Fourth Quarter Adjusted Earnings Increase 9
Percent to $0.83 Per Diluted Share
Full-Year Organic Revenue Growth Reaches 5.6
Percent
Full-Year Adjusted Earnings Grow 13 Percent to
Record $3.28 Per Diluted Share
G&K Introduces New Financial Goals
G&K Services, Inc. (NASDAQ: GK) today reported
operating results for the fourth quarter of its fiscal year 2015,
which ended on June 27, 2015. Fourth quarter revenue grew 3.0
percent to $236.6 million, up from $229.7 million in last year’s
fourth quarter. Adjusted earnings increased 9 percent to $0.83 per
diluted share, compared to $0.76 per diluted share in the prior
year period. Adjusted earnings excluded a $0.12 per share charge
due to an increase in the company’s environmental reserves in the
current quarter and a $0.02 per share benefit from a change in
merchandise amortization lives in the prior year quarter. Including
these items, the company reported earnings of $0.71 per diluted
share in the current quarter and $0.78 per diluted share in the
prior year quarter (see reconciliation table for details).
For the full fiscal year revenue was $937.6 million, a 4.1
percent increase from the prior year. Full year adjusted earnings
grew to a company record $3.28 per diluted share. Full year
adjusted results excluded net charges of $0.33 per share. Including
these charges, full year earnings were $2.95 per diluted share (see
reconciliation table).
“Our team delivered another terrific set of results in fiscal
2015, continuing our record of consistent, strong financial
performance,” said Douglas A. Milroy, Chairman and Chief Executive
Officer. “During the year we improved organic revenue growth and
significantly expanded operating margins, leading to our third
consecutive year of record earnings per share. As we enter fiscal
2016, I’m as confident as ever in our Game Plan and our team’s
ability to deliver.”
Income Statement ReviewThe
fourth quarter organic growth rate, which adjusts for the impact of
currency exchange, acquisitions and divestitures, was 5.0 percent.
Full year organic revenue growth was 5.6 percent. This strong
organic growth was partially offset by the negative impact of a
lower exchange rate for the Canadian dollar, which reduced total
revenue growth by 2.0 percent in the fourth quarter and 1.5 percent
for the full year.
Adjusted operating margin expanded to 11.9 percent, a 60 basis
point increase compared to last year’s fourth quarter. The higher
adjusted operating margin was primarily driven by lower energy
costs, operating leverage from revenue growth, and productivity
gains in rental operations, partially offset by increased rental
merchandise expense and higher health insurance costs. Adjusted
operating margin excluded the previously mentioned charges related
to environmental reserves in the current quarter and the prior year
benefit from the change in estimated merchandise amortization
lives. Including these items, operating margin was 10.2 percent in
the current quarter and 11.7 percent in the prior year period (see
reconciliation table). For the full year, adjusted operating margin
improved to 11.9 percent, compared to 11.1 percent in fiscal
2014.
The increase to the company’s environmental reserves was
primarily due to additional costs the company expects to incur for
environmental remediation at four locations. At three of these
sites G&K determined that the party that was contractually
obligated to conduct the remediation would no longer be able to
meet its obligations because of its financial condition.
Interest expense in the quarter increased slightly to $1.7
million, compared to $1.6 million in the prior-year quarter. The
effective tax rate was 37.1 percent, compared to 37.5 percent in
the fourth quarter last year and the diluted share count was 20.1
million, unchanged from last year’s fourth quarter.
Balance Sheet and Cash
FlowThe company ended the fiscal year with total debt,
net of cash, of $227.5 million and a ratio of debt to total capital
of 38.2 percent. On a three month annualized basis, return on
invested capital (ROIC) increased 50 basis points to 11.1 percent,
compared to 10.6 percent in the fourth quarter last year.
Cash provided by operating activities for the fiscal year
increased to $94.2 million, compared to $74.6 million in the prior
year, primarily due to higher net income and improved working
capital management. These improvements in operating cash flow were
partially offset by a settlement payment the company made to a
multi-employer pension plan during the fourth quarter. Capital
expenditures during the fiscal year were $55.8 million, compared to
$32.8 million in the prior year, as the company increased
investments in capacity expansion and information technology.
During the fiscal year G&K returned $42.1 million of cash to
shareholders through dividend payments and share repurchases. In a
separate press release issued this morning, the company announced a
19 percent increase in its regular quarterly dividend, to $0.37 per
share. The company also announced an increase to its share
repurchase authorization.
OutlookThe company expects
to drive continued performance gains in fiscal year 2016, with
revenue in the range of $975 million to $1 billion and diluted
earnings per share between $3.50 and $3.70. This guidance for
fiscal 2016 includes one extra week of operations compared to
fiscal 2015 due to the timing of our fiscal calendar. This extra
week of operations is expected to add approximately 2 percent to
both revenue and earnings. In addition, this guidance assumes a
continued negative impact from foreign currency exchange, which is
expected to reduce both revenue and earnings by 1.5 to 2.0 percent
compared to fiscal 2015.
New Financial GoalsMr.
Milroy continued, “Over the past two years, we’ve made terrific
progress on our 12+ Plan, which again demonstrates the strength of
our team and our business model. Even with this success, we see
significant opportunities to further improve our financial
performance. So we’re introducing a new set of financial goals, our
15/5 Goals, to better frame our vision for G&K.
“With the 15/5 Goals, our primary focus remains improving
profitability and returns, setting the goal to achieve 15 percent
operating margin and 15 percent ROIC. We’ve also set a goal of 5
percent or greater average revenue growth, consistent with the
shift to growth we began two years ago. Achieving these goals will
continue to generate strong returns for our shareholders.”
Conference Call
InformationThe 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 website at
investors.gkservices.com. A replay of the call will be available on
the company’s website through September 11, 2015.
Safe Harbor for Forward-Looking
StatementsStatements 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 June 28, 2014 and any
subsequent filings with the U.S. Securities and Exchange
Commission.
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 7,800
employees serving approximately 170,000 customer locations from 165
facilities in North America. G&K Services is a publicly held
company traded over the NASDAQ Global Select Market under the
symbol GK and is a component of the Standard & Poor’s SmallCap
600 Index. For more information visit www.gkservices.com.
Reconciliation of GAAP to Non-GAAP
Financial MeasuresThe 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:
All results reported in the
tables below are only from our continuing operations (unaudited)
Three Months Ended
Three Months Ended June 27, 2015 June 28, 2014
Operating
Earnings
Operating Earnings
(U.S. Dollars, in thousands, except per
share data)
Revenue Income
Net Income
Per Share
Revenue Income Net Income Per Share
As
Reported $ 236,577 $ 24,139 $ 14,120 $ 0.71 $ 229,681 $ 26,776
$ 15,721 $ 0.78 Add: Environmental Reserves (3) - 3,904 2,446 0.12
- - - - Less: Change in merchandise amortization lives (2) -
- - - -
(790 ) (499 ) (0.02 )
As
Adjusted $ 236,577 $ 28,043 $ 16,566 $
0.83 $ 229,681 $ 25,986 $ 15,222
$ 0.76
Twelve Months Ended Twelve Months
Ended June 27, 2015 June 28, 2014
Operating
Earnings
Operating Earnings
(U.S. Dollars, in thousands, except per
share data)
Revenue Income
Net Income
Per Share
Revenue Income Net Income Per Share
As
Reported $ 937,642 $ 101,214 $ 59,870 $ 2.95 $ 900,869 $ 96,115
$ 56,065 $ 2.78 Add: Impact of pension withdrawal and associated
expenses (1) - 6,500 4,069 0.21 - 9,854 6,151 0.31 Add:
Environmental Reserves (3) - 3,904 2,446 0.12 - - - - Less: Change
in merchandise amortization lives (2) - -
- - - (6,136 )
(3,867 ) (0.19 )
As Adjusted $
937,642 $ 111,618 $ 66,385 $ 3.28 $ 900,869
$ 99,833 $ 58,349 $ 2.90
(1) In the first quarter of 2014, we
increased our estimated liability associated with the withdrawal
from the Central States Southeast and Southwest Areas Pension Fund,
by $1,687. In the third quarter of fiscal 2014, we recorded $8,167
of expense related to the withdrawal from several other MEPPs. In
the third quarter of fiscal 2015, we increased our estimated
liability associated with the withdrawal from certain MEPPs, by
$6,500.
(2) In the fourth quarter of fiscal 2013,
we modified the estimated useful lives of certain merchandise in
service inventory assets to better reflect the estimated periods in
which the assets will remain in-service. This benefit was recorded
in the cost of rental and direct sale line item. The pretax benefit
was $2,273 in the first quarter of fiscal 2014, $1,803 in the
second quarter of fiscal 2014, $1,270 in the third quarter of
fiscal 2014, and $790 in the fourth quarter of fiscal 2014.
(3) In the fourth quarter of fiscal 2015, we increased our
estimated reserves for environmental related items by $3,904.
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.
Return on Invested
CapitalReturn on invested capital (ROIC) is a non-GAAP
financial measure and may not be defined and calculated by other
companies in the same manner. The company uses ROIC as a measure of
the effectiveness of its use of capital.
The company defines ROIC as adjusted net operating income from
continuing operations after tax, divided by the sum of total debt
less cash, plus stockholders’ equity. The company assumes an
average effective income tax rate of 38.5 percent.
The following table provides a calculation of ROIC on a 3-month
annualized basis, for the periods ending June 27, 2015 and June 28,
2014.
(unaudited)
For the Three Months Ended June
27, June 28, (U.S. Dollars, in thousands)
2015 2014 Numerator:
Income from continuing operations as reported 24,139 26,776 Add:
Environmental reserves 3,904
-
Less: Change in merchandise amortization lives -
(790 ) Adjusted income from continuing
operations 28,043 25,986 Income taxes at 38.5 percent
10,797 10,005
Adjusted income after
tax from continuing operations 17,246
15,981 Annualized adjusted
income from continuing operations after tax
68,984 63,924
Denominator: Current maturities of long-term debt 169 792 Long-term
debt 243,600 266,230 Total stockholders' equity 394,350 374,044
Less: cash and cash equivalents (16,235 )
(37,118 )
Total capital 621,884
603,948
Return on invested
capital 11.1 %
10.6 % CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS G&K Services, Inc. and
Subsidiaries (unaudited)
For the Three Months Ended
For the Twelve Months Ended (U.S. Dollars, in thousands,
except per share data)
June 27, 2015
June 28, 2014 June 27, 2015
June 28, 2014 Rental and direct sale
revenue $ 236,577 $ 229,681 $ 937,642 $ 900,869
OPERATING EXPENSES Cost of rental and direct sale revenue
158,117 151,845 621,135 594,954 Pension withdrawal and associated
expenses - - 6,500 9,854 Selling and administrative
54,321 51,060
208,793 199,946 Total
operating expenses 212,438
202,905 836,428
804,754
INCOME
FROM CONTINUING OPERATIONS 24,139 26,776
101,214 96,115 Interest expense
1,675 1,613 7,138
6,320
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 22,464 25,163
94,076 89,795 Provision for income taxes
8,344 9,442
34,206 33,730
NET
INCOME FROM CONTINUING OPERATIONS
14,120 15,721
59,870
56,065 Net loss from discontinued operations - - -
(8,393 )
NET INCOME $ 14,120
$ 15,721 $
59,870 $ 47,672
EARNINGS (LOSS) PER COMMON SHARE BASIC
From continuing operations
$ 0.72 $
0.80 $ 3.01 $ 2.83 From
discontinued operations - - - (0.43 )
BASIC EARNINGS PER COMMON
SHARE $ 0.72 $
0.80 $ 3.01
$ 2.41 DILUTED From continuing
operations
$ 0.71 $ 0.78 $
2.95 $ 2.78 From discontinued operations - - -
(0.42 )
DILUTED EARNINGS PER COMMON SHARE
$ 0.71 $ 0.78
$ 2.95 $
2.36 Earnings available to common
stockholders: Net income from continuing operations $ 14,120 $
15,721 $ 59,870 $ 56,065 Less: Income allocable to participating
securities 59 (50 )
(713 ) (610 )
Net
income from continuing operations available to common
stockholders $ 14,179 $ 15,671
$ 59,157 $ 55,455
Weighted average number of shares outstanding, basic 19,746
19,638 19,676 19,568 Weighted average number of shares outstanding,
diluted 20,077 19,994 20,047 19,941 Dividends Declared per
Share $ 0.31 $ 6.27 $ 1.24 $ 7.08
CONDENSED
CONSOLIDATED BALANCE SHEETS G&K Services, Inc. and
Subsidiaries (unaudited) (U.S. Dollars, in thousands)
June 27, 2015 June 28, 2014
ASSETS Current Assets
Cash and cash equivalents $ 16,235 $ 37,118 Accounts receivable,
net 100,402 100,193 Inventory 36,258 38,423 Merchandise in service
133,942 124,111 Other current assets 30,383
27,250 Total current assets
317,220 327,095
Property,
plant and equipment, net 222,056 201,382
Goodwill
325,183 333,214
Other assets 64,406
61,828 Total assets
$
928,865 $ 923,519
LIABILITIES AND STOCKHOLDERS' EQUITY Current
Liabilities Accounts payable $ 51,616 $ 44,600 Accrued expenses
and other current liabilities 71,739 72,640 Deferred income taxes
31,097 26,306 Current maturities of long-term debt
169 792 Total current liabilities
154,621
144,338 Long-Term debt, net of current
maturities 243,600 266,230
Deferred income taxes 28,851
17,214
Other noncurrent liabilities 107,443 121,693
Stockholders' Equity 394,350
374,044 Total liabilities and stockholders' equity
$ 928,865 $
923,519 CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS G&K Services, Inc. and Subsidiaries
(unaudited)
For the Twelve Months Ended
June 27, June 28, (U.S. Dollars, in
thousands)
2015 2014
Operating Activities: Net income $ 59,870 $ 47,672
Adjustments to reconcile net income to net cash provided by
operating activities - Depreciation and amortization 32,298 30,877
Loss on sale of businesses - 12,837 Pension withdrawal and
associated expenses 6,500 9,854 Deferred income taxes 18,638 21,972
Share-based compensation 6,219 6,318 Changes in operating items,
exclusive of acquisitions and divestitures- Accounts receivable
(2,908 ) (14,538 ) Inventory and merchandise in service (9,429 )
(12,157 ) Accounts payable 7,201 935 Other Current Assets and
Liabilities (3,352 ) (25,273 ) Multi-employer pension plan
settlement payment (24,799 ) - Other 3,997
(3,861 ) Net cash provided by operating
activities 94,235
74,636
Investing Activities: Capital expenditures
(55,838 ) (32,776 ) Divestiture of businesses
- 6,641 Net cash used for
investing activities (55,838 )
(26,135 )
Financing Activities: Repayments of
long-term debt (843 ) (18 ) Proceeds from revolving credit
facilities, net (22,362 ) 91,000 Cash dividends paid (24,544 )
(140,886 ) Proceeds from net issuance of common stock under stock
option plans 6,283 8,748 Repurchase of common stock (17,597 )
(11,672 ) Shares associated with tax withholdings under our equity
incentive plans (2,076 ) (1,435 ) Excess tax benefits of
shared-based compensation 5,205
4,578 Net cash used for financing activities
(55,934 ) (49,685 )
Effect of Exchange Rates on Cash (3,346 ) (288 )
Decrease in
Cash and Cash Equivalents (20,883 ) (1,472 )
Cash and
Cash Equivalents: Beginning of period
37,118 38,590 End of period
$ 16,235 $ 37,118
Supplemental Cash Flow Information Cash paid for- Interest $
6,647 $ 5,645 Income taxes $ 11,539 $ 20,945
Supplemental
Non-cash Investing Information Capital expenditures included in
accounts payable $ 3,662 $ 3,378
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150813005228/en/
G&K Services, Inc.Jeff Huebschen,
952-912-5773Director, Investor
Relationsjeff.huebschen@gkservices.com
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