Earnings Release
UniFirst Announces Financial Results for the Second Quarter of Fiscal 2017
UniFirst Corporation (UNF) today announced results for its second quarter of fiscal 2017 which ended February 25, 2017. Revenues for the quarter were $391.4 million, up 7.8% from $363.1 million in the year ago period. Net income was $22.5 million ($1.10 per diluted share), down 4.2% from $23.5 million ($1.16 per diluted share) in the second quarter of fiscal 2016. Results for the second quarter of fiscal 2017 include the impact of the Company’s acquisition of Arrow Uniform (Arrow) which was completed in September 2016.
Core Laundry revenues in the quarter were $358.4 million, up 8.2% from those in the prior year’s second quarter. Adjusting for the estimated effect of acquisitions as well as a stronger Canadian dollar compared to a year ago, Core Laundry revenues grew 2.2%.
Ronald D. Croatti, UniFirst President and Chief Executive Officer said, "We are encouraged by the improvement during the second quarter of the Core Laundry Operations’ organic growth rate. Recent trends indicate that wearer levels at existing customers have stabilized after enduring two years of significant reductions in our North American energy-dependent markets. In addition, overall new sales as well as customer retention are also trending positively compared to the first half of 2016."
Core Laundry operating income was $33.1 million during the quarter, an 8.5% decrease from the prior year. Its operating margin was 9.2%, down from 10.9% for the same period in fiscal 2016. The margin decline was primarily the result of higher selling and administrative expenses as a percentage of revenues. In addition, the estimated impact of the acquisition of Arrow decreased the Core Laundry operating margin by 0.6%.
Revenues from our Specialty Garments segment, which consists of nuclear decontamination and cleanroom operations, increased 6.5% in the quarter compared to the same period a year ago, and operating income was $2.1 million compared to $1.1 million in last year’s second quarter. The improvement in results during the quarter was driven by this segment’s US and Canadian nuclear operations. This segment’s results can vary significantly from period to period due to seasonality and the timing of reactor outages and projects.
UniFirst continues to maintain a strong balance sheet with no long-term debt and significant cash balances. Excluding the $119.9 million cash purchase price paid for the Arrow acquisition, cash and cash equivalents increased $69.6 million during the first half of the year. As of February 25, 2017, our cash and cash equivalents were $313.5 million.
<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">Outlook</span>
Mr. Croatti said, "During our last earnings call, we communicated that we expected full year revenues for fiscal 2017 would be between $1.550 billion and $1.565 billion and full year diluted earnings per share would be between $4.85 and $5.00. We now expect that our full year results will come in at the higher ends of these previously communicated ranges."
<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">Conference Call Information</span>
UniFirst will hold a conference call today at 10:00 a.m. (ET) to discuss its quarterly financial results, business highlights and outlook. A simultaneous live webcast of the call will be available over the Internet and can be accessed at www.unifirst.com.
<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">About UniFirst Corporation</span>
Headquartered in Wilmington, Mass., UniFirst Corporation is a North American leader in the supply and servicing of uniform and workwear programs, as well as the delivery of facility service programs. Together with its subsidiaries, the company also provides first aid and safety products, and manages specialized garment programs for the cleanroom and nuclear industries. UniFirst manufactures its own branded workwear, protective clothing, and floorcare products, and with 240 service locations, 300,000 customer locations, and 13,000 employee Team Partners, the company outfits nearly 2 million workers each business day. UniFirst is a publicly held company traded on the New York Stock Exchange under the symbol UNF and is a component of the Standard & Poor’s 600 Small Cap Index. For more information, contact UniFirst at 800.455.7654 or visit www.unifirst.com.
<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">Forward Looking Statements</span>
This public announcement contains forward looking statements that reflect the Company’s current views with respect to future events and financial performance, including projected revenues and earnings per share. Forward looking statements contained in this public announcement are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995 and may be identified by words such as "estimates," "anticipates," "projects," "plans," "expects," "intends," "believes," "seeks," "could," "should," "may," "will," or the negative versions thereof, and similar expressions and by the context in which they are used. Such forward looking statements are based upon our current expectations and speak only as of the date made. Such statements are highly dependent upon a variety of risks, uncertainties and other important factors that could cause actual results to differ materially from those reflected in such forward looking statements. Such factors include, but are not limited to, our ability to maintain and grow Arrow’s customer base and enhance its operating margins, our ability to compete successfully without any significant degradation in our margin rates, uncertainties caused by the continuing adverse worldwide economic conditions and their impact on our customers’ businesses and workforce levels, uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation, any adverse outcome of pending or future contingencies or claims, uncertainties regarding our ability to consummate and successfully integrate acquired businesses, our ability to preserve positive labor relationships and avoid becoming the target of corporate labor unionization campaigns that could disrupt our business, the continuing increase in domestic healthcare costs, including the ultimate impact of the Affordable Care Act, our retention of customers and renewal of customer contracts, uncertainties regarding the price levels of natural gas, electricity, fuel and labor, the negative effect on our business from sharply depressed oil prices, fluctuation on our revenue and net income from our specialty garments segment, the effect of currency fluctuations on our results of operations and financial condition, rampant criminal activity and instability in Mexico where our principal garment manufacturing plants are located, the impact on our goodwill and intangibles that might result from adverse financial and economic changes, our ability to properly and efficiently design, construct, implement and operate our new customer relationship management ("CRM") computer system, interruptions or failures of our information technology systems, including as a result of cyber-attacks, failure to comply with other state and federal regulations that might result in penalties or costs, seasonal and quarterly fluctuations in business levels, any loss of key management or other personnel, our dependence on third parties to supply us with raw materials, increased costs as a result of any future changes in federal or state laws, rules and regulations or governmental interpretation of such laws, rules and regulations, demand and prices for our products and services, economic and other developments associated with the war on terrorism and its impact on the economy, general economic conditions and other factors described under "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended August 27, 2016 and in our other filings with the Securities and Exchange Commission. We undertake no obligation to update any forward looking statements to reflect events or circumstances arising after the date on which such statements are made.
UniFirst Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
Thirteen
Thirteen
Twenty-six
Twenty-six
weeks ended
weeks ended
weeks ended
weeks ended
February 25,
February 27,
February 25,
February 27,
(In thousands, except per share data)
2017
2016
2017
2016
Revenues
$ 391,427
$ 363,097
$ 777,535
$ 736,481
Cost of revenues (1)
249,280
229,672
488,045
452,275
Selling and administrative expenses (1)
84,861
75,423
164,307
148,172
Depreciation and amortization
21,140
19,809
43,280
39,547
Total operating expenses
355,281
324,904
695,632
639,994
Income from operations
36,146
38,193
81,903
96,487
Interest expense
172
218
354
439
Interest income
(1,292
)
(892
)
(2,275
)
(1,656
)
Foreign exchange (gain) loss
(108
)
(132
)
386
347
Total other (income) expense
(1,228
)
(806
)
(1,535
)
(870
)
Income before income taxes
37,374
38,999
83,438
97,357
Provision for income taxes
14,858
15,501
32,708
37,969
Net income
$ 22,516
$ 23,498
$ 50,730
$ 59,388
Common Stock
$ 1.17
$ 1.23
$ 2.63
$ 3.10
Class B Common Stock
$ 0.93
$ 0.98
$ 2.10
$ 2.48
Income per share - Diluted
Common Stock
$ 1.10
$ 1.16
$ 2.49
$ 2.94
Income allocated to - Basic
Common Stock
$ 17,836
$ 18,691
$ 40,178
$ 47,232
Class B Common Stock
$ 4,518
$ 4,704
$ 10,184
$ 11,896
Income allocated to - Diluted
Common Stock
$ 22,362
$ 23,401
$ 50,381
$ 59,141
Weighted average number of shares outstanding - Basic
Common Stock
15,305
15,241
15,295
15,230
Class B Common Stock
4,846
4,795
4,846
4,795
Weighted average number of shares outstanding - Diluted
Common Stock
20,263
20,138
20,250
20,127
(1) Exclusive of depreciation on the Company’s property, plant and equipment and amortization on its intangible assets.
UniFirst Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
February 25,
August 27,
Cash and cash equivalents
$ 313,535
$ 363,795
Receivables, net
176,564
156,578
Rental merchandise in service
144,603
138,105
Prepaid expenses and other current assets
25,873
29,831
Total current assets
733,246
777,614
Property, plant and equipment, net
551,053
539,818
Customer contracts and other intangible assets, net
75,887
38,664
Deferred income taxes
338
97
Liabilities and shareholders’ equity
Accounts payable
$ 55,250
$ 50,884
Accrued liabilities
104,785
100,782
Total current liabilities
160,035
152,635
Accrued liabilities
105,078
104,921
Accrued and deferred income taxes
79,038
79,670
Total long-term liabilities
184,116
184,591
Class B Common Stock
485
485
Capital surplus
77,668
72,561
Retained earnings
1,368,424
1,319,142
Accumulated other comprehensive (loss) income
(30,727
)
(28,949
)
Total shareholders’ equity
1,417,396
1,364,781
UniFirst Corporation and Subsidiaries
Detail of Operating Results
(Unaudited)
Revenues
Thirteen
Thirteen
Dollar
Percent
(In thousands, except percentages)
2017
2016
Change
Change
Core Laundry Operations
$ 358,386
$ 331,365
$ 27,021
8.2
%
Specialty Garments
21,787
20,451
1,336
6.5
First Aid
11,254
11,281
(27
) -0.2
Consolidated total
$ 391,427
$ 363,097
$ 28,330
7.8
%
Twenty-six
Twenty-six
Dollar
Percent
(In thousands, except percentages)
2017
2016
Change
Change
Core Laundry Operations
$ 710,229
$ 666,402
$ 43,827
6.6
%
Specialty Garments
44,143
47,221
(3,078 ) -6.5
First Aid
23,163
22,858
305
1.3
Consolidated total
$ 777,535
$ 736,481
$ 41,054
5.6
%
Income from Operations
Thirteen
Thirteen
Dollar
Percent
(In thousands, except percentages)
2017
2016
Change
Change
Core Laundry Operations
$ 33,059
$ 36,129
$ (3,070 ) -8.5
%
Specialty Garments
2,095
1,146
949
82.8
Consolidated total
$ 36,146
$ 38,193
$ (2,047 ) -5.4
%
Twenty-six
Twenty-six
Dollar
Percent
(In thousands, except percentages)
2017
2016
Change
Change
Core Laundry Operations
$ 76,732
$ 89,101
$ (12,369 ) -13.9
%
Specialty Garments
3,246
5,432
(2,186
) -40.2
First Aid
1,925
1,954
(29
) -1.5
Consolidated total
$ 81,903
$ 96,487
$ (14,584 ) -15.1
%
UniFirst Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Twenty-six
Twenty-six
Cash flows from operating activities:
Adjustments to reconcile net income to cash provided by operating activities:
Amortization of intangible assets
6,229
4,250
Amortization of deferred financing costs
56
104
Gain on sale of assets
(517
)
--
Share-based compensation
4,370
2,537
Accretion on environmental contingencies
300
334
Accretion on asset retirement obligations
423
398
Deferred income taxes
(1,346
)
5,978
Changes in assets and liabilities, net of acquisitions:
Receivables
(12,887
)
(6,528
)
Rental merchandise in service
444
3,477
Prepaid expenses and other current assets and Other assets
7,471
(851
)
Accounts payable
3,695
(79
)
Accrued liabilities
704
1,574
Prepaid and accrued income taxes
8,793
(5,131
)
Net cash provided by operating activities
114,749
105,481
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired
(121,414 )
(73
)
Capital expenditures
(43,011
)
(44,028 )
Proceeds from sale of assets
826
--
Net cash used in investing activities
(163,476 )
(43,990 )
Cash flows from financing activities:
Payments on loans payable and long-term debt
--
(1,046
)
Proceeds from exercise of Common Stock options, including excess tax benefits
2,283
1,026
Taxes withheld and paid related to net share settlement of equity awards
(1,546
)
--
Payment of cash dividends
(1,448
)
(1,436
)
Net cash used in financing activities
(711
)
(1,456
)
Effect of exchange rate changes on cash
(822
)
(1,596
)
Net (decrease) increase in cash and cash equivalents
(50,260
)
58,439
Cash and cash equivalents at beginning of period
363,795
276,553
Cash and cash equivalents at end of period
$
313,535
$
334,992
CONTACT: Steven S. Sintros, Senior Vice President & CFO
Email:
ssintros@UniFirst.com
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