UNF UniFirst Corp

UniFirst Corporation (NYSE:UNF) today announced results for its second quarter ended February 27, 2016. Revenues for the quarter were $363.1 million, up 0.5% from $361.5 million in the year ago period.  Net income was $23.5 million ($1.16 per diluted share), down 7.7% from $25.4 million ($1.26 per diluted share) in the second quarter of fiscal 2015. As a reminder, the results in the second quarter of fiscal 2015 included a $3.6 million charge to selling and administrative expenses to increase the Company’s environmental contingency reserves.  Excluding the effect of this item, net income for the second quarter a year ago would have been $27.7 million ($1.37 per diluted share).  In addition, the comparison of net income was negatively impacted by a higher effective tax rate in the current quarter compared to the same period a year ago due to a change in the mix of jurisdictional earnings.  

Ronald D. Croatti, UniFirst President and Chief Executive Officer said, “Our growth during the second quarter continued to be negatively impacted by the loss of uniform wearers and customers in energy dependent markets in the United States and Canada.  In fact, during the quarter, uniform wearer reductions accelerated from our first quarter experience.”

Core Laundry revenues in the quarter were $331.4 million, down 0.2% from those reported in the prior year’s second quarter.  Adjusting for the effects of acquisitions and a weaker Canadian dollar, revenues grew 0.5%.  Excluding the environmental charge from the second quarter of fiscal 2015, this segment’s operating margin decreased to 10.9% from an adjusted operating margin of 13.4% a year ago.  The largest driver of the margin decline was significantly higher healthcare claims incurred during the quarter compared to a year ago which impacted the margin comparison by a full 1%.  Merchandise as well as many of our other costs were also higher than the prior year which negatively impacted the margin further due to the lack of top line growth in this segment.  These items were partially offset by lower energy expenses during the quarter compared to a year ago.

Revenues for the Specialty Garments segment, which consists of nuclear decontamination and cleanroom operations, were $20.5 million, up 9.6% from $18.7 million in the second quarter of fiscal 2015.  Due primarily to the improved revenue performance, this segment’s income from operations increased to $1.1 million in the current quarter from a loss of $0.4 million in last year’s comparable period.

UniFirst continues to maintain a solid balance sheet with no long-term debt and increasing cash balances. Net cash provided by operating activities in the first six months of fiscal 2016 was $105.5 million, down only slightly from the same period in fiscal 2015, and cash and cash equivalents at the end of the fiscal quarter totaled $335.0 million, up from $276.6 million at the end of fiscal 2015.

OutlookMr. Croatti continued, “At this time we are adjusting our guidance to reflect the effect of the continuing weak energy market conditions on our customer base.  In addition, the new guidance includes the effect of higher than anticipated healthcare claims experienced in the first half of the fiscal year as well as a higher effective tax rate.  We now believe full year fiscal 2016 revenues will be between $1.455 billion and $1.467 billion and full year diluted EPS will be between $5.45 and $5.65.”

Conference Call InformationUniFirst 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.

About UniFirst CorporationHeadquartered 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 more than 225 service locations, 275,000 customer locations, and 12,000 employee Team Partners, the Company outfits more than 1.5 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 visit www.unifirst.com.

Forward Looking StatementsThis 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 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 29, 2015 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)
			Thirteenweeks endedFebruary 27,				Thirteenweeks endedFebruary 28,				Twenty-sixweeks endedFebruary 27,				Twenty-sixweeks endedFebruary 28,
(In thousands, except per share data)			2016				2015				2016				2015
Revenues		$	363,097			$	361,462			$	736,481			$	731,823
Operating expenses:
Cost of revenues (1)			229,672				223,874				452,275				443,227
Selling and administrative expenses (1)			75,423				77,245				148,172				149,627
Depreciation and amortization			19,809				18,792				39,547				36,829
Total operating expenses			324,904				319,911				639,994				629,683
Income from operations			38,193				41,551				96,487				102,140
Other (income) expense:
Interest expense			218				239				439				427
Interest income			(892	)			(944	)			(1,656	)			(1,748	)
Foreign exchange (gain) loss			(132	)			880				347				1,251
Total other (income) expense			(806	)			175				(870	)			(70	)
Income before income taxes			38,999				41,376				97,357				102,210
Provision for income taxes			15,501				15,930				37,969				39,351
Net income		$	23,498			$	25,446			$	59,388			$	62,859
Income per share – Basic
Common Stock		$	1.23			$	1.33			$	3.10			$	3.29
Class B Common Stock		$	0.98			$	1.06			$	2.48			$	2.63
Income per share – Diluted
Common Stock		$	1.16			$	1.26			$	2.94			$	3.11
Income allocated to – Basic
Common Stock		$	18,691			$	20,182			$	47,232			$	49,834
Class B Common Stock		$	4,704			$	5,041			$	11,896			$	12,472
Income allocated to – Diluted
Common Stock		$	23,401			$	25,235			$	59,141			$	62,335
Weighted average number of shares outstanding – Basic
Common Stock			15,241				15,185				15,230				15,156
Class B Common Stock			4,795				4,741				4,795				4,741
Weighted average number of shares outstanding – Diluted
Common Stock			20,138				20,065				20,127				20,028

(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
(In thousands)				February 27,2016 (1)(2)			August 29,2015
Assets
Current assets:
Cash and cash equivalents			$	334,992		$	276,553
Receivables, net				157,947			151,851
Inventories				75,566			80,449
Rental merchandise in service				136,605			140,384
Prepaid and deferred income taxes				2,460			204
Prepaid expenses and other current assets				13,327			12,382
Total current assets				720,897			661,823
Property, plant and equipment, net				521,324			513,853
Goodwill				313,033			313,133
Customer contracts and other intangible assets, net				35,602			40,049
Deferred income taxes				—			1,475
Other assets				2,978			2,904
			$	1,593,834		$	1,533,237
Liabilities and shareholders' equity
Current liabilities:
Loans payable			$	277		$	1,385
Accounts payable				50,652			50,826
Accrued liabilities				112,603			113,022
Accrued and deferred income taxes				—			18,878
Total current liabilities				163,532			184,111
Long-term liabilities:
Accrued liabilities				57,247			54,566
Accrued and deferred income taxes				73,344			52,352
Total long-term liabilities				130,591			106,918
Shareholders' equity:
Common Stock				1,529			1,525
Class B Common Stock				485			485
Capital surplus				71,173			67,611
Retained earnings				1,254,951			1,197,000
Accumulated other comprehensive (loss) income				(28,427	)		(24,413	)
Total shareholders' equity				1,299,711			1,242,208
			$	1,593,834		$	1,533,237

(1) Unaudited

(2) 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
		Thirteenweeks ended February 27,			Thirteenweeks endedFebruary 28,			Dollar		Percent
(In thousands, except percentages)		2016			2015			Change		Change
Core Laundry Operations	$	331,365		$	332,068		$	(703	)	-0.2	%
Specialty Garments		20,451			18,661			1,790		9.6
First Aid		11,281			10,733			548		5.1
Consolidated total	$	363,097		$	361,462		$	1,635		0.5	%

		Twenty-sixweeks ended February 27,			Twenty-sixweeks endedFebruary 28,			Dollar		Percent
(In thousands, except percentages)		2016			2015			Change		Change
Core Laundry Operations	$	666,402		$	667,915		$	(1,513	)	-0.2	%
Specialty Garments		47,221			41,137			6,084		14.8
First Aid		22,858			22,771			87		0.4
Consolidated total	$	736,481		$	731,823		$	4,658		0.6	%

Income from Operations
		Thirteenweeks ended February 27,			Thirteenweeks endedFebruary 28,			Dollar		Percent
(In thousands, except percentages)		2016			2015			Change		Change
Core Laundry Operations	$	36,129		$	40,924		$	(4,795	)	-11.7	%
Specialty Garments		1,146			(435	)		1,581		364.1
First Aid		918			1,062			(144	)	-13.6
Consolidated total	$	38,193		$	41,551		$	(3,358	)	-8.1	%

		Twenty-sixweeks ended February 27,			Twenty-six weeks endedFebruary 28,			Dollar		Percent
(In thousands, except percentages)		2016			2015			Change		Change
Core Laundry Operations	$	89,101		$	97,797		$	(8,696	)	-8.9	%
Specialty Garments		5,432			1,833			3,599		196.3
First Aid		1,954			2,510			(556	)	-22.1
Consolidated total	$	96,487		$	102,140		$	(5,653	)	-5.5	%

UniFirst Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)			Twenty-sixweeks endedFebruary 27,2016			Twenty-sixweeks endedFebruary 28,2015
Cash flows from operating activities:
Net income			$	59,388		$	62,859
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation				35,297			32,495
Amortization of intangible assets				4,250			4,334
Amortization of deferred financing costs				104			104
Share-based compensation				2,537			3,369
Accretion on environmental contingencies				334			302
Accretion on asset retirement obligations				398			316
Deferred income taxes				5,978			7,040
Changes in assets and liabilities, net of acquisitions:
Receivables				(6,528	)		(11,048	)
Inventories				4,733			(6,578	)
Rental merchandise in service				3,477			718
Prepaid expenses and other current assets				(851	)		(7,187	)
Accounts payable				(79	)		(1,384	)
Accrued liabilities				1,574			11,605
Prepaid and accrued income taxes				(5,131	)		10,092
Net cash provided by operating activities				105,481			107,037
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired				(73	)		(15,086	)
Capital expenditures				(44,028	)		(45,542	)
Other				111			(202	)
Net cash used in investing activities				(43,990	)		(60,830	)
Cash flows from financing activities:
Proceeds from loans payable and long-term debt				—			4,937
Payments on loans payable and long-term debt				(1,046	)		(6,887	)
Proceeds from exercise of Common Stock options, including excess tax benefits				1,026			4,975
Payment of cash dividends				(1,436	)		(1,433	)
Net cash (used in) provided by financing activities				(1,456	)		1,592
Effect of exchange rate changes on cash				(1,596	)		(8,107	)
Net increase in cash and cash equivalents				58,439			39,692
Cash and cash equivalents at beginning of period				276,553			191,769
Cash and cash equivalents at end of period			$	334,992		$	231,461

 

CONTACT: Steven S. Sintros
Senior Vice President & CFO
978-658-8888
ssintros@unifirst.com