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Factors to Impact Iron Mountain (IRM) This Earnings Season

Zacks Equity Research

Iron Mountain Inc. IRM is set to release second-quarter 2019 results on Aug 1, before the market opens. The company’s results will likely reflect year-over-year growth in revenues, while its funds from operations (FFO) per share might register a decline.

In the last reported quarter, this real estate investment trust’s (REIT) normalized FFO of 48 cents per share, missing the Zacks Consensus Estimate of 53 cents. Results reflected higher labor costs in its North America businesses in March and lower-than-expected growth in revenues.

Over the preceding four quarters, the company surpassed the FFO per share estimates on three occasions and missed in the other, the average positive surprise being 1.44%. This is depicted in the graph below:

Iron Mountain Incorporated Price and EPS Surprise

Iron Mountain Incorporated Price and EPS Surprise

Iron Mountain Incorporated price-eps-surprise | Iron Mountain Incorporated Quote

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

Iron Mountain has been making significant efforts to shift its revenue mix to faster-growing businesses, like emerging markets, data center and other complementing business segments. In line with this, during the second quarter, the company expanded its footprint in Bangkok with the acquisition of InfoZafe's storage and information management services business. With this acquisition, the company aims to focus on faster-growing Asian markets and enhance returns for its regional business by capitalizing on the global digital transformation trend.

Hence, this shift in business mix will continue to drive the company’s revenues and boost its adjusted EBITDA margins. In fact, the Zacks Consensus Estimate for second-quarter revenues from storage is pinned at $666 million, indicating year-over-year growth of around 13%.

Additionally, the company’s geographically-diversified and large-scale property portfolio is anticipated to support its upcoming results. In addition to a leading market position in the North American storage and information management market, the company enjoys recurring storage rental revenues. Amid these, the Zacks Consensus Estimate for second-quarter 2019 revenues is pinned at $1.07 billion, calling for a 0.5% year-over-year improvement.

Although the company’s storage and record management business is sought to be durable, stored records itself are becoming obsolete. Further, falling activity rates and unfavorable price of recycled paper have been depressing Iron Mountain’s service revenues. Understandably, the company’s total adjusted service revenues for the quarter under review will likely decline 2.2% year over year to $391 million.

Moreover, service revenue activity level from the company’s North American Data Management Business segment witnessed fall in the first quarter. This will likely continue in the second quarter as well, with storage rentals from Iron Mountain’s North America data-management business predicted to slip 4.3% year over year to $66 million. 

In addition, in the first quarter, Iron Mountain’s results were negatively impacted by rise in storage operating expenses and higher labor costs in the company’s North America business. This has likely continued into the second quarter as well, dragging down the company’s adjusted EBITDA margins.

Also, the competitive landscape of the records and information management industry is anticipated to have resulted in aggressive pricing, denting Iron Mountain’s margins. In fact, revenues from the company’s North American records and information management business are expected to have remained flat year over year to $539 million.

Lastly, prior to the second-quarter earnings release, the company’s activities during the quarter were inadequate to gain analyst confidence. Consequently, the Zacks Consensus Estimate for second-quarter FFO remained unchanged at 51 cents in a month’s time. In addition, it indicates an 8.9% year-over-year decline.

Earnings Whispers

Our proven model does not conclusively show that Iron Mountain is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. That is not the case here, as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earning ESP: Iron Mounitan’s Earnings ESP is -6.86%.

Zacks Rank: The company currently carries a Zacks Rank of 4 (Sell), which decreases the predictive power of ESP.

Stocks That Warrant a Look

CyrusOne Inc. CONE, scheduled to release earnings on Jul 31, has an Earnings ESP of +1.37% and carries a Zacks Rank #3, at present.

Mack-Cali Realty Corporation CLI, slated to report quarterly figures on Aug 7, has an Earnings ESP of +1.24% and carries a Zacks Rank of 3, currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Healthcare Realty Trust Incorporated HR, set to release June-end quarter results on Jul 30, has an Earnings ESP of +0.72% and currently holds a Zacks Rank #3.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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