READ THE FULL UHAL RESEARCH REPORT
Demand continues to be strong for the AMERCO's (NASDAQ:UHAL) self-moving equipment and self-storage products. Transactions for both in-town and one-way rentals, as well as average revenue per transaction, increased in the most recent fiscal quarter.
Under the company's long-term growth strategy, management had optimally positioned the Moving and Storage operating segment to benefit from the surge in demand that was generated by the pandemic. Prior to the pandemic, consistent investments in capacity expansion increased the number of retail locations, box trucks and trailers in the rental fleet; specifically, during fiscal 2019 and fiscal 2020, company-owned locations increased 15.4%, the truck fleet expanded 9.3% and the trailer fleet increased 7.6%.
Delays at truck manufacturers (GM and Ford) related to the COVID-19 pandemic continue to disrupt management's plan to return to a normalized rotation program. Once the company is able to acquire the desired amount of replacement trucks, the ensuing capital expenditures will lead to increased depreciation charges, which will dampen earnings growth.
Management is also expanding the U-Box franchise. The effort includes increasing the number of U-Box warehouses (along with the size of those warehouses) and increasing the size of both the U-Box container fleet and the U-Box delivery truck fleet. U-Box is reported in "Other revenues," which increased 43.8% (or $30.6 million) in the December quarter.
Management continues to increase the pace of investment in the self-storage area. The company's property acquisition pipeline continues to be robust. AMERCO constantly issues press releases on the acquisition of properties and the opening of new facilities on prnewswire.com using the keyword U-Haul.
Financial Results for Third Quarter of Fiscal 2022
On February 9, 2022 after the market close, AMERCO reported financial results for the third fiscal quarter ending December 31, 2021. Revenues were above our expectations. Total revenues increased 20.0% YOY to approximately $975.55 million, driven by a 20.7% increase (or an increase of $167 million) in self-moving equipment rentals and a 29.6% expansion (or $36.4 million) in self-storage revenues. Other revenues (which are predominately driven by U-Box) increased 43.8% (or $30.6 million).
In the self-moving equipment rental business, revenues increased across three of the four major metrics: the average revenue per transaction and transactions for both in-town and one-way rentals. The improved metrics were helped by the increases in the number of retail locations, independent dealers, trucks and towing devices over the last 12 months.
In self-moving/self-storage products & services, revenue increased only 1.1%, primarily due to a tough comparison versus the third quarter of fiscal 2021 when an increase in the sales of hitches during the pandemic drove a 37.0% increase.
In the self-storage area, revenues increased 29.6% (or $36.4 million) as the average monthly number of occupied units at company-owned locations increased by 94,886 units, occupancy rates increased YOY from 73.4% to 83.6% and new capacity over the last 12 months expanded by 3.9 million net rentable square feet, along with an improvement in average revenue per occupied feet.
Other revenue increased 43.8% (or $30.6 million) driven primarily by growth in the U-Box program.
Total costs and expenses increased 11.5% (or $101.6 million). Operating expenses and commission expenses increased 21.9% and 21.0%, respectively. Depreciation expense (net of gains on disposals) decreased by $48.9 million (or 32.0%).
Earnings from operations increased 46.8% (or by $132.8 million) to $416.7 million compared to $283.9 million in third fiscal quarter of 2021. An income tax expense of $90.0 million was recorded.
For the third quarter of fiscal 2022, AMERCO reported a net income of $281.5 million (or $14.35 per diluted share), a 53.8% increase compared to $183.0 million (or $9.33 per diluted share) in the comparable quarter last year. Shares outstanding have remained stable at 19,607,788 shares for a decade.
As of December 31, 2021, AMERCO has a strong liquidity position. Working capital was relatively flat sequentially, decreasing 1.2% to $6.67 billion.
In summary, AMERCO reported strong quarterly results with the top-line (total revenues) being reported above expectations. The operating margin contracted 510 basis points sequentially from 34.8% to 29.7%, which is sequentially typical and signifies that the environment of strong demand and pricing continues.
Most Recent Financing
In December, 2021, AMERCO entered into an agreement to issue $600 million of fixed rate senior unsecured notes in a private placement consisting of five tranches. The notes were funded on January 27, 2022 with the fixed interest rates ranging from 2.55% to 2.88% and maturities between 2030 and 2035.
• Series A 2.55% Senior Note due January 27, 2030
• Series B 2.60% Senior Note due January 27, 2031
• Series C 2.68% Senior Note due January 27, 2032
• Series D 2.73% Senior Note due January 27, 2033
• series E 2.88% Senior Note due January 27, 2035
Special Dividends
AMERCO's most recent special dividend was declared on October 6, 2021. The special cash dividend of $0.50 was paid on October 29, 2021 to holders of record on October 18, 2021.
Valuation
The expected EV-to-EBITDA range for this valuation metric over the next 12 months is 8.4-to-10.4. The target price for AMERCO is $856 per share, which is based the stock achieving at least a mid-range valuation multiple of 9.41.
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