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UHAL: Take-a ways from the investor's virtual conference. Truck sales, U-Box and Chelsea NY

By Ian Gilson, PhD, CFA


On August 24, 2017 AMERCO held its annual meeting and a virtual investors conference. During the conference the company expanded on prior statements made at the earnings call.
The major factor affecting current earnings was the impact of truck sales made in the last fiscal year and into the 1Q18. Two years ago the torrid new car/truck market pushed used truck sales demand to an unusually high level of pricing and U-Haul was able to sell many trucks into that market, $480 million worth . Over the past six to nine months the used truck market has softened, prices have declined and, more to the point, the buyer has demanded (and received) a vehicle of better quality. It has moved from a seller's market to a buyers market.
The company (NASDAQ:UHAL) is aware that it has to improve the quality of the trucks up for sale. Fewer dings and scrapes will garner a higher sales price. U-Haul uses the used truck auctions, in part, to move vehicles out of areas of low rental demand and positions new vehicles into locations of strong demand.
U-Box is profitable, and growing. There are two major factors that determine profitability. The first is the cost of shipping containers across country. This is done through third party freight carriers. AMERCO is working on this part of the cost structure to lower its cost structure.
Profitability depends on how many containers can be stacked on top of each other, that is how to maximize revenue per square foot of floor space. A stack one-high is not profitable. Two high is a bit better than breakeven and three high is very profitable. That means the facility has to be sized for its market and it may take some time to reach break-even in certain markets.
The facility in Chelsea, NY should be sold late in the second quarter. The selling price is about $200 million, and the cost on the books is about $5 million. Under current IRS regulations taxes may be deferred by buying an equivalent amount of real estate within a certain time frame. AMERCO will use this to defer taxes as much as possible and may be able to defer all of the gains on the building. The company will keep part of the building as a rental facility since there is strong demand for one in that area.
Employee count varies with seasonal demand, with the current quarter needing the most employees. U-Haul intends to hold headcount to as low a number as is possible commensurate with demand.


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