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Iron Mountain Inc. (IRM - Analyst Report) reported fourth-quarter 2013 adjusted earnings from continuing operations of 15 cents per share, which missed the Zacks Consensus Estimate by 7 cents. Earnings declined 25.0% from the year-ago quarter.

Quarter Details

Revenues increased a modest 1.3% from the year-ago quarter to $768.5 million but missed the Zacks Consensus Estimate of $777.0 million. Revenues increased due to higher storage rental revenues (up 3.6% year over year), offset to a certain extent by 1.8% year-over-year decrease in service revenues.

Storage rental revenues increased due to 12.5% jump in international revenues, supported by a stable 2.2% growth in North America.  

Adjusted OIBDA (operating income before depreciation and amortization) decreased 5.8% year over year to $195.0 million. The decrease was primarily attributed to the company’s organizational realignment program.

Operating expenses increased 3.1% year over year to $670.1 million, driven by 8.3% increase in selling, general & administrative expenses and 4.2% growth in depreciation & amortization expenses.

Operating income in the quarter decreased 5.0% from the year-ago quarter to $102.6 million, primarily due to higher operating expenses (down 6.9% year over year). Net income from continuing operations was $29.0 million versus $36.4 million earned in the previous-year quarter.

Iron Mountain exited the quarter with cash and cash equivalents of $243.4 million compared with $172.0 million at the end of the previous quarter. Long-term debt (including the current portion) was $3.83 billion.

Guidance

Iron Mountain reiterated its full-year 2014 revenue guidance range $3.09–$3.17 billion, reflecting 2.0% to 4.0% constant currency growth on a year-over-year basis. This is slightly better than the Zacks Consensus Estimate of $3.12 billion.

Adjusted OIBDA is forecasted in the range of $930.0–$960.0 million, reflecting 2.0% to 5.0% constant currency growth on a year-over-year basis.

Iron Mountain now expects earnings per share in the range of $1.03-$1.14 for the full year. The mid-point of the guided range is slightly lower than the Zacks Consensus Estimate of $1.10.

Iron Mountain expects capital expenditures of approximately $245.0 million. Free cash flow is expected in the range of $300.0 to $340.0 million for 2014.

Our Take

We believe Iron Mountain’s strong product portfolio, increasing market share and promising international business are the primary growth catalysts. 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.

Currently, Iron Mountain has a Zacks Rank #3 (Hold). Some better-ranked stocks in the technology sector include Rentrak Corp. (RENT - Snapshot Report), SouFun Holdings (SFUN - Snapshot Report) and OmniVision Technologies (OVTI - Analyst Report). All these stocks carry a Zacks Rank #1 (Strong Buy).

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