Iron Mountain Inc.
) reported second-quarter 2014 adjusted earnings from continuing
operations of 41 cents per share, which comfortably beat the Zacks
Consensus Estimate of 29 cents. Earnings per share improved 4.1%
from the year-ago quarter due to modest revenue growth.
Revenues increased 4.3% from the year-ago quarter to $786.9 million
and managed to beat the Zacks Consensus Estimate of $774.0 million.
Revenues increased due to higher storage rental revenues of $466.9
million (up 5.7% year over year) and higher service revenues of
$320.0 million (up 2.3% year over year) in the reported quarter.
Growth in the North American Records and Information Management
(RIM) and Data Management (DM) segments of 3.3% and 0.4%,
respectively, also drove results
Of late, with the increasing usage of Internet, Iron Mountain's
service revenue growth rate has been on a decline due to lower
activity rates as stored records are becoming less active. Second
quarter internal service revenue declined 1.9% on a year-over-year
basis due to lower project fees and revenue associated with
customer terminations in North America.
Gross profit was $449.9 million compared with $433.3 million in the
prior-year quarter. Gross margin declined 20 bps to 57.2% in the
Adjusted OIBDA (operating income before depreciation and
amortization) decreased 10 basis points (bps) from the year-ago
quarter to 30.7% in the reported quarter. Year-to- date, adjusted
OIBDA includes $3.6 million of restructuring costs incurred in 2013
and $3.9 million of Real Estate Investment Trust (REIT) compliance
Operating expenses decreased 130 bps on a year-over-year basis to
$639.6 million, driven by lower selling, general &
administrative expenses (down 260 bps on a year over year basis).
Operating income in the quarter increased 12% from the year-ago
quarter to $147.3 million primarily due to lower operating expense.
Net income from continuing operations was $78.9 million or 41 cents
per share versus $75.4 million or 39 cents per share reported in
the previous-year quarter.
Iron Mountain Incorporated - Earnings Surprise
Iron Mountain exited the quarter with cash and cash equivalents
of $145.3 million compared with $169.9 million at the end of the
previous quarter. Long-term debt was $4.29 billion.
Since the beginning of 2014, the company has acquired five
international storage related businesses and the records inventory
of nine other document storage companies for a total sum of $72
million. During the second quarter, the company extended its
presence in the emerging market of Brazil and solidified its
position in the United States by acquiring customers in New
Orleans, Philadelphia and Buffalo.
Iron Mountain believes that these acquisitions will help it to
establish itself as a market leader and trusted partner for
customers who seek to protect and manage their information
Conversion to REIT
During the quarter, Iron Mountain acquired unanimous approval from
its Board of Directors relating to its conversion to a REIT with
effect from the taxable year commencing Jan 1, 2014.
However, in light of the new development, Iron Mountain is likely
to distribute between $1.3 billion and $1.4 billion to shareholders
from its accumulated earnings and profits as per the REIT
regulations. Moreover, the company will publicly announce a record
date and payment date for the 2014 Special Distribution as
determined by the board of directors.
We believe that this conversion, in turn will definitely enhance
shareholders' value as well as reduce the tax burden of the
On account of its conversion to a REIT, the company has provided a
revised guidance for 2014. Management expects revenues to range
between $3.09 billion and $3.17 billion while the Zacks Consensus
Estimate for the same is pegged at $3.12 billion.
Adjusted EPS is expected to be between $1.37 and $1.52 while the
Zacks Consensus Estimate of $1.43 happens to be lower than the mid
point of the guided range.
Annual dividend is expected to be between $400 million and $420
million while free cash flow is expected to range from $350 million
to $390 million.
We believe that Iron Mountain's strong product portfolio,
increasing market share and promising international business are
the primary growth catalysts. Moreover, the company's entry into
the data center market could act as a positive factor.
However, costs related to conversion and fluctuations in recycled
paper prices are the near-term headwinds for the company. Moreover,
volatile foreign exchange rates and competition from Guidance
Software Inc. (
), Pitney Bowes Inc (
) and Cintas Corp. (
) are the other headwinds.
Currently, IRM has a Zacks Rank #2 (Buy).
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