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UHAL: AMERCO reports another impressive top-line quarter driven by strong pricing; however, cost pressures have become a challenge. Capacity increases in rental equipment, self-storage and U-Box businesses continue to be pursued. Also, an Annual Analyst Day recap

09/26/2022

By Steven Ralston, CFA

NASDAQ:UHAL

READ THE FULL UHAL RESEARCH REPORT

Annual Virtual Analyst & Investor Meeting

On Thursday, August 18, 2022, AMERCO (NASDAQ:UHAL) held its 16th Annual Virtual Analyst & Investor Meeting. With a broad North American dealer network footprint (see graphic below) built under the company’s long-term growth strategy, management had optimally positioned the self-moving operating segment to benefit from the surge in demand over the last two fiscal years. Consistent investments in capacity expansion increased the number of retail locations, box trucks and trailers in the rental fleet. This allowed the company to benefit from the strong demand for the company’s self-moving rental equipment. As a result, total revenues for fiscal 2022 increased 26.4% to $5.74 billion. Furthermore, increased demand was coupled with strong pricing driving the expansion of the operating margin by 750 bps to 28.7%. In addition, the company was well positioned for the self-storage and U-Box (Other revenues) businesses.

Management continues to focus on operational metrics, particularly transaction volume and managing pricing. Also, management believes that the expanded customer base developed during the pandemic will be retained going forward. Strong pricing continues in the Moving and Storage business.

However, delays at truck manufacturers (GM and Ford) related to supply chain issues continue to disrupt management’s plan to return to a normalized rotation program. During fiscal 2023, management now plans to invest to slightly over $1.5 billion (capital expenditures) into the truck rental fleet, which will be dependent upon manufacturer availability.

Management continues to invest steadily in the self-storage area. The company’s property acquisition pipeline continues to be robust (see bar chart below). The pipeline for owned properties is at a record high. New locations continue to be opened across North America (see map), along with expanding capacity of existing locations.

The top-line of the self-storage segment has been growing in the double-digit range for the last few years: 14.0% in FY2020, 14.0% in FY 2021 and 29.3% in FY2022. During FY 2022, pricing in the self-storage segment was robust (see graphic below), increasing on average to $14.77 per occupied square foot from the $13.19 to $13.99 range during the prior six years.

The slide deck for the Annual Virtual Analyst & Investor Meeting provided images of conversion projects and ground up projects that have been completed recently. Many of the projects offer multiple services including self-moving equipment rentals, self-moving products and self-storage facilities.

The presentation can be viewed at https://www.amerco.com/news_article.aspx?id_pdf=2462831

Financial Results for the First Quarter of Fiscal 2023

On August 3, 2022 after the market close, AMERCO reported financial results for the first fiscal quarter ending June 30, 2022. Revenues were above our expectations. Total revenues increased 8.5% YOY to approximately $1.598 billion, driven by a 5.4% increase (or an increase of $55.4 million) in self-moving equipment rentals and a 26.0% increase of revenue (or $35.8 million) in the self-storage area. Other revenue (primarily the U-Box program) increased 28.2% (or $29.9 million. Revenues in the Self-moving/self-storage products & services segment increased 4.3% (or $4.47.5 million).

In the self-moving equipment rental business, average revenue per transaction for both in-town and one-way rentals of trucks and trailers increased. The number of retail locations, independent dealers, box trucks and towing devices has increased over the last 12 months.

In the self-storage area, revenues increased 26.0% as the average monthly number of occupied units increased by 19% (or 81,900 units), driven by occupancy gains at existing locations and an 11% increase in new capacity (5.0 million net rentable square feet) over the last 12 months.

In self-moving/self-storage products & services, the 4.3% revenue increase was due to increased sales of hitches, moving supplies and propane.

Total costs and expenses increased 13.1% (or $128.0 million). Cost of sales and commission expenses increased 14.0% and 4.7%, respectively. Fleet repair & maintenance expenses, as well as personnel costs, have increased faster than revenues during the quarter. Repair costs increased since higher fleet activity coupled with a reduced level of new equipment coming into the fleet increased the need for preventative maintenance services. In addition, shipping costs associated with U-Box transactions increased. Depreciation expense (net of gains on sales) decreased by $7.92 million (or 6.5%).

Management had planned to return to a normalized rotation program during fiscal 2022 with a capex budget of $1.2 billion; however, truck manufacturers continued to incur supply disruptions. Entering fiscal 2023, initial gross equipment purchases of $1.8 billion were budgeted; however, expectations have been lowered to slightly over $1.5 billion due to delivery schedules being stretched out. Therefore, management believes it is unlikely for the company to acquire the desired amount of new trucks planned for the current fiscal year, and some portion will be deferred into next year. Management believes it may take perhaps as many as three years to normalize.

Earnings from operations decreased 0.6% (or by $3.05 million) to $491.2 million compared to $494.2 million in first fiscal quarter of 2022. An income tax expense of $107.1 million was recorded.

For the first quarter of fiscal 2023, AMERCO reported a net income of $334.0 million (or $17.03 per diluted share) compared to $345.2 million (or $17.60 per diluted share) in the comparable quarter last year. Shares outstanding have remained stable at 19,607,788 shares for a decade.

As of June 30, 2022, AMERCO has a strong liquidity position in the Moving and Storage operating segment of approximately $3.087 billion (cash, cash equivalents and credit availability). Working capital increased 1.3% to approximately $7.09 billion from the end of fiscal 2022.

In summary, AMERCO reported strong top-line (total revenues), but the bottom line (net income/EPS) was impacted by rising costs, primarily fleet repair & maintenance (due to a high mileage fleet), personnel costs (due to a combination of wage inflation and increased headcount) and higher shipping costs for U-Box. On the conference call, management indicated that the customer base has increased over the last two years and that this expanded base is expected to be retained going forward. In addition, the strong pricing dynamic is currently still in place.

Two of management’s challenges are:

1) to manage through the higher cost environment through cost control tactics and

2) to deal with the delays of self-moving equipment (mainly truck) deliveries by the OEMs.

Special Dividends

AMERCO’s most recent special dividend was declared on August 19, 2022. The special cash dividend of $0.50 was paid on September 20, 2022 to holders of record on September 6, 2022.

Valuation

AMERCO’s stock is expected to attain a EV-to-EBITDA valuation multiple of 7.5, indicating a target price for AMERCO is $675 per share, which is based on blending the stock’s historical valuation metrics with current valuation levels of comparable companies.

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