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Amerco(NASDAQ: UHAL)reported its second-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 3.7% increase in revenue from the year-ago period, while adjusted earnings per share declined about 12%.
Shares are down 2.3% in midday trading on Thursday.
Amerco's key quarterly numbers
Data source: Amerco.YOY = year over year.
Changes in Internal Revenue Service regulations regarding the capitalization of low-value assets resulted in an additional $4 million of operating expenses. This trickled down to negatively affect operating income and net income.
Adjusted EPS excludes the after-tax benefit of $0.79 per share associated with Amerco's settlement of the PODS Enterprises litigation that resulted in a reduction in operating expenses of $24.6 million.
Here's a summary of this litigation and its effect on Amerco's financials:A jury found in late 2014 that Amerco infringed on storage company PEI's trademarks by repeatedly using the word "pods" in its marketing materials for its U-Box home storage program.In October, Amerco settled the litigation with PEI. As part of this settlement, it paid $41.4 million to PEI. In fiscal 2015 and fiscal 2016, Amerco recorded $66 million as accrued contingencies and interest. During the just-reported second quarter of fiscal 2017, it recognized the difference between its contingency accrual and the actual settlement as a $24.6 million reduction of operating expenses.
While this was an unfortunate and costly issue, the good news is that it's now behind Amerco.
What happened with Amerco this quarter?
- Revenue in the U-Haul segment, which accounted for about 92% of total revenue, rose 3.6% from the year-ago period to $920.4 million.
- Revenue in the insurance segment (comprised of one property casualty and one life insurance company) increased 5.3% to $79.8 million. (The two segments' revenues add up to slightly more than the company's total revenue because there's a small revenue elimination.)
- Within the U-Haul segment, DIY moving equipment rental revenue grew 1.9% from the year-ago period to $711.7 million. The growth was due to an increase in the number of truck rental transactions compared to the year-ago period. This, in turn, was driven by an increase in the average number of rental trucks in the fleet.
- Within the U-Haul segment, self-storage revenue increased 16.3% to $72.2 million, accounting for 7.2% of total revenue.
- Room count increased to 294 at the end of the quarter compared to 252 at the end of the year-ago period.
- Average occupancy rate based on room count declined to 78.9% -- still solid but down from 84% in the year-ago period. This marks the fourth consecutive quarter of year-over-year declines in the occupancy rate. Positively, however, this marks the second consecutive quarter of sequential increases. Occupancy rates for the last three quarters were: 77.4% (fiscal Q1 2017), 76.1% (fiscal Q4 2016), and 78.4% (fiscal Q3 2016). Investors should continue to monitor this number going forward, as significantly declining occupancy rates often reflect increased competition and a softening of pricing power.
- The average monthly amount of occupied square feet increased by 12.8% during the quarter compared to the year-ago period.
- DIY-moving and self-storage product and service sales revenue edged down 0.5% to $70.3 million, while property management fees grew 6.2% to $6.7 million. These are fees the company collects from managing self-storage units owned by others.
- Operating income in the U-Haul segment declined 1.3% to $293.2 million, as expenses and costs increased more than revenue.
- Operating income in the insurance segment increased 0.5% to $14.2 million.
What management had to say
Here's what CEO Joe Shoen had to say in the press release:
Amerco doesn't provide forward guidance, and there's only one Wall Street analyst who provides estimates, which makes them of little value.
This was a tough quarter for Amerco on the self-moving side, with the average income per transaction down and the resale market for trucks remaining depressed. However, positively, the self-storage business -- which sports a higher operating margin than the moving business (though Amerco doesn't break them out) -- continues to grow, with the room occupancy rate ticking up sequentially for the second consecutive quarter.
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