AMERCO (U-Haul) Form 10-Q Summary
Reporting period: Quarter ended June 30, 2018, representing AMERCO’s first quarter of fiscal 2019. The request metadata identifies “2016 Q1,” but the filing text clearly covers 2018 and compares with the quarter ended June 30, 2017. The filing was signed August 8, 2018. AMERCO operates Moving and Storage, Property and Casualty Insurance, and Life Insurance businesses under the U-Haul brand in the United States and Canada.
Key Financial Metrics
| Metric | Q1 FY2019 | Q1 FY2018 | Change |
|---|---|---|---|
| Total revenue | $1,019.6 million | $957.9 million | 6.4% increase |
| Earnings from operations | $204.7 million | $229.3 million | 10.7% decrease |
| Pretax earnings | $169.2 million | $198.7 million | 14.8% decrease |
| Earnings available to common stockholders | $127.8 million | $126.2 million | 1.3% increase |
| Basic and diluted EPS | $6.53 | $6.44 | 1.4% increase |
| Operating margin | 20.1% | 23.9% | Down 3.8 percentage points |
| Net margin | 12.5% | 13.2% | Down 0.6 percentage points |
| Cash provided by operating activities | $369.3 million | $376.3 million | 1.9% decrease |
| Capital expenditures, net | $360.6 million | $337.9 million | 6.7% increase |
Revenue growth was led by self-moving equipment rentals of $716.6 million, up $46.7 million, and self-storage revenue of $86.2 million, up $9.5 million. Total costs and expenses increased $86.2 million, primarily reflecting higher equipment maintenance, personnel, U-Box shipping, property taxes, and depreciation.
The effective tax rate declined to 24.4% from 36.5%, substantially offsetting the decline in operating income and pretax earnings. Interest expense increased to $35.3 million from $30.3 million, primarily because of increased borrowings.
Balance Sheet, Debt and Liquidity
- Cash and cash equivalents were $650.3 million at June 30, 2018, down from $759.4 million at March 31, 2018.
- Total assets were $11.0 billion, including $7.1 billion of property, plant and equipment.
- Notes, loans and leases payable, net, were $3.586 billion, up from $3.513 billion at March 31, 2018.
- Stockholders’ equity was $3.496 billion, up from $3.409 billion at March 31, 2018.
- Moving and Storage had $618.3 million of cash and $220.0 million of additional available borrowing capacity under existing credit facilities.
- Debt maturities, including capital leases, total $483.6 million in the year ending June 30, 2019, $433.6 million in 2020, and $526.9 million in 2021.
- A 100-basis-point increase in LIBOR would increase annual interest expense by approximately $6.0 million after considering interest-rate hedges.
Material Changes Versus the Prior Comparable Period
- Self-storage occupied square footage increased 10.7%; the company added approximately 4.3 million net rentable square feet over the prior twelve months, a 15.5% increase.
- Owned storage room count increased to approximately 383,000 from 328,000, while average occupancy based on room count declined to 69.6% from 73.0%, reflecting recently added capacity.
- Moving and Storage revenue increased to $947.9 million from $882.5 million, but segment earnings from operations before equity earnings declined to $200.4 million from $220.7 million.
- Operating expenses increased $79.8 million in Moving and Storage. Repair costs accounted for $40.8 million of the increase, largely involving fleet nearing resale.
- Net gains on disposal of rental equipment increased $11.2 million, as the company sold more used trucks at nominally better average proceeds.
- Life insurance premiums declined $2.2 million, while Property and Casualty Insurance premiums increased $1.0 million.
- Net cash used in investing activities increased to $445.9 million from $409.5 million, primarily due to higher property, plant and equipment purchases.
- Net cash used in financing activities was $28.2 million, compared with $137.1 million of cash provided in the prior-year quarter, reflecting higher debt and lease repayments, lower net annuity deposits, and a $9.8 million dividend payment.
Outlook, Risks and Unusual Items
- Management expects to reinvest approximately $450 million in the fiscal 2019 truck and trailer rental fleet, excluding lease buyouts; $254 million had been invested through the first quarter.
- The company invested $219 million in real estate acquisitions, construction, renovations, and major repairs during the quarter.
- Management plans to continue expanding storage locations, increasing occupancy, investing in U-Box, expanding the dealer network, and pursuing senior-market insurance growth.
- Management states that cash, operating cash flow, and available borrowing capacity should meet anticipated needs, but notes that future liquidity could be affected by economic conditions, capital availability, used-truck prices, competition, and lender capacity.
- A Philadelphia-area propane-cylinder incident resulted in settlements currently estimated at $27.3 million, of which $26.8 million had been paid. UHPA was indicted in June 2018 on six counts related to alleged improper propane-cylinder filling, transportation, and employee training; UHPA intends to defend the charges.
- The company adopted new revenue-recognition and financial-instrument standards in the quarter. The revenue-recognition adoption had no material effect; adoption of ASU 2016-01 increased retained earnings by approximately $9.7 million and reduced accumulated other comprehensive income by the same amount.
- AMERCO expects the upcoming lease standard, effective April 1, 2019, to increase reported assets and liabilities for operating leases, but is still evaluating the amount.
- In August 2018, A.M. Best upgraded Repwest Insurance Company’s financial strength rating to A- from B++, with a stable outlook.
- The filing identifies risks related to leverage, interest rates, fleet maintenance and residual values, limited truck manufacturers, dealer dependence, insurance claims, regulation, environmental compliance, seasonality, technology, competition, and related-party relationships.
Investor Verification Checklist
- Verify the requested period: the supplied filing is for June 30, 2018, not 2016 Q1.
- Assess whether higher fleet maintenance, property taxes, personnel, shipping, and depreciation costs continue to pressure operating margins.
- Review fleet replacement spending, used-truck sale proceeds, residual values, and the company’s ability to fund planned capital expenditures.
- Monitor debt maturities, capital lease obligations, variable-rate exposure, and the availability of the reported $220.0 million in credit capacity.
- Track storage occupancy as newly added capacity is absorbed and evaluate whether growth in rentable square footage converts into sustained revenue and margin improvement.
- Follow the UHPA propane-cylinder criminal proceeding and any additional civil, insurance, settlement, or regulatory costs.
- Review insurance-reserve adequacy, investment-portfolio valuations, and the restricted availability of insurance-subsidiary assets for non-insurance obligations.
- Evaluate related-party management, lease, and dealer arrangements, including disclosed revenues of $7.4 million and costs and expenses of $17.2 million during the quarter.