NYSE:UHAL
READ THE FULL UHAL RESEARCH REPORT
U-Haul Holding Company (NYSE:UHAL) reported financial results for 2Q FY2025 on November 6th. Total revenues increased 0.5% to approximately $1.66 billion, primarily due to a 7.7% revenue increase in the self-storage business, along with a 4.4%increase in the other revenue, which is dominated by U-Box.
The pandemic brought many new customers to utilize U-Haul services, and management continues to be relatively upbeat about the self-moving truck rental business in fiscal 2025 with expectations for modest improvement. In the second fiscal quarter, the average revenue per transaction improved for both in-town and one-way moves. The total volume of transactions was flat with the number of in-town transactions increasing while the number of one-way rentals decreased.
The company achieved the 3rd highest level of total revenues for the second fiscal quarter and the 3rd h highest level of total revenues of any quarter in the company’s history. The company’s 2nd fiscal quarter seasonally the strongest.
In the self-storage business, management 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. With the goal of attempting to hold self-storage prices at least steady, the company is actually achieved positive pricing as revenue per square foot increased 1.6% during the second fiscal quarter.
Management continues to invest in the truck rental fleet, U-Box products and the self-storage business. In the self-moving equipment segment, the FY2025 net capex budget (which is gross capex minus proceeds from the sales of retired rental equipment) was increased 2.29% from $1.090 billion to approximately $1.115 billion due to increased availability of certain additional equipment from truck manufacturers, according to the 2Q FY2025 conference call. The degree of progress of the company’s vehicle rotation program is dependent on the new administration’s success in rolling back the current EV mandates, which has artificially raised the prices of ICE (internal combustion engine) trucks. In addition, management is planning to introduce an additional trailer model during the fourth quarter. It is anticipated that this new model “will move the dial on trailer rentals.”
In the self-storage business, currently roughly 8.1 million square feet. is being developed, and pending projects are around 8.7 million square feet.
Management continues to see some cost head winds in fiscal 2025, namely the prices of new trucks, increased levels of depreciation and higher personnel expenses. Truck manufacturers have increased prices of ICE (internal combustion engine) vehicles in order to subsidize EVs under the mantra of electrification. Furthermore, there a continued reduced availability of certain classes of trucks that U-Haul traditionally has purchased.
On August 14, 2024, Trian Fund Management LP filed a 13F which disclosed stock holdings as of June 30, 2024. This filing with the SEC disclosed new holdings in U-Haul Holding Company, namely 909,300 shares of UHALB and 389,700 shares of UHAL. Subsequently, Jason Berg, CFO of U-Haul, met with representatives of Trian representatives. In addition, Trian delivered a 31-page PowerPoint presentation to U-Haul. Management has considered the information conveyed by Trian. Management has decided to continue executing on its current business plans without any changes. Trian Fund Management is a hedge fund managed by Nelson Peltz. The Fund has assets under management of approximately $6.2 billion and has 29 clients.
U-Haul has a strong liquidity position. As of September 30, 2024, U-Haul Holding Company has a strong liquidity position. The Moving and Storage operating segment has approximately $1.775 billion of cash and available credit, which enables management to continue purchasing self-moving equipment and investing in self-storage real estate. 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. Working capital was approximately $4.9 billion on September 30, 2024, an improvement from $4.7 billion on June 30, 2024
Financial Results for Second Quarter of Fiscal 2025
On November 6, 2024 after the market close, U-Haul Holding Company reported financial results for the second fiscal quarter ending September 30, 2024. Total revenues increased 0.5% YOY to approximately $1.66 billion. Self-moving equipment rentals increased by 1.7% (or $17.9 million) as revenue per transaction increased for both in-town and one-way rentals, though the number of transactions were flat compared the comparable quarter of last year. Self-storage revenues increased 7.5% (or $15.6 million). Other revenues (which are predominately driven by U-Box) increased 4.4% (or $6.9 million) as U-Box revenues increased during the second fiscal quarter.
In the self-moving equipment rental business, the total volume of transactions was flat with the number of in-town transactions increasing while the number of one-way rentals decreased. The average revenue per transaction increased for both in-town and one-way rental.
Management continues to attempt to return to a normalized rotation program. Though the company is still not able to purchase as many new vehicles as desired, the availability of certain truck models has improved. During the first six months of fiscal 2025, $1.156 billion was spent on new rental trucks during the first six months of fiscal 2025. The company’s full fiscal year net capex budget (which is gross capex minus proceeds from the sales of retired rental equipment) was increased 2.29% from $1.090 billion to approximately $1.115 billion due to increased availability of certain additional equipment from truck manufacturers.
In self-moving/self-storage products & services, revenue decreased 4.2% (or $3.8 million) due to lower sales of hitches and moving supplies. However, part of the revenue decrease is related to Mercury Partners L.P. exercising of an option in February 2024 (during the fourth fiscal quarter) to purchase 78 U-Haul branded self-storage locations, which are now being treated as managed properties.
In the self-storage area, revenues increased 7.5% (or $15.6 million) as the average monthly number of occupied units at company-owned locations increased by 31,933 units. Average revenue per occupied foot across the entire portfolio increased 1.6%. However, occupancy rates decreased 330 basis points YOY from 84.2% to 80.9%, primarily because new capacity over the last 12 months expanded by 67,000 new storage units (6.1 million net rentable square feet). Management is maintaining its pricing strategy in face of the storage industry’s irrational promotions.
Other revenue increased by 4.4% (or $6,9 million), primarily due to higher sales in the U-Box program. Management continues to expand the U-Box platform through the addition of storage containers, warehouse space and delivery equipment.
Total Operating costs and expenses increased by 10.5% (or $128.6 million), primarily due increases n depreciation ($73,148 million) and operating expenses at moving and storage, which increased 6.7% (or $55.8 million), primarily driven by personnel costs, liability costs, property taxes and building maintenance. During the quarter, there was a one-time expense of $16.5 million related to a transition to a new cardboard box supplier for moving supplies, which overtime should result in lower cost of goods.
Depreciation expense (net of disposals) increased 47.5% (or $73.1 million) to $227.3 million as rental fleet depreciation increased $36.0 million due to an increased pace of new additions to the fleet and depreciation expense from real estate increased $7.54 million. As management traditionally has reinvested for growth through capital expenditures, depreciation has temporarily masked the company’s earnings power.
Earnings from operations declined 28.5% (or by $102 million) to $302 million compared to $422 million in second quarter of fiscal 2024.
For the second quarter of fiscal 2025, U-Haul Holding Company reported a net income of $186.8 million (or $.91 per diluted voting share), a 31.7% decrease compared to $273.5 million (or $1.36 per diluted voting share) in the comparable quarter last year. Shares outstanding have remained stable at 19,607,788 shares since fiscal 2020.
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.
As of September 30, 2024, U-Haul Holding Company has a strong liquidity position. The Moving and Storage operating segment has approximately $1.775 billion of cash and available credit. Working capital was approximately $4.9 billion on September 30, 2024.
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 (18.5 on average compared to only 6.0 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 10.4 at some point during the next 12 months, a target price of $77.10 is indicated.
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