By Ian Gilson, PhD, CFA

Third quarter results (UHAL), announced on February 3, 2016, were in line with our estimates, as shown below:

Truck rental revenue increased by 6.2%, the slowest rate of growth this fiscal year. The impact of seasonality (the NE United States is at its lowest point in Q4 and Q3) always moderates the growth in all areas of business so we were not surprised as this is normal. As far as we could tell there was no significant change in the discounting that occurs in the truck rental business, with Avis Budget Group (CAR $26.57) and Penske maintaining the status quo so the growth is mainly from truck count and, to a lesser extent, transaction growth. The company did add 300 net new dealers during the quarter, which will have a positive impact in the first and second fiscal quarters of 2017. Fleet expansion in the 3Q was at the lowest rate of the year but the seasonality of revenue and truck utilization rate dictates the positioning of new trucks and we would expect a slow rate of additions in Q4.

Sales of trucks over the nine months of each fiscal year were $459 in 2016 as compared to $258 in 2015. On an accounting basis this is used to reduce the depreciation charge. Although the company leases trucks its lease agreement allows it to sell leased trucks so there is no differentiation between trucks owned versus trucks leased.

U-Box revenue and expenses were down on sequentially, as expected, but the company expects to resume growth on a year to year basis in the spring

The reduction in the price of propane has been significant over the last year and this has impacted the net sales line. However, AMERCO's propane business is a retail one and buyers have been so happy with the overall decline in price that, in some areas, the gross profit per gallon has increased and volume sale increased slightly from last year's level. There are close to 900 company owned outlets selling propane.

Third quarter truck rental operating margins increased from 18.5% a year ago to 21.1% this last quarter

The storage business expanding each quarter for several years. The mix of business has changed, sometime biased towards new stores versus raw real estate and existing facilities. In 3Q16 about half of the additions were of existing facilities with an occupancy rate of about 50% and half from new facilities that have a zero occupancy. As a result the overall rate declined in Q3 from 81.1% year ago and 84% in Q2 to 78.4% in Q3. We would expect this rate to increase as new facilities come on line. However, this business is also seasonal so the increase may be a modest one. AMERCO stated that there is a lot on money being spent on self storage, there are few barriers to entry, and we would expect a near term decline in capital spending of existing facilities and more on real estate. The flow of money into self storage may impact Public Storage (PSA $246.22) and Sovran Self Storage (SSS $108.97) as this new money will impact occupancy rates for all companies.

Management did caution investors about the impact of the bad weather in the North East. As we have mentioned the seasonality of the rental business, both truck and self storage, is due to the decline of business in the North East USA and in Canada. The greatest decline is during the fourth fiscal quarter. Revenue in the second half of each year is usually 25% or more less than the first half of the year so the disruption are minimized but can still be significant. Our estimates have always reflected the probability of bad weather.

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