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| 8-K - G&K SERVICES, INC. 8-K - G&K SERVICES INC | a50149882.htm |
Exhibit 99.1
G&K Services Reports Fiscal 2012 Second Quarter Results
Adjusted Earnings Per Diluted Share Increase 24 Percent to $0.51
Adjusted Quarterly Revenue Grows 7.4 percent to $217 million
Operating Margin Improves to 7.8 percent
MINNEAPOLIS--(BUSINESS WIRE)--January 31, 2012--G&K Services, Inc. (NASDAQ: GKSR) today reported operating results for the second quarter of its fiscal year 2012, which ended on December 31, 2011. Second quarter revenue of $217.1 million grew by 7.4 percent from adjusted revenue of $202.2 million in the prior-year period. The prior-year adjusted revenue excluded $1.9 million related to an accounting change for certain in-service merchandise items. Including the impact of the accounting change, revenue in the prior-year quarter was $204.1 million. Revenue growth was driven by continued strong new account sales, increased revenue from existing rental customers, higher direct sales volume and improved pricing.
The company reported second quarter net earnings of $0.51 per diluted share, an increase of 24 percent from adjusted earnings of $0.41 per diluted share in the prior-year period. The prior-year adjusted earnings excluded a $0.06 per share benefit related to the accounting change. Including this benefit, prior-year earnings were $0.47 per diluted share. Earnings growth in the quarter was driven by increased revenue, improved operating margins and lower interest expense.
“By most of our key financial measures, the second quarter was the best since initiating our game plan,” said Douglas A. Milroy, Chief Executive Officer. “Through its execution, we have made lasting improvements to our business, clearly impacting financial performance.”
Income Statement Review
Second quarter revenue from
rental operations was $196.8 million, up from adjusted rental revenue of
$185.2 million in the prior-year quarter. Prior-year adjusted rental
revenue excluded $1.9 million related to the accounting change.
Including the impact of the accounting change, prior-year revenue from
rental operations was $187.1 million. The company’s rental organic
growth rate was 6.0 percent. The organic growth rate is calculated using
revenue adjusted for foreign currency exchange rate differences and the
accounting change. Rental organic growth was primarily driven by
continued strong new account sales, increased revenue from existing
customers and improved pricing. Second quarter direct sales grew by 19
percent to $20.2 million, up from $17.0 million in the prior-year.
Direct sales growth was driven primarily by new account sales and
increased catalog sales.
Second quarter operating margin improved to 7.8 percent, up from an adjusted operating margin of 7.3 percent in the prior-year period. Including the impact of the previously mentioned accounting change, the prior-year operating margin was 8.1 percent. The higher adjusted operating margin was driven by revenue growth leveraging fixed costs, lower selling and administrative expenses as a percent of revenue, and efficiency gains in rental production. These gains were partially offset by higher merchandise expense and lower gross margin on direct sales. The higher merchandise expense was primarily due to increased raw material costs, investments in new merchandise to support sales growth, and a product mix shift to more specialty garments.
Net earnings also benefited from lower interest expense and a lower effective tax rate. Interest expense in the current quarter was $1.6 million, down from $2.4 million in the prior-year period, primarily due to lower total debt. The effective tax rate was 38.3 percent, compared to 39.0 percent in the prior-year period.
Balance Sheet and Cash Flow
The company’s financial
position remains strong. As of December 31, 2011, the company had total
debt net of cash of $118.1 million and a debt to capital ratio of 20.1
percent. Total stockholders’ equity at the end of the second quarter was
$524.0 million.
Cash provided by operating activities for the six months ended December 31, 2011 was $17.8 million, compared to $24.3 in the prior year. The lower operating cash flow was primarily due to increased working capital requirements to support the company’s revenue growth. Capital expenditures for the first six months of the fiscal year were $18.0 million, up from $10.8 million in the prior year period, due to increased investments to enhance productivity and support profitable revenue growth.
Outlook
Based on first half performance and increased
confidence in its outlook, the company is raising the lower-end of its
full-year revenue guidance to a range of $855 to $870 million, from the
previously announced range of $850 to $870 million. The company is also
raising the lower-end of its full-year earnings guidance to a range of
$1.85 to $2.05 per diluted share, from the previously announced range of
$1.80 to $2.05 per diluted share. The company continues to expect to
generate full-year free cash flow in a range comparable to fiscal year
2011.
Conference Call Information
The company will host a
conference call today at 10:00 a.m. Central Time to discuss its
financial results and outlook. The call will be webcast and is available
in the Investor Relations section of the company’s web site at www.gkservices.com.
A replay of the call will be available on the company’s web site through
February 29, 2012.
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 2, 2011.
About G&K Services, Inc.
G&K Services, Inc. is a
service-focused market leader of branded uniform and facility services
programs in the United States, and is the largest such provider in
Canada. Headquartered in Minneapolis, Minnesota, G&K Services has over
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 web site 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 amounts 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 | ||||||||||||||||||||||||||||||
| December 31, 2011 | January 1, 2011 | ||||||||||||||||||||||||||||||
| Operating | Net | Earnings | Operating | Net | Earnings | ||||||||||||||||||||||||||
| (U.S. Dollars, in thousands, except per share data) | Revenue | Income | Income | Per Share | Revenue | Income | Income | Per Share | |||||||||||||||||||||||
| As Reported | $ | 217,064 | $ | 16,954 | $ | 9,466 | $ | 0.51 | $ | 204,092 | $ | 16,608 | $ | 8,664 | $ | 0.47 | |||||||||||||||
| Less: Impact of change in accounting | - | - | - | - | (1,891 | ) | (1,891 | ) | (1,125 | ) | (0.06 | ) | |||||||||||||||||||
| As Adjusted | $ | 217,064 | $ | 16,954 | $ | 9,466 | $ | 0.51 | $ | 202,201 | $ | 14,717 | $ | 7,539 | $ | 0.41 | |||||||||||||||
| Six Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||
| December 31, 2011 | January 1, 2011 | ||||||||||||||||||||||||||||||
| Operating | Net | Earnings | Operating | Net | Earnings | ||||||||||||||||||||||||||
| (U.S. Dollars, in thousands, except per share data) | Revenue | Income | Income | Per Share | Revenue | Income | Income | Per Share | |||||||||||||||||||||||
| As Reported | $ | 426,787 | $ | 32,429 | $ | 17,759 | $ | 0.95 | $ | 404,481 | $ | 34,699 | $ | 17,643 | $ | 0.96 | |||||||||||||||
| Less: Impact of change in accounting | - | - | - | - | (5,929 | ) | (5,929 | ) | (3,699 | ) | (0.20 | ) | |||||||||||||||||||
| As Adjusted | $ | 426,787 | $ | 32,429 | $ | 17,759 | $ | 0.95 | $ | 398,552 | $ | 28,770 | $ | 13,944 | $ | 0.76 | |||||||||||||||
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 Six Months Ended | |||||||||||||||
| (U.S. Dollars, in thousands, except per share data) |
December 31, |
January 1, |
December 31, |
January 1, |
||||||||||||
| REVENUES | ||||||||||||||||
| Rental operations | $ | 196,832 | $ | 187,089 | $ | 390,833 | $ | 373,459 | ||||||||
| Direct sales | 20,232 | 17,003 | 35,954 | 31,022 | ||||||||||||
| Total revenues | 217,064 | 204,092 | 426,787 | 404,481 | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Cost of rental operations | 136,350 | 127,456 | 269,937 | 252,459 | ||||||||||||
| Cost of direct sales | 16,252 | 12,852 | 28,167 | 23,423 | ||||||||||||
| Selling and administrative | 47,508 | 47,176 | 96,254 | 93,900 | ||||||||||||
| Total operating expenses | 200,110 | 187,484 | 394,358 | 369,782 | ||||||||||||
| INCOME FROM OPERATIONS | 16,954 | 16,608 | 32,429 | 34,699 | ||||||||||||
| Interest expense | 1,607 | 2,406 | 3,260 | 5,053 | ||||||||||||
| INCOME BEFORE INCOME TAXES | 15,347 | 14,202 | 29,169 | 29,646 | ||||||||||||
| Provision for income taxes | 5,881 | 5,538 | 11,410 | 12,003 | ||||||||||||
| NET INCOME | $ | 9,466 | $ | 8,664 | $ | 17,759 | $ | 17,643 | ||||||||
| Basic weighted average number of shares outstanding | 18,493 | 18,375 | 18,462 | 18,332 | ||||||||||||
| BASIC EARNINGS PER COMMON SHARE | $ | 0.51 | $ | 0.47 | $ | 0.96 | $ | 0.96 | ||||||||
| Diluted weighted average number of shares outstanding | 18,660 | 18,478 | 18,635 | 18,416 | ||||||||||||
| DILUTED EARNINGS PER COMMON SHARE | $ | 0.51 | $ | 0.47 | $ | 0.95 | $ | 0.96 | ||||||||
| Dividends per share | $ | 0.130 | $ | 0.095 | $ | 0.260 | $ | 0.190 | ||||||||
| CONSOLIDATED CONDENSED BALANCE SHEETS | ||||||||
| G&K Services, Inc. and Subsidiaries | ||||||||
| (Subject to Reclassification) | ||||||||
| (U.S. Dollars, in thousands) |
December 31, |
July 2, 2011 | ||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 13,597 | $ | 22,974 | ||||
| Accounts receivable, net | 94,632 | 90,522 | ||||||
| Inventories, net | 176,279 | 163,050 | ||||||
| Other current assets | 13,715 | 21,614 | ||||||
| Total current assets | 298,223 | 298,160 | ||||||
| Property, Plant, Equipment, net | 186,806 | 185,521 | ||||||
| Goodwill | 324,819 | 328,219 | ||||||
| Other Assets | 50,388 | 54,020 | ||||||
| Total assets | $ | 860,236 | $ | 865,920 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 36,908 | $ | 38,067 | ||||
| Accrued expenses | 65,704 | 72,395 | ||||||
| Deferred income taxes | 7,577 | 7,626 | ||||||
| Current maturities of long-term debt | 36,611 | 40,710 | ||||||
| Total current liabilities | 146,800 | 158,798 | ||||||
| Long-Term Debt, net of Current Maturities | 95,040 | 95,188 | ||||||
| Deferred Income Taxes | 14,488 | 9,189 | ||||||
| Accrued Income Taxes - Long Term | 14,238 | 13,199 | ||||||
| Other Noncurrent Liabilities | 65,678 | 74,640 | ||||||
| Stockholders' Equity | 523,992 | 514,906 | ||||||
|
Total liabilities and stockholders' equity |
$ | 860,236 | $ | 865,920 | ||||
| CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS | ||||||||||
| G&K Services, Inc. and Subsidiaries | ||||||||||
| (Subject to Reclassification) | ||||||||||
| For the Six Months Ended | ||||||||||
| December 31, | January 1, | |||||||||
| (U.S. Dollars, in thousands) | 2011 | 2011 | ||||||||
| Operating Activities: | ||||||||||
| Net income | $ | 17,759 | $ | 17,643 | ||||||
| Adjustments to reconcile net income to net | ||||||||||
| cash provided by operating activities - | ||||||||||
| Depreciation and amortization | 17,153 | 18,811 | ||||||||
| Other adjustments | 7,468 | 2,838 | ||||||||
| Changes in current operating items and other, net | (24,601 | ) | (15,041 | ) | ||||||
| Net cash provided by operating activities | 17,779 | 24,251 | ||||||||
| Investing Activities: | ||||||||||
| Property, plant and equipment additions, net | (18,025 | ) | (10,776 | ) | ||||||
| Net cash used for investing activities | (18,025 | ) | (10,776 | ) | ||||||
| Financing Activities: | ||||||||||
| Payments of long-term debt | (402 | ) | (505 | ) | ||||||
| Payments on revolving credit facilities, net | (3,900 | ) | (4,500 | ) | ||||||
| Cash dividends paid | (4,891 | ) | (3,551 | ) | ||||||
| Net Issuance of common stock, under stock option plans | 799 | 96 | ||||||||
| Purchase of common stock | (614 | ) | (335 | ) | ||||||
| Net cash used for financing activities | (9,008 | ) | (8,795 | ) | ||||||
| (Decrease)/Increase in Cash and Cash Equivalents | (9,254 | ) | 4,680 | |||||||
| Effect of Exchange Rates on Cash | (123 | ) | 106 | |||||||
| Cash and Cash Equivalents: | ||||||||||
| Beginning of period | 22,974 | 8,774 | ||||||||
| End of period | $ | 13,597 | $ | 13,560 | ||||||
CONTACT:
G&K Services, Inc.
Jeffrey L. Wright,
952-912-5500
Executive Vice President and Chief Financial Officer
Or
Jeff
Huebschen, 952-912-5773
Director, Investor Relations