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| 8-K - G&K SERVICES, INC. 8-K - G&K SERVICES INC | a6705287.htm |
Exhibit 99.1
G&K Services Reports Fiscal 2011 Third Quarter Results
Company Rental Organic Growth Rate Turns Positive; Adjusted Earnings Per Diluted Share Increases 54 Percent
MINNEAPOLIS--(BUSINESS WIRE)--May 3, 2011--G&K Services, Inc. (NASDAQ: GKSR) today reported third quarter fiscal 2011 revenue of $210.3 million, up from $198.9 million in the prior-year period. This increase in revenue resulted primarily from an improvement in the company’s rental and direct sale organic growth rates. A stronger Canadian dollar also contributed to the increase in revenue, which was partially offset by the impact of divestiture activities during the past year.
The company reported third quarter net earnings of $0.43 per diluted share. This compares to prior-year period earnings of $0.38 per diluted share. The prior-year period included gains from divestiture activity and asset sales, which totaled approximately $0.10 per diluted share. Therefore, current year earnings of $0.43 per diluted share increased 54 percent compared to adjusted earnings of $0.28 per diluted share in the prior-year period. The increase in earnings was driven by the continued execution of the company’s game plan which has generated profitable revenue growth and improved productivity. For the quarter, the company also drove lower merchandise, production, and delivery costs and delivered increased earnings from specific location profit improvement actions. These profit improvement items were partially offset by increased energy costs, lower direct sale gross margin, higher selling expenses and a higher effective tax rate.
“Through the continued execution of our game plan we’ve returned to positive rental organic growth and further expanded our operating margins,” said Douglas A. Milroy, G&K’s chief executive officer. “All areas of our game plan, focused on customer satisfaction and superb day-to-day execution, continue to deliver improved results and strengthen our business.”
Income Statement Review
Third quarter revenue from
rental operations was $192.8 million, up from $185.6 million in the
prior-year period. The company’s rental organic growth rate was positive
3.0 percent, up from negative 10.5 percent in the prior-year period. The
improvement in the rental organic growth rate was driven by virtually
all components of organic growth including customer retention, new
account sales, price and customer employment levels. The organic growth
rate is calculated using revenue, adjusted for foreign currency exchange
rate differences, acquisitions and divestitures. Third quarter revenue
from direct sales was $17.5 million, an increase of 31.3 percent, from
$13.3 million in the prior-year period.
Third quarter operating margin was 7.6 percent, up from 7.0 percent in the prior-year period. The prior-year period adjusted operating margin was 5.8 percent, when excluding net gains from divestiture activity and asset sales. The 180 basis point expansion in adjusted operating margin resulted from revenue growth leveraging fixed costs, productivity gains across core rental operations and continued specific location profit improvement actions, partially offset by higher energy costs, lower direct sale gross margin and an increase in selling expenses.
Financial Strength
The company’s balance sheet remains
strong. As of April 2, 2011, the company had total borrowings of $146.2
million and a debt to capitalization ratio of 22.4 percent. Total
shareholders’ equity at the end of the second quarter was $505.1 million.
The company generated cash flow from operations and reduced its debt, net of cash, by $39.9 million in the last 12 months. Cash provided by operating activities for the nine months ended April 2, 2011 was $49.0 million, compared to $54.2 million in the prior-year period due to changes in working capital required to support the improvement in organic growth, partially offset by higher net income.
Outlook
The company continues to drive improved results
through the execution of its game plan. Accordingly, the company is
raising its revenue guidance and expects fiscal 2011 revenue to be in
the range of $815.0 to $820.0 million. The company is also increasing
its fiscal 2011 adjusted earnings guidance to be in the range of $1.62
to $1.68 per diluted share.
Conference Call Information
The company will host a
conference call today at 10:00 a.m. (CT) to discuss its financial
results and outlook. The call will be webcast and is available on the
Investor Relations section of the company’s website at www.gkservices.com
(click on webcast icon and follow the instructions). A replay of the
call will be available on the company’s website through June 3, 2011.
Safe Harbor for Forward-Looking Statements
Statements
made in this press release concerning the company’s intentions,
expectations or predictions about future results or events are
“forward-looking statements” within the meaning of The Private
Securities Litigation Reform Act of 1995. These statements reflect the
company’s current expectations or beliefs, and are subject to risks and
uncertainties that could cause actual results or events to vary from
stated expectations, which could be material and adverse. You are
cautioned not to place undue reliance on these statements, and the
company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
Information concerning potential factors that could affect future financial results is included in the company’s Annual Report on Form 10-K for the fiscal year ended July 3, 2010.
About G&K Services, Inc.
G&K Services, Inc. is a
market leader in branded work apparel programs and facility services in
the United States, and is the largest such provider in Canada.
Headquartered in Minneapolis, Minnesota, G&K Services employs nearly
7,500 employees serving approximately 165,000 customers from over 160
facilities in North America. G&K Services is a publicly held company
traded over the NASDAQ Global Select Market under the symbol GKSR and is
a component of the Standard & Poor’s SmallCap 600 Index. For more
information on G&K Services, visit the company’s website at www.gkservices.com.
Comparison 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 between periods. The company
believes these non-GAAP results provide useful information to both
management and investors by excluding certain costs that impact
comparability of the results. A reconciliation of 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 table
below:
| Three Months Ended | Three Months Ended | |||||||||||||||||||||||||
| April 2, 2011 | March 27, 2010 | |||||||||||||||||||||||||
| (U.S. Dollars, in thousands, except per share data) | Operating | Net | Earnings Per | Operating | Net | Earnings Per | ||||||||||||||||||||
| Income | Income | Share | Income | Income | Share | |||||||||||||||||||||
| As Reported | $ | 15,953 | $ | 7,966 | $ | 0.43 | $ | 13,954 | $ | 7,037 | $ | 0.38 | ||||||||||||||
| Less: Divestitures of business assets | - | - | - | (2,465 | ) | (1,918 | ) | (0.10 | ) | |||||||||||||||||
| As Adjusted | $ | 15,953 | $ | 7,966 | $ | 0.43 | $ | 11,489 | $ | 5,119 | $ | 0.28 | ||||||||||||||
| Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| April 2, 2011 | March 27, 2010 | |||||||||||||||||||||||||
| (U.S. Dollars, in thousands, except per share data) | Operating | Net | Earnings Per | Operating | Net | Earnings Per | ||||||||||||||||||||
| Income | Income | Share | Income | Income | Share | |||||||||||||||||||||
| As Reported | $ | 50,652 | $ | 25,609 | $ | 1.39 | $ | 38,078 | $ | 17,471 | $ | 0.95 | ||||||||||||||
| Less: Divestitures of business assets | - | - | - | (4,508 | ) | (3,459 | ) | (0.19 | ) | |||||||||||||||||
| Add: Cost reduction activities and reserves for certain matters | - | - | - | 1,082 | 668 | 0.04 | ||||||||||||||||||||
| Less: Impact of change in accounting | (5,929 | ) | (3,699 | ) | (0.20 | ) | - | - | - | |||||||||||||||||
| As Adjusted | $ | 44,723 | $ | 21,910 | $ | 1.19 | $ | 34,652 | $ | 14,680 | $ | 0.80 | ||||||||||||||
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.
| CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS | ||||||||||||||
| G&K Services, Inc. and Subsidiaries | ||||||||||||||
| (Subject to Reclassification) | ||||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||
|
April 2, |
March 27, |
April 2, |
March 27, | |||||||||||
| (U.S. Dollars, in thousands, except per share data) | 2011 | 2010 | 2011 | 2010 | ||||||||||
| REVENUES | ||||||||||||||
| Rental operations | $ | 192,828 | $ | 185,606 | $ | 566,287 | $ | 572,585 | ||||||
| Direct sales | 17,515 | 13,339 | 48,537 | 40,851 | ||||||||||
| Total revenues | 210,343 | 198,945 | 614,824 | 613,436 | ||||||||||
| OPERATING EXPENSES | ||||||||||||||
| Cost of rental operations | 130,857 | 130,038 | 383,316 | 402,906 | ||||||||||
| Cost of direct sales | 13,169 | 9,664 | 36,592 | 30,255 | ||||||||||
| Selling and administrative | 50,364 | 45,289 | 144,264 | 142,197 | ||||||||||
| Total operating expenses | 194,390 | 184,991 | 564,172 | 575,358 | ||||||||||
| INCOME FROM OPERATIONS | 15,953 | 13,954 | 50,652 | 38,078 | ||||||||||
| Interest expense | 2,958 | 3,275 | 8,011 | 10,675 | ||||||||||
| INCOME BEFORE INCOME TAXES | 12,995 | 10,679 | 42,641 | 27,403 | ||||||||||
| Provision for income taxes | 5,029 | 3,642 | 17,032 | 9,932 | ||||||||||
| NET INCOME | $ | 7,966 | $ | 7,037 | $ | 25,609 | $ | 17,471 | ||||||
| Basic weighted average number of shares outstanding | 18,364 | 18,305 | 18,343 | 18,300 | ||||||||||
| BASIC EARNINGS PER COMMON SHARE | $ | 0.43 | $ | 0.38 | $ | 1.40 | $ | 0.95 | ||||||
| Diluted weighted average number of shares outstanding | 18,448 | 18,361 | 18,446 | 18,339 | ||||||||||
| DILUTED EARNINGS PER COMMON SHARE | $ | 0.43 | $ | 0.38 | $ | 1.39 | $ | 0.95 | ||||||
| Dividends per share | $ | 0.095 | $ | 0.075 | $ | 0.285 | $ | 0.225 | ||||||
| CONSOLIDATED CONDENSED BALANCE SHEETS | ||||||||
| G&K Services, Inc. and Subsidiaries | ||||||||
| (Subject to Reclassification) | ||||||||
| (U.S. Dollars, in thousands) | April 2, 2011 | July 3, 2010 | ||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 21,838 | $ | 8,774 | ||||
| Accounts receivable, net | 91,301 | 82,754 | ||||||
| Inventories, net | 145,797 | 126,325 | ||||||
| Other current assets | 15,702 | 21,279 | ||||||
| Total current assets | 274,638 | 239,132 | ||||||
| Property, Plant and Equipment, net | 188,576 | 194,988 | ||||||
| Goodwill | 329,475 | 323,055 | ||||||
| Other Assets | 61,305 | 56,693 | ||||||
| Total assets | $ | 853,994 | $ | 813,868 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 34,779 | $ | 25,944 | ||||
| Accrued expenses | 71,506 | 71,478 | ||||||
| Deferred income taxes | 3,978 | 3,557 | ||||||
| Current maturities of long-term debt | 812 | 1,023 | ||||||
| Total current liabilities | 111,075 | 102,002 | ||||||
| Long-Term Debt, net of Current Maturities | 145,346 | 160,398 | ||||||
| Deferred Income Taxes | 1,524 | 1,242 | ||||||
| Accrued Income Taxes - Long Term | 13,144 | 10,113 | ||||||
| Other Noncurrent Liabilities | 77,797 | 73,217 | ||||||
| Stockholders' Equity | 505,108 | 466,896 | ||||||
| Total liabilities and stockholders' equity | $ | 853,994 | $ | 813,868 | ||||
| CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS | ||||||||||
| G&K Services, Inc. and Subsidiaries | ||||||||||
| (Subject to Reclassification) | ||||||||||
| For the Nine Months Ended | ||||||||||
| April 2, | March 27, | |||||||||
| (U.S. Dollars, in thousands) | 2011 | 2010 | ||||||||
| Operating Activities: | ||||||||||
| Net income | $ | 25,609 | $ | 17,471 | ||||||
| Adjustments to reconcile net income to net | ||||||||||
| cash provided by operating activities - | ||||||||||
| Depreciation and amortization | 28,232 | 30,014 | ||||||||
| Other adjustments | 3,919 | (3,350 | ) | |||||||
| Changes in current operating items | (4,791 | ) | 9,319 | |||||||
| Other assets and liabilities | (3,952 | ) | 754 | |||||||
| Net cash provided by operating activities | 49,017 | 54,208 | ||||||||
| Investing Activities: | ||||||||||
| Property, plant and equipment additions, net | (15,465 | ) | (12,249 | ) | ||||||
| Divestitures of business assets, net | - | 21,670 | ||||||||
| Net cash (used for)/provided by investing activities | (15,465 | ) | 9,421 | |||||||
| Financing Activities: | ||||||||||
| Payments of long-term debt | (763 | ) | (7,434 | ) | ||||||
| Payments of revolving credit facilities, net | (14,500 | ) | (54,210 | ) | ||||||
| Cash dividends paid | (5,327 | ) | (4,185 | ) | ||||||
| Net Issuance of common stock, primarily under stock option plans | 259 | 7 | ||||||||
| Purchase of common stock | (342 | ) | (388 | ) | ||||||
| Net cash used for financing activities | (20,673 | ) | (66,210 | ) | ||||||
| Increase/(Decrease) in Cash and Cash Equivalents | 12,879 | (2,581 | ) | |||||||
| Effect of Exchange Rates on Cash | 185 | (94 | ) | |||||||
| Cash and Cash Equivalents: | ||||||||||
| Beginning of period | 8,774 | 13,136 | ||||||||
| End of period | $ | 21,838 | $ | 10,461 | ||||||
CONTACT:
G&K Services, Inc.
Jeffrey L. Wright,
952-912-5500
Executive Vice President and Chief Financial Officer
or
Shayn
R. Carlson, 952-912-5500
Director of Investor Relations