U-Haul Parent Amerco's Profitability Slides

Amerco (UHAL 1.00%) reported its fiscal third-quarter 2018 earnings after the market closed on Wednesday. The parent company of the do-it-yourself moving leader and growing self-storage player U-Haul, which also has two insurance-company subsidiaries, grew revenue 6.6%, while adjusted earnings per share (EPS) declined 30% from the year-ago quarter.

The market's reaction was muted, with shares of Amerco closing down 0.8% on Thursday.

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Amerco earnings: The raw numbers

Data source: Amerco. GAAP = generally accepted accounting principles.

The GAAP results include a $339.2 million, or $17.32 per share, benefit resulting from the Tax Reform Act; they also include an after-tax benefit of $143.8 million, or $7.34 per share, from the sale of a portion of the company's property in Chelsea, New York. The adjusted EPS comparison strips out these one-time items.

What happened with Amerco in the quarter?

• Revenue in the U-Haul segment, which accounted for 90.5% of total revenue, increased 6.8% from the year-ago period to $762.5 million.
• Revenue in the insurance segment (comprised of one property-casualty and one life-insurance company) rose 6% to $82.8 million. (Revenue from the two segments adds up to slightly more than the company's total revenue because there's a small revenue elimination, which eliminates the sale of goods and services between the two business units.)
• Within the U-Haul segment, self-moving equipment rental revenue grew 6.2% from the year-ago period to $574.8 million. Growth was primarily driven by increases in both one-way and in-town transactions. The company increased its rental fleet size, number of independent dealers, and number of company-owned locations compared with the year-ago quarter.
• Within the U-Haul segment, self-storage revenue rose 13.6% to $82.1 million. Revenue growth was due to improved occupancy at existing locations and the addition of new facilities.
• Room count grew to 352,000 at the end of the quarter compared to 305,000 at the end of the year-ago period.
• Average occupancy rate based on room count was 70.9%, down from 75.1% in the year-ago period. This marks the ninth consecutive quarter of year-over-year declines in the occupancy rate.
• DIY-moving and self-storage product and service sales revenue increased 3% to $53.1 million, while property management fees grew 1.5% to $9.9 million. These are fees the company collects from managing self-storage units owned by others.
• Operating income in the U-Haul segment jumped 141% to $285.5 million. However, excluding the gain from the sale of the Chelsea property, operating income declined 19.9% from the year-ago quarter. Excluding this gain, total segment revenue grew $48.5 million, while total costs and expenses increased $72.0 million. Fleet maintenance and repair costs, primarily associated with the portion of the fleet nearing resale, accounted for $32.3 million of the year-over-year increase.
• Operating income in the insurance segment grew 27.6% to $18 million.

What management had to say

Here's what CEO Joe Shoen had to say in the press release:

Tax reform is a real benefit. While accounting rules required us to recognize a large book gain in the quarter, significant cash flow benefits will accrue to us over time. We have already been investing savings from bonus tax depreciation back into increased rental equipment. The new depreciation rules will allow us to accelerate investments in the future. The tax rate changes allow U-Haul to invest still more in our people and in facility and equipment upgrades. I was pleased with the growth in both equipment and self-storage revenues. We are still challenged to better manage the sales of our pickups and cargo vans.

Looking ahead

Amerco had another challenging quarter, with double-digit declines in adjusted operating income and adjusted EPS. As Schoen stated, the company continues to be "challenged" to better manage its resale vehicles.

As has been the case in recent quarters, the bright spot was the self-storage business, which posted year-over-year revenue growth of 13.6%. This is a positive because this business is less capital-intensive than the company's core self-moving business, and is likely more profitable. That said, the average occupancy rate based on room count declined to 70.9% from 75.1% in the year-ago quarter. Investors should continue to watch this metric.

Amerco doesn't provide guidance. And there's just a single Wall Street analyst who provides estimates, making them of little value.