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Iron Mountain Inc. (IRM - Analyst Report) reported third-quarter 2013 adjusted earnings per share of 31 cents from continuing operations, which beat the Zacks Consensus Estimate by 1 cent and was much better than 3 cents reported in the year-ago quarter.

Quarter Details

Revenues declined marginally (down 1.4%) from the year-ago quarter to $755.6 million but missed the Zacks Consensus Estimate of $757.0 million. Revenues for the quarter suffered as a result of lower storage rental revenues (down 2.4% year over year), offset to a certain extent by a 1.0% year-over-year increase in service revenues.

Adjusted OIBDA (operating income before depreciation and amortization) decreased 1.5% year over year to $240.0 million. Adjusted OIBDA margin contracted 80 basis points (bps) on a year-over-year basis to 31.8% due to legal accruals and decline in revenues in the Service segment.

Operating income in the quarter increased 9.8% from the year-ago quarter to $153.9 million, primarily due to lower operating expenses (down 6.9% year over year). Net income from continuing operations was $53.7 million versus $5.5 million earned in the previous-year quarter.

Iron Mountain exited the quarter with cash and cash equivalents of $172.0 million compared with $258.9 million at the end of the previous quarter. Long-term debt (including the current portion) was $3.97 billion.

Guidance

Iron Mountain revised its full year 2013 revenue guidance range from $3.00 billion-3.05 billion to $3.025 billion-$3.050 billion. The company also revised its adjusted OIBDA guidance from a earlier outlook of $900.0 million-$925.0 million to $905.0 million-$925.0 million. Iron Mountain now expects earnings per share in the range of $1.05-$1.14 for the full year.

The company expects to spend approximately $210.0 million on capital assets. Free cash flow is expected in the range of $320.0 million to $360.0 million for 2013 consistent with the previous forecast.

Our Take

Iron Mountain posted a decent third quarter 2013 result. We believe that Iron Mountain’s strong product portfolio, increasing market share and promising international business are the primary growth catalysts for the company. The company’s decision to convert to REIT to reduce tax burden and increase shareholders’ value are the other positives. Moreover, the company’s entry into the data center market could act as a positive factor.

However, costs related to conversion and fluctuations in recycled paper prices are the near-term headwinds for the company. Moreover, volatile foreign exchange rates and competition from Guidance Software Inc. (GUID - Snapshot Report), Pitney Bowes Inc (PBI - Analyst Report) and Cintas Corp. (CTAS - Analyst Report) are the other headwinds.

Currently, Iron Mountain has a Zacks Rank #3 (Hold).

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