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Earnings Call Analysis

U-Haul Reports Mixed Earnings with Positive Trends in Equipment Rental and Self-Storage

In the second quarter, U-Haul's earnings dropped to $187 million, down from $271 million last year, reflecting a decrease in earnings per share to $0.96. However, the equipment rental division marked a slight revenue increase of 1.7%, signaling potential long-term growth. Self-storage revenues improved by 8%, although occupancy rates fell to 80.9%. With capital expenditures raised to $1.115 billion for fiscal 2025, U-Haul plans to enhance its rental fleet and self-storage capabilities, anticipating better performance in the coming quarters despite current challenges.

A Challenging Quarter

In the second quarter of Fiscal Year 2025, U-Haul faced a notable decline in earnings, reporting $187 million, down from $271 million a year earlier. This resulted in a drop in earnings per nonvoting share from $1.40 to $0.96. The EBITDA from the moving and storage segment saw a significant reduction, primarily due to a $18.1 million rise in operating costs that are not expected to recur in the future. Nevertheless, the company recorded an $18 million increase in equipment rental revenue, representing a 1.7% rise, marking the second consecutive quarter of year-over-year improvements.

Equipment Rental Progress

Despite challenges in the one-way moving transactions segment, U-Haul experienced an increase in average revenue per transaction. The positive momentum continued into October and the first week of November, suggesting potential for further growth. Notably, capital expenditures for new rental equipment totaled $1.156 billion, a $182 million increase compared to the prior year. The company has revised its full-year net capital expenditure projection upward to approximately $1.115 billion due to the availability of equipment from manufacturers.

Self-Storage Segment Gains

The self-storage division showed encouraging results, with revenues increasing by $16 million, equating to an 8% boost. The average revenue per occupied foot rose by 1.6%, and occupancy count increased by almost 32,000 units from the previous year. However, the overall occupancy ratio fell to 80.9%, primarily impacting performance in the same-store portfolio where occupancy decreased by 80 basis points.

Operational Challenges Encountered

U-Haul's operating expenses in the moving and storage segment surged by over $55 million. This increase encompassed a variety of costs, including a $16.5 million expenditure tied to transitioning to a new cardboard box supplier. Other notable increases included personnel costs and liability rates. Although these challenges persisted, the company retained considerable liquidity, reporting $1.775 billion in cash and available credit as of the end of September.

Market Dynamics and Future Outlook

Management acknowledged ongoing turbulence in consumer behavior and its impact on operations, expressing optimism for market stabilization. The company is anticipating the introduction of a new trailer model by the end of the fiscal year, which is expected to slightly affect rental revenues. However, significant gaps in the self-storage market remain, with the company adding new rooms faster than they are filling, suggesting the need for strategic adjustments in future quarters.

Long-Term Strategies and Challenges

Despite the current pressures, U-Haul remains committed to its expansion strategy within self-storage and believes in positioning itself for a long-term advantage. Management highlighted a confident outlook for outperforming peers once market conditions normalize. However, the company faces pricing pressure and oversupply issues that may affect near-term profitability, but it anticipates better balance in the future as market dynamics shift.

Navigating Through Industry Dynamics

The calls also highlighted competition within the self-storage sector and the necessity of continued innovation and strategic adjustments. Management remains wary of the industry's unrealistic move-in promotions and is keenly monitoring competitor strategies. Evaluating the resonance of U-Haul’s offerings in various markets will be crucial as the company navigates these challenges to strengthen its competitive position.

Earnings Call Transcript 2025-Q2

[Operator]

Good day, everyone, and welcome to the U-Haul Holding Company Second Quarter Fiscal Year 2025 Investor Call. [Operator Instructions] Please note, this call may be recorded. I'll be standing by if you should need any assistance. It is my pleasure to turn the conference over to Sebastien Reyes.

[Sebastien Reyes, executive]

Good morning, and thank you for joining us today. Welcome to the U-Haul Holding Company Second Quarter Fiscal 2025 Investor Call. Before we begin, I would like to remind everyone that certain of the statements during this call including, without limitation, statements regarding revenue, expenses, income and general growth of our business, may constitute forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended.

Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Certain factors could cause actual results to differ materially from those projected. For a discussion of the risks and uncertainties that may affect the company's business and future operating results. Please refer to the company's public SEC filings and Form 10-Q for the quarter ended September 30, 2024, which is on file with the U.S. Securities and Exchange Commission.

I'll now turn the call over to Joe Shoen, Chairman of U-Haul Holding Company.

[Edward Shoen, executive]

Thanks, Sebastien. This is the time of the year that we try to lock down our moving truck and trader CapEx. The big unknown for us is how successful the new administration will be in getting EV mandates turned around. If the vehicle manufacturers can gain some uncertainty, that will help us with our strategy. Rental income on moving equipment is up slightly. My teams remain focused on this measurement, but we've been getting very modest results. We are continuing to develop new storage product and bringing it online faster than we are filling units. The industry -- the storage industry remains [indiscernible] upon by unrealistic move-in promotions. We are holding with our strategy, but we're watching this all the time. U-Box, which is our service that addresses both the time and the place needs of consumers is still making progress. .

We have a significant infrastructure now in place that can reliably handle growth in our transactions, and I expect we're going to see some. I have a word on the -- an update on the position of U-Haul Holding company shares by [indiscernible]. As you know, [ Trion ] filed a 13F with the SEC on August 14, regarding their U-Haul Holding Company stock holdings as of June 30. Since then, Jason Berg has met once with [ Trion ] representatives, and they have sent us in 31-page PowerPoint presentation. Trion has also communicated with other U-Haul Holding company shareholders. Of course, Trion's reputation precedes them. We regularly consider multiple inputs and factors and will continue to do so. We have our business plans in place. There will not be any changes to our plans due to Trion's input.

Jason continues to work to get accurate helpful information to you as investors, and he will continue to do so. Many things are up in the air regarding consumer confidence. We look forward to the new administration positively contributing to this, which will just make our ability to see the future a little more accurate.

With that, I'll turn it over to Jason to take you through the numbers.

[Jason Berg, executive]

Thanks, Joe. Yesterday, we reported second quarter earnings of $187 million compared to $271 million for the same quarter last year. From the earnings per share perspective, this translates to $0.96 per nonvoting share compared to $1.40 per nonvoting share in the second quarter of last year. Earnings before interest, taxes and depreciation, EBITDA at our moving and storage segment and for the rest of [indiscernible] I'm going to have to adjust to remove interest income from the prior year. That amount decreased by $18.1 million due almost entirely to operating costs that are unlikely to recur.

And I'll touch on that further in a moment. Equipment rental revenue results, we had an $18 million increase or about 1.7%, up slightly better than what our first quarter improvement was. This is now our second consecutive quarter of year-over-year increases in equipment rental revenues, and it points to a likely trough, we should hopefully have a return to a more sustained growth trajectory. While we weren't able to generate increases in one-way moving transactions, we did see an increase in the average revenue per transaction for both one-way and In-Town lows. And our in-town revenues on the trailer and towing fleet also increased during the quarter.

October and the first week of November saw revenue continue to trend positively compared to the same time last year. Capital expenditures for new rental equipment for the first 6 months were $1.156. That's $182 million increase compared to the same 6-month period last year. We've increased our fiscal 2025 full year net CapEx projection. So that's gross spending less sales. We've increased it from $1.90 billion to approximately $1.115 billion, and that's due to the availability of some additional equipment from our manufacturers that we can purchase this year. Proceeds from the sales of retired rental equipment was down $41 million to a total of $361 million. This is a combination of fewer pickups and cargo vans sold, along with lower average sales proceeds on the units that we did sell.

A portion of our depreciation increase that you're seeing is in response to the declining resale values of these models. Switching to self-storage. Revenues were up $16 million, which is about an 8% improvement. Average revenue per occupied foot continues to improve across the entire portfolio, up about 1.6% for the quarter. And if you look at our same-store portfolio, we were up just over 2%. Occupied unit count at the end of September was up nearly 32,000 units compared to the same time last year. Now during the same time frame, we've added 67,000 new units, and that's what's led to the differential in our average occupancy ratio were down to about 80.9% for the whole portfolio.

If you split out just the same-store portion, we saw average occupancy decreased 80 basis points to 94.1%. During the first 6 months of this year, we invested $734 million in real estate acquisitions along with development costs associated with self-storage and U-Box warehouses. That's $101 million increase over the first 6 months of last year. During the quarter, we added just over 900,000 new net rentable square feet, about 860,000 of that was from newly developed locations. We currently have approximately 8.1 million new square feet being developed. I would expect to see the net rentable square feet deliveries increase next quarter compared to what we did this quarter.

Our U-Box revenue results are included in other revenue in our 10-Q filing are not large enough yet to break out separately, but this line item increased $7 million, of which U-Box was a major contributor. Operating expenses at Moving and Storage increased just over $55 million. As we mentioned on last quarter's call, the decline in fleet repair and maintenance was going to slow, and it was down $5.4 million for the quarter. Personnel costs were up a little over $17 million. Liability costs associated with the fleet increased $7.6 million and property taxes and building maintenance combined were up about $8 million.

During the quarter, we had a $16.5 million cost related to our transition to a new cardboard box supplier for our moving supplies. While we expect this over time to result in improved service and lower cost of goods sold, we opted to expense this amount in the quarter. As of September of this year, at our moving and storage segment, we had cash along with availability from existing loan facilities of $1.775 billion.

On our Investor Relations website, investors.uhaul.com.com we posted some supplemental materials in addition to the earnings release and the 10-Q filing. I would encourage you to take a look at them. We hope that it'd be helpful to you. With that, I would like to hand the call back to our operator, Leo, to begin the question-and-answer portion of the call.

[Operator]

[Operator Instructions] We'll take our first question from Steve Ralston of Zacks.

[Steven Ralston, analyst]

Good morning. I have 2 questions concerning the trends of the business in the self-moving renal business and also self-storage. In the rental business, you had your second consecutive quarter of year-over-year improvement, which is quite interesting because 2 -- I think, 2 quarters ago, [indiscernible], that he expected slow but modest improvement over the near term. I'm wondering if you have anything that you can foresee over the next 2 quarters. I know you mentioned that you might see a strengthening later on. But what's your feeling for the next 2 quarters?

[Edward Shoen, executive]

I don't see any big changes. We're fine doing stuff all the time, but it's -- you're getting minuscule changes or results. Now that doesn't mean we won't cut upon something that significantly works. I think that all this turmoil in the country may settle down, and we may start to see people act in a more predictable fashion, which I hope results in more business for us. But I have really -- I don't have any window into that at all. We're going to introduce sometime in the fourth quarter, probably late in the fourth quarter and additional trader model, it will move the dial on trader rentals a little bit, but that's default. We have to manufacture them. So it's going to ramp up slowly. But I'm looking for that to be a modest success. But I don't see anything. I'm blind as to if something is going to pick up over the next 180 days. .

[Steven Ralston, analyst]

Okay. In the self-storage business, the year-over-year rate gain year-over-year has been deteriorating. It used to be a nice solid double digits and now it's upper single digits. There are a lot of factors that are going into this. And I know you point out that the size of your portfolio is growing, and that's mathematically that's part of it. And you alluded to the pricing situation. Could you comment on that trend and when you think it will stabilize and start improving?

[Edward Shoen, executive]

Well, of course, we are adding rooms faster than we're filling rooms. That's our basic imbalance. And of course, it gets very location specific and all that. Jason can point to plenty of places where we're in the low to middle 90s doing fine. But as you bring on new product, some are more winners than others. I think our new product that's coming on it's going to be 90% winners. So I look for that to outperform the industry. But say it's going to go back to double digits between now and next summer, I hesitate to predict that. The whole industry is kind of got themselves funky and there's many, many things going on, which probably don't even know about.

But the -- I think we're going to outperform our peer group, and I think we should. But whether we'll get this addition and addition of new products, filling rooms balanced out right, it's not totally clear. Of course, we're going into what's relatively speaking, a slow season, but that's fine. There's plenty of customers out there even in the slow season. So at this point, I'm kind of fighting this out location by location. There's not a macro picture, I would say. This week have most of my senior managers around the country.

And of course, we're just doubling down on how we're going to specifically get X more rooms rented at location Y and where is the failure in our sales presentation. I always view this as customers are there, we're failing to connect to them. And I still believe that he is -- even though the other -- the rest of many participants in the industry are reporting not too shiny results. I tried to anticipate that, and I think I told you people that there was many entrants into the market who didn't quite know what they were getting into, well, they're all in it right now and that's going to be a little jumble shaking out. I expect to come out of that jumbo ahead of my peer group, but we'll see how that goes.

[Steven Ralston, analyst]

Just to talk out loud, I mean that's one of the key attributes of U-Haul is that you build all this capacity and [indiscernible] it will come, the demand occurs in last time it was COVID. And then you have all the capacity and the leverage to benefit from that and we're both in the rental business and storage. .

[Operator]

We'll move next to Jamie Wilen of Wilen Management.

[James Wilen, analyst]

First question is about U-Box and you seem to be gaining some share in the business. And the question is relative to as you build new self-storage, you have a lot of U-Box storage in there? And how much of a competitive advantage is that for you? Is that why you're gaining share? Or does it just give you better pricing to customers or better margins for you as you -- obviously, you think that's a competitive advantage because as you build new self-storage, you're including places for portable storage in there for U-Box?

[Edward Shoen, executive]

Yes. I'm going to let my son, Sam, who runs [indiscernible] a speak to that for just a minute.

[Unknown Executive]

Sure. I'm happy to answer that, Jamie. I think the question was, is the storage component of U-Box competitive advantage. No doubt about that. I'd agree with you. Now is it why we're gaining share that, I think the answer to that is no. We -- I would say if I would give us a great on the moving segment of U-Box, I'd give us an A and on the storage segment of U-Box, I'd give us a C but it just gives us massive opportunity going forward to shine. I'd say the competition is doing a better job on that relative to us. But I can tell you storage at U-Haul, as you might imagine, is quite a focus. And so I've got a lot of support resources to take that see to that we know it should and could be. So thanks for your question.

[James Wilen, analyst]

Okay. And as we continue to build sell-through, it will always include an extra component for portable storage as well?

[Edward Shoen, executive]

Not always. You've got to map this out and probably the radius with a U-Box location service is larger than the radius of customers that traditional self-storage serves. So we're using the opportunity when we build to also to build more self-storage to try to be strategic so we can make one project out of it and also expand our U-Box network. But -- so if you look at the ones we're building currently, it's pretty close, maybe 8 out of 10, okay?

But that's -- we don't have a goal of going to one-to-one at all, Jamie, that would be more capacity that we think we can absorb. But right now, what we're building -- I'm just going to guess, but 8 out of 10 of them where we're putting in more storage, we're putting in U-Box.

[James Wilen, analyst]

Okay. Next, I want to go to the value gap coherent between what you all is trading for to what and what it's worth. When I look at competitors, say, CubeSmart, which has a in a similar revenue base than you though it does not maintain your growth profile because you have added so much more fresh space that they've got a $10 billion market cap on their self storage, and it seems like we're not getting that credit for it on our self-storage operation, which one would think our metrics for occupancy and rate are similar to theirs and margins are similar to theirs. So one would think our valuation for our self-storage would be similar to that. Can you talk about the value gap? And is that what is within a lot of the Trion PowerPoint presentation for Heather close that no gap?

[Edward Shoen, executive]

Okay. I'll talk to it for a minute. Of course, we -- right now, excess capacity is drag. I can't give you the number, all the way, but it's a drag on earnings. Obviously, we on the stuff we're paying for it and aggressive development is a drag. And both those things are just mathematically what comes out of that development, whether at the end of the day, this turns out to be a happy day or not is unknown until you get there, of course, I think it's point to or I wouldn't be pouring resources into it. As far as [ Mr. Peltz ], I don't like to speak for him, and I don't like to have anything is anything. I don't know I could send his presentation, Jamie. I don't know if that would work. I don't want to speak.

[James Wilen, analyst]

Okay. And you talk about within self-storage that we're adding more spaces than we're filling. So in the short term, it really impacts earnings. One of the beautiful things about COVID was not only that we were able to increase occupancy rates in the existing locations, but it restricted our ability to be -- to open new locations. So there was much more of a balance in the near term between the cost of carrying newly opened units and the filling of existing units. Do you think we'll ever get back to that balance so we can -- as opposed to always, this is going to be wonderful long term out 10 years to balance off the near-term impact for opening so aggressively with new locations?

[Edward Shoen, executive]

Well, I would expect it will ebb and flow what I think now. There's still a lot of opportunity and one of U-Hauls, stronger points is the breadth of where we operate. So we're very active in [indiscernible]. A lot of people kind of shrug their shoulders and that's fine. We're already in [indiscernible], okay? So going there with more products and services as long as it's proportional to the market is totally within scope, whereas you take one of our storage competitors, they have no reason to go to Gillette because they have no infrastructure and they would have to gear the whole thing up and marginally it would be a loser for them.

You go to Northern New Jersey, and they're all eager to get in there with more product. I just turned down some product in Northern New Jersey 3 weeks ago. To me, it looks like hard working over tax. I'm not going to call the prize is not worth it. Now we'll see this correct. Nobody knows for sure. But I think there's plenty of places for us to expand if you want to look out and say, 2 years, I think there's plenty of places to expand over the next 2 years. And I want to get to them and be positioned for a 20-year or 30-year run out of them. They all make inflation, of course, has saved everybody in the self-storage business.

When I first was doing this, we were bringing product on for $7 a square foot. Now we won't rent it for $7 a square foot a year. That was all in cost. Then at a point, it bumped up to $15, we've abated some pretty expensive storage, of course. If you go look at those places now, they're selling for $135 a foot, same exact spot. And so inflation has really saved the self-storage industry and my experience. Currently, we're going in at some pretty high cost and units that are trading in the secondary market are still trading at very, very high multiples. It's just maybe that will pull off some of this. We're in this, as you mentioned, for the long haul, and there's no reason for us to, in my mind, to shy away from going into a market as long as we're fairly confident that market is going to produce results over time, but it's a drag, it's a drag.

As soon as you turn this tap off in about 18 or 24 months, it looks like a different place on the financial statements. Jason could probably quantify that. But I mean it just -- it flips real quick as soon as you're not pouring more capital into it.

[James Wilen, analyst]

Exactly. Exactly. I just wonder, if we slow the pace of capital that we put into it, so the percentage of new units has is lower. And then on the corollary to that, you talk about New Jersey versus Wyoming. And it's easier to be a big player in a smaller pond than a small player in a big pond. And what would be the thought process of -- given the valuations for self-storage in New Jersey, if we sold off part of our existing mature facilities to be able to then take the capital to build on in areas with greater opportunity for profitability?

[Edward Shoen, executive]

You could possibly do some financial jiggering, but what we have done for better or worse is most of these sites have U-Box, you haul new store there. And so you could conceivably do some partitioning and some kind of wacky selling a partial interest we did a version of that with W. P. Carey, the deal finally however you want to call it, rolled over here just a year ago. So we have some experience with it.

But it seems to get as a onetime pop. That's my experience. I get a onetime pop. But after that, of course, the people who have the financial interest in the assets that they try to bring every penny out of it, okay? So I've done it at one point, I was managing 100 other stores from other people. And I don't know, but I got 6 rate, pretty good lawsuits alleging fraud or something of that nature. It's not as turmoil less partitioning these things out is awkward to put it politely. But that's been our strategy is this combined presentation to the customer. So if there -- we've tried a couple of different things and not seeing anything that trying to partition these assets that really helped very much, I guess.

[Operator]

We have no further questions at this time. I'm happy to return the call to management for closing comments.

[Sebastien Reyes, executive]

Well, thanks so much, everyone, for your support. We look forward to speaking with you after we report earnings in February. Thank you. .

[Operator]

This does conclude today's U-Haul Holding Company Second Quarter Fiscal Year 2025 Investor Call. You may now disconnect your lines, and everyone, have a great day.