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UHAL: Third quarter operating revenue was $876 million as compared to our $878 million estimate. Higher than expected operating expenses, with equipment sales at a loss, caused a significant decline in net income.


By Ian Gilson, PhD, CFA



Amerco (NASDAQ:UHAL) reported its third quarter results on February 5 2020 and held its conference call on February 6th.

Results were mixed. Although operating revenue was in line with our estimate (we exclude interest, dividends and other income from operating revenue) operating expenses were higher than estimated in almost every category.

AMERCO includes the profit (or loss) from the sale of used trucks in its depreciation account. We look at the change on a sequential bases and not year over year. In the 2Q20 depreciation was $151.6 million and in the 3Q21 it was $170.1 million. In 2Q20 there was a $12 million profit on the sale of vehicles and in 3Q20 it dropped to a small loss.

The company has been buying, and selling, the 26' trucks now based on the Ford F650. This is big enough to transport the furnishings of 5 bedroom house. It is the most expensive vehicle in the fleet and there is only one supplier. In 3Q20 a significant number of these trucks were added to the fleet and replacement cycle is nearly complete. However, new trucks carry a high burden of accelerated depreciation.

We expect only moderate changes in depreciation in 4Q20 and through fiscal 2021 on a sequential basis.

Operating expenses, mainly labour, increased as a percentage of truck rental revenue, from 76.4% in 3Q19 and 70.3% in 2Q20 to 83.3 in 3Q20. Labor is getting more expensive as unemployment rates decline and available labor needs more trained to become productive. Also rental (and storage) sites have to be manned before they can generate revenue. If revenue does not meet projections then these sites are overmanned.

Storage revenue was slightly better than expected. The company has stated that expansion will be focused on existing properties, except where they are too small to included truck rental as well as storage. The emphasis will be to develop existing currently owned real estate and not to add unimproved sites.

Other revenue was flat with year ago numbers. This includes revenue from the U-Box operations. This is still growing but may not be profitable whereas it was making money earlier this year.

Overall we have made minor adjustments to our revenue forecasts and have increased the cost estimates. The fourth quarter has always been a slow period due to the weather in the mid west and north east United States. With the added impact of potential health problems with the corona virus affecting employment and industrial activity we would not look for major increases in revenue in the first half ob calendar 2000.

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