Zacks Small Cap Research – UHAL: Reports Q1 FY 2024 Results: Self-moving rental equipment demand rises year-over-year after seven quarters of single-digit declines. Self-storage continues to deliver sales growth.

By Steven Ralston, CFA

NYSE: UHAL

READ THE FULL UHAL RESEARCH REPORT

U-Haul Holding Company (NYSE:UHAL) announced financial results for its first quarter of fiscal 2025 on August 7. Total sales increased by 0.5% to around 1.548 billion US dollars, mainly due to an increase in sales of 8.4% in the self-storage sector Business, together with a 1.5% increase in rental costs for moving equipment Business.

The pandemic brought many New customers to use U-Haul services and Management remains optimistic about the self-driving truck rental business in fiscal year 2025. During the first fiscal quarter, transaction volume and average revenue per transaction improved in both the intracity and one-way moving markets, and revenue per mile also increased slightly.

The company achieved the second highest total sales in the first fiscal quarter and the Fourth highest total sales of all quarters in the company’s history, although the second fiscal quarter was the strongest on a seasonally adjusted basis.

In the self-storage businessThe management continues to follow its long-standing tradition of consistent value pricing strategy without offering discounts or making prices dependent on the perceived availability of the offer, as many competitors do. With the aim of keeping the prices for self-storage units at least stable, the company actually achieved positive prices in the range of 3% in the first fiscal quarter.

Management continues to invest in the truck rental fleet and U-Box products and the Self-storage businesswhere around 7.7 million square meters are currently under construction. The investment budget for fiscal year 2025 for the self-driving equipment segment was increased according to the conference call for the first quarter of fiscal year 2025.

Management continues to see some Cost headwinds in fiscal year 2025namely the Prices for new trucks And higher personnel costs. The truck manufacturers have increased prices for vehicles with combustion engines to subsidize electric vehicles under the banner of electrification. In addition, it continues to impact the availability of certain classes of trucks that U-Haul traditionally purchases.

management continues to invest in Digitalization not only to facilitate customer loyalty, but also to Personnel costs due to productivity increases through IT Investments. The Wage increases are driven by inflationary pressures and government wage restrictions, particularly at entry level in California. Significant progress has already been made in the area of ​​customer self-handling and self-return.

U-Haul has a strong liquidity positionThe Moving and Storage segment has cash and available credit of approximately $1.57 billion. allows management to continue purchasing self-driving equipment And Investing in self-storage propertiesA typical Self-storage The project will take approximately three years to develop from acquisition to opening, and the long-term outlook for the industry remains positive. Management expects a large debt financing in the coming quarter.

On Thursday, August 15 at 2:00 p.m. ETU-Haul Holding Company will 18th Annual Virtual Analyst and Investor Day.

Financial results for the first quarter of fiscal year 2025

On August 7, 2024, after the market close, U-Haul Holding Company released financial results for its first fiscal quarter ended June 30, 2024. Total sales increased by 0.5% (or 8.2 million US dollars) to around 1.548 billion US dollars, mainly due to an increase of 8.4% (or $16.8 million) in self-storage The deal was partially offset by a decrease in net investment and interest income of nearly $9 million.

The company achieved the second highest total sales in the first fiscal quarter and the Fourth highest total sales of all quarters in the company’s history (which means that the second fiscal quarter is seasonally the strongest).

In the Rental of moving equipment Business, Sales increased by 1.5% (or $15.1 million) as transaction volume and average revenue per transaction improved in both the in-town and one-way moving markets, and revenue per mile also increased slightly.

In the Self-storage Area, Sales increased by 8.4% (or 16.8 million US dollars) as The average monthly number of occupied units increased by 5.6% compared to the previous year. (or 31,582 units). Self-storage revenue 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 across 31,582 units) during the quarter. Average revenue per occupied square foot improved 2.7%.

In Products and services for self-moving/self-storageRevenue decreased 4.2% (or $4.3 million) due to lower sales of trailer hitches, moving supplies and propane gas, but approximately $5.3 million of the decrease was due to Mercury Partners LP exercising an option to purchase 78 U-Haul-branded self-storage locations in February 2024, which will now be treated as managed properties.

Other income increased 7.4% (or $9.2 million)mainly due to higher sales in the U-Box program.

Total operating costs and expenses increased by 8.9% (or $38.3 million). Operating costs increased 3.5% (or $26.5 million), primarily due to personnel costs, liability costs, property taxes and building maintenance.

Depreciation expense (less disposals) Increase of 57.1% (or $78.7 million) to $216.5 million Depreciation of the rental fleet increased by $22.7 million due to an increased number of new additions to the fleet and Depreciation expense from real estate increased by $6.8 million. Since management traditionally reinvests in growth through capital expenditures, the write-downs temporarily dampened the company’s profitability.

Management continues to return to a normalized rotation programAlthough the company is still unable to purchase as many new vehicles as it would like, the availability of certain truck models has improved. Investments in new rental trucks totaled $539 million in the first fiscal quarter compared to $454 million in the same quarter last year. Management increased the planned net fleet capital expenditures for fiscal year 2025 by $40 million.

Operating profit fell by 23.4% (or by $93.4 million) to $306 million compared to $400 million in the first quarter of fiscal 2024.

Interest expense increased 10.9% (or $6.6 million) to $67.2 million; however, interest income decreased $8.9 million to $18.2 million as a portion of cash was held on the balance sheet, reducing the amount of invested cash compared to the first quarter of fiscal 2024.

For the first quarter of fiscal year 2025, U-Haul Holding Company reported Net income of 195.4 million US dollars (or $0.95 per diluted voting share), a decrease of 23.9% from $256.8 million (or $1.27 per diluted voting share) in the comparable prior year quarter. The number of shares outstanding has remained stable at 19,607,788 shares since fiscal year 2020.

Note: Management uses the two-class method, which allocates distributed earnings (dividends) and undistributed earnings to each class of common stock in a three-step process.

As of June 30, 2024, U-Haul Holding Company has strong liquidity positionThe Moving and Storage segment has approximately $1.57 billion in cash and available credit. Working capital was approximately $4.7 billion on June 30, 2024.

Evaluation

U-HAUL is involved in both the do-it-yourself truck and trailer rental business and the self-storage industry. The vehicle rental business requires significant investments in infrastructure (rental facilities and vehicles). Revenues in this segment tend to show cyclicality, which is a consequence of the significant increase in profits that can be achieved through improved fleet utilization. On the other hand, self-storage businesses tend to be much less cyclical and provide a steady cash flow, despite the significant investments in infrastructure (warehouse buildings) that are also required.

From an investment perspective, both types of operations generally valued based on the EV-to-EBITDA ratio (Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization). From the industry comparison table below, it is easy to see that self-storage operations are valued at a much higher EV-EBITDA ratio (17.9 on average compared to just 5.7 for truck rental companies) due to the fundamental characteristics of each industry described above. Due to the small sample size of publicly traded truck rental companies (since Penske and Enterprise are not publicly traded), the EV-EBITDA ratio is skewed.

If we assume that the high EV-to-EBITDA valuation ratio will be 9.7 sometime in the next 12 months, Price target of USD 71.75 is specified.

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