Feb 5, 2015
Executives
Sebastien Reyes - Edward J. Shoen - Chairman of the Board, Principal Executive Officer, President, Member of Executive Finance Committee, Chairman of U-Haul and Chief Executive Officer of U-Haul Jason A.
Berg - Principal Financial Officer and Chief Accounting Officer
Analysts
Ian T. Gilson - Zacks Investment Research Inc.
James Barrett - CL King & Associates, Inc., Research Division James R. Wilen - Wilen Investment Management Corp.
Operator
Welcome to the AMERCO Third Quarter Fiscal 2015 Investor Call and Webcast. [Operator Instructions] I would now like to turn the conference over to Mr.
Sebastien Reyes. Mr.
Reyes, please go ahead.
Sebastien Reyes
Good morning, everyone, and thank you for joining us today. Welcome to the AMERCO Third Quarter Fiscal 2015 Investor Call.
Before we begin, I would like to remind everyone that certain of the statements during this call, including, without limitation, statements regarding revenue, expenses, income and general growth of our business, may constitute forward-looking statements within the meaning of the Safe Harbor Provisions of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified.
Certain factors could cause actual results to differ materially from those projected. For a discussion of the risks and uncertainties that may affect AMERCO's business and future operating results, please refer to Form 10-Q for the quarter ended December 31, 2014, which is on file with the U.S.
Securities and Exchange Commission. Participating in the call today will be Joe Shoen, Chairman of AMERCO.
I will now turn the call over to Joe.
Edward J. Shoen
Good morning. Jason Berg, our Chief Accounting Officer; Gary Horton, our Treasurer; and Rocky, our Assistant Treasurer, are all on the line and will be available for questions after the presentation that I make and Jason makes.
We continue to make investments in trucks, trailers and self-storage product. We try to do so in a manner that smooths operations.
It's not always possible to do so. As most of you know, we design and manufacture substantially all of our trailers and towing devices.
Our truck investments are essentially choices made from products that existing equipment -- original equipment manufacturers are offering. Self-storage is always a mix of build, buy or convert and other structure.
Over the next 12 months, I anticipate we will be doing more building and converting and less buying. Building and converting is a long process, essentially, a construction, and then you have a ramp-up period.
Investments we're making today will not cash flow until 2 to 5 years in the future, and so we have to be kind of thoughtful how we do that. We're continuing to seek to expand our retail network of both independent dealers and company-owned and managed locations.
Oxford Life and Republic Western both tracked to plan over the last 12 months and I believe will continue to do so in the near horizon. Overall, we have teams of people in place who can manage and who want to manage.
U-Haul is always faced with strong competition and uncertainty. It is our operations teams that turn the tide or fail to turn the tide in that environment.
I don't look for any great big changes over the immediately -- immediate horizon, and I look forward to decent results. With that, I'm going to turn it over to Jason, who'll walk you through the financials.
Jason A. Berg
Thanks, Joe. Yesterday, we reported third quarter earnings of $3.40 a share compared with $2.67 a share for the same period in fiscal 2014.
Throughout my presentation, in order to try to minimize repetition, my period-over-period comparisons are going to be to the third quarter of fiscal '15 compared to the third quarter of fiscal '14 unless otherwise specified. Operating earnings for the Moving and Storage segment increased by $26 million.
All 3 of our primary revenue lines for this segment improved, with the most significant increase coming from our equipment rental revenue. U-Move revenues increased $51 million, that's about 12%, during the quarter.
U-Haul System continues to be able to serve additional customers. Compared to the same period last year, we have more trucks and trailers available for our customers to rent.
During the last 3 months, we added another 10 company-owned locations, and we continued to expand our independent dealer network. These investments, along with the continued focus from our team on improving the customer experience, culminated in a continuing trend of increased one-way and impound transaction count.
Compared to January 2014 weather has not been as significant of an issue as it was. We remain cautious of the potential effect that poor weather could have on our fourth quarter.
To that end, looking at preliminary results for the first month of the upcoming fourth quarter, we are continuing to see U-Move revenue growth. Capital expenditures for the first 9 months of fiscal 2015 on new rental trucks and trailers were $635 million.
That's up about $123 million compared to the same 9-month period last year. Proceeds from the sale of retired equipment were $319 million.
That's an increase of about $115 million. Our projections for rental equipment growth CapEx in fiscal 2015 continue to be well north of $815 million.
That's before netting any equipment sales proceeds against them. Shifting gears to self-storage revenues.
We were up about $7 million. For the first 9 months of this year, we've added about 1.5 million net rentable square feet.
Spending on real estate-related capital expenditures, largely acquisitions but now also shifting more to construction, were $268 million for the first 9 months of this year. Last year for the same timeframe, that was $256 million.
Our quoted occupancy statistics include all available rooms and locations regardless of whether or not they're brand-new or have been seasoned. During the third quarter of this year, we had average occupancy of 81%, which was up about 1% compared to last year.
Operating expense at the Moving and Storage segment were up $16 million. That's largely due to personnel-related costs.
Our consolidated earnings from operations for the third quarter were $133 million. That's up from $106 million last year.
Cash and cash equivalents at the Moving and Storage segment was $730 million at December 31. At December 31 the previous year, that number was $571 million.
During the last earnings call, we mentioned that we had made $127 million payment during the third quarter to reduce the senior mortgages that are coming due in July 2015. In January, after our quarter end, we paid off another $246 million of this -- of the senior mortgages out of our existing cash balances.
One last note. Yesterday afternoon, the company declared a cash dividend on our common stock of $1 per share to holders of record as of March 6, and this will be payable on March 17.
With that, I'd like to hand the call back to Joe.
Edward J. Shoen
Thanks a lot, Jason. We'll go ahead and go to questions now.
Operator
[Operator Instructions] Our first question comes from Ian Gilson of Zacks Investment Research.
Ian T. Gilson - Zacks Investment Research Inc.
I have a couple of questions. First of all, if we look at your business from the truck rental side in 4 segments, with the about-town pickups being 1 segment, the small trucks, medium trucks and large trucks being the other 3, could you give us an idea of the relative growth of those various segments?
Which was growing fastest?
Edward J. Shoen
Sure. Ian, this is Joe.
It really is driven by where we had inventory. And so -- and of course, that's quite a long discussion.
But we've added the most inventory as a percent of the base fleet in the pickup, van or what you call the first segment, over the last 12 months. And so we've seen the various proportional revenue growth there.
In absolute dollars, I'm not sure which one's actually growing better. I don't have that clear in my mind.
Of course, if we make the right decisions on equipment addition, the business is there. That's the art of the whole thing, of course.
Looking over the next 12 months, we're likely going to make a significant investment in large trucks. And just how many of those will be replacement versus expansion will be the question that we see -- where do we see increases.
See, that kind of would be the answer to your question a year from now. In other words, it's a little bit of a self-induced situation.
But right now would be the -- what you call the pickup -- the introduction of pickups and vans.
Ian T. Gilson - Zacks Investment Research Inc.
Okay. Looking at the pricing environment, has it been any more positive in the third quarter versus a year ago?
Edward J. Shoen
I'm not sure I can say versus a year ago. We've been able to get $1 per transaction increases in the one-way business.
And as you know, that's a combination of both distance driven and rate. At least part of those increases have, in fact, been rate increases, and that's always positive.
You've followed us for, I don't know, 15 years or something. You've seen years where we couldn't get an increase in the rate, where all our changes were really due to distance or changes.
But we're seeing our ability to get price increases based on rate alone. Additionally, and I don't know where we are in this curve, but we've seen the average rental get a little bit longer and get more longer rentals, both, which has helped the dollar per transaction in the one-way.
When the economy tanked in '08, we saw rentals immediately shorten and long rentals become a smaller portion of all moves. And I think that there's some halfway measure of consumer confidence, Ian.
I don't have a better explanation for it than that. And we may be at about the end of that swap-off now.
It's -- I can't really tell you for a fact if that trend is going to continue or if we're kind of now about what would be the normalized distribution there.
Ian T. Gilson - Zacks Investment Research Inc.
Okay. And the commissions as a percent of truck rental revenue actually declined somewhat.
Is that because of the fact, on a relative basis, you increased company-owned stores a little faster than non-company-owned or other agents?
Jason A. Berg
Ian, this is Jason. There has been a slight shift to the proportion of business at company-owned locations, which then we don't have the reported commission expense for.
Edward J. Shoen
Looking long term, Ian, there's not a plan to drive that at the -- one or the other more. It's very opportunistic, and I have separate teams at the headquarters running both.
But in our field operations, it's the same group of people running both initiatives, and it's pretty much what opportunities present themself or where they're most successful. It's not a business plan to shift the numbers one direction or the other.
We kind of like the relative -- the proportions presently. We think that's somewhat responsive to the customer, and any changes you see here, I think, really just static, not a long-term plan.
Ian T. Gilson - Zacks Investment Research Inc.
Okay. And regarding the dividend, any plans to make that a permanent sort of $0.25 per quarter?
Edward J. Shoen
Not at this time, but it's actively discussed.
Operator
Our next question comes from Jim Barrett of CL King.
James Barrett - CL King & Associates, Inc., Research Division
This is Jim Barrett with CL King. Joe, just a follow-up on Ian's question.
Could you give us your current perspective on allocating capital in light of the amount of cash on the balance sheet, in light of current performance of the business and the current debt levels and what you perceive as your needs going forward?
Edward J. Shoen
Well, that's a real mouthful. Sure.
You can see we've been trying to opportunistically invest in the fleet. So where we're able to buy a vehicle, where there's a vehicle available for sale that fits our fleet and we think has the right mechanics, we've been trying to buy close to what we think is the max we can absorb and then liquidate, if we can, in advance vehicles we think are going to be troublesome vehicles.
And that's a little imperfect science, but we've netted on that. We've had net positive.
And particularly given the interest rate environment, that's been a strategy that's worked good for us, and we're going to continue to do that over the next 12 months, okay? In self-storage, as I indicated, you're probably going to see a little less purchasing existing as a proportion.
It's really what we perceive as what's available. That could change.
That's opportunistic. But that's my kind of over 30,000-foot conclusion is we're going to see more opportunity to build.
We have a bunch of build and convert in the pipeline right now. And the problem with those is that they're -- it takes, honestly, nearly 2 years when you make a decision and when you really open.
And then it's going to take another 1 to, at the extreme end, 5 years to where you're really cash flow positive. Now of course, I could see the 5 years as a failure, but I've had my fair share of those.
If you can cash flow positive in 1 year, you're doing a heck of a good job. So ramping up from 0 is a bit of a laborious process.
So we're trying to do plenty. We've been doing -- we've been pushing in the build and convert over the last 12 months, so some of those projects will start to come online here.
In fact, they've been coming online through the third quarter, but more of them will come online going ahead. And then they will be in the rent-up phase.
It's just a question of how effective we are and how receptive the market is, how well we pick the location as to how quickly they get rented up. So we're trying -- again, liquid interest rate environment favors that activity, so we're going ahead with it.
We're fairly -- if you wanted to compare us to all people in the self-storage business, I think we're -- we have a few more criteria, a few different criteria for buying an existing than they do, so the physical plant. And then on top of that, I think most of the larger competitors in this business perceive to have a lower cost of capital than we perceive we have -- they're simply willing to pay a cap rate, in many cases, that we don't see as being in the best interest of our company.
Not that theirs is a bad strategy. I'm not trying to be critical.
I'm just relatively speaking. So -- but we're going to -- we're putting money.
I think Jason said we're up, it sounded like, $10 million compared to 9 months last year. Is that close, Jason, on real estate?
Jason A. Berg
Yes.
Edward J. Shoen
I think that understates it because a lot of these are projects that are committed and in process rather than completed. And so we have a bunch of stuff in process, and my intent is to continue to load more in that pipeline.
And so I think that on actual, it's -- if you couldn't -- I don't obviously normalize for something. I think we're spending a fair amount more on real estate than we were in the prior period, okay?
$50 million or maybe $80 million a year, that's kind of a guess, but I would call a considerable more. And I think we view it as in our -- the interest of the company and the shareholders to make these investments today because we can, I guess.
So if -- the only one you didn't ask is what happens if XYZ Storage with so many gazillion square feet became available and it was at a price we thought was interesting, we'd absolutely hit on it. I'd say absolutely, and that would be a little bump.
But most -- if you had a deal like that, you also would probably be able to put specific financing on it within 6 months of acquisition. So you're probably right.
Your -- cash and availability pretty quick will be my guess. So -- and most of those deals take about 35% shareholder equity, Jason?
Jason A. Berg
Yes.
Edward J. Shoen
About 35%, okay?
James Barrett - CL King & Associates, Inc., Research Division
Joe, I certainly recognize the world can change quickly, whether it's the Lehman crisis or something more company specific. But with $700 million of cash on the balance sheet, a $300 stock price, is paying a larger dividend a possibility given how you view the world going forward?
Edward J. Shoen
Well, you know me a little bit. With me, the glass is always half-empty.
I'm always looking for the bogeyman around the corner. So it's not my personality.
Of course, I'm not the only person here. So I don't want to say no, no, a thousand times no.
But on the other hand, I don't want to go encourage you because I know you're trying to give guidance to people who are fiduciary. So it's certainly not an impossibility, but I don't see that being actively discussed.
I think we'd see -- let's go find more opportunities, and let's stick with our base business, not opportunities, not investing in wherever the hell, okay? But it's a big marketplace out there.
Both the trucks and the storage just consume capital, and that we've been putting it in there. And Jason, could you requote what you said on truck fleet 9 months versus 9 months?
Jason A. Berg
We're up $123 million to $635 million this year, and we're going to finish well over $800 million for the year.
Edward J. Shoen
So we're hitting hard on that, Ian, okay-- I mean, Jim. And if we could hit harder, I would hit harder.
But our choices or our options are limited by what's for sale, very frankly. So we're not going to buy something that we don't think is a good fit.
So we're hitting on it. And from your perspective, you're probably driving around or whatever, you can't tell we spent another $125 million on trucks.
But I can see it, I think it was money well spent. I would expect we'll put some substantial money in trucks over the next 12 months.
Of course, I'm -- truck, we just think -- we would hope was cash flow positive from within the first 30 days of their insertion. That would be may plan.
It doesn't always work out. But -- so I look at that.
I don't think the $700 million cash is quite accurate today, but I get the general drift, okay?
Operator
Our next question comes from Jamie Wilen of Wilen Management.
James R. Wilen - Wilen Investment Management Corp.
A couple of questions first in truck rental. I realize you guys are gaining market share.
But what would you -- if you could guess, would be the organic growth rate of the truck rental business currently, not yours but the industry as a whole?
Edward J. Shoen
Well I think it will be maybe more -- a better way I might be able to give you an answer -- anything I give you here is just a guess because there isn't good numbers. I think the bulk of our growth is organic.
I don't think the bulk of our growth is costing the competitor. I don't see Penske's books, but I believe Penske is doing fine.
Budget has done some what they claim is de-fleeting over the last maybe 18 months. I don't have a number in front of my brain on it, but their fleet was never as strong as ours.
And so then de-fleeting isn't as big an opportunity. I think that the bulk of the growth has been organic and that our business plan says that the organic growth is the growth to go for.
Now then what is organic growth? Or how am I defining that, Jamie?
I would define it as penetrating into the whole market, not necessarily the market growing. In other words, it's kind of like fast foods.
People only eat so much, but the question is will they eat more fast food? Only so many people move.
They need access to something with a lot of carrying capacity. But we get a lot of growth just by getting people who might have strapped a mattress to the roof of their car, honest to God, and now instead, they rent something from us or people who might have sold their things because they didn't think they had a way to move them.
And now its, "Oh heck, I could take it with me." And that's all very small grain -- gains in multiple areas.
So single women head of households has been a hard target for us for 20 years, and we continue to make inroads on that. But they're almost imperceptible year-over-year.
But over -- if you looked at them over a 10-year period, we've made great strides there. So I would say I would call that organic growth.
In other words, it didn't come at the expense of another truck rental company.
James R. Wilen - Wilen Investment Management Corp.
I realize you're spending a lot of capital expenditure on new vehicles. But can you tell us the size of the fleet in number of trucks, what -- how it's changed from last year to this year and what your expectation is for the size of your fleet by the end of next year?
Edward J. Shoen
I'll let Jason try to answer the number question.
Jason A. Berg
Okay. We normally report on that at the end of the year.
Right now, we're up over 135,000 total trucks as a whole, kind of gives you a preview to the end of the year.
Edward J. Shoen
Looking ahead, I'm not so sure that the total units will increase a great deal. Again, I'm opportunistic, and we're trying to fix out 6 months at any given time.
There's some flexibility but because we depend on people to make the chassis and they have their constraints, we're -- I could see 6 months pretty clearly, but we'll be buying probably more larger trucks as a percentage of all trucks. So the dollars may very well go up, okay, not necessarily units, Jamie.
James R. Wilen - Wilen Investment Management Corp.
Okay. And on the self-storage side, a couple of questions there.
Can you tell me what percentage of your units have occupancy rates north of 90%?
Jason A. Berg
That number fluctuates throughout the year. So right now, in December, we're typically at the lower point of occupancy during the year.
I think at the highest point, we were -- we had over 50% of our locations there. During this part of the season, we're probably closer to 40%, but we're above where we were at last year.
So I think we have 50 more facilities over 90% at this time than we did last year at this time.
James R. Wilen - Wilen Investment Management Corp.
And currently, the square footage of facilities you own as well as the square footage that you're managing?
Jason A. Berg
We own -- at the end of December, we had 19,616,000 net rentable square feet. We manage another 23,900,000.
So combined, we were at 43,527,000.
James R. Wilen - Wilen Investment Management Corp.
Okay. And the -- again, the profitability on managing it is somewhat similar to the profitability on owning facilities?
Edward J. Shoen
That's a great question. If I knew the answer to that, I'm not sure -- I always prefer owning over managing, very frankly.
And it gets a little gray because I think, in every case, the places we manage, we also do substantial U-Haul business. And so storage to storage, I'm not sure that managing is such a good deal.
You start throwing the whole rest of the operation at it, managing becomes better. But going ahead, it is not our strategy to add managed units.
I guess that says we think it's better to own.
James R. Wilen - Wilen Investment Management Corp.
Right. And lastly, as a shareholder, we are certainly proud of the job you've done running this business.
It's been incredible. I'm pleased with the dividend.
But we do think it'd be a great advantage to all of us as shareholders for trading liquidity if you could do a 5-for-1 stock split. As you can see, today, we traded 9,000 shares on absolutely incredible earnings.
And I think it'd be much better if we had a stock in the $60 range and we were trading 50,000 shares at this point in the day. So hopefully, you can consider that in future board meetings.
I think it'd be a great benefit to all shareholders.
Edward J. Shoen
Yes. I'm trying to hear you on that, Jamie, and trying to get something that, as you said, would get support across all shareholders.
And your comments are not lost on me, but I don't have a present plan. If I did, I would probably tell you here, and there's some rule -- SEC rule that -- there isn't a present plan, but we're hearing you.
Operator
And this concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.
Edward J. Shoen
Well, thank you, all, for your support. I appreciate you being in our corner.
I would also encourage you to let your friends and business associates know that we're a good source for their moving and storage needs. We need every customer we can get.
Thank you. Look forward to speaking to you again next quarter.
Operator
The conference has now concluded. And once again, thank you for attending today's presentation.
You may now disconnect.