Iron Mountain Incorporated (IRM - Free Report) reported third-quarter 2019 normalized funds from operations (FFO) per share of 62 cents, beating the Zacks Consensus Estimate of 59 cents. The reported figure also compares favorably with the year-ago quarter’s 58 cents.
Revenues of $1.06 billion inched up 0.1% year over year but missed the Zacks Consensus Estimate of $1.07 billion. However, excluding the impact of foreign exchange, total revenues are up 1.7% year over year.
This is mainly due to solid contribution from revenue management, together with organic growth across a number of the company’s segments and regions, including Adjacent Businesses, Global Data Center, and Other International. However, Service revenues were impacted by paper prices.
Further, adjusted FFO (AFFO) edged down 0.8% year over year to $225.3 million.
Iron Mountain also announced a transformation program — Project Summit — which will focus on simplifying its global structure, streamlining managerial structure for the future and enhancing customer experience.
Project Summit is expected to deliver annual run-rate adjusted EBITDA benefits of $200 million. Considerably, all of the benefits will be realized by the end of 2022, with $80 million of benefits projected to be delivered in 2020. The total cost to implement the program is estimated to be approximately $240 million over the next two years. Notably, during fourth-quarter 2019, Iron Mountain expects to record pre-tax restructuring charges of around $60 million associated with the program.
Storage revenues came in at $$673 million in the third quarter, highlighting a 4% year-on-year increase on a constant currency basis. The company recorded 3% organic growth, year over year. In developed markets, storage organic revenue growth came in at 2.3 %, while in Other International markets, storage organic revenues were up 4.5% year over year.
Service revenues amounted to $389 million in the reported quarter, indicating a year-over-year decline of 2.1% on a constant currency basis. Service organic revenue in developed markets declined 3.1%, while in Other International markets, the figure was down 5.7%.
Adjusted EBITDA margin expanded 120 basis points (bps) to 35.4%. The company registered a 700-basis point expansion in Global Data Center, and 140 basis point increase in North America Data Management and Other International segments’ adjusted EBITDA margin. However, a 60-basis point contraction in North America Records and Information management (RIM), 50-basis point reduction in Western Europe and 90-basis point fall in Corporate and Other, partly offset these positives.
Iron Mountain has revised its guidance for 2019. Particularly, the company projects revenues at $4,250-$4,280 million compared with the prior outlook of $4,250-$4,325 million, and adjusted EBITDA of $1,430-$1,450 as compared with the previous estimate of $1,440-$1,480 million. Further, AFFO is estimated in the range of $850-$870 million as compared with the $$870-$900 million earlier projected.
Iron Mountain’s efforts to shift its revenue mix to faster-growing businesses, like emerging markets, data-center and other complementing business segments, supported the company’s the September-end quarter performance. However, headwinds from lower recycled paper prices continued in the quarter.
While the company is expanding its data-center footprint in international markets, near-term rise in costs from such efforts will likely dampen its financials, especially as it already has a highly-leveraged balance sheet.
Iron Mountain currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
We, now, look forward to the earnings releases of other REITs like Realty Income Corporation (O - Free Report) , Outfront Media Inc. (OUT - Free Report) and Host Hotels & Resorts, Inc. (HST - Free Report) , all of which are slated to report their quarterly numbers next week.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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