Amerco Looks Promising Heading Into Earnings


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By Kerrisdale Capital Management :

report UHAL

We wanted to provide investors with an update following the dissemination of our original report. Recent financial results and industry commentary continue to validate our thesis: U-Haul's expanding fleet size and vastly larger network is expanding its competitive advantage in the self-moving truck rental market, forcing competitors such as Budget Truck Rental (a division of Avis Budget Group ( CAR )) to retrench from the market.


Current CEO Joe Shoen, son of founder Leonard Shoen, has run UHAL since 1986 and has continuously enhanced U-Haul's competitive advantage and market share at the expense of its competitors. The Shoen family retains a 55% equity interest in the business.

U-Haul's primary competitors, Budget Truck Rental and Penske Truck Rental (a division of Penske Truck Leasing), are both divisions of far larger companies and not core profit drivers for their respective management teams. It is telling that on the Q4 conference call for Avis Budget Group, management indicated further retrenchment:

"I think there are significant opportunities in Truck, but they're longer term in nature. As we talked about last quarter and as I mentioned today, we are in the process of repositioning that business to be a somewhat smaller, and hopefully, more profitable business over time . That process is going to take at least the first 6 or 9 months of 2013 and possibly close to the entire year... and clearly, at this point, it does only represent around 6% of our revenue." [emphasis added]

It is interesting to note how management waves off the issues with the truck business by stating that it's "only" 6% of their revenue.

We believe Budget's attempts to downsize will facilitate further market share gains for U-Haul. Budget's retrenchment has given U-Haul an opportunity to add even more trucks and locations to its already larger fleet and network. We believe Budget's retrenchment demonstrates that competitors are finding it increasingly difficult to profitably compete with U-Haul.



The core U-Haul rental business achieved a 5% increase in revenue and leveraged its fixed cost base to generate an 11% increase in income contribution from the U-Haul division.

From a competitive perspective, U-Haul can utilize its increased profits to invest even further in fleet size and to increase its network, or it can choose to invest in lower prices to put even further pressure on Budget and Penske. Either way, its competitive advantage is continuing to widen. U-Haul's financial results contrast significantly with the most recent results reported by Budget, which outlined that its truck rental business was facing a significant decline in profitability and that it was shrinking its fleet size:

"Revenue in our Truck Rental segment was up 1%, as a 4% increase in pricing and higher ancillary revenues more than offset a 3% decline in volume. Adjusted EBITDA declined $6 million, primarily due to higher maintenance, insurance and fleet costs. As we previously discussed, the results in our Truck Rental segment reflect costs we are incurring to reposition this business, which over time will include a reduction in our fleet size. This strategic repositioning will impact reported results for this segment for much of 2013 as well."

The insurance business is a relatively small business unit. After deciding to run off non-core insurance lines, management will focus Repwest on its small but profitable niche of insuring U-Haul truck rentals. Meanwhile, the Oxford life insurance business continues to perform well.


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Disclosure: I am long [[UHAL]]. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This is not a recommendation to buy or sell any investment. We may transact in the securities of UHAL at any time subsequent to publication.

See also Healthcare Trust Of America: High Yielding 'Obamacare' Play on

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Stocks
More Headlines for: CAR , RSG , SYY , UHAL , WM

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