By Steven Ralston, CFA
READ THE FULL UHAL RESEARCH REPORT
U-Haul Holding Company (NYSE:UHAL) reported financial results for 3Q FY2025 on February 5th. Total revenues increased 3.7% to approximately $1.39 billion, primarily due to stronger revenue growth of 4.6% in the self-moving equipment rental business, along with a 7.9% increase in theself-storage segment. In addition, the U-Box business improved by 9.3%. This follows two quarters of the self-moving equipment rental business of reporting YOY revenue growth in the 1% range and U-Box growth hovering around 5%. Revenue growth in the self-storage area has been steady all year around 8%. The uptick in demand was reflected by the company reporting total revenues that were above expectations.
Operating costs related to self-moving equipment rentals and the self-storage segment were subdued to only 1.6%. However, higherdepreciation (due to the higher costs of new vehicles added to the fleet) and lower gains from the sale of older equipment pressured the operating margin. Furthermore, lower interest income and higher interest expense impacted the bottom line.
For the third quarter of fiscal 2025, U-Haul Holding Company reported a net income of $67.2 million (or $0.30 per diluted voting share), which includes the specific pressures of the sale of equipment ($0.13), depreciation ($0.12) and interest income variances ($0.05).
In the self-storage business, management continues to follow its long term tradition of a consistent value pricing strategy without utilizing discounts or implementing price depending of the perceived availability of supply as many competitors do. With the goal of attempting to hold self-storage prices at least steady, the company is actually achieved positive pricing as revenue per occupied square foot increased 0.9% during the third fiscal quarter. Revenues in the segment increased 7.9%. The average monthly number of occupied units at company-owned locations increased by 6.8% (or 39,055 units).
New capacity over the last 12 months expanded by 80,000 new storage units (or 7.4 million net rentable square feet), a new record for the company. Management commented that the high level was due to the opportunistic acquisition of roughly 1 million square feet of existing storage properties. Nevertheless, approximately 8.5 million new square feet are currently being developed and pending projects are around 8.3 million square feet for a total pipeline of 16.8 million square feet.
In the U-Box business, there is an effort to serve the moving customer, but also the storage customer as well. There is a complementary advantage to storing U-Box at the company’s warehouses, which provides flexibility to the customer and generates incremental storage revenues for U-Haul. Furthermore, storage capacity can be expanded by stacking U-Boxes in storage facilities. Hence, by increasing the density of storage spaces within the same footprint, capacity is increased and greater revenues can be generated per square foot.
As of December 31, 2024, U-Haul Holding Company remains in a well-capitalized position. The Moving and Storage operating segment has approximately $1.35 billion of cash and available credit. Working capital sequentially decreased by 5.1% to approximately $4.66 billion.
Financial Results for Third Quarter of Fiscal 2024
On February 5, 2025 after the market close, U-Haul Holding Company reported financial results for the third fiscal quarter ending December 31, 2024. Total revenues increased 3.7% YOY to approximately $1.39 billion. Self-moving equipment rentals increased by 4.6% (or $38.8 million) as revenue per transaction increased for both in-town and one-way rentals, and the volume of In-Town transactions also increased. Other revenues (which are predominantly driven by U-Box) increased 9.3% (or $9.5 million). Self-storage revenues increased 7.9% (or $16.6 million).
Management continues to make progress toward returning to a normalized rotation program. Though the company has not purchased as many new vehicles as desired due to both the lack of availability of certain truck models and the artificial price increases imposed from the truck manufacturers’ emphasis on EVs, $1,587 million gross spent on new rental trucks during the first nine months of fiscal 2025, a 17.6% increase over the $1,350 million (or $237 million) in the same 9-month period last fiscal year.
In the self-storage area, revenues increased 7.9% as the average monthly number of occupied units at company-owned locations increased by 6.8% (or 39,055 units) and on a 0.9% improvement in average revenue per occupied foot. However, occupancy rates decreased 310 basis points YOY from 81.8% to 78.7% because new capacity over the last 12 months expanded by 80,000 new storage units (7.4 million net rentable square feet).
In self-moving/self-storage products & services, revenue increased 0.1%, which as an increase in sales of propane was largely offset by a decline in the sales of hitches and moving supplies.
Total operating costs and expenses increased by 8.4% (or $95.9 million). Operating expenses increased only 1.6% (or $11.9 million), primarily driven by depreciation expense increasing 47.1% (or $72.4 million) as rental fleet depreciation increased $34.2 million (due to the higher costs of new additions to the fleet).
Earnings from operations decreased 23.7% (or by $46.9 million) to $150.7 million compared to $197.6 million in third fiscal quarter of 2024. An income tax expense of $22.3 million was recorded. The operating margin contracted 390 basis points YOY to 10.9%.
Other revenue increased by 9.3% (or $9.55 million), primarily due to higher moving and storage transactions related to the U-Box program. Management continues to expand the U-Box platform through the addition of storage containers, warehouse space and delivery equipment.
Interest expense increased 13.5% to $76.6 million, while at the same time, net investment and interest income decreased by 29.4% to $40.5 million.
For the third quarter of fiscal 2025, U-Haul Holding Company reported a net income of $67.2 million (or $0.30 per diluted voting share), a 32.3% decrease compared to $99.2 million (or $0.51 per diluted voting share) in the comparable quarter last year. Shares outstanding remained stable at 19,607,788 shares.
Note: Management utilizes the two-class method where distributed earnings (dividends) and undistributed earnings are allocated in a three-step process to each class of common stock.
Valuation
U-HAUL operates in both the “do-it-yourself” consumer truck and trailer rental business and in the self-storage industry. The vehicle rental business requires considerable investment in infrastructure (rental facilities and vehicles). Earnings in this segment tend to exhibit cyclicality, which is a consequence of the substantial earnings leverage that can be derived from improved utilization of the fleet. On the other hand, despite also requiring a significant investment in infrastructure (storage buildings), self-storage operations tend to be much less cyclical and provide steady cash flow.
From an investment perspective, both types of operations are generally valued on the metric of EV-to-EBITDA (Enterprise Value-to-Earnings Before Interest, Taxes, Depreciation and Amortization). From the Industry Comparable table below, it is easily observable that self-storage operations are valued at a much higher EV-to-EBITDA basis (17.0 on average compared to only 5.9 for truck rental companies) due to each industry’s fundamental attributes described above. Due to the small sample size of public truck rental companies (since Penske and Enterprise are not publicly traded), the EV-to-EBITDA metric is distorted.
By expecting the high EV-to-EBITDA valuation metric to be 10.7 at some point during the next 12 months, a target price of $78.50 is indicated.
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