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Iron Mountain Inc. (IRM - Analyst Report) reported first quarter 2013 adjusted earnings per share from continuing operations of 27 cents, in line with the Zacks Consensus Estimate. Reported earnings in the quarter slumped 6.9% from the year-ago quarter due to sluggish revenue and higher share count.

Quarter Details

Revenues for the quarter inched up 0.1% from the year-ago quarter to $747.0 million. Reported revenues lagged the Zacks Consensus Estimate of $763.0 million. Revenues for the quarter were impacted by lower service revenues (down 5.2% year over year). Revenues from storage increased 4% on a year-over-year basis.

Iron Mountain’s revenues were primarily driven by Document Management Solutions segment and Global storage rental internal growth. Moreover, increase in international storage rental volumes (up 13.5% year over year) helped Global storage volume growth of 2.8% from the year-ago period. These factors offset Iron Mountain’s revenue declines in its core service segment (developed markets) and lower revenues from its shredding services in its International Business segment.

Adjusted OIBDA increased 2.2% year over year to $227 million. Adjusted OIBDA margin expanded 70 basis points on a year-over-year basis to 30.5% based on international profit, overhead cost controls in North America and a decline in corporate expenses.

Operating income in the quarter decreased 13.4% from the year-ago quarter to $122.8 million, primarily due to higher operating expenses (up 4.7% year over year). Net income from continuing operations was $18.4 million versus $61.1 million earned in the previous-year quarter.

Iron Mountain exited the quarter with cash and cash equivalents of $229.9 million compared with $243.4 million at the end of the previous quarter. Long-term debt (including the current portion) was $3.85 billion.

Guidance

Iron Mountain reiterated its fiscal 2013 guidance. For fiscal 2013, Iron Mountain expects revenues in the range of $3.02 billion to $3.10 billion. The company forecasts adjusted OIBDA between $905.0 million and $935.0 million. Iron Mountain expects earnings per share in the range of $1.13 to $1.24.

The company expects to spend approximately $290 million on capital assets. Free cash flow is expected in the range of $320 million to $360 million for fiscal 2013.

Our Take

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 going forward.

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

Currently, Iron Mountain has a Zacks Rank #4 (Sell).

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