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Iron Mountain (IRM) Gears Up for Q4 Earnings: What to Expect?

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Iron Mountain Incorporated (IRM - Free Report) is set to release fourth-quarter 2019 results on Feb 13, before the market opens. The company’s results will likely reflect year-over-year growth in revenues and funds from operations (FFO) per share.

In the last reported quarter, this real estate investment trust (REIT) posted normalized FFO of 54 cents per share, surpassing the Zacks Consensus Estimate of 51 cents. Results reflected decent growth in its storage revenues.

Over the preceding four quarters, the company surpassed the FFO per share estimates on three occasions and missed in the other, the average positive surprise being 2.31%. This is depicted in the graph below:

Iron Mountain Incorporated Price and EPS Surprise

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

Iron Mountain’s expansion efforts in the faster-growing Adjacent Businesses segment, most notably being data centers, are anticipated to have boosted its data center business’ revenues. We expect the company to have continued data-center wins and leasing, helping it achieve the higher end of 15-20 megawatts guidance.  The Zacks Consensus Estimate for the global data-center business’ quarterly revenues suggests sequential improvement to $69 million.

Iron Mountain enjoys a steady stream of recurring revenues from its core storage and record management businesses (RIM). This is expected to have buoyed its top-line growth in the fourth quarter as well. The Zacks Consensus Estimate for quarterly storage rental revenues from its North America RIM segment is pinned at $315 million, indicating year-over-year growth of 2.6%.

Moreover, the company’s durable record management and storage business are anticipated to have aided organic revenue growth in the quarter under review. Specifically, Iron Mountain derives majority of its revenues from fixed periodic storage rental fees charged to customers based on the volume of their records stored. We believe the company’s initiatives to strengthen its core storage business will lead to year-over-year top-line growth of 1.03% to $1.07 billion.

However, persistently declining volumes in North America have resulted in aggressive pricing. Accordingly, the fourth-quarter storage rental revenues from the company’s North America data-management segment are expected to have recorded year-on-year decline of 1.5% to $66 million.

Also, hard-copy documentation needs at the enterprise level are reducing, resulting in contraction of physical storage volume. This is expected to have strained the company's margins during the period in discussion.

This is expected to have adversely impacted adjusted OIBDA from the North American data management segment. The Zacks Consensus Estimate for the same is $51 million, calling for a sequential decline of 5.5%.

Additionally, during fourth-quarter 2019, Iron Mountain expects to record pre-tax restructuring charges of around $60 million associated with its transformation program, Project Summit. This is expected to have thwarted bottom-line growth.

Lastly, prior to the fourth-quarter earnings release, the company has been witnessing upward estimate revisions. As such, the Zacks Consensus Estimate of FFO per share for the quarter has been revised marginally upward to 63 cents over the past week, reflecting analysts’ bullish sentiments. It also represents year-over-year growth of 12.5%.

Earnings Whispers

Our proven model doesn’t conclusively predict a positive surprise in terms of FFO per share for Iron Mountain this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. That is not the case here, as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Iron Mountain’s Earnings ESP is -0.43%.

Zacks Rank: The company currently carries a Zacks Rank of 3.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks That Warrant a Look

Here are a few stocks worth considering from the REIT sector as our model shows that these have the right combination of elements to deliver a positive surprise this reporting cycle:

Healthpeak Properties, Inc. (PEAK - Free Report) , slated to release fourth-quarter earnings on Feb 11, has an Earnings ESP of +1.15% and carries a Zacks Rank #3 at present.

Equinix, Inc. (EQIX - Free Report) , set to report quarterly numbers on Feb 12, has an Earnings ESP of +0.53% and holds a Zacks Rank of 3, currently.

Host Hotels & Resorts, Inc. (HST - Free Report) , scheduled to release October-December quarter figures on Feb 19, has an Earnings ESP of +1.52% and currently carries a Zacks Rank #3.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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