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Iron Mountain Inc.’s (IRM - Analyst Report) first quarter adjusted earnings per share of 29 cents came in line with the Zacks Consensus Estimate. Reported earnings increased 3.6% from the year-ago quarter on the back of strong performance from its international business segment.

Revenues

Revenues increased by a marginal 0.7% from the year-ago quarter to $746.5 million, but fell shy of the Zacks Consensus Estimates of $751.0 million. On constant currency, quarterly revenues climbed 1%, which was offset by unfavorable currency fluctuations.

Segment wise, Storage revenue (57.0% of revenues) climbed 2.3% year over year to $425.3 million. Storage revenue was driven by continued strong performance in the International business segment and persistent growth in the North America business. Global records management net volumes inched up 1% year over year.

Service revenue (43.0% of revenues) dipped 2.8% year over year to $321.2 million. Core service was negatively impacted by slump in activity-based core service revenues and lower prices of recycled paper, which offset the robust hybrid revenue and rise in revenues from projects.

Operating Performance

Gross profit (excluding depreciation and amortization) edged up 0.2% year over year to $431.0 million in the reported quarter. Gross margin for the quarter increased to 57.8% versus 57.6% in the year-ago quarter, due to expansion in the storage gross margins on the back of lower occupancy costs, which offset the deceleration of the service gross margins.

Adjusted operating income before depreciation and amortization (OIBDA) for the quarter increased 1.8% year over year to $221.0 million. Adjusted OIBDA margin for the quarter increased 40 basis points on a year-over-year basis to 29.5%.

Selling, general and administrative (SG&A) expenses were down nearly 1.0% from the prior-year period to $210.7 million, attributable to stringent overhead cost controls.

Operating income in the quarter increased 2.9% year over year to $142.0 million. Operating margin was 19.0% compared with 18.5% in the previous-year quarter due to lower operating expenses.

Balance Sheet

Iron Mountain exited the quarter with cash and cash equivalents of $178.3 million compared with $179.8 million at the end of the previous quarter. Long-term debt (including the current portion) remained flat on a sequential basis at $3.35 billion.

During the first quarter of 2012, the company repurchased 1.1 million shares for a total aggregate purchase price of $35.0 million under its existing share repurchase program. On April 13, 2012, the company paid a quarterly dividend of 25 cents per share.

Acquisition

Earlier this month, IRM acquired Grupo Store, an information management business, based in Sao Paolo, Brazil for $80.0 million in cash which will strengthen the company’s international business segment.

Guidance

For fiscal 2012, Iron Mountain expects revenues in the range of $2.99 billion to $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 $1.32 per share for fiscal 2012.

The company expects to spend approximately $220.0 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 decline in paper prices to negatively impact the top line throughout the year.

Recommendation

We maintain our Neutral recommendation on a long-term basis (6-12 months) due to tepid 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. and Cintas Corporation (CTAS - Analyst Report).

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

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