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Mobile Mini Inc.'s Sales Decline on Delayed Storage Orders

By Demitri Kalogeropoulos – Jul 28, 2016 at 1:19PM

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Pockets of strength weren't enough to protect the container specialist's revenue from pullbacks among commodity and mining-focused customers.

Storage specialist Mobile Mini (MINI) announced second-quarter earnings results on Thursday that were marked by lower sales and profits despite an uptick in portable container demand.

Here's how the headline numbers stacked up against the prior-year period:

Metric 

Q2 2016 Actuals

Q2 2015 Actuals

YOY Growth

Revenue

$125 million

$130 million

(4%)

Net income

$4 million

$9 million

(55%)

Earnings per share

$0.09

$0.21

(57%)

YOY = year over year. Data source: Mobile Mini financial filings.

What happened this quarter?

Mobile Mini's 4% revenue decline marked a drop from the prior quarter's 6% gain. Its large decline in net income, meanwhile, was powered mainly by its move to refinance $250 million of debt. Strip out that expense, and adjusted earnings fell by a more modest but still significant 6%.

Image source: Mobile Mini.

Here are the key highlights of the quarter:

  • Portable storage revenue rose 5% year over year as the company touched a new high in monthly activations.
  • Rental rates rose by 2% through the quarter as Mobile Mini raised fees for new activations by 3%.
  • Overall rental revenue slipped by 3% as the downstream business was hit with order delays from a few large customers. Weakness in commodity markets and in the mining industry contributed to lower demand.
  • Storage utilization rates ticked up to 68% from 67%, while specialty containment utilization dropped to 63% from 69%.
  • Adjusted profit margin slipped to 35% of sales from 36% in the year-ago quarter.
  • Mobile Mini reduced its projected interest expenses by paying of $250 million of debt it held on its books at a nearly 8% APR with new bonds carrying a 6% APR.

What management had to say

CEO Erik Olsson stressed the positive demand trends that executives witnessed, particularly within Mobile Mini's portable storage segment. That division "delivered solid top line growth in the second quarter and our go-to-market strategy continues to gain traction as evidenced by all-time high activations in June," he said in a press release. Customers also committed to more specialty containers, which pushed parts of its downstream business higher.

Yet those gains were more than offset by what Olsson described as a "weak commodity price environment, with significantly lower activity in the mining segment, along with continued upstream headwinds." An even bigger driver of the revenue decline, though, was the fact that several big clients put their ordering plans on hold.

Looking forward

Executives believe that those decisions will simply shift revenue into future quarters. Some investors were still unnerved by the sales drop, however, and they sent Mobile Mini's shares down 7% immediately following the results.

Mobile Mini isn't relying simply on delayed orders to spur growth through the rest of the year. The company boosted its sales force by 8% this quarter and plans to make more increases to that team to help power a return to top line growth.

Meanwhile, lower interest expenses will take some pressure off of the bottom line, but investors can expect profitability to remain soft as the company spends cash on upgrading its computer systems and expanding its geographic footprint. Consistent profit growth isn't likely until the company sees a turnaround in its specialty containment fleet, yet these results show that such a rebound relies on key industries, like commodities and mining, which are more focused on cutting costs than paying up for new storage solutions.

Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends Mobile Mini. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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