Iron Mountain Posts a Mixed Bag


Iron Mountain Inc. (IRM) reported second quarter adjusted earnings per share (excluding costs associated with the 2011 proxy contest, the Special Committee and the proposed REIT conversion) of 36 cents, beating the Zacks Consensus Estimate of 31 cents. Reported earnings increased 9.1% from the year-ago quarter, primarily aided by lower share count.


Revenues slipped 0.8% from the year-ago quarter to $752.2 million, and fell short of the Zacks Consensus Estimate of $762.0 million. Quarterly revenues were primarily impacted by decline in service revenue, which fully offset the increase in the storage revenue.

On a segment basis, Storage revenue (57.6% of revenues) increased 3.4% year over year to $433.4 million, driven by strong organic growth as well as from the recent acquisitions across North America.

Service revenue (42.4% of revenues) dropped 6.1% year over year to $318.7 million. Service revenue was negatively impacted by lower-than-expected organic growth in the core services coupled with decline in complimentary service revenue and decline in recycled paper revenue.

Operating Performance

Gross profit (excluding depreciation and amortization) was down 2.7% year over year to $439.0 million in the reported quarter. Gross margin for the quarter decreased to 58.4% versus 59.5% in the year-ago quarter, due to lower revenue base.

Adjusted operating income (excluding costs associated with the 2011 proxy contest, the Special Committee and the proposed REIT conversion and depreciation and amortization) increased 0.4% year over year to $239.0 million. Adjusted OIBDA margin for the quarter increased 40 basis points on a year-over-year basis to 31.8%, reflecting benefits from international business and overhead cost controls.

Selling, general and administrative (SG&A) expenses were down nearly 8.9% from the prior-year period to $203.5 million, attributable to stringent overhead cost controls.

Operating income in the quarter increased 2.0% year over year to $162.0 million. Operating margin was 21.5% compared with 20.9% in the previous-year quarter due to lower operating expenses.

Net income from continuing operations declined from $74 million in the previous-year quarter to $42.0 million due to increased interest expense.

Balance Sheet

Iron Mountain exited the quarter with cash and cash equivalents of $170.2 million compared with $178.3 million at the end of the previous quarter. Long-term debt (including the current portion) was $3.49 billion compared with $3.35 billion in the previous quarter. On June 13, 2012, the company paid a quarterly dividend of 27 cents per share.


For fiscal 2012, Iron Mountain expects revenues in the range of $2.99 billion to $3.04 billion. The company forecasts adjusted OIBDA between $890.0 million and $930.0 million. Iron Mountain expects earnings per share in the range of $1.20 to $1.36. The Zacks Consensus Estimate projects earnings of $1.30 per share for fiscal 2012.

The company expects to spend approximately $220.0 million on capital assets.  Free cash flow is expected in the range of $320.0 million to $360.0 million for fiscal 2012.

Moreover, management expects a decline in paper prices to negatively impact the top line throughout the year.


Iron Mountain recorded strong performance in the International business segment and persistent growth in the North America business, which positively impacted Storage revenue. However, tepid internal growth coupled with volatile foreign exchange rates and a decline in paper prices are expected to partially negate the company’s strong product portfolio, increasing market share and promising international business.

Iron Mountain faces stiff competition from Anacomp Inc. and Cintas Corporation (CTAS).

We maintain our Neutral recommendation on a long-term basis (6-12 months). Iron Mountain carries a Zacks #3 Rank, which implies a short-term 'Hold' rating (for the next 1-3 months).

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