Amerco's Operating Profits Decline on Higher Fleet Maintenance and Repair Costs

U-Haul parent Amerco (UHAL 0.19%) reported its fiscal first-quarter 2019 results after the market close on Wednesday.

The do-it-yourself moving leader and growing self-storage player, which also has two insurance company subsidiaries, grew revenue 6.5% year over year, while earnings per share (EPS) edged up 1.4%. 

Shares closed down 4.1% on Thursday.

Image source: Getty Images.

Amerco earnings: The raw numbers

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

While revenue growth was solid, operating income continues to move in the wrong direction, driven by increasing fleet maintenance and repair expenses. The company managed to eke out a small increase in earnings, thanks to a lower effective tax rate stemming from U.S. tax reform. Had the same rate been effective in the year-ago quarter, that period's EPS would have been $7.66, the company said in the press release. So adjusting for the tax rate change, EPS declined nearly 15% year over year. 

Long-term investors shouldn't pay too much attention to Wall Street's near-term estimates. This is even more true with Amerco since typically only one analyst provides estimates. That said, these projections can help explain market reactions, so they can be worth knowing. The sole analyst who provided estimates was looking for EPS of $7.06 on revenue of $1.02 billion. So Amerco hit the revenue target on the bulls-eye, but fell short on the bottom line.

What happened with Amerco in the quarter?

• Revenue in the U-Haul segment, which accounted for 93% of the company's total revenue, increased 7.4% from the year-ago period to $947.9 million. "One-way and in-town transactions both increased," the company said in the press release.
• Revenue in the insurance segment (comprised of one property casualty and one life insurance company) slipped 3.9% to $73.8 million. 
• Within the U-Haul segment, self-moving equipment rental revenue grew 7% from the year-ago period to $716.6 million.
• Within the U-Haul segment, self-storage revenue jumped 12.4% to $86.2 million. 
• Room count grew to 383,000 at the end of the quarter compared to 328,000 at the end of the year-ago period.
• Average occupancy rate based on room count was 69.6%, down from 73% in the year-ago period.
• DIY moving and self-storage product and service sales revenue inched up 0.4% to $79.2 million, while property management fees grew 9.7% to $7.4 million. These are fees the company collects from managing self-storage units owned by others.
• The U-Haul segment's operating loss increased 9.2% to $200.4 million. This was heavily driven by a $40.8 million increase in fleet maintenance and repair expenses over the year-ago period.
• Operating income in the insurance segment declined 48.2% to $4.6 million. (Operating income from the two segments adds up to slightly more than the company's total reported operating income due to the effect of a small revenue elimination, which excludes the sale of goods and services between the two business units.) 

What management had to say

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

Increased revenue for the quarter was driven by more transactions in our moving business and increased rooms rented in our self-storage portfolio compared to this period last year. I continue to work on repair expense. We are not there yet.

Looking ahead

Amerco continued to be challenged in the quarter by increasing fleet maintenance and repair expenses, particularly associated with vehicles nearing resale. The company's been struggling with this tailwind for two years. 

Amerco doesn't provide guidance.