UniFirst Announces Financial Results for the Third Quarter of Fiscal 2020
Q3 2020 Financial Highlights
- Consolidated revenues for the third quarter decreased 1.8% to
$445.5 million . - Operating income was
$27.7 million , a decrease of 54.0%. - The effective tax rate for the quarter decreased to 21.8% from 23.5%.
- Net income in the quarter decreased to $21.3 million from
$47.2 million , or 54.9%. - Diluted earnings per share decreased to
$1.12 from$2.46 , or 54.5%.
Segment Reporting Highlights
Core Laundry Operations
- Revenues for the quarter decreased 2.8% to
$388.4 million . This decrease was primarily due to the impact of state-mandated shutdowns of some of our customers’ businesses as a result of COVID-19 and related reductions in workforce by some customers that remained open, partially offset by a$20.1 million direct sale to a large healthcare customer as well as increased safety and protective product equipment sales. - Operating margin decreased to 5.1% from 13.4%. This segment’s profitability was affected by many items, including the impact of the decline in rental revenues on our cost structure, higher cost of revenues related to the large
$20.1 million direct sale and additional costs the Company incurred responding to COVID-19. In addition, the Company also recorded additional reserves for uncollectible accounts receivables during the quarter. These items were partially offset by lower incentive compensation, healthcare, travel-related and energy costs.
Specialty Garments
- Revenues for the quarter were
$36.2 million , a decrease of 3.1%. This decrease was primarily due to lower direct sales in theU.S. and Canadian nuclear operations partially offset by growth in our cleanroom and European nuclear operations. - Operating margin increased to 17.6% from 14.4%. This increase was primarily due to a bad debt recovery from a customer in bankruptcy and lower travel-related costs. These items were partially offset by higher merchandise expense and costs incurred responding to COVID-19.
- 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.
First Aid
- Revenues for the quarter were
$20.9 million , an increase of 26.0%. This increase was primarily due to higher safety and personal protective equipment sales. - Operating margin decreased to 7.8% from 8.4%. This decrease was primarily due to higher merchandise costs as a percentage of revenues.
Balance Sheet and Capital Allocation
- Cash, cash equivalents and short-term investments totaled
$421.3 million as ofMay 30, 2020 . - The Company had no long-term debt outstanding as of
May 30, 2020 . - Under its previously announced stock repurchase program, the Company repurchased 46,667 shares of common stock for a total of
$7.5 million during its third fiscal quarter of 2020. The Company has not repurchased any additional shares since early in its fiscal quarter due to the uncertainty related to the COVID-19 pandemic. As ofMay 30, 2020 , the Company had repurchased a total of 314,917 shares of common stock for a total of$52.3 million under the program. - Weighted average shares outstanding – Diluted for the third quarter of fiscal 2020 and fiscal 2019 was 19.0 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,” “strive,” 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, including limitations on, or closures of, our facilities, 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 workers’ compensation claim costs, increased healthcare claim costs, including as a result of 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, supply chain disruption or infection among our employees in
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data) | Thirteen weeks ended |
Thirteen weeks ended |
Thirty-nine weeks ended |
Thirty-nine weeks ended |
||||||||||||
Revenues | $ | 445,518 | $ | 453,720 | $ | 1,375,516 | $ | 1,329,755 | ||||||||
Operating expenses: | ||||||||||||||||
Cost of revenues (1) | 303,223 | 279,900 | 893,961 | 838,621 | ||||||||||||
Selling and administrative expenses (1) | 88,405 | 88,207 | 272,013 | 242,487 | ||||||||||||
Depreciation and amortization | 26,182 | 25,401 | 77,612 | 75,563 | ||||||||||||
Total operating expenses | 417,810 | 393,508 | 1,243,586 | 1,156,671 | ||||||||||||
Operating income | 27,708 | 60,212 | 131,930 | 173,084 | ||||||||||||
Other (income) expense: | ||||||||||||||||
Interest income, net | (1,054 | ) | (2,293 | ) | (5,590 | ) | (6,007 | ) | ||||||||
Other expense, net | 1,556 | 805 | 2,623 | 2,037 | ||||||||||||
Total other income, net | 502 | (1,488 | ) | (2,967 | ) | (3,970 | ) | |||||||||
Income before income taxes | 27,206 | 61,700 | 134,897 | 177,054 | ||||||||||||
Provision for income taxes | 5,921 | 14,480 | 30,690 | 43,908 | ||||||||||||
Net income | $ | 21,285 | $ | 47,220 | $ | 104,207 | $ | 133,146 | ||||||||
Income per share – Basic: | ||||||||||||||||
Common Stock | $ | 1.17 | $ | 2.58 | $ | 5.73 | $ | 7.25 | ||||||||
Class B Common Stock | $ | 0.94 | $ | 2.06 | $ | 4.58 | $ | 5.80 | ||||||||
Income per share – Diluted: | ||||||||||||||||
Common Stock | $ | 1.12 | $ | 2.46 | $ | 5.46 | $ | 6.93 | ||||||||
Income allocated to – Basic: | ||||||||||||||||
Common Stock | $ | 17,871 | $ | 39,563 | $ | 87,519 | $ | 111,626 | ||||||||
Class B Common Stock | $ | 3,414 | $ | 7,657 | $ | 16,688 | $ | 21,520 | ||||||||
Income allocated to – Diluted: | ||||||||||||||||
Common Stock | $ | 21,285 | $ | 47,220 | $ | 104,207 | $ | 133,146 | ||||||||
Weighted average shares outstanding – Basic: | ||||||||||||||||
Common Stock | 15,255 | 15,341 | 15,285 | 15,400 | ||||||||||||
Class B Common Stock | 3,643 | 3,710 | 3,643 | 3,710 | ||||||||||||
Weighted average shares outstanding – Diluted: | ||||||||||||||||
Common Stock | 18,995 | 19,168 | 19,074 | 19,220 |
(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 | $ | 421,253 | $ | 385,341 | ||||
Receivables, net | 200,110 | 203,457 | ||||||
Inventories | 104,503 | 100,916 | ||||||
Rental merchandise in service | 161,732 | 184,318 | ||||||
Prepaid taxes | 1,713 | 4,060 | ||||||
Prepaid expenses and other current assets | 36,201 | 35,699 | ||||||
Total current assets | 925,512 | 913,791 | ||||||
Property, plant and equipment, net | 584,299 | 574,509 | ||||||
424,588 | 401,178 | |||||||
Customer contracts and other intangible assets, net | 86,929 | 72,720 | ||||||
Deferred income taxes | 458 | 448 | ||||||
Operating lease right-of-use assets, net | 44,670 | — | ||||||
Other assets | 86,817 | 84,674 | ||||||
$ | 2,153,273 | $ | 2,047,320 | |||||
Liabilities and shareholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 57,701 | $ | 77,918 | ||||
Accrued liabilities | 126,342 | 111,721 | ||||||
Accrued taxes | — | 205 | ||||||
Operating lease liabilities, current | 12,191 | — | ||||||
Total current liabilities | 196,234 | 189,844 | ||||||
Long-term liabilities: | ||||||||
Accrued liabilities | 119,608 | 117,074 | ||||||
Accrued and deferred income taxes | 98,192 | 99,172 | ||||||
Operating lease liabilities | 31,139 | — | ||||||
Total liabilities | 445,173 | 406,090 | ||||||
Shareholders’ equity: | ||||||||
Common Stock | 1,525 | 1,533 | ||||||
Class B Common Stock | 364 | 364 | ||||||
Capital surplus | 85,572 | 84,946 | ||||||
Retained earnings | 1,657,543 | 1,588,075 | ||||||
Accumulated other comprehensive loss | (36,904 | ) | (33,688 | ) | ||||
Total shareholders’ equity | 1,708,100 | 1,641,230 | ||||||
$ | 2,153,273 | $ | 2,047,320 |
Detail of Operating Results
(Unaudited)
Revenues
(In thousands, except percentages) | Thirteen weeks ended |
Thirteen weeks ended |
Dollar Change |
Percent Change |
||||||||||||
Core Laundry Operations | $ | 388,411 | $ | 399,781 | $ | (11,370 | ) | (2.8 | )% | |||||||
Specialty Garments | 36,163 | 37,313 | (1,150 | ) | (3.1 | )% | ||||||||||
First Aid | 20,944 | 16,626 | 4,318 | 26.0 | % | |||||||||||
Consolidated total | $ | 445,518 | $ | 453,720 | $ | (8,202 | ) | (1.8 | )% |
(In thousands, except percentages) | Thirty-nine weeks ended |
Thirty-nine weeks ended |
Dollar Change |
Percent Change |
||||||||||||
Core Laundry Operations | $ | 1,216,901 | $ | 1,184,666 | $ | 32,235 | 2.7 | % | ||||||||
Specialty Garments | 105,545 | 101,506 | 4,039 | 4.0 | % | |||||||||||
First Aid | 53,070 | 43,583 | 9,487 | 21.8 | % | |||||||||||
Consolidated total | $ | 1,375,516 | $ | 1,329,755 | $ | 45,761 | 3.4 | % |
Operating Income
(In thousands, except percentages) | Thirteen weeks ended |
Thirteen weeks ended |
Dollar Change |
Percent Change |
||||||||||||
Core Laundry Operations | $ | 19,691 | $ | 53,443 | $ | (33,752 | ) | (63.2 | )% | |||||||
Specialty Garments | 6,380 | 5,368 | 1,012 | 18.9 | % | |||||||||||
First Aid | 1,637 | 1,401 | 236 | 16.8 | % | |||||||||||
Consolidated total | $ | 27,708 | $ | 60,212 | $ | (32,504 | ) | (54.0 | )% |
(In thousands, except percentages) | Thirty-nine weeks ended |
Thirty-nine weeks ended |
Dollar Change |
Percent Change |
||||||||||||
Core Laundry Operations | $ | 111,856 | $ | 157,338 | $ | (45,482 | ) | (28.9 | )% | |||||||
Specialty Garments | 15,886 | 12,073 | 3,813 | 31.6 | % | |||||||||||
First Aid | 4,188 | 3,673 | 515 | 14.0 | % | |||||||||||
Consolidated total | $ | 131,930 | $ | 173,084 | $ | (41,154 | ) | (23.8 | )% |
Operating Margin
Thirteen weeks ended |
Thirteen weeks ended |
|||||||
Core Laundry Operations | 5.1 | % | 13.4 | % | ||||
Specialty Garments | 17.6 | % | 14.4 | % | ||||
First Aid | 7.8 | % | 8.4 | % | ||||
Consolidated total | 6.2 | % | 13.3 | % |
Thirty-nine weeks ended |
Thirty-nine weeks ended |
|||||||
Core Laundry Operations | 9.2 | % | 13.3 | % | ||||
Specialty Garments | 15.1 | % | 11.9 | % | ||||
First Aid | 7.9 | % | 8.4 | % | ||||
Consolidated total | 9.6 | % | 13.0 | % |
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands) | Thirty-nine weeks ended |
Thirty-nine weeks ended |
||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 104,207 | $ | 133,146 | ||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
Depreciation and amortization | 77,612 | 75,563 | ||||||
Amortization of deferred financing costs | 84 | 84 | ||||||
Forgiveness of a liability | — | (7,346 | ) | |||||
Share-based compensation | 4,617 | 4,281 | ||||||
Accretion on environmental contingencies | 403 | 566 | ||||||
Accretion on asset retirement obligations | 694 | 647 | ||||||
Deferred income taxes | 81 | 733 | ||||||
Other | 36 | (954 | ) | |||||
Changes in assets and liabilities, net of acquisitions: | ||||||||
Receivables, less reserves | 4,517 | (3,117 | ) | |||||
Inventories | (3,570 | ) | (4,821 | ) | ||||
Rental merchandise in service | 23,900 | (7,606 | ) | |||||
Prepaid expenses and other current assets and Other assets | 3,669 | (2,346 | ) | |||||
Accounts payable | (17,846 | ) | (5,725 | ) | ||||
Accrued liabilities | 5,246 | (9,931 | ) | |||||
Prepaid and accrued income taxes | 1,782 | 26,265 | ||||||
Net cash provided by operating activities | 205,432 | 199,439 | ||||||
Cash flows from investing activities: | ||||||||
Acquisition of businesses, net of cash acquired | (41,098 | ) | (2,379 | ) | ||||
Capital expenditures, including capitalization of software costs | (91,155 | ) | (88,198 | ) | ||||
Proceeds from sale of assets | 261 | 238 | ||||||
Net cash used in investing activities | (131,992 | ) | (90,339 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from exercise of share-based awards | 75 | 49 | ||||||
Taxes withheld and paid related to net share settlement of equity awards | (3,423 | ) | (1,678 | ) | ||||
Repurchase of Common Stock | (21,745 | ) | (20,953 | ) | ||||
Payment of cash dividends | (11,159 | ) | (6,204 | ) | ||||
Net cash used in financing activities | (36,252 | ) | (28,786 | ) | ||||
Effect of exchange rate changes | (1,276 | ) | (1,416 | ) | ||||
Net (decrease) increase in cash, cash equivalents and short-term investments | 35,912 | 78,898 | ||||||
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 | $ | 421,253 | $ | 349,410 |
Investor Relations Contact
Shane O’Connor, Senior Vice President & CFO
978-658-8888
shane_oconnor@unifirst.com
Source: UniFirst Corp.