Amerco Q1 Revenue Climbed, but Earnings Went Into Reverse on Increased Costs

By Markets Fool.com

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Image source: Amerco.

Amerco(NASDAQ: UHAL) reported its first-quarter fiscal 2017 earnings after the market closed on Wednesday. The parent company of do-it-yourself moving giant and self-storage player U-Haul, which also has two insurance company subsidiaries,posted a 4.4% increase in revenue from the year-ago period, but earnings per share fell more than 14% due to increased costs in the U-Haul segment.

Shares of Amerco were down 9.5% in after-hours trading on Wednesday, as the market is no doubt disappointed with the earnings decline.

Amerco's key quarterly numbers

Metric

Fiscal Q1 2017

Fiscal Q1 2016

Growth (YOY)

Revenue

$923.4 million

$884.8 million

4.4%

Net income

$147.2 million

$171.3 million

(14.1%)

Earnings per share (EPS)

$7.51

$8.74

(14.1%)

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Data source: Amerco. YOY = year over year.

Long-term investors shouldn't give too much credence to analysts' estimates, because Wall Street is focused on the short term. This is especially true with Amerco, as only a single analyst provides earnings estimates. That analyst expected earnings of $8.72 per share on revenue of $941.32 million; Amerco fell short on both counts.

What happened with Amerco this quarter?

  • Revenue in the U-Haul segment, which accounted for about 91.6% of total revenue, rose 3.8% from the year-ago period to $845.8 million.
  • Revenue in the insurance segment (comprised of one property-casualty and one life-insurance company) increased 10.9%.
  • DIY-moving equipment rental revenue grew 2.7% from the year-ago period to $646.3 million.
  • Self-storage revenue increased 18.4% to $67.7 million, accounting for 7.3% of total revenue. Room count increased to 287 at the end of the quarter compared to 237 at the end of the year-ago period. Average occupancy rate based on room count declined to 77.4% from 82.5% in the year-ago period. This marks the third consecutive quarter of year-over-year declines in the occupancy rate. Positively, however, we didn't see a sequential decline as we did last quarter, as the occupancy rates in the third and fourth quarters of fiscal 2016 were 78.4% and 76.1%, respectively. Investors should continue to monitor this number going forward, as declining occupancy rates can reflect increased competition and a softening of pricing power.
  • DIY-moving and self-storage product and service sales revenue was flat at $77.3 million, while property management fees grew 8.1% to $6.6 million. These are fees the company collects from managing self-storage units owned by others.
  • Operating income in the U-Haul segment declined 11.4% to $248.5 million. Revenue in the segment grew 3.8%, as previously noted, so the declining operating income was driven by increased costs. Notably, gross truck and trailer capital expenditures were approximately $419 million, compared with approximately $310 million in the year-ago period. The bottom line was also negatively affected by the decrease in proceeds from sales of rental equipment, which were $146 million, compared with $193 million in the year-ago period.
  • Operating income in the insurance segment increased 6.8% to $11.4 million.
  • Changes in IRS regulations regarding the capitalization of low-value assets resulted in an additional $4.7 million of operating expenses.
  • On June 22, the company promoted Jason Berg to serve as its CFO. Bergs a long-term employee who previously served as chief accounting officer.

What management had to say

CEO Joe Shoen highlighted the positive in the press release, saying, "Our moving and storage business remains strong. People are still moving. We are seeing the strong truck chassis cost increases put through by Ford and General Motors reflected in our bottom line."

Looking forward

This was a disappointing quarter for Amerco, though one quarter -- or even a couple of quarters -- doesn't make a trend. Investors will learn more details on Thursday, when Amerco holds its conference call with analysts.

The good news is that the storage business continues to grow much faster than the moving business, and the former is a higher-profit-margin business. This is a winning formula if Amerco can maintain decent occupancy rates and keep costs in its moving business under control.

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Beth McKenna has no position in any stocks mentioned. The Motley Fool recommends Amerco. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.