Iron Mountain Inc. IRM reported second-quarter 2018 normalized funds from operations (FFO) of 56 cents per share, beating the Zacks Consensus Estimate of 53 cents. The reported figure inched up 1.8% year over year. Results reflect decent storage rental revenue and margin expansion.
Adjusted FFO increased 5.8% year over year to $230 million.
Quarter Details
Revenues of $1.06 billion beat the Zacks Consensus Estimate of $1.04 billion and improved 10.8% year over year on a constant-dollar basis, reflecting impact of recent data center buyouts. Storage revenues (61.8% of total revenues) came in at $655 million in the quarter and denoted 10.1% increase on a constant-dollar basis. Internal growth was 2.7% year over year (excluding impact of early lease termination fee recorded in data center business in second-quarter 2017).
Storage segment generated 43.1% of total revenues from the developed markets (North America Records and Information management, North America Data Management and Western Europe) and 12.2% from Other International markets (emerging markets, Australia and New Zealand). In developed markets, storage internal revenue growth was 1.3%. In Other International markets, storage internal revenue growth came in at 5.9% year over year.
Service revenues (38.2% of total revenues) amounted to $405 million in the quarter, indicating an increase of 11.8% on a constant-dollar basis. Moreover, internal growth was 7.6% year over year. Service internal revenue growth in developed markets and Other International markets growth came in at 7.6% and 6.0%, respectively.
Adjusted gross profit margin expanded 70 basis points (bps) on a year-over-year basis to 57.6%. In addition, adjusted EBITDA margin improved 130 bps to 34.8%. This year-over-year upside was driven by the robust performance in North America Records and Information management (RIM) and Western Europe, which surged 210 bps and 410 bps, respectively.
Guidance
Iron Mountain maintained its guidance for 2018. On a constant-dollar basis, the company expects revenues of $4,160-$4,260 million, denoting increase of 7-9% and adjusted EBITDA of $1,435-$1,485 million, indicating growth of 12-16%. Also, adjusted FFO is anticipated to be in the range of $805-$865 million, denoting increase of 5-13%.
Internal storage rental revenue growth rate for 2018 is projected at 3-3.5%. Total internal revenue growth is expected in the 2-3% range.
Our Take
Iron Mountain’s strategic acquisitions, along with diversified revenue base, a strong product portfolio and cost-cutting initiatives, bode well for long-term growth. Further, transformation initiatives and continued strong performance of the company’s storage rental business are positives. However, heavy investments in setting up the company’s data-center business have been weighing on its financials, especially as it already has a highly leveraged balance sheet.
Currently, Iron Mountain has a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Iron Mountain Incorporated Price, Consensus and EPS Surprise
Iron Mountain Incorporated Price, Consensus and EPS Surprise | Iron Mountain Incorporated Quote
We now look forward to the earnings releases of other REITs like Simon Property Group, Inc. SPG, AvalonBay Communities, Inc. AVB and Alexandria Real Estate Equities, Inc. ARE which are slated to report their quarterly numbers on Jul 30.
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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