus $380.9 million in the prior-year quarter. Investing cash use was $195.2 million, compared with $732.2 million, primarily because property, plant and equipment purchases were substantially lower.
- Financing activities provided $195.1 million, including $377.1 million of borrowings and $154.1 million of credit-facility repayments. No common stock dividend was paid in the quarter, compared with $9.8 million in the prior-year quarter.
- Notes, loans and finance/capital leases payable totaled $4.8 billion gross, or $4.8 billion net of debt issuance costs, compared with $4.6 billion net at March 31, 2020.
- Moving and Storage had approximately $70.0 million of additional borrowing capacity under existing credit facilities.
- In May 2020, AMERCO entered into a $200.0 million secured credit facility maturing in May 2021. The filing states that this facility is expected to be repaid as federal income tax refunds are received.
- Management estimated approximately $381 million of tax refunds from CARES Act net operating loss carrybacks and depreciation adjustments. The filing also references approximately $235 million of refunds already requested and additional refunds expected after filing the June 30, 2020 tax return.
- Management estimated fiscal 2021 net investment in the truck and trailer fleet of approximately $460 million, excluding lease buyouts. Approximately $49 million had been invested through the first quarter.
Outlook, Risks and Unusual Items
- Management expects to focus on transaction volume, pricing, product availability, utilization, fleet investment, storage occupancy, U-Box expansion, and growth of the storage affiliate program.
- The company slowed development of new self-storage projects to preserve liquidity and expects capital spending to be calibrated to the evolving effects of COVID-19.
- COVID-19 adversely affected rental demand, equipment sales proceeds, workforce conditions, customer behavior, financial markets, and operating cash flow. Management stated that a prolonged or more severe pandemic could materially affect fiscal 2021 results, financial position, and liquidity.
- The filing provides no quantitative earnings or revenue guidance for fiscal 2021.
- AMERCO adopted ASU 2016-13, the current expected credit loss standard, on April 1, 2020. The adoption reduced opening retained earnings by $2.9 million and resulted in an allowance for credit losses of $8.6 million at June 30, 2020.
- Accumulated other comprehensive income declined to a loss of $13.7 million from income of $34.7 million at March 31, 2020, primarily due to a $45.5 million after-tax unrealized investment loss and foreign-currency effects.
- Approximately $1.4 billion of variable-rate debt was outstanding. A 100-basis-point increase in LIBOR was estimated to reduce annual earnings and cash flow by approximately $9.6 million after hedging effects.
- Other risks include leverage, interest-rate exposure, used-equipment values and sales channels, dependence on manufacturers and independent dealers, competition, seasonality, environmental compliance, litigation, insurance claims, regulatory restrictions on insurance-company dividends, and related-party transactions.
- Management reported no material updates to the risk factors in the fiscal 2020 Form 10-K and stated that disclosure controls were effective as of June 30, 2020.
Investor Verification Checklist
- Verify the intended period: the supplied metadata says 2018 Q1, while the filing covers June 30, 2020 and fiscal 2021.
- Assess whether the recovery in self-moving rental demand continued after June 2020 and whether COVID-19 caused additional volume or pricing pressure.
- Verify receipt and timing of the anticipated CARES Act-related tax refunds and their use to repay the $200 million secured facility.
- Monitor debt maturities, refinancing access, variable-rate exposure, and the limited $70 million of disclosed unused credit capacity.
- Evaluate the sustainability of higher self-storage occupancy and the returns on recently added capacity and planned fleet investment.
- Review investment portfolio losses, credit-loss allowances, derivative valuations, and insurance-company capital and dividend restrictions.
- Review related-party management fees, leases, dealer commissions, and the ownership interests associated with Blackwater and other affiliated entities.