UNIFIRST ANNOUNCES FINANCIAL RESULTS FOR THE SECOND QUARTER OF FISCAL 2020
Q2 2020 Financial Highlights
- Consolidated revenues for the second quarter increased 6.2% to
$464.6 million . - Operating income was
$44.1 million , a decrease of 29.3%. - The effective tax rate for the quarter decreased to 24.2% from 24.9%.
- Net income in the quarter decreased to $34.7 million from
$47.6 million , or 27.2%. - Diluted earnings per share decreased to
$1.82 from$2.48 , or 26.6%.
Operating income in the second quarter of fiscal 2019 benefited from a pre-tax gain of
- Operating income increased 6.8% compared to prior year’s adjusted operating income.
- Net income increased 8.2% from prior year’s adjusted net income of
$32.0 million . - Diluted earnings per share increased 9.0% from prior year’s adjusted amount of
$1.67 .
See the Reconciliation of GAAP to Non-GAAP Financial Measures below.
Segment Reporting Highlights
Core Laundry Operations
- Revenues for the quarter increased 4.5% to
$412.2 million . - Organic growth, which excludes the effect of acquisitions and fluctuations in the Canadian dollar, was 3.6%.
- Operating margin decreased to 9.3% from 15.0%. Adjusted for the effect of the CRM Settlement in 2019, adjusted operating margin in prior year was 9.6%. The decrease from prior year’s adjusted operating margin was primarily due to higher production and service payroll costs as a percentage of revenues, which were partially offset by lower energy costs.
See the Reconciliation of GAAP to Non-GAAP Financial Measures below.
Specialty Garments
- Revenues for the quarter were
$36.0 million , an increase of 21.0%. The increase in Specialty Garments revenue was primarily due to higher direct sale activity in the quarter as well as strong performance in the cleanroom and European nuclear operations. - Operating margin increased to 12.9% from 7.5%. This increase was primarily due to the higher direct sale activity in the quarter.
- Specialty Garments consists of nuclear decontamination and cleanroom operations and its results can vary significantly due to seasonality and the timing of reactor outages and projects.
Balance Sheet and Capital Allocation
- Cash, cash equivalents and short-term investments totaled
$395.3 million as ofFebruary 29, 2020 . - The Company had no long-term debt outstanding as of
February 29, 2020 . - Under its previously announced stock repurchase program, the Company repurchased 20,500 common shares for a total of
$4.2 million during its second fiscal quarter of 2020. As ofFebruary 29, 2020 , the Company had repurchased a total of 268,250 common shares for a total of$44.7 million under the program. - Weighted average shares outstanding – Diluted for the second quarter of fiscal 2020 and fiscal 2019 was 19.1 million and 19.2 million shares, respectively.
Financial Outlook
Conference Call Information
About
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Forward-Looking Statements Disclosure
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,” “strategy,” “objective,” “positions,” “assume,” 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, uncertainties caused by adverse economic conditions, including, without limitation, as a result of extraordinary events or circumstances such as the COVID-19 pandemic, and their impact on our customers’ businesses and workforce levels, disruptions of our business and operations or the business and operations of our customers or suppliers in connection with extraordinary events or circumstances such as the COVID-19 pandemic, uncertainties regarding our ability to consummate and successfully integrate acquired businesses, 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, our ability to compete successfully without any significant degradation in our margin rates, seasonal and quarterly fluctuations in business levels, our ability to preserve positive labor relationships and avoid becoming the target of corporate labor unionization campaigns that could disrupt our business, the effect of currency fluctuations on our results of operations and financial condition, our dependence on third parties to supply us with raw materials, which such supply could be severely disrupted as a result of extraordinary events or circumstances such as the COVID-19 pandemic, any loss of key management or other personnel, increased costs as a result of any changes in federal or state laws, rules and regulations or governmental interpretation of such laws, rules and regulations, uncertainties regarding the price levels of natural gas, electricity, fuel and labor, the negative effect on our business from sharply depressed oil and natural gas prices, including, without limitation, as a result of extraordinary events or circumstances such as the COVID-19 pandemic, the continuing increase in domestic healthcare costs, increased healthcare costs resulting from extraordinary events or circumstances such as the COVID-19 pandemic, our ability to retain and grow our customer base, demand and prices for our products and services, fluctuations in our Specialty Garments business, instability in
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data) | Thirteen weeks ended |
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||||||||||||
Revenues | $ | 464,600 | $ | 437,485 | $ | 929,998 | $ | 876,035 | ||||||||
Operating expenses: | ||||||||||||||||
Cost of revenues (1) | 301,422 | 281,672 | 590,738 | 558,721 | ||||||||||||
Selling and administrative expenses (1) | 93,080 | 68,321 | 183,608 | 154,280 | ||||||||||||
Depreciation and amortization | 25,971 | 25,046 | 51,430 | 50,162 | ||||||||||||
Total operating expenses | 420,473 | 375,039 | 825,776 | 763,163 | ||||||||||||
Operating income | 44,127 | 62,446 | 104,222 | 112,872 | ||||||||||||
Other (income) expense: | ||||||||||||||||
Interest income, net | (2,175 | ) | (2,009 | ) | (4,536 | ) | (3,714 | ) | ||||||||
Other expense, net | 539 | 1,060 | 1,067 | 1,232 | ||||||||||||
Total other income, net | (1,636 | ) | (949 | ) | (3,469 | ) | (2,482 | ) | ||||||||
Income before income taxes | 45,763 | 63,395 | 107,691 | 115,354 | ||||||||||||
Provision for income taxes | 11,083 | 15,789 | 24,769 | 29,428 | ||||||||||||
Net income | $ | 34,680 | $ | 47,606 | $ | 82,922 | $ | 85,926 | ||||||||
Income per share – Basic: | ||||||||||||||||
Common Stock | $ | 1.90 | $ | 2.59 | $ | 4.55 | $ | 4.67 | ||||||||
Class B Common Stock | $ | 1.52 | $ | 2.07 | $ | 3.64 | $ | 3.74 | ||||||||
Income per share – Diluted: | ||||||||||||||||
Common Stock | $ | 1.82 | $ | 2.48 | $ | 4.34 | $ | 4.46 | ||||||||
Income allocated to – Basic: | ||||||||||||||||
Common Stock | $ | 29,129 | $ | 39,923 | $ | 69,654 | $ | 72,061 | ||||||||
Class B Common Stock | $ | 5,551 | $ | 7,683 | $ | 13,268 | $ | 13,865 | ||||||||
Income allocated to – Diluted: | ||||||||||||||||
Common Stock | $ | 34,680 | $ | 47,606 | $ | 82,922 | $ | 85,926 | ||||||||
Weighted average shares outstanding – Basic: | ||||||||||||||||
Common Stock | 15,293 | 15,428 | 15,300 | 15,430 | ||||||||||||
Class B Common Stock | 3,643 | 3,710 | 3,643 | 3,710 | ||||||||||||
Weighted average shares outstanding – Diluted: | ||||||||||||||||
Common Stock | 19,105 | 19,232 | 19,114 | 19,258 |
(1) Exclusive of depreciation on the Company’s property, plant and equipment and amortization on its intangible assets.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash, cash equivalents and short-term investments | $ | 395,323 | $ | 385,341 | ||||
Receivables, net | 209,878 | 203,457 | ||||||
Inventories | 94,875 | 100,916 | ||||||
Rental merchandise in service | 179,291 | 184,318 | ||||||
Prepaid taxes | 8,933 | 4,060 | ||||||
Prepaid expenses and other current assets | 35,522 | 35,699 | ||||||
Total current assets | 923,822 | 913,791 | ||||||
Property, plant and equipment, net | 582,753 | 574,509 | ||||||
424,711 | 401,178 | |||||||
Customer contracts and other intangible assets, net | 88,355 | 72,720 | ||||||
Deferred income taxes | 475 | 448 | ||||||
Operating lease right-of-use assets, net | 46,426 | — | ||||||
Other assets | 86,320 | 84,674 | ||||||
$ | 2,152,862 | $ | 2,047,320 | |||||
Liabilities and shareholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 71,172 | $ | 77,918 | ||||
Accrued liabilities | 117,968 | 111,721 | ||||||
Accrued taxes | — | 205 | ||||||
Operating lease liabilities, current | 12,255 | — | ||||||
Total current liabilities | 201,395 | 189,844 | ||||||
Long-term liabilities: | ||||||||
Accrued liabilities | 118,114 | 117,074 | ||||||
Accrued and deferred income taxes | 99,439 | 99,172 | ||||||
Operating lease liabilities | 32,476 | — | ||||||
Total liabilities | 451,424 | 406,090 | ||||||
Shareholders’ equity: | ||||||||
Common Stock | 1,529 | 1,533 | ||||||
Class B Common Stock | 364 | 364 | ||||||
Capital surplus | 84,577 | 84,946 | ||||||
Retained earnings | 1,648,069 | 1,588,075 | ||||||
Accumulated other comprehensive loss | (33,101 | ) | (33,688 | ) | ||||
Total shareholders’ equity | 1,701,438 | 1,641,230 | ||||||
$ | 2,152,862 | $ | 2,047,320 |
Detail of Operating Results
(Unaudited)
Revenues
(In thousands, except percentages) | Thirteen weeks ended |
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Dollar Change |
Percent Change |
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Core Laundry Operations | $ | 412,192 | $ | 394,408 | $ | 17,784 | 4.5 | % | ||||||||
Specialty Garments | 35,980 | 29,745 | 6,235 | 21.0 | % | |||||||||||
First Aid | 16,428 | 13,332 | 3,096 | 23.2 | % | |||||||||||
Consolidated total | $ | 464,600 | $ | 437,485 | $ | 27,115 | 6.2 | % |
(In thousands, except percentages) | Twenty-six weeks ended |
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Dollar Change |
Percent Change |
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Core Laundry Operations | $ | 828,490 | $ | 784,885 | $ | 43,605 | 5.6 | % | ||||||||
Specialty Garments | 69,382 | 64,193 | 5,189 | 8.1 | % | |||||||||||
First Aid | 32,126 | 26,957 | 5,169 | 19.2 | % | |||||||||||
Consolidated total | $ | 929,998 | $ | 876,035 | $ | 53,963 | 6.2 | % |
Operating Income
(In thousands, except percentages) | Thirteen weeks ended |
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Dollar Change |
Percent Change |
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Core Laundry Operations | $ | 38,357 | $ | 59,113 | $ | (20,756 | ) | (35.1 | )% | |||||||
Specialty Garments | 4,627 | 2,235 | 2,392 | 107.0 | % | |||||||||||
First Aid | 1,143 | 1,098 | 45 | 4.1 | % | |||||||||||
Consolidated total | $ | 44,127 | $ | 62,446 | $ | (18,319 | ) | (29.3 | )% |
(In thousands, except percentages) | Twenty-six weeks ended |
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Dollar Change |
Percent Change |
||||||||||||
Core Laundry Operations | $ | 92,165 | $ | 103,895 | $ | (11,730 | ) | (11.3 | )% | |||||||
Specialty Garments | 9,506 | 6,705 | 2,801 | 41.8 | % | |||||||||||
First Aid | 2,551 | 2,272 | 279 | 12.3 | % | |||||||||||
Consolidated total | $ | 104,222 | $ | 112,872 | $ | (8,650 | ) | (7.7 | )% |
Operating Margin
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Core Laundry Operations | 9.3 | % | 15.0 | % | ||||
Specialty Garments | 12.9 | % | 7.5 | % | ||||
First Aid | 7.0 | % | 8.2 | % | ||||
Consolidated total | 9.5 | % | 14.3 | % |
Twenty-six weeks ended |
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Core Laundry Operations | 11.1 | % | 13.2 | % | ||||
Specialty Garments | 13.7 | % | 10.4 | % | ||||
First Aid | 7.9 | % | 8.4 | % | ||||
Consolidated total | 11.2 | % | 12.9 | % |
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands) | Twenty-six weeks ended |
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Cash flows from operating activities: | ||||||||
Net income | $ | 82,922 | $ | 85,926 | ||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
Depreciation and amortization | 51,430 | 50,162 | ||||||
Amortization of deferred financing costs | 56 | 56 | ||||||
Forgiveness of a liability | — | (7,346 | ) | |||||
Share-based compensation | 3,227 | 2,796 | ||||||
Accretion on environmental contingencies | 269 | 377 | ||||||
Accretion on asset retirement obligations | 463 | 441 | ||||||
Deferred income taxes | 727 | 364 | ||||||
Other | 16 | (811 | ) | |||||
Changes in assets and liabilities, net of acquisitions: | ||||||||
Receivables, less reserves | (4,867 | ) | (2,502 | ) | ||||
Inventories | 6,125 | (5,589 | ) | |||||
Rental merchandise in service | 6,839 | (4,862 | ) | |||||
Prepaid expenses and other current assets and Other assets | 2,170 | (3,616 | ) | |||||
Accounts payable | (5,815 | ) | (5,268 | ) | ||||
Accrued liabilities | (1,752 | ) | (7,711 | ) | ||||
Prepaid and accrued income taxes | (4,941 | ) | 26,243 | |||||
Net cash provided by operating activities | 136,869 | 128,660 | ||||||
Cash flows from investing activities: | ||||||||
Acquisition of businesses, net of cash acquired | (41,021 | ) | (67 | ) | ||||
Capital expenditures, including capitalization of software costs | (62,271 | ) | (52,152 | ) | ||||
Proceeds from sale of assets | 236 | 178 | ||||||
Other | — | 15 | ||||||
Net cash used in investing activities | (103,056 | ) | (52,026 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from exercise of share-based awards | 75 | 27 | ||||||
Taxes withheld and paid related to net share settlement of equity awards | (3,281 | ) | (1,095 | ) | ||||
Repurchase of Common Stock | (14,203 | ) | (6,280 | ) | ||||
Payment of cash dividends | (6,609 | ) | (4,140 | ) | ||||
Net cash used in financing activities | (24,018 | ) | (11,488 | ) | ||||
Effect of exchange rate changes | 187 | (336 | ) | |||||
Net (decrease) increase in cash, cash equivalents and short-term investments | 9,982 | 64,810 | ||||||
Cash, cash equivalents and short-term investments at beginning of period | 385,341 | 270,512 | ||||||
Cash, cash equivalents and short-term investments at end of period | $ | 395,323 | $ | 335,322 |
Reconciliation of GAAP to Non-GAAP Financial Measures
The Company reports its consolidated financial results in accordance with generally accepted accounting principles (“GAAP”). To supplement these consolidated financial results, management believes that certain non-GAAP operating results provide a more meaningful measure on which to compare the Company’s results of operations for the periods presented. The Company believes these non-GAAP results provide useful supplemental information regarding the Company’s performance to both management and investors by excluding certain non-recurring amounts that impact the comparability of the results. Supplemental reconciliations of consolidated operating income, net income and earnings per diluted share on a GAAP basis to adjusted operating income, net income and earnings per diluted share on a non-GAAP basis are presented in the following tables. In addition, Core Laundry Operations operating income and operating margin on a GAAP basis to adjusted operating income and adjusted operating margin on a non-GAAP basis are presented in the following tables. Investors are encouraged to review the reconciliations of these non-GAAP measures to their most directly comparable GAAP financial measures, which are provided below.
Thirteen weeks ended |
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Consolidated | Core Laundry Operations | |||||||||||||||||||||||||||
(In thousands, except percentages) | Revenue | Operating Income |
Net Income |
Diluted EPS |
Revenue | Operating Income |
Operating Margin |
|||||||||||||||||||||
As reported | $ | 437,485 | $ | 62,446 | $ | 47,606 | $ | 2.48 | $ | 394,408 | $ | 59,113 | 15.0 | % | ||||||||||||||
CRM Settlement | — | (21,127 | ) | (15,566 | ) | (0.81 | ) | — | (21,127 | ) | (5.4 | )% | ||||||||||||||||
As adjusted | $ | 437,485 | $ | 41,319 | $ | 32,040 | $ | 1.67 | $ | 394,408 | $ | 37,986 | 9.6 | % |
Twenty-six weeks ended |
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Consolidated | Core Laundry Operations | |||||||||||||||||||||||||||
(In thousands, except percentages) | Revenue | Operating Income |
Net Income |
Diluted EPS |
Revenue | Operating Income |
Operating Margin |
|||||||||||||||||||||
As reported | $ | 876,035 | $ | 112,872 | $ | 85,926 | $ | 4.46 | $ | 784,885 | $ | 103,895 | 13.2 | % | ||||||||||||||
CRM Settlement | — | (21,127 | ) | (15,566 | ) | (0.81 | ) | — | (21,127 | ) | (2.7 | )% | ||||||||||||||||
As adjusted | $ | 876,035 | $ | 91,745 | $ | 70,360 | $ | 3.65 | $ | 784,885 | $ | 82,768 | 10.5 | % |
Investor Relations Contact
Shane O’Connor, Senior Vice President & CFO
978-658-8888
shane_oconnor@unifirst.com
Source: UniFirst Corp.