Mobile Mini Keeps Seeing Its Business Shrink

By Markets Fool.com

Storage is a huge need for businesses across the country, and Mobile Mini (NASDAQ: MINI) has specialized in providing portable storage solutions and specialty containment products for a host of customers. Yet recently, falling demand from the energy sector has eaten into Mobile Mini's growth prospects, and coming into Tuesday's third-quarter financial report, Mobile Mini investors weren't sure whether the company would be able to overcome ongoing pressures in energy to post substantial growth. As it turned out, the company reported top- and bottom-line figures that were down compared to year-ago levels, and that has some investors wondering if conditions in its key markets have actually hit bottom yet. Let's take a closer look at how Mobile Mini did and what the future might hold for the portable-storage specialist.

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Image source: Mobile Mini.

Mobile Mini deals with financial headwinds

Mobile Mini's third-quarter results once again showed just how much difficulty it has had dealing with tough market conditions. Total revenue was down 3% to $128.9 million, falling well short of the small gain in sales that most investors had expected. Adjusted net income was down an even more significant 14% to $13.7 million, and that produced adjusted earnings of $0.31 per share. That missed the consensus forecast among those following the stock by $0.06 per share, disappointing expectations that the company's per-share bottom line would actually climb from year-ago levels.

A closer look at Mobile Mini's numbers shows some interesting details. As expected, the rental business drove most of the declines for the company, with a 2% drop in sales and a 2% rise in associated overhead costs weighing on its overall operating results. Meanwhile, sales of units actually climbed slightly, although sales still make up just 5% or so of Mobile Mini's overall revenue.

On a segment basis, Mobile Mini's results reflected the relative financial health of its customer base. Revenue from the portable storage unit was down about 1%, with operating income taking a 7% hit. Mobile Mini said that portable storage revenue took a hit of more than 3.5 percentage points due to unfavorable currency fluctuations. By contrast, with the portable storage segment, the specialty containment business suffered an 8% sales decline, and operating income there plunged by nearly three-quarters.

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Operationally, Mobile Mini did its best to support its business. Unit utilization for the portable storage division rose by half a percentage point to 70.5%. On the other hand, the specialty containment division suffered a huge seven-point drop in year-over-year utilization rates to 60.5%, although Mobile Mini said that average utilization actually rose sequentially when using original equipment costs.

CEO Erik Olsson accentuated positives. "Portable storage pricing increased a solid 2.4% this quarter compared to the prior-year period," Olsson said, "marking the 15th quarter in a row we have achieved year-over-year increases." The CEO also pointed to strength in the downstream side of the specialty containment business, even though the upstream subsegment had a much larger downward impact.

Can Mobile Mini turn things around?

Olsson also tried to look forward to better times ahead. "Our immediate focus is on executing our sales force model and providing the tools to our inside sales representatives to ensure their success," Olsson said. And the CEO pointed to rising headcounts among its sales staff toward the end of the third quarter.

Mobile Mini is feeling pressure to get things turned around sooner rather than later. Even on an adjusted basis, pre-tax operating earnings were down more than 10% from the third quarter of 2015, and free cash flow fell by nearly a third to $10.6 million. Mobile Mini can't afford to see those free cash flow numbers sink much further before some will question whether its dividend is sustainable in the long run.

Mobile Mini shareholders were unhappy with the results, sending the stock down 5% in the opening minutes of trading following the announcement. Until conditions among its customer base start to improve, Mobile Mini will have trouble making the most of the specialty business it has created.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Mobile Mini. Try any of our Foolish newsletter services free for 30 days. 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.