Iron Mountain (IRM) Lags Q3 FFO Estimates, Cuts Guidance

Iron Mountain Inc. (NYSE:IRM) reported third-quarter 2016 normalized funds from operations (FFO) of 44 cents per share that came below the Zacks Consensus Estimate of 58 cents and fell 20% year over year.

However, revenues of $942.8 million topped the Zacks Consensus Estimate of $934.2 million and improved 26.3% year over year. Storage revenues were up 25.3% to $576.5 million while Service revenues grew 27.9% to $366.4 million.

The company reported adjusted OIBDA (operating income before depreciation and amortization) of $294.2 million compared with $227.8 million in the year-ago quarter.

Operating expenses increased 30.3% year over year to $807.4 million. Operating income in the quarter increased 6.8% from the year-ago quarter to $135.5 million. Operating margin was down 260 basis points (bps) to 14.4%.

Iron Mountain also announced that so far it “actioned” $68 million of 2017 Recall synergies and expects to “action” $100 million (85% of total Recall synergies for 2017) by 2016-end.

Balance Sheet

Iron Mountain exited the quarter with cash and cash equivalents of $458.1 million compared with $128.4 million as of Dec 31, 2015. Long-term debt was $6.3 billion compared with $4.8 billion as of Dec 31, 2015.

Outlook

For 2016, the company has slashed its guidance for normalized FFO per share. The company expects normalized FFO per share in the range of $1.82 - $1.90 compared with $2.15 to $2.25 guided earlier.

Adjusted OIBDA is expected to be in the range of $1,075 - $1,110 million. Revenues are expected to be in the range of $3,450 million - $3,550 million.

Our Take

Iron Mountain’s diversified revenue base is a positive. It is noteworthy that 94% of the Fortune 1000 companies are on Iron Mountain’s client list. In addition, its 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 is likely to be a growth driver.

Furthermore, the company has an aggressive acquisition strategy to supplement organic growth in storage revenues. The company completed the acquisition of Recall Holdings in May 2016, which is likely to generate synergies worth $105 million. It also expanded the company’s footprint to 45 countries from the existing 41 countries.

But the costs of such initiatives are expected to weigh on financials, especially as it already has a highly leveraged balance sheet. Also, volatile currency environment and competition remain overhangs.

Currently, Iron Mountain has a Zacks Rank #2 (Buy). Other stocks in the tech sector worth considering include Twitter Inc. (NYSE:TWTR) , Groupon Inc. (NASDAQ:GRPN) and Intel Corporation (NASDAQ:INTC) . While Twitter sports a Zacks Rank #1 (Strong Buy), Groupon and Intel carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here

All the three companies have a positive average earnings surprise in the trailing four quarter. Twister’s average stands at 38.08%, Groupon’s average is 31.07% and that of Intel is 12.14%.

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