U-Haul Holding Company

Moat: 3/5

Understandability: 3/5

Balance Sheet Health: 3/5

U-Haul Holding Company is a conglomerate operating in the moving and storage, property and casualty insurance, and life insurance industries.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview: U-Haul Holding Company operates through three primary segments:

Moving and Storage: This segment encompasses the rental of trucks, trailers, portable moving and storage units, self-storage, and the sales of moving supplies and packing materials across the United States and Canada. This segment also includes ancillary services such as online rentals, packing, loading, and moving help.
Property and Casualty Insurance: This segment provides property and casualty insurance to U-Haul renters as well as non-renters. It includes liability, cargo, and related insurance.
Life Insurance: This segment is focused on providing life and health insurance products in the market, but especially targeted towards U-Haul’s self-move customers.

Recent Developments and Earnings Calls Emphasis

Strategic investments and acquisitions: Management has talked about having a large capital expenditure plan, to expand and modernize their rental fleet and self-storage locations. They mentioned spending ~$3 billion across the next couple of years on both new and existing markets. They are also emphasizing technology innovation and improvement.
Demand strength: There has been a decrease in demand in their core Moving and Storage business due to a pullback in consumer spending and inflation, however, they expect strong demand in the long term.
Labor challenges: The availability of drivers and moving help professionals remains a headwind but there was growth in both rental utilization and moving and storage revenue. Management has alluded to seeing some improvement in driver availability recently.
Capital Allocation: They are focused on deleveraging the company and investing in its core business.
Cost Management: Management is highly focused on keeping the costs under control despite inflationary environment.
Insurance Performance: The management is pretty happy about their insurance business performance and plans to continue growth in this segment.
Share Buybacks: The management talked about focusing more on share buybacks to increase shareholder value.

Moat Assessment: 3 / 5 U-Haul possesses a narrow moat, mainly stemming from its established network and brand recognition, along with scale-based advantages within self-storage.

Established Network: U-Haul’s extensive network of rental locations provides a significant first mover and network advantage, which includes a robust fleet of trucks and trailers and a vast network of self storage locations with an extremely well known and established brand, giving them a unique presence in their market. This allows customers the convenience of using their services wherever they move from or to, while at the same time adding pricing power and an established customer base. This advantage is stronger within markets of smaller towns and more rural areas where competitors are unlikely to be able to build a similar footprint.
Scale-Based Cost Advantages: U-Haul benefits from its massive scale, allowing it to spread out its costs across more locations, and by doing this it can lower its per-unit costs and gain economies of scale in various aspects of its business, especially self-storage. This is also visible in the moving & storage area where, for example, having a large fleet allows better utilization of trucks. They also own the manufacturing capacity of most of their moving trucks and trailers which gives them cost and quality advantage.
Switching Costs: In the moving business, switching costs are present but are not particularly significant. Most of their customers will use U-Haul only for a particular move.
Brand Name: U-Haul has a very well established brand name and is usually a go-to provider for its services. This makes them preferred over many other competitors, however it is not as strong as brands in some other industries.

While these factors create a moat, the increasing competition in the self-storage space, along with competitors increasingly offering similar moving truck services makes it difficult to classify UHAL as a “wide-moat” business. They have to compete with both regional players that are big in a specific geographic region and smaller, very specific players that can compete with them based on a unique business model.

Risks to the Moat and Business Resilience:

Competition: The self-storage and truck-rental markets are becoming increasingly competitive. If competitors become more aggressive in their pricing, promotions, technology adoption etc. U-Haul’s competitive advantage may be threatened.
Economic Cycles: Since their self-moving business is related to consumer relocation decisions, it will be impacted by macro-economic situation. Any recession may decrease their business prospects.
Technological Disruption: While the company is trying to adopt newer technologies, it might get outcompeted by any technology disruption in the transportation or storage space. Additionally, online moving and storage solutions may pose a threat.
Capital Requirements: Since they are always looking to expand the business, they have a lot of capital requirements. This could affect their free cash flow in the future.
Insurance Operations: The insurance business is capital-intensive and sensitive to regulatory changes. Any increase in regulatory pressure or catastrophic events can drastically affect their insurance business.

However, the resilience of U-Haul is reasonably high thanks to an established customer base, an essential service, a large scale operation, and a recognizable brand, these factors make it highly unlikely that it will face substantial disruptions.

In-depth Financial Analysis: U-Haul’s latest quarterly results, from the end of September, 2024, shows revenue growing 3.5% to $1.64B. Moving & Storage makes up 73% of their revenue. This highlights the core business which is less cyclical than the insurance business. For the moving and storage business, revenues are mostly generated through equipment rentals, truck rentals, self storage, and other moving supplies. A big portion of U-Haul’s income comes through the insurance business. Profitability is down from the same time last year. They reported net income of 336 Million vs 507 Million in the prior year.

Revenues: UHAL’s revenues come from self-moving and storage, property and casualty insurance, and life insurance. The moving and storage segment is the largest revenue contributor, typically generating around 70% of total revenue. Insurance is a smaller but higher-profit business.
Profitability: U-Haul’s margins depend on industry dynamics and its operational efficiency. While the gross margins are usually around 50%, the profit margins are around 15-20%, highlighting substantial fixed costs.
Cash flow: While they have solid free cash flow, their high capital expenditure in purchasing new trucks, trailers, and building storage facilities limits its free cash flow availability.

Balance Sheet Health: 3 / 5

The company has a relatively high level of debt compared to its equity. However, it still possesses a good amount of cash and investments, which are mostly in cash and fixed-income securities, especially government bonds. It is also important to note that the level of debt has decreased in recent quarters, due to strong cash flow and they are focused on reducing their debts. Their inventory is mostly made up of moving and storage equipment, but also some properties. They are also heavily invested in intangible assets and goodwill as the company has made many acquisitions of other competitors.

Their investment profile and debt obligations do not pose significant risks, which is why it is classified as having a “3 / 5 health”, but it is not a stellar profile as compared to some other public companies.

Understandability: 3 / 5

While the core business of U-Haul is easy to understand (truck and storage rentals, alongside property insurance), it is not easy to project their financials accurately due to a mix of various businesses, and complicated financial instruments.

There are a number of complicated items, like insurance liabilities, pension liability, and debt restructuring which adds complexity to analysis. Also, while the company tries to maintain transparency on most things, its related party transactions and complicated ownership structure makes the overall business a bit tough for an average investor to fully understand. The company also relies a lot on legal documentation in which investors and analysts might not have deep experience.