Iron Mountain (IRM) Q2 FFO Lags Estimates, Revenues Beat

Iron Mountain Inc. (NYSE:IRM) reported second-quarter 2016 normalized funds from operations (FFO) of 47 cents per share that came below the Zacks Consensus Estimate of 53 cents and fell 4.1% year over year.

However, revenues of $883.7 million topped the Zacks Consensus Estimate of $882.9 million and improved 16.3% year over year.

The company reported adjusted OIBDA (operating income before depreciation and amortization) of $261.4 million compared with $223.2 million in the year-ago quarter.

Operating expenses increased 24.9% year over year to $787.1 million. Operating income in the quarter decreased 25.4% from the year-ago quarter to $97 million.

Balance Sheet

Iron Mountain exited the quarter with cash and cash equivalents of $237 million compared with $128.4 million as of Dec 31, 2015. Long-term debt was $6.1 billion compared with $4.8 billion as of Dec 31, 2015.

Outlook

For 2016, the company has slightly upped its guidance for normalized FFO per share. The company expects normalized FFO per share in the range of $2.15 - $2.25 compared with $2.10 to $2.20 guided earlier. Adjusted OIBDA is expected to be in the range of $1,075 - $1,110 million compared with $1,070 - $1,110 million guided earlier.

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 more than 95% 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 with $15 million to be achieved in 2016. It will also expand 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 #3 (Hold). Better-ranked stocks in the same sector include Apple (NASDAQ:AAPL) Hospitality REIT, Inc. (NYSE:APLE) , Boston Properties Inc. (NYSE:BXP) and Columbia Property Trust, Inc. (NYSE:CXP) , all carrying a Zacks Rank #2 (Buy).