A leading provider of information protection and storage services, Iron Mountain Inc.’s (IRM) share price slid 8.6% following the company’s lower-than-expected outlook for fiscal 2010 and 2011 as announced at its 13th Annual Investor Day.

Management highlighted the company’s long-term growth strategy. The company lowered its fiscal 2010 estimates and provided a weak 2011 outlook. However, Iron Mountain also increased its share repurchase program.

Fiscal 2010 Outlook Reduced

Iron Mountain pointed out that fiscal 2010 revenues are expected to be at the low end of its previously provided guidance, which were given out during its second quarter 2010 results (July 29th). This is primarily due to a continued softness in its core service activity levels. Iron Mountain said that profit and cash flow will remain strong for the full year 2010.

During the second quarter earnings call, management had reiterated its fiscal 2010 earnings outlook but lowered the high end of its revenue guidance to reflect the currency impact (strong U.S. dollar), macroeconomic weakness, especially in Europe and internal growth trends.

The company had reduced revenue estimates in the range of $3.12 billion to $3.16 billion for full year 2010 or 4% to 5% year-over-year growth on a reported basis and a 3% to 4% growth, excluding favorable foreign currency impact, primarily based on internal revenue growth of 3.0% with acquisitions and favorable foreign exchange expected to contribute 1.0% and 2.0% to revenue growth, respectively. Previous projection for revenues was in the range of $3.18 billion to $3.25 billion (a 6% to 8% year-over-year growth on a reported basis).

The Zacks Consensus Estimate for revenues is $3.15 billion for the full-year 2010, which is at the high end of management’s guided range.

Earnings growth rate is estimated at 10.0% to 22.0% with earnings per share projections in the range of $1.07 to $1.16 for 2010. The current Zacks Consensus Estimate for 2010 is a profit of $1.12 per share, in line with the company’s expectation.

Adjusted operating income before depreciation and amortization (OIBDA) is expected to be in the range of $930 million to $960 million (a growth of 7% to 11% from 2009). Excluding a favorable foreign currency impact, adjusted OIBDA is expected to grow 6% to 10%.

The company had reduced its capital expenditure guidance to $280.0 million versus previous guidance of $290.0 million. For fiscal 2010, Iron Mountain expects to generate free cash flow in the range of $330 million to $360 million versus previous expectation of $340 million to $370 million. This reflects a higher outlook for cash taxes.

The company will provide a more detailed update on its 2010 outlook when it reports third quarter results on October 28, 2010.

Fiscal 2011 Preliminary Outlook Below Consensus

Iron Mountain provided weaker-than-expected projections for fiscal 2011.

Revenues are expected to be in the range of $3.20 billion to $3.27 billion for full-year 2011 or 2% to 4% growth from 2010 on a reported basis. Foreign currency impact is expected to be negligible in 2011. This is below the Zacks Consensus Estimate for revenues of $3.32 billion for the full-year 2011.

Earnings growth rate is expected to be 5.0% to 13.0% with earnings per share projections in the range of $1.17 to $1.26. This is below the Zacks Consensus Estimate of $1.31 per share in earnings.

Adjusted OIBDA guidance is expected to be in the range of $945 million to $975 million (growth of 0% to 3% from 2010). Capital expenditure is expected to be approximately $240.0 million. For fiscal 2011, Iron Mountain expects to generate free cash flow in the range of $360 million to $390 million.

Share Repurchase Program

Iron Mountain announced that its board of directors had approved a $200 million increase to its share repurchase program. This authorization is in addition to the $150 million authorization announced earlier this year. As of June 30, 2010, the company has repurchased an aggregate of 2.2 million shares for a total cost of $54 million, leaving approximately $55 million available under its share repurchase program.

Second Quarter Highlights

Iron Mountain reported strong second quarter 2010 results on July 29. Adjusted earnings (excluding one-time items) upped 12.0% year over year to 28 cents per share, beating the Zacks Consensus Estimate of 24 cents per share. The surprise was primarily attributable to a stronger gross margin, mainly due to operating efficiencies and pricing and productivity gains.

However, revenues of $779.8 million were lower than the Zacks Consensus Estimate of $785.0 million and management’s guidance range of $785.0 million to $805.0 million. Shares have fallen 12% since the company reported second quarter results.

Recommendation

We believe the company’s promising product portfolio, strong market share, focused execution, impressive cash flow, substantial recurring revenues, steady margins, earnings momentum, cost savings, international expansion and proven value proposition will drive profitability in the long term.

However, weak internal growth, sluggish revenues, as a result of lower activity levels, volatile foreign exchange and sluggish macro-economic conditions, especially in Europe, will impact results. Our long-term Neutral rating remains unchanged at this time as near-term visibility remains cloudy.

The stock is currently a Zacks #3 Rank stock, a short-term Hold.

 
IRON MOUNTAIN (IRM): Free Stock Analysis Report
 
Zacks Investment Research