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Low Service Activity to Mar Iron Mountain's (IRM) Q3 Earnings

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Zacks Equity Research
·5 min read
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Iron Mountain Incorporated IRM is set to release third-quarter 2020 results on Nov 5, before the opening bell. The company’s quarterly funds from operations (FFO) per share and revenues are expected to have declined year over year.

In the last reported quarter, this real estate investment trust (REIT) posted normalized FFO per share of 53 cents, beating the Zacks Consensus Estimate of 42 cents.  Results reflected strength in the company’s core storage business.

The company surpassed the FFO per share estimates in each of the trailing four quarters, the average surprise being 16.4%. 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 and EPS Surprise

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

Factors to Note

Iron Mountain has been going through transformation via Project Summit, in a bid to simplify its global structure. The company is also expanding its data center business.

In fact, with a number of companies shifting their infrastructures to the cloud and digitizing their businesses, Iron Mountain’s data center segment might have contributed significantly to the company’s third-quarterperformance.

Further, it announced two lease agreements in September. This comprised a 5-megawatt expansion lease with an U.S. Federal government civilian agency and a 6-megawatt data-center prelease for its AZP-2 Data Center in Phoenix, AZ.

Such data-center wins and a robust leasing pipeline is anticipated to have driven data center revenues and EBITDA. In fact, the Zacks Consensus Estimate for third-quarter revenues from the global data-center business is pegged at $70 million, indicating growth of 9.4% from the year-ago figure of $64 million.

Moreover, fixed periodic storage rental fees and strong box retention rate at its core storage businesses is expected to have supported storage rental revenues. Markedly, the third consensus estimate for the same stands at $679 million, suggesting an improvement from the year-ago figure of $673 million.

However, declining Records and Information Management (RIM) volumes in Iron Mountain’s more mature markets like North America have been fueling concerns regarding the gradual slowdown in the company’s core business. In fact, lower RIM volumes might have led to aggressive pricing and hindered margins during the quarter under review.

Additionally, other than the dwindling preference for stored records that is resulting in decline of activity rates, demand for the company’s core service offerings has been further affected by its customers operating at significantly lower capacities amid the pandemic-led restrictions.

This is expected to have led to year-over-year declines in new boxes inbounded, retrievals and refiles and shredding activity. In fact, the consensus estimate for third-quarter service revenues is pegged at $310 million, which indicates a decline of 20.3% from the prior-year quarter’s reported figure.

Moreover, total revenues for the July-September period are pinned at $991.3 million and the figure indicates a 6.7% year-over-year decline.

Lastly, prior to the third-quarter earnings release, the Zacks Consensus Estimate for the company’s third-quarter FFO per share remained unchanged at 55 cents over the past month. It also indicates a year-over-year decline of 11.3%.

Earnings Whispers

Our proven model does not conclusively predict a surprise in terms of FFO per share for Iron Mountain this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. 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.

Earnings ESP: Iron Mountain’s Earnings ESP is 0.00%.

Zacks Rank: The company currently carries a Zacks Rank of 3.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Lexington Realty Trust LXP, set to report third-quarter 2020 numbers on Nov 5, currently has an Earnings ESP of +1.33% and a Zacks Rank of 3.

National Storage Affiliates Trust NSA, slated to release third-quarter 2020 earnings on Nov 5, has an Earnings ESP of +1.94% and a Zacks Rank of 3 at present.

Ventas, Inc. VTR, slated to release third-quarter 2020 resultson Nov 6, has an Earnings ESP of +2.03% and a Zacks Rank of 3 at present.

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

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Iron Mountain Incorporated (IRM) : Free Stock Analysis Report
 
Ventas, Inc. (VTR) : Free Stock Analysis Report
 
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National Storage Affiliates Trust (NSA) : Free Stock Analysis Report
 
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