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Iron Mountain: Refocus on Cash Flow

By    |   Wednesday, 12 Oct 2011 02:55 PM

Information management company Iron Mountain (IRM) provides information management for its customers in an old-fashioned way — with trucks. After a rough 2010, the company is streamlining its business model to refocus on returning free cash flow to investors.

Iron Mountain manages paper documents in North America and internationally. The company owns 2,700 trucks which pick-up, transport, store, and shred customer documents. Businesses still generate very large amounts of paperwork, for which Iron Mountain provides management solutions.

In the second quarter of 2011, the company sold off its digital information management business to the U.K.’s Autonomy with a partnership agreement to offer Autonomy's services to Iron Mountain customers who also need digital information management.

For the first half of 2011, revenues were $1.513 billion, up 4 percent from $1.45 billion in the first half of 2010. Adjusted net income remained level compared to 2010 at 56 cents per share. The consensus earnings estimate for the full year is $125 per share, compared to $1.15 earned in 2010.

Cash to shareholders

Iron Mountain management has put together a plan to refocus on the company's core businesses with the goal of increasing profit margins by approximately 7 percent over the next several years. Operating income before depreciation and amortization (OIBDA) was at about 30 percent for the first half of 2011, so a 7 percent improvement would be a 25 percent increase in net income.

This goal, plus a projected 7 percent revenue growth rate, would lead to significant profit growth.

The company also has stated a goal of returning $2.2 billion to shareholders over a three-year period. So far the dividend has been increased by 33 percent to $1 annually, and the board has authorized a $250 million stock buyback program.

CEO Richard Reese noted in the second quarter conference call that the new dividend rate is an ongoing base rate and that he expects the payout to increase in the future.

The analysts at Stifel Nicolaus recently initiated coverage on IRM with a buy rating and a target price approximately 30 percent above the current share price.

The company reports next on Oct. 27.

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Information management company Iron Mountain (IRM) provides information management for its customers in an old-fashioned way with trucks. After a rough 2010, the company is streamlining its business model to refocus on returning free cash flow to investors. Iron Mountain...
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