NYSE:UHAL
READ THE FULL UHAL RESEARCH REPORT
U-Haul Holding Company (NYSE:UHAL) reported financial results for 1Q FY2025 on August 7th. Total revenues increased 0.5% to approximately $1.548 billion, primarily due to an 8.4% revenue increase in the self-storage business, along with a 1.5% increase in the self-moving equipment rental business.
The pandemic brought many new customers to utilize U-Haul services, and management continues to be upbeat about the self-moving truck rental business in fiscal 2025. In the first fiscal quarter, the volume of transactions and average revenue per transaction improved for both In-Town and One-Way move markets; revenue per mile also modestly increased.
The company achieved the 2nd highest level of total revenues for the first fiscal quarter and the 4th highest level of total revenues of any quarter in the company’s history despite the second fiscal quarter being seasonally the strongest seasonally.
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 in the 3% range during the first fiscal quarter.
Management continues to invest in the truck rental fleet, U-Box products and the self-storage business, where currently roughly 7.7 million sq. ft, is being developed. The FY2025 capex budget for the self-moving equipment segment was increased according to the 1Q FY2025 conference call.
Management continues to see 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, it continues to affect the availability certain classes of trucks that U-Haul traditionally purchased.
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 $1.57 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. Management expects to a large debt financing in the upcoming quarter.
On Thursday, August 15 at 2:00 PM ET, U-Haul Holding Company will host its 18th Annual Virtual Analyst and Investor Day.
Financial Results for First Quarter of Fiscal 2025
On August 7, 2024 after the market close, U-Haul Holding Company reported financial results for the first fiscal quarter ending June 30, 2024. Total revenues increased 0.5% (or $8.2 million) to approximately $1.548 billion, primarily due to an 8.4% increase (or $16.8 million) in the self-storage business, which was partially offset by an almost $9 million decrease in net investment & interest income.
The company achieved the 2nd highest level of total revenues for the first fiscal quarter and the 4th highest level of total revenues of any quarter in the company’s history (as a consequence that the second fiscal quarter is seasonally the strongest).
In the self-moving equipment rental business, revenues increased 1.5% (or $15.1 million) as the volume of transactions and average revenue per transaction improved for both In-Town and One-way move markets and revenue per mile modestly increased as well.
In the self-storage area, revenues increased 8.4% (or $16.8 million) as the average monthly number of occupied units increased by 5.6% YOY (or 31,582 units). Self-storage revenues increased due to a 4.7% increase in monthly revenue per occupied square foot and an increase in new capacity (1.7 million net rentable square feet over 31,582 units) during the quarter. Average revenue per occupied foot improved 2.7%.
In self-moving/self-storage products & services, revenue decreased 4.2% (or $4.3 million) due to lower sales of hitches moving supplies and propane. However, approximately $5.3 million of the decrease was related to Mercury Partners L.P. exercising of an option in February 2024 to purchase 78 U-Haul branded self-storage locations, which are now being treated as managed properties.
Other revenue increased by 7.4% (or $9.2 million), primarily due to higher sales in the U-Box program.
Total Operating costs and expenses increased by 8.9% (or $38.3 million). Operating expenses increased 3.5% (or $26.5 million), primarily driven by personnel costs, liability costs, property taxes and building maintenance.
Depreciation expense (net of disposals) increased 57.1% (or $78.7 million) to $216.5 million as rental fleet depreciation increased $22.7 million due to an increased pace of new additions to the fleet and depreciation expense from real estate increased $6.8 million. As management traditionally has reinvested for growth through capital expenditures, depreciation has temporarily masked the company’s earnings power.
Management continues 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 with capital expenditures on new rental trucks totaling $539 million during the first fiscal quarter compared to $454 million comparable quarter last year. Management increased the projected fleet net capex for fiscal 2025 by $40 million.
Earnings from operations declined 23.4% (or by $93.4 million) to $306 million compared to $400 million in first quarter of fiscal 2024.
Interest expense increased 10.9% (or $6.6 million) to $67.2 million; however, interest income declined $8.9 million to $18.2 million as some cash was held on the balance sheet, which reduced the amount of cash balances invested compared to the first quarter of fiscal 2024.
For the first quarter of fiscal 2025, U-Haul Holding Company reported a net income of $195.4 million (or $.95 per diluted voting share), a 23.9% decrease compared to $256.8 million (or $1.27 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 June 30, 2024, U-Haul Holding Company has a strong liquidity position. The Moving and Storage operating segment has approximately $1.57 billion of cash and available credit. Working capital was approximately $4.7 billion on June 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 (17.9 on average compared to only 5.7 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 $71.75 is indicated.
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