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Mobile Mini: A Storehouse of Value After Its Sharp Post-Earnings Drop

Neha Chamaria, The Motley Fool

A storage-solutions provider generates record revenue for its tank and pump business, but the stock tanks. Pardon the awful pun, but that's exactly what happened with Mobile Mini (NASDAQ: MINI) after it released its second-quarter earnings report on July 26.

The steep fall in Mobile Mini stock is a perfect example of extreme shortsightedness, because diving deeper into the earnings report reveals only one possible reason why the market's miffed -- and it's not really something to worry about as it doesn't mar the long-term story for this provider of portable storage units for homeowners and businesses.

Mobile Mini results: The raw numbers

You'd never believe Mobile Mini shares plunged double-digits after earnings if you looked at the key numbers from the company's Q2 report:

Metric Q2 2018 Q2 2017 Year-Over-Year Change
Revenue $142 million $126.7 million 12%
Net income $15 million $8.8 million 70%
Adjusted net income $15.9 million $10.4 million 53%
Free cash flow (FCF) $11.7 million $14.9 million (21%)

Data source: Mobile Mini.

As you can see, business was really strong for Mobile Mini. Don't let the lower FCF worry you: The company invested roughly $19.3 million in rental fleet that it quickly rented out to keep up with rising demand from both its storage solutions segment -- which serves clients in the retail, industrial, consumer, commercial, and government sectors -- and tank and pump solutions business, which primarily serves the oil and gas and chemicals sectors.

An oil and gas storage truck with an oil refinery in the background.

Image source: Getty Images.

What happened with Mobile Mini this quarter?

While storage solutions brought in nearly 80% of Mobile Mini's total sales in Q2, revenue from the segment grew only 10.8% year over year. Tank and pump grew at almost double the pace. It was, in fact, the best-ever quarter that Mobile Mini has seen for its tank and pump business since it acquired it in 2014.

Meanwhile, Mobile Mini continues to exploit its pricing power for storage solutions amid high demand. In Q2, storage solutions reported:

  • 3.7% growth in units on rent;
  • 2.4% growth in rental rates;
  • 70.6% average utilization versus 69.4% in the year-ago quarter.

It was pretty much the same story that we've seen for some quarters now: Tank and pump continues to be the largest contributor to Mobile Mini's growth even as its primary storage solutions segment brings in consistent, recurring sales. 

What management had to say

CEO Erik Olsson is optimistic about both segments and foresees a strong future for Mobile Mini. Here's what he said in the earnings release:

We believe that the end market demand for Tank & Pump has normalized and the current level of activity within this segment will continue. As we noted last quarter, we are uniquely positioned to drive growth in excess of the market among both large and small customers in this business. Our storage business is also very healthy and our pipeline looks robust. The current performance and pipeline reinforces our outlook for revenue increases in excess of our evergreen model, leading to continued strong increases in adjusted EBITDA and healthy free cash flow generation.

Thanks to strong rental revenue and profits, Mobile Mini recorded its 42nd consecutive quarter of positive FCF and remains on track to healthy cash flow for the full year. 

Looking forward

With both its segments flourishing, Mobile Mini's second-quarter report would've done the stock price a huge favor if not for one big number hidden in the commentary: $100 million. That's roughly how much loss Mobile Mini expects to book in its third quarter against the sale of noncore assets. However, while that should hit the company's third-quarter bottom line, it won't hurt revenue (as said assets were junk anyway) or free cash flow (as it's a noncash cost).

In other words, long-term investors needn't worry: Mobile Mini's second quarter was strong, business conditions look robust, and management is confident of being able to grow rental revenue by 2% to 3% higher than the U.S. GDP and raise the annual dividend by 10% annually in the long run under its "evergreen financial model."

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Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool recommends Mobile Mini. The Motley Fool has a disclosure policy.