When done right, the storage container business can be very lucrative. Consumers want the containers that Mobile Mini
Despite taking more than $20 million on combined goodwill impairment and restructuring charges in its latest quarter and paying out another $17.5 million in interest expenses, Mobile Mini managed to finish $0.01 per share in the black on $123 million in revenues, which were up substantially from last year's fourth quarter.
Those sales weren't all organic. The acquisition of a competitor contributed to revenues and also provided Mobile Mini with additional inventory -- so much that the need for buying or manufacturing new storage containers has been eliminated, at least for now.
With extra inventory, management can whittle Mobile Mini's capital expenditures down to a nub, and all else equal, free cash flows should rise. While reluctant to dish out specific guidance for 2009, the company has stated its intent to use that extra cash to retire debt -- thus cutting the future impact of those lofty interest expenses.
What the future holds
And although they're notoriously unreliable indicators of future performance, looking at past financial statements could give you an idea of how results might differ with lower capital expenditures, a focus on debt reduction, and stronger free cash flows. This task can be accomplished without much heavy lifting.
For instance, say that sales drop by 15% next year, but the company's goodwill impairment and integration charges disappear. By my calculations, under that scenario, EBITDA would still increase by $15 million, and cutting capital expenditures by $50 million while using that cash to deleverage the balance sheet would also bring down interest expense by about $3 million. Next year's earnings could feasibly approach the company's 2007 levels of around $1.20 per share.
The result will be a lean mean container-renting machine, with a healthy balance sheet, brimming cash flows, and an enviable bottom line ... at least, that's the plan.
Management added that it's not looking for more acquisitions, but could be persuaded by an extraordinary pitch. Right now, its competition includes McGrath
It's crucial that the company follow through on its vision for the future. So if you decide to invest, make sure you see falling debt levels, rising operating income, and increased cash returns soon -- or be ready to get out if you don't.
Fool contributor Chris Jones has neither long nor short positions in any of the companies mentioned in this article. Though he recently bought a two-headed Snuggie to share with The Motley Fool's disclosure policy.