U-Haul Holding Company — Form 10-Q Summary
Period covered: Quarter ended June 30, 2023, representing the first quarter of fiscal 2024. The supplied metadata identifies “2021 Q1,” but the filing itself is a June 30, 2023 Form 10-Q and compares results with June 30, 2022. Results are unaudited. Insurance subsidiaries report on a calendar-quarter basis, so their reported quarter ended March 31, 2023.
Business Context
U-Haul operates three reportable segments: Moving and Storage, Property and Casualty Insurance, and Life Insurance. Moving and Storage includes truck and trailer rentals, self-storage, portable storage, moving supplies, related services and property management. Insurance subsidiaries provide protection products, claims services, life insurance, Medicare supplement products and annuities in the United States and Canada.
Key Financial Metrics
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Total revenue | $1.540 billion | $1.598 billion | Down 3.6% |
| Earnings from operations | $399.7 million | $495.5 million | Down 19.4% |
| Pretax earnings | $338.7 million | $445.4 million | Down 24.0% |
| Net earnings available to common stockholders | $256.8 million | $338.3 million | Down 24.1% |
| Voting common EPS | $1.27 | $2.18 | Down 41.7% |
| Series N non-voting EPS | $1.31 | $1.68 | Down 22.0% |
| Operating margin | 26.0% | 31.0% | Down approximately 5.0 percentage points |
| Net margin | 16.7% | 21.2% | Down approximately 4.5 percentage points |
| Cash flow from operations | $465.7 million | $651.4 million | Down $185.7 million |
| Capital expenditures | $773.6 million | $646.1 million | Up $127.4 million |
| Net capital expenditures | $580.1 million | $487.0 million | Up $93.2 million |
Balance Sheet, Debt and Liquidity
- Cash and cash equivalents were $2.377 billion at June 30, 2023, up from $2.061 billion at March 31, 2023.
- Total assets were $18.614 billion, compared with $18.101 billion at March 31, 2023. Stockholders’ equity was $6.778 billion, compared with $6.504 billion.
- Notes, loans and finance leases payable were $6.3238 billion before debt issuance costs, or $6.2872 billion net. Debt increased from $6.1434 billion before issuance costs at March 31, 2023.
- Available borrowing capacity under existing credit facilities was $490.0 million. Management stated that liquidity is adequate for anticipated needs, while noting that future liquidity could be affected by factors beyond its control.
- Moving and Storage generated $452.0 million of operating cash flow and held $2.302 billion of cash. Insurance subsidiary assets are generally unavailable to satisfy non-insurance obligations.
- Interest expense increased to $60.6 million from $49.8 million. The weighted average interest rate on revolving credit facilities was 6.26%, compared with 1.99% in the prior-year quarter.
Material Changes Versus the Prior Comparable Period
- Self-moving equipment rentals: Revenue decreased $91.6 million, as transactions, revenue per transaction and average miles driven declined, particularly in one-way markets.
- Self-storage: Revenue increased $25.8 million. Average monthly occupied units increased 9%, or 44,957 units, and average revenue per occupied square foot improved 6%. Approximately 1.1 million net rentable square feet was added during the quarter.
- Products and services: Revenue decreased $8.5 million, primarily because of lower hitch, moving-supply and propane sales associated with lower moving transactions.
- Investment income: Net investment and interest income increased $31.0 million, largely from higher interest rates on short-term deposits, increased equity values in the property and casualty portfolio and gains on life-insurance derivatives.
- Operating costs: Total costs and expenses increased $38.3 million. Moving and Storage repair costs increased $29.6 million due to preventive maintenance and preparation of trucks for sale. Depreciation, net of disposal gains, increased $24.0 million.
- Fleet economics: Gains on rental-equipment disposals declined $8.7 million as resale values decreased while average unit costs increased.
- Segment performance: Moving and Storage earnings from operations before equity in insurance subsidiaries declined to $386.7 million from $481.6 million. Property and Casualty Insurance earnings increased to $12.0 million from $8.4 million, while Life Insurance earnings declined to $1.4 million from $5.9 million.
Guidance, Outlook, Risks and Unusual Items
- Management expects approximately $820 million of fiscal 2024 net investment in the rental equipment fleet, excluding lease buyouts; approximately $261 million had been invested through the first quarter.
- Management expects continued substantial spending on self-storage acquisitions, development, renovation and repair. First-quarter real estate investment was $293.9 million.
- Management plans to pursue higher moving transaction volume, improved pricing and utilization, fleet investment, increased storage occupancy, additional storage capacity and continued investment in U-Box.
- Inflation, repair and maintenance costs, slower fleet rotation, equipment availability, used-truck resale values, competition and economic conditions may pressure margins and results.
- A 100-basis-point increase in SOFR would reduce annual earnings and cash flow by approximately $5.9 million after interest-rate hedges. Of $694.2 million of variable-rate debt, $490.0 million was not fixed through swaps.
- The company recorded a net investment impairment charge of approximately $0.5 million in the quarter.
- The company adopted ASU 2018-12 for long-duration insurance contracts on April 1, 2023. Management expects the impact on fiscal 2024 net earnings to be immaterial, although the adoption materially changed certain insurance measurement and disclosure requirements.
- A cybersecurity incident disclosed in 2022 involved access to customer contracts containing names, dates of birth and driver’s license or state identification numbers. Financial, payment-processing and email systems were not involved. Related class-action litigation has been consolidated in federal court, and the outcome cannot be predicted.
- Disclosure controls were not effective because of a material weakness in general information technology controls. Management expects remediation during fiscal 2024, but the weakness will not be considered remediated until controls operate effectively for a sufficient period.
Most Important Facts for Investors to Verify
- Confirm the reporting-period mismatch: the filing is for June 30, 2023, not Q1 2021.
- Assess whether weaker moving demand and lower fleet-disposal gains are temporary or indicate a sustained decline in Moving and Storage profitability.
- Evaluate the effect of higher repair, maintenance, depreciation and interest costs on future operating margins and free cash flow.
- Review the funding requirements and returns expected from the planned $820 million fleet investment and continued self-storage expansion.
- Monitor debt maturities, variable-rate exposure, available borrowing capacity and the company’s ability to fund capital expenditures while maintaining liquidity.
- Review the cybersecurity litigation, environmental contingencies and the remediation status of the material IT-control weakness.
- Consider the effect of insurance subsidiary dividend restrictions and the limited availability of insurance assets to support non-insurance obligations.