Amerco Earnings: U-Haul Keeps On Trucking as Self-Storage Fuels Results

Image source: Amerco.

Amerco (UHAL -0.44%) reported its fiscal third-quarter 2016 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, experienced solid revenue and strong earnings growth. 

Shares of Amerco were flat in after-hours trading on Wednesday. The stock has returned about 20% for the one-year period through Wednesday, cruising past the S&P 500's loss of more than 4%, though somewhat lagging the nearly 29% total return of Public Storage (PSA -0.22%), the leader in the higher-margin self-storage space. However, Amerco is in the driver's seat over the five-year period, with its 268% total return miles ahead of Public Storage's 171%.

Amerco results: The key quarterly numbers

Data source: Amerco.

Only one analyst provides earnings (but not revenue) estimates for Amerco. It's worth noting, however, that the company soundly beat this sole earnings estimate of $3.95 per share.

As was the case last quarter, earnings accelerated faster than revenue, indicating profit margins expanded. Amerco doesn't break out margins in its U-Haul segment, which includes the DIY moving and self-storage businesses. We can safely infer, however, that Amerco's self-storage business sports considerably higher margins than its much bigger competitors. As with last quarter, Amerco's overall margins are expanding because its self-storage business is growing faster than its moving business. Given the relative sizes of the two businesses and their market penetrations, this dynamic should continue.

What happened with Amerco this quarter?

• Revenue in its U-Haul segment, which accounted for more than 90% of total revenue, increased 5.8% from the year-ago period to $672.8 million.
• Revenue in its property/casualty and life insurance segment grew about 2%.
• DIY moving equipment rental revenue increased 6.2% from the year-ago period to $517.4 million. Revenue and transactions from both the "in-town" (two-way rental) and one-way rental markets increased.
• Self-storage revenue increased 18.1% to $63.2 million -- it now accounts for 8.5% of total revenue. The number of rooms rented continues to increase due to acquisitions. During the last year, Amerco has added approximately 3.6 million net rentable square feet to its owned self-storage portfolio, with more than 1.2 million of that added during the third quarter. Average occupancy rate for the company's 205 rooms in the quarter was 78.4%, slightly down from 81.1% for its 180 rooms in the year-ago period, and also lower than the previous quarter's 84% rate. This is a solid occupancy rate, though it does lag industry leader Public Storage's excellent average rate of 94.7% for the first nine months of 2015. (Public Storage hasn't yet reported its calendar/fiscal Q4 results, so we can't compare apples to apples. Additionally, Public Storage reports its occupancy rates based upon square footage, rather than rooms.) 

• DIY moving and self-storage product and service sales revenue increased 1.9% to $50 million, while property management fees grew 9% to $8.2 million. These are fees the company collects from managing self-storage units owned by others.
• Operating income in the U-Haul segment increased 22.2% to $144.1 million. Operating margin expanded from 18.5% to 21.4%.
• Operating income in the insurance segment decreased 9.3% to $14 million. Operating margin contracted from 21.4% to 19%.

What management had to say
CEO Joe Shoen said in the press release:

We have struggled with weather complications in our self-moving business. Self-storage is being flooded with new entrants seeking easy money returns. Customers continue to have many good options. Our task is to make U-Haul the customer's best choice.

It's possible that the modest year-over-year downtick in the self-storage occupancy rate is due to the increased competition that Shoen mentioned. However, one quarter doesn't make a trend -- last quarter's occupancy rate was flat with the previous year's quarter -- so this downtick could just be a blip. Investors should keep their eyes on occupancy rates, as the self-storage business is largely the engine powering the company's top- and bottom-line growth.

Looking forward
Amerco doesn't provide guidance, and as mentioned above, there's only one analyst who provides earnings estimates, so we have limited front-view visibility. The sole analyst projects that the company will earn $2.70 per share in the fiscal fourth-quarter 2016. This represents year-over-year EPS growth of 11%. This estimate, of course, could prove considerably understated, as was the case this quarter.

Amerco's 5.4% revenue growth this quarter was solid, while its nearly 23% EPS growth was strong. This company's status as the 800-pound gorilla in the DIY moving business provides it with a strong network effect. And its growing presence in the high-margin self-storage business should continue to help drive profitability. As long as Amerco continues to execute well and grow its storage business, without sacrificing margins, the stock should keep accelerating over the long term.