CTAS Cintas Corporation

Iron Mountain Inc.’s (IRM) fourth quarter adjusted earnings per share of 33 cents surpassed the Zacks Consensus Estimate of 30 cents. However, reported earnings remained flat on a year-over-year basis.

Revenues

Revenues increased 1.8% year over year to $741.8 million, but fell shy of the Zacks Consensus Estimates of $744.0 million. Revenues were positively impacted by internal growth (1.0%) and favorable foreign exchange rates and acquisitions (1.0%).

Segment wise, Storage revenue (56.7% of revenues) climbed 3.8% year over year to $420.8 million. Storage revenue’s internal growth was 3% in the quarter, driven by continued strong performance in the International business segment and persistent growth in the North America business. Global records management net volumes crept up 2% year over year.

Service revenue (43.3% of revenues) dipped 0.8% year over year to $321.0 million. Core service revenue’s internal growth was negative 1.0% as strong hybrid service revenue growth and increased fuel surcharges were more than offset by the softness in North American core service activity levels.

Operating Performance

Gross profit (excluding depreciation and amortization) fell 2.0% year over year to $427.0 million in the reported quarter. Gross margin for the quarter stood at 57.5% versus 59.4% in the year-ago quarter, due to higher incentive compensation expense and mix shift toward hybrid service.

Adjusted operating income before depreciation and amortization (OIBDA) for the quarter upped 2.0% year over year to $237.0 million. Adjusted OBIDA margin for the quarter remained flat on a year-over-year basis at 32.0%.

Selling, general and administrative (SG&A) expenses were down 5.2% from the prior-year period to $189.4 million, attributable to stringent overhead cost controls.

Operating income in the quarter increased 2.0% year over year to $149.0 million. Operating margin was 20.1%, relatively flat on year-over-year basis.

Balance Sheet

Iron Mountain exited the quarter with cash and cash equivalents of $179.8 million compared with $480.9 million at the end of the previous quarter. Long-term debt (including the current portion) was $3.35 billion versus $3.32 billion in the prior quarter.

During the fourth quarter of 2011, the company repurchased 14.7 million shares for a total aggregate purchase price of $440.0 million under its existing share repurchase program. On January 13, 2012, the company paid a quarterly dividend of 25 cents per share.

Guidance

For fiscal 2012, Iron Mountain expects revenues in the range of $2.97 billion to $3.05 billion. The Zacks Consensus revenue estimate for the fiscal 2012 is pegged at $3.07 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 $1.33 per share for fiscal 2012.

The company expects to spend approximately $215.0 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 32.0% year-over-year decline in paper prices to affect the total revenue by $45 million. Additionally, North American core service activities will likely experience continued pressure while the decline in paper prices is expected to be a headwind going forward.

Recommendation

Iron Mountain has more or less outperformed the Zacks Consensus Estimates by a positive 2.86% over the last four quarters and the phenomenon was repeated in the quarter when reported earnings beat the Zacks Consensus by 10.0%.

We maintain our Neutral recommendation on a long-term basis (6-12 months) due to weak internal growth coupled with volatile foreign exchange rates and a decline in paper price that is set to partially negate the company’s promising product portfolio, strong market share and a promising International business segment.

Iron Mountain faces stiff competition from Anacomp Inc., Cintas Corporation (CTAS) and privately held SOURCECORP, Inc.

Iron Mountain has a Zacks #3 Rank, which implies a short-term 'Hold' rating (for the next 1-3 months).

 
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