Iron Mountain Q1 Earnings In Line, Revs Beat - Analyst Blog

Iron Mountain Inc. IRM reported first-quarter 2014 adjusted earnings from continuing operations of 26 cents per share, in line with the Zacks Consensus Estimate. Earnings per share declined 3.7% from the year-ago quarter, due to modest revenue growth.

Quarter Details

Revenues increased a modest 3.1% from the year-ago quarter to $770.1 million and managed to beat the Zacks Consensus Estimate of $770.0 million. Revenues increased due to higher storage rental revenues (up 3.7% year over year) and higher service revenues (up 2.2% year over year).

Total storage rental revenue growth reflected a 12.7% increase in the company's International business. Growth in the North American Records and Information Management (RIM) and Data Management DM segments of 3.0% and 2.8%, respectively, also drove results

Adjusted OIBDA (operating income before depreciation and amortization) decreased 80 basis points (bps) from the year-ago quarter to 29.7% in the reported quarter. This decrease was primarily due to the recognition of $2.4 million of charges related to the 2013 organizational realignment and $3.5 million for an insurance deductible charge related to the recent fire in Argentina.

Operating expenses decreased 201 bps on a year-over-year basis to $628.1 million, driven by lower (down 200 bps y/y) selling, general & administrative expenses and lower depreciation & amortization expenses (down 50 bps y/y).  

Operating income in the quarter increased 15.7% from the year-ago quarter to $142.1 million primarily due to lower operating expense. Net income from continuing operations was $42.7 million versus $18.4 million earned in the previous-year quarter.

Iron Mountain exited the quarter with cash and cash equivalents of $169.9 million compared with $120.5 million at the end of the previous quarter. Long-term debt was $4.29 billion.

Since the beginning of 2014, the company has invested more than $60 million in five international storage related businesses. The international transactions include three deals in Turkey and Poland, which enhanced the company's leadership position in these emerging markets, and the acquisition of a leading provider of offsite data storage and data protection services named Tape Management Services  in Australia.

The company 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 efficiently.

Our Take

We believe Iron Mountain's strong product portfolio, increasing market share and promising international business are the primary growth catalysts. The company's decision to convert to REIT to reduce tax burden and increase shareholder value are the other positives. 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. GUID, Pitney Bowes Inc PBI and Cintas Corp. CTAS are the other headwinds.