Mobile Mini Sees Encouraging Signs From Energy Sector

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The energy sector has gone through extreme volatility in the past several years, and the damage hasn't been limited to companies that explore for and produce crude oil and natural gas. Mobile Mini (NASDAQ: MINI) offers storage solutions to all sorts of business and consumer clients, but it also has a specialized tank and pump segment that has strong correlations with the health of the energy industry.

Coming into Friday's fourth-quarter financial report, Mobile Mini investors were prepared for earnings weakness but hoped for a nice boost to the company's top line. The storage specialist couldn't avoid declines on its bottom line, but it produced strong sales gains that reflected a pickup in activity in the energy sector. Let's look more closely at Mobile Mini to see what's coming down the road for the storage company.

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Mobile Mini fills up

Mobile Mini's fourth-quarter results had some encouraging signs. Revenue climbed 12.5% to $146.7 million, more than doubling the growth rate that most investors were expecting to see from the storage company. Adjusted net income of $18.1 million was down 15% from year-ago levels, but adjusted earnings of $0.41 per share still topped the consensus forecast of $0.36 per share by a considerable margin.

Mobile Mini got a one-time benefit that wasn't reflected in its adjusted numbers. Tax reform led to favorable impacts, as the company revalued its deferred tax liabilities and required repatriation of foreign earnings. All told, that resulted in a net positive impact of $74.5 million, and Mobile Mini expects a 24% to 26% effective tax rate for 2018.

The big story for the quarter was the rebound in the tank and pump solutions division. Revenue for the division jumped 17% to $27.2 million, with good gains both for tank and pump rentals and outright sales. The larger storage solutions business also had solid top-line growth of 10%, with rental gains outpacing unit sales. Those gains came despite consolidation in Mobile Mini's store network and limited growth in rental fleet unit counts, with tank and pump numbers remaining flat and the storage solutions fleet growing at less than 2%. Utilization rates rose, with tank and pump seeing a jump of more than 10 percentage points to 73% while storage solutions remained in the 75% to 76% range.

Mobile Mini also got more balanced contributions to its bottom line from both of its segments. Tank and pump solutions reported $2.21 million in operating income for the quarter, reversing a $782,000 operating loss in the year-ago period. By contrast, the storage solutions business saw higher costs result in a 7% decline in operating income to $35.6 million.

CEO Erik Olsson couldn't say enough about how Mobile Mini did. "The fourth quarter of 2017 was exceptional for both of our business segments," Olsson said, noting that "in addition to the widespread pick-up across our Tank & Pump segment, our downstream customers began the turnaround and maintenance activities that had been previously deferred." The CEO also pointed to record-high seasonal rentals along with good organic growth trends.

Will Mobile Mini keep picking up energy?

Mobile Mini is also optimistic about its near-term prospects. Pending orders in the storage solutions market in North America are well ahead of where they were at this time in 2017, and increasingly strong demand from customers in the energy sector should help to keep tank and pump solutions business levels on the rise in the quarters to come.

Pricing will play a key role in making sure that Mobile Mini makes the most of its opportunities. In 2017, the company managed to boost storage solution rental rates by 4.2%, and rates on new rentals are 5.1% higher than they were a year ago. Maintaining the balance between attractive prices that nevertheless maximize profit is the challenge that Mobile Mini faces, but a stronger economy should help make that balancing act a little easier.

Mobile Mini shareholders were happy with the report, and the stock jumped 8% just after the open on Friday following the announcement. If the oil and gas industry keeps powering ahead, then the subsequent tailwinds could help Mobile Mini generate strong results for the foreseeable future.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends Mobile Mini. The Motley Fool has a disclosure policy.

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