UniFirst Corporation announced results for its fourth quarter and full year ended August 27, 2016
OREANDA-NEWS. UniFirst Corporation (NYSE:UNF) today announced results for its fourth quarter and full year ended August 27, 2016. Revenues for the quarter were $363.8 million, up 1.3% from $359.2 million in the same year ago period. Net income was $35.5 million ($1.74 per diluted share), compared to net income of $28.9 million ($1.43 per diluted share) in the fourth quarter of fiscal 2015. Full year revenues were $1.468 billion, up 0.8% from fiscal 2015. Net income for the full year was $125.0 million ($6.17 per diluted share) compared to net income of $124.3 million ($6.15 per diluted share) in the prior year.
These results include the positive effect of a settlement the Company entered into during the fourth quarter. The settlement related to environmental litigation and resulted in a $15.9 million gain that was recorded as a reduction of fourth quarter and full year selling and administrative expenses. Excluding the effect of this settlement, adjusted net income for the quarter was $25.8 million ($1.27 per diluted share), down 10.8% from a year ago. Full year adjusted net income was $115.3 million ($5.69 per diluted share) down 7.2% from net income in the prior fiscal year. (See reconciliation table for details)
The current quarter results also reflect a $3.5 million increase to the Company’s reserves for environmental contingencies. This charge, which is unrelated to the settlement discussed above, was also recorded in selling and administrative expense and decreased fourth quarter net income by $2.1 million ($0.11 per diluted share). By comparison, in the fourth quarter of fiscal 2015, the Company increased its reserves for environmental contingencies by $1.3 million, which reduced net income by $0.8 million ($0.04 per diluted share).
Ronald D. Croatti, UniFirst President and Chief Executive Officer said, “Our growth during the fourth quarter continued to be negatively affected by the loss of uniform wearers and customers in energy dependent markets in the United States and Canada. However, we are encouraged that the recent trend of wearer levels at our existing customers, although still negative, appears to be improving as we move into fiscal 2017. We continue to focus on matters within our control, such as providing high quality service to our broad customer base as well as selling prospective customers on the value of our products and services.”
Core Laundry revenues in the quarter were $331.7 million, up 1.6% from those reported in the prior year’s fourth quarter. Adjusting for the effect of acquisitions and a weaker Canadian dollar, revenues grew 1.1%. This segment’s operating income adjusted to exclude the positive affect of the settlement discussed above (see reconciliation for details) was $38.3 million in the quarter, a 10.6% decrease from the prior year. Its adjusted operating margin was 11.6%, down from 13.1% for the same period in fiscal 2015. This decline was partially the result of the increase made to reserves for environmental contingencies discussed earlier. In addition, many of this segment’s expenses, including those related to its production facilities as well as selling and administrative efforts, were higher as a percentage of revenues than in the prior year. These items were partially offset by lower energy expenses during the quarter compared to a year ago.
Revenues and operating income in the quarter for the Specialty Garments segment, which consists of nuclear decontamination and cleanroom operations, declined 2.8% and 18.5%, respectively, compared to a year ago. This segment’s results can vary significantly from period to period due to seasonality and the timing of reactor outages and projects. For the full year, this segment produced solid results, with revenues and operating income growing 4.3% and 38.7%, respectively, over the same period a year ago.
UniFirst continues to maintain a strong balance sheet with no long-term debt and increasing cash balances. Net cash provided by operating activities for full year fiscal 2016 was $207.6 million and cash and equivalents at the end of fiscal 2016 totaled $363.8 million, up from $276.6 million at the end of fiscal 2015.
Outlook
Mr. Croatti continued, “At this time, we expect that our fiscal 2017 revenues will be between $1.550 billion and $1.565 billion and full year diluted EPS will be between $5.00 and $5.15. The projected decline in our earnings next year is primarily the result of the slower top line growth we have recently been experiencing coupled with increases in labor and labor related costs as well as the impact of other investments we continue to make in our Company. Our guidance assumes no significant further deterioration in our wearer base as a result of additional layoffs in energy dependent markets that we service.” This guidance includes the results of Arrow Uniform, the acquisition which was completed in late September 2016. The Company expects this acquisition to add between $62 million and $65 million to its annual revenues and that it will be dilutive to fiscal 2017 earnings, partially due to non-cash purchase accounting charges.
About UniFirst Corporation
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.
UniFirst Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
Thirteen weeks ended August 27, | Thirteen weeks ended August 29, | Fifty-two weeks ended August 27, | Fifty-two weeks ended August 29, | |||||||||||||
(In thousands, except per share data) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Revenues | $ | 363,766 | $ | 359,208 | $ | 1,468,046 | $ | 1,456,605 | ||||||||
Operating expenses: | ||||||||||||||||
Cost of revenues (1) | 223,220 | 219,442 | 900,427 | 884,664 | ||||||||||||
Selling and administrative expenses (1) | 62,134 | 72,612 | 284,847 | 294,444 | ||||||||||||
Depreciation and amortization | 21,656 | 21,262 | 81,612 | 77,113 | ||||||||||||
Total operating expenses | 307,010 | 313,316 | 1,266,886 | 1,256,221 | ||||||||||||
Income from operations | 56,756 | 45,892 | 201,160 | 200,384 | ||||||||||||
Other (income) expense: | ||||||||||||||||
Interest expense | 277 | 225 | 927 | 873 | ||||||||||||
Interest income | (912 | ) | (778 | ) | (3,470 | ) | (3,310 | ) | ||||||||
Foreign exchange loss | 76 | 230 | 332 | 1,553 | ||||||||||||
Total other income | (559 | ) | (323 | ) | (2,211 | ) | (884 | ) | ||||||||
Income before income taxes | 57,315 | 46,215 | 203,371 | 201,268 | ||||||||||||
Provision for income taxes | 21,821 | 17,274 | 78,345 | 76,969 | ||||||||||||
Net income | $ | 35,494 | $ | 28,941 | $ | 125,026 | $ | 124,299 | ||||||||
Income per share – Basic | ||||||||||||||||
Common Stock | $ | 1.84 | $ | 1.51 | $ | 6.51 | $ | 6.50 | ||||||||
Class B Common Stock | $ | 1.47 | $ | 1.21 | $ | 5.21 | $ | 5.20 | ||||||||
Income per share – Diluted | ||||||||||||||||
Common Stock | $ | 1.74 | $ | 1.43 | $ | 6.17 | $ | 6.15 | ||||||||
Income allocated to – Basic | ||||||||||||||||
Common Stock | $ | 28,097 | $ | 23,011 | $ | 99,282 | $ | 98,665 | ||||||||
Class B Common Stock | $ | 7,139 | $ | 5,803 | $ | 25,093 | $ | 24,761 | ||||||||
Income allocated to – Diluted | ||||||||||||||||
Common Stock | $ | 35,250 | $ | 28,821 | $ | 124,409 | $ | 123,472 | ||||||||
Weighted average number of shares outstanding – Basic | ||||||||||||||||
Common Stock | 15,268 | 15,210 | 15,245 | 15,182 | ||||||||||||
Class B Common Stock | 4,850 | 4,795 | 4,816 | 4,763 | ||||||||||||
Weighted average number of shares outstanding – Diluted | ||||||||||||||||
Common Stock | 20,223 | 20,142 | 20,154 | 20,079 | ||||||||||||
(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) | August 27, 2016 (1) | August 29, 2015 | ||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 363,795 | $ | 276,553 | ||||
Receivables, net | 156,578 | 151,851 | ||||||
Inventories | 78,887 | 80,449 | ||||||
Rental merchandise in service | 138,105 | 140,384 | ||||||
Prepaid and deferred income taxes | 10,418 | 204 | ||||||
Prepaid expenses and other current assets | 29,831 | 12,382 | ||||||
Total current assets | 777,614 | 661,823 | ||||||
Property, plant and equipment, net | 539,818 | 513,853 | ||||||
Goodwill | 320,641 | 313,133 | ||||||
Customer contracts and other intangible assets, net | 38,664 | 40,049 | ||||||
Deferred income taxes | 97 | 1,475 | ||||||
Other assets | 25,173 | 2,904 | ||||||
$ | 1,702,007 | $ | 1,533,237 | |||||
Liabilities and shareholders' equity | ||||||||
Current liabilities: | ||||||||
Loans payable | $ | — | $ | 1,385 | ||||
Accounts payable | 50,884 | 50,826 | ||||||
Accrued liabilities | 100,782 | 113,022 | ||||||
Accrued and deferred income taxes | 969 | 18,878 | ||||||
Total current liabilities | 152,635 | 184,111 | ||||||
Long-term liabilities: | ||||||||
Accrued liabilities | 104,921 | 54,566 | ||||||
Accrued and deferred income taxes | 79,670 | 52,352 | ||||||
Total long-term liabilities | 184,591 | 106,918 | ||||||
Shareholders' equity: | ||||||||
Common Stock | 1,542 | 1,525 | ||||||
Class B Common Stock | 485 | 485 | ||||||
Capital surplus | 72,561 | 67,611 | ||||||
Retained earnings | 1,319,142 | 1,197,000 | ||||||
Accumulated other comprehensive (loss) income | (28,949 | ) | (24,413 | ) | ||||
Total shareholders' equity | 1,364,781 | 1,242,208 | ||||||
$ | 1,702,007 | $ | 1,533,237 | |||||
(1) In the second fiscal quarter of 2016, the Company adopted updated accounting guidance on the presentation of deferred income taxes. This adoption required that deferred tax liabilities and assets be classified as noncurrent in the Consolidated Balance Sheet. The Company elected to account for this change in presentation prospectively and prior periods were not retroactively adjusted.
UniFirst Corporation and Subsidiaries
Detail of Operating Results
(Unaudited)
Revenues
Thirteen weeks ended August 27, |
Thirteen weeks ended August 29, |
Dollar |
Percent |
||||||||
(In thousands, except percentages) | 2016 | 2015 | Change | Change | |||||||
Core Laundry Operations | $ | 331,749 | $ | 326,643 | $ | 5,106 | 1.6 | % | |||
Specialty Garments | 19,955 | 20,522 | (567 | ) | -2.8 | ||||||
First Aid | 12,062 | 12,043 | 19 | 0.2 | |||||||
Consolidated total | $ | 363,766 | $ | 359,208 | $ | 4,558 | 1.3 | % | |||
Fifty-two weeks ended August 27, |
Fifty-two weeks ended August 29, |
Dollar |
Percent |
||||||||
(In thousands, except percentages) | 2016 | 2015 | Change | Change | |||||||
Core Laundry Operations | $ | 1,329,375 | $ | 1,322,328 | $ | 7,047 | 0.5 | % | |||
Specialty Garments | 91,257 | 87,513 | 3,744 | 4.3 | |||||||
First Aid | 47,414 | 46,764 | 650 | 1.4 | |||||||
Consolidated total | $ | 1,468,046 | $ | 1,456,605 | $ | 11,441 | 0.8 | % | |||
Income from Operations
Thirteen weeks ended August 27, |
Thirteen weeks ended August 29, |
Dollar |
Percent |
||||||||
(In thousands, except percentages) | 2016 | 2015 | Change | Change | |||||||
Core Laundry Operations | $ | 54,189 | $ | 42,855 | $ | 11,334 | 26.5 | % | |||
Specialty Garments | 1,213 | 1,490 | (277 | ) | -18.5 | ||||||
First Aid | 1,354 | 1,547 | (193 | ) | -12.5 | ||||||
Consolidated total | $ | 56,756 | $ | 45,892 | $ | 10,864 | 23.7 | % | |||
Fifty-two weeks ended August 27, |
Fifty-two weeks ended August 29, |
Dollar |
Percent |
||||||||
(In thousands, except percentages) | 2016 | 2015 | Change | Change | |||||||
Core Laundry Operations | $ | 186,074 | $ | 187,586 | $ | (1,512 | ) | -0.8 | % | ||
Specialty Garments | 10,204 | 7,355 | 2,849 | 38.7 | |||||||
First Aid | 4,882 | 5,443 | (561 | ) | -10.3 | ||||||
Consolidated total | $ | 201,160 | $ | 200,384 | $ | 776 | 0.4 | % | |||
UniFirst Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands) |
Fifty-two weeks ended August 27, 2016 | Fifty-two weeks ended August 29, 2015 | ||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 125,026 | $ | 124,299 | ||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
Depreciation | 72,983 | 68,164 | ||||||
Amortization of intangible assets | 8,629 | 8,949 | ||||||
Amortization of deferred financing costs | 184 | 209 | ||||||
Share-based compensation | 5,628 | 5,366 | ||||||
Accretion on environmental contingencies | 669 | 603 | ||||||
Accretion on asset retirement obligations | 826 | 690 | ||||||
Deferred income taxes | 9,899 | (3,473 | ) | |||||
Changes in assets and liabilities, net of acquisitions: | ||||||||
Receivables | (3,949 | ) | (3,494 | ) | ||||
Inventories | 1,467 | (2,236 | ) | |||||
Rental merchandise in service | 3,945 | 4,900 | ||||||
Prepaid expenses and other current assets and Other assets | (38,443 | ) | (4,005 | ) | ||||
Accounts payable | 49 | (7,648 | ) | |||||
Accrued liabilities | 31,954 | 17,832 | ||||||
Prepaid and accrued income taxes | (11,231 | ) | 16,761 | |||||
Net cash provided by operating activities | 207,636 | 226,917 | ||||||
Cash flows from investing activities: | ||||||||
Acquisition of businesses, net of cash acquired | (16,583 | ) | (22,359 | ) | ||||
Capital expenditures | (98,235 | ) | (101,163 | ) | ||||
Other | 149 | (747 | ) | |||||
Net cash used in investing activities | (114,669 | ) | (124,269 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from loans payable and long-term debt | — | 6,866 | ||||||
Payments on loans payable and long-term debt | (1,301 | ) | (13,055 | ) | ||||
Payment of deferred financing costs | (813 | ) | — | |||||
Proceeds from exercise of Common Stock options, including excess tax benefits | 5,313 | 7,799 | ||||||
Taxes withheld and paid related to net share settlement of equity awards | (5,965 | ) | (5,002 | ) | ||||
Payment of cash dividends | (2,878 | ) | (2,869 | ) | ||||
Net cash used in financing activities | (5,644 | ) | (6,261 | ) | ||||
Effect of exchange rate changes on cash | (81 | ) | (11,603 | ) | ||||
Net increase in cash and cash equivalents | 87,242 | 84,784 | ||||||
Cash and cash equivalents at beginning of period | 276,553 | 191,769 | ||||||
Cash and cash equivalents at end of period | $ | 363,795 | $ | 276,553 | ||||
UniFirst Corporation and Subsidiaries
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 information regarding the Company’s performance to both management and investors by excluding certain non-recurring amounts that impact the comparability of the results. A reconciliation of consolidated operating income, net income and earnings per diluted share on a GAAP basis to adjusted earnings per diluted share on a non-GAAP basis is 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.
Thirteen weeks ended August 27, 2016 | |||||||||||||||
Consolidated | Core Laundry Operations | ||||||||||||||
(In thousands, except percentages) | Revenue | Operating Income |
Net Income |
Diluted EPS |
Revenue | Operating Income |
Operating Margin |
||||||||
As reported | $ | 363,766 | $ | 56,756 | $ | 35,494 | $ | 1.74 | $ | 331,749 | $ | 54,189 | 16.3 | % | |
Settlement of environmental litigation | — | (15,861 | ) | (9,691 | ) | (0.48 | ) | — | (15,861 | ) | -4.8 | ||||
As adjusted | $ | 363,766 | $ | 40,895 | $ | 25,803 | $ | 1.27 | $ | 331,749 | $ | 38,328 | 11.6 | % | |
Fifty-two weeks ended August 27, 2016 | |||||||||||||||
Consolidated | Core Laundry Operations | ||||||||||||||
(In thousands, except percentages) | Revenue | Operating Income |
Net Income |
Diluted EPS |
Revenue | Operating Income |
Operating Margin |
||||||||
As reported | $ | 1,468,046 | $ | 201,160 | $ | 125,026 | $ | 6.17 | $ | 1,329,375 | $ | 186,074 | 14.0 | % | |
Settlement of environmental litigation | — | (15,861 | ) | (9,691 | ) | (0.48 | ) | — | (15,861 | ) | -1.2 | ||||
As adjusted | $ | 1,468,046 | $ | 185,299 | $ | 115,335 | $ | 5.69 | $ | 1,329,375 | $ | 170,213 | 12.8 | % | |
These non-GAAP measures are not in accordance with, or an alternative for measures prepared in accordance with, GAAP and may be different from non-GAAP measures used by other companies. Investors should consider non-GAAP measures in addition to, and not as a substitute for, or superior to, financial performance measures prepared in accordance with GAAP.
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