NYSE:UHAL
READ THE FULL UHAL RESEARCH REPORT
U-Haul Holding Company (NYSE:UHAL) reported financial results for fiscal 2024 on May 29th. Total revenues decreased 4.1% to approximately $5.63 billion, as the 11.6% increase in self-storage was more than offset by the 6.5% decrease in the self-moving equipment rental revenue.
In summary, during fiscal 2024, in the self-moving truck rental business, volume of transactions, average revenue per transaction and average miles driven per transaction declined YOY against tough near record-high comparisons with the one-way truck rental business being more impacted than in-town operations. In the self-storage area, revenues increased 11.6% as the average monthly number of occupied units increased by 7%.
The pandemic brought many new customers to utilize U-Haul services, and management is upbeat about the self-moving truck rental and self-storage businesses in fiscal 2025, where increased revenues are expected. In truck rentals, recent consumer confidence reports indicate that an upturn in miles traveled per rental is probable, and management is currently experiencing a very slight uptick in the rate per mile. In the self-storage business, the continued investment is planned to be roughly in line with last year, which should increase square footage by nearly 5.5 million sq. ft. However, a small decline in occupied square foot as a percent of total square footage is probable. U-Haul continues to follow its long term tradition of a consistent value pricing strategy without utilizing discounts or implementing price depending of the perceived availability of supply as many competitors do. Management will attempt to hold self-storage prices steady and possibly implement a slight price increase.
In fiscal 2024, gross fleet capex was $1.62 billion having invested $1.30 billion during fiscal 2023 and $1.06 billion in fiscal 2022. During fiscal 2024, the total number of rental trucks decreased 1.8% to 188,700 as management implemented by enhancing vehicle utilization by rotating 20% less new trucks in for the old, high-milage trucks being sold out of the fleet. However, the number of trailers increased slightly (+0.65%) to 139,400.
In fiscal 2024, gross self-storage capex was $1.258 billion, which was invested real estate acquisitions, new construction, renovation and repair, compared to approximately $1.341 billion in fiscal 2023, a decrease of 6.2%. New development added 4.3 million square feet while acquisitions of existing self-storage units added 1.2 million square feet.
Management sees some cost head winds in fiscal 2025, namely the prices of new trucks and higher personnel expenses. Truck manufacturers have pushed increased prices of ICE (internal combustion engine) vehicles in order to subsidize EVs under the mantra of electrification. Furthermore, the actions of the truck manufacturers are affecting the availability of certain classes of trucks that U-Haul traditionally has purchased in the past.
Management continues to invest in digitalization not only to facilitate customer engagement, but also to better manage personnel expenses by driving productivity enhancements through IT investments. The increases in wages are being driven by inflationary pressures and government wage mandates, especially at the entry level in California. Substantial progress has been already achieved in the area of customer self-dispatch and self-return.
U-Haul has a strong liquidity position. The Moving and Storage operating segment has approximately $2.21 billion of cash and available credit, which enables management to purchase of self-moving equipment, even if the credit markets make debt financing problematical. Furthermore, management continues to develop self-storage facilities. A typical self-storage project requires approximately three years to develop from acquisition to opening, and the long term prospects for the industry remain positive.
Fiscal 2024 Financial Results
On May 29, 2024 after the market close, U-Haul Holding Company reported financial results for the 2024 fiscal year ending March 31, 2024. Total revenues decreased 4.1% to approximately $5.63 billion, as the 11.6% increase (or $86.6 million) in self-storage was more than offset by the 6.5% decrease (or $253 million) in the self-moving equipment rental revenue.
In the self-moving equipment rental business, revenues declined 6.5% (or $253.2 million) as the volume of transactions, average revenue per transaction and average miles driven per transaction decreased, though the rate of decline lessened through the year. The one-way market continues to lag the in-town business.
In the self-storage area, revenues increased 11.6% (or $86.58 million) as the average monthly number of occupied units increased by 7% (or 36,100) during fiscal 2024, driven by occupancy gains at existing locations, a 6.7% increase in new capacity (5.475 million net rentable square feet) over the last 12 months and a 2.9% increase in average revenue per occupied square foot.
Other revenue decreased 2.7% (or $12.8 million), primarily caused by decreased sales in the U-Box program.
In self-moving/self-storage products & services, revenue decreased only 1.7% (or $21.5 million) as hitch, moving supplies and propane sales decreased.
For the fiscal year, total costs and expenses increased 5.2% (or $228.8 million). The operating leverage was apparent as the operating margin compressed by 727 bps from 24.6 in fiscal 2023 to 17.4%, which was the major factor for the decline in net income and EPS. Operating expenses (which are associated with self-moving equipment rentals and self-storage) increased 3.4%, mainly from increased personnel costs and fleet repair & maintenance expenses. Cost of sales (related with self-moving & self-storage products & services) decreased 8.2% while commission expenses decreased 7.7%. Depreciation expense increased 36.4% (or $177.1 million), primarily due to the expansion of the rental fleet with $1.619 billion spent in capex for new rental equipment during fiscal 2024.
The company benefited from the high interest environment by investing cash balances in U.S. Treasury securities; this cash management effort generated $120.0 million during fiscal 2024, and a new line item of other interest income was added to the income statement to account for the interest received.
Earnings from operations decreased 32.3% (or by $465 million) to $978 million compared to $1.44 billion in fiscal 2023 year. An income tax expense of $222 million was recorded.
For the 2024 fiscal year, net income declined 32.0% to $628.7 million (or $3.04 per diluted share of voting stock) compared to $924.5 million (or $5.54 per diluted share) for fiscal 2024.
Note: Management utilizes the two-class method where distributed earnings (dividends) and undistributed earnings are allocated in a three-step process to each class of common stock. Our EPS calculation differs from the company’s GAAP-compliant calculation in that we are attempting to illuminate the earnings power behind each voting share rather than adjust EPS for the distribution dividends. As of March 31, 2024, U-Haul Holding Company has a strong liquidity position in the Moving and Storage operating segment of approximately $1.886 billion (cash plus availability from existing loan facilities). Working capital was approximately $5.14 billion on March 31, 2024
U-Haul Capital Expenditures
U-Haul’s capital expenditures consist of the purchases of new self-moving rental equipment (primarily trucks) and their ongoing maintenance costs, the acquisition of self-storage properties (which encompasses 1) existing self-storage locations, 2) bare land sites and their subsequent development into self-storage properties and 3) existing buildings and their ensuing renovation into self-storage facilities.
Self-moving rental equipment
Due to shortages in the availability of truck chassis during the pandemic years (beginning in fiscal 2021), the purchases of new self-moving trucks had to be deferred; in addition, fleet maintenance costs were delayed. At first, there was an inability to procure truck equipment due a lack of supply from Ford and GM, which morphed into huge price increases thereafter as the truck manufacturers partially financed their emphasis of EVs by raising prices on ICE vehicles.
Generally, under the fleet rotation program, management prefers to retire and sell moving rental trucks that have been driven over 120,000 miles, at which point the operational economics deteriorate. Due to the lack of supply resulting in the postponement of truck replacements for three years, U-Haul has too many trucks with mileage over 120,000. The truck manufacturers still have insufficient availability of supply, and in some cases, a lack of production, in certain truck sizes in the quantities management desires. Therefore, management has and will continue to grow the capability of the fleet by enhancing vehicle utilization by rotating four (4) new trucks for every five (5) high-milage trucks sold out of the fleet, while at the same time, increasing the number of trailers and retail locations. The end-result was that the truck fleet contracted to 188,000 trucks at the end of fiscal 2024 and is expected to shrink by another 3,000-to-4,000 trucks during fiscal 2025.
In fiscal 2024, approximately $1.62 billion was invested in self-moving rental equipment, up 24.7% (or $320 million) compared to $1.293 billion in fiscal 2023.
For fiscal 2025, capex for self-moving equipment segment is expected to increase by about 6.2% (or $100 million) to around $1.7 billion.
Self-storage
In fiscal 2024, $1.258 billion was invested in the self-storage segment (which includes real estate acquisitions, new construction, renovation and repair) compared to approximately $1.341 billion in fiscal 2023, a decrease of 6.2%. Of the $1.258 billion, about $925 million was directed toward development construction with the remainder going toward the acquisition of new land or buildings.
During fiscal 2024 in the self-storage business, the increase in units and rentable square footage were a result of a combination of new development and acquiring existing self-storage facilities. The mix again was weighted toward new development (4.3 million square feet) with the remainder being the acquisition of existing self-storage units (1.2 million square feet).
For fiscal 2025, capex for self-storage is expected to remain around $1.26 billion. The company’s pipeline of active projects is currently at 7.8 million square feet and pending projects are around 9.2 million square feet.
Valuation
U-HAUL operates in both the “do-it-yourself” consumer truck and trailer rental business and in the self-storage industry. The vehicle rental business requires considerable investment in infrastructure (rental facilities and vehicles). Earnings in this segment tend to exhibit cyclicality, which is a consequence of the substantial earnings leverage that can be derived from improved utilization of the fleet. On the other hand, despite also requiring a significant investment in infrastructure (storage buildings), self-storage operations tend to be much less cyclical and provide steady cash flow.
From an investment perspective, both types of operations are generally valued on the metric of EV-to-EBITDA (Enterprise Value-to-Earnings Before Interest, Taxes, Depreciation and Amortization). From the Industry Comparable table below, it is easily observable that self-storage operations are valued at a much higher EV-to-EBITDA basis (17.1 on average compared to only 5.5 for truck rental companies) due to each industry’s fundamental attributes described above. Due to the small sample size of public truck rental companies (since Penske and Enterprise are not publicly traded), the EV-to-EBITDA metric is distorted.
By expecting the high EV-to-EBITDA valuation metric to be 9.7 at some point during the next 12 months, a target price of $69.70 is indicated.
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