G&K Services, Inc. (Nasdaq:GKSRA), today reported record
revenue for the third quarter ended April 2, 2005 of $203.8
million, up 13.8 percent over $179.0 million reported in the third
fiscal quarter last year. Earnings per diluted share totaled $0.49
for the quarter, a 14.0 percent increase compared to $0.43 during
the prior-year quarter. Earnings for the quarter included a charge
of approximately $0.02 per diluted share associated with severance
and recruiting costs. This charge was not included in the company's
earnings guidance for the third quarter. "Our third quarter results
marked continued progress toward our growth and operational
objectives," said Richard Marcantonio, G&K's president and
chief executive officer. "For the first time in the history of the
company, we posted quarterly revenue of more than $200 million. Our
revenue growth initiatives, both from acquisitions and improved
organic growth, continue to build momentum. From an earnings
perspective, we are balancing our goal of increasing earnings with
the need to invest in the long-term future of the company." For the
nine months ended April 2, 2005, revenue was $581.4 million
compared to $540.2 million during the prior-year period, an
increase of 7.6 percent. Earnings per diluted share were $1.42, up
14.5 percent over last year. Income Statement Review Third quarter
revenue from G&K's rental business increased to $188.1 million,
up 8.4 percent over the prior-year period. The company's organic
industrial rental growth rate was approximately 1.5 percent in the
third quarter, an improvement of 250 basis points compared to the
organic growth rate in the second quarter of fiscal 2005. Organic
rental growth has continued to improve over the past year as a
result of the company's growth initiatives and modest improvements
in economic conditions. Direct sale revenue increased to $15.7
million, up 186.6 percent over the prior-year quarter and up
approximately 65.0 percent on an organic basis. The growth of
direct sale revenue for the quarter was driven by the acquisition
of Lion Uniform Group and stronger than normal organic growth in
G&K's direct sale unit. The organic growth rates are calculated
using industrial rental and direct sale revenue, respectively,
adjusted for foreign currency exchange rate differences and revenue
from newly acquired locations compared to prior-period results. "We
are pleased to report a strong improvement in our rental organic
growth rate, significantly ahead of our stated goal to return to
positive growth by the end of fiscal 2005," Marcantonio said. "Over
the past year, we have put increasing attention and resources on
improving top-line growth in the business. Our efforts allowed us
to reach positive organic growth earlier than expected." Gross
margin from rental operations for the quarter was 36.6 percent, an
improvement over the second quarter of fiscal 2005 and the
prior-year quarter. Continued improvements in merchandise costs
driven by inventory management initiatives and lower production
costs contributed to the increase in gross margin. This benefit was
partially offset by increased energy costs compared to the second
quarter of fiscal 2005 and the prior-year quarter. Gross margin
from direct sales was 23.7 percent compared to 26.1 percent in the
prior-year period. Selling, general and administrative expenses
were 20.9 percent of consolidated revenue, consistent with the same
period last year. In absolute dollars, selling, general and
administrative expenses were up 13.8 percent over the prior-year
due to the company's investment in growth oriented initiatives,
additional expenses related to acquired businesses and cost
associated with severance and recruiting. As compared to the second
quarter of fiscal 2005, selling, general and administrative costs,
as a percent of revenue, declined 20 basis points due to greater
leverage on increased revenue. Balance Sheet and Cash Flow Review
The company's balance sheet remains strong. Total debt to total
capitalization was 33.9 percent as of April 2, 2005 compared to
34.6 percent at the same time last year. Total stockholders' equity
increased to $470.0 million. Free cash flow, which is cash provided
by operating activities less capital expenditures, was $33.6
million for the nine month period ending April 2, 2005. Cash used
for property, plant and equipment during the nine month period
totaled $10.2 million, down $2.6 million from the same period last
year. Outlook "We remain focused on our strategic vision of being
the market leader in enhancing image and safety in the workplace,"
Marcantonio said. "Our recent performance driven by our internal
efforts and the investments we've made over the past couple of
years adds to our confidence that we are taking the right steps.
Looking forward, the tactical plans to support our strategy require
ongoing investment in people, technology and program development.
We remain committed to balancing the need to invest in the business
with generating earnings growth." The company expects fiscal 2005
fourth quarter revenue to range from $203.0 million to $207.0
million and earnings per diluted share from $0.45 to $0.47. This
guidance reflects improvement in both revenue and earnings versus
the fourth quarter of fiscal 2004, which included an extra week of
operations. On a sequential quarterly basis, the guidance reflects
higher energy costs, additional investments in the company's growth
initiatives and increased integration costs associated with the
acquisitions completed during fiscal 2005. The guidance also
includes anticipated benefits of the growth initiatives, gradual
improvements in the employment markets, and the Canadian currency
translation rate remaining at current levels. The guidance does not
include the impact of any future acquisitions. Based on the
guidance for the fourth quarter and excluding the extra week of
operations during the prior-year, the company expects fiscal 2005
revenue to grow by approximately 9 percent and earnings to increase
by roughly 11 percent over fiscal 2004. Conference Call Information
The company will conduct a conference call today beginning at 10:00
a.m. Central Time. The call will be webcast and can be accessed
through the website www.gkservices.com (on the Investor Relations
page, click on the webcast icon and follow the instructions). A
replay of the call will be available through June 3, 2005. Safe
Harbor for Forward-Looking Statements The Private Securities
Litigation Reform Act of 1995 (the "Act") provides companies with a
"safe harbor" when making forward-looking statements as a way of
encouraging them to furnish their shareholders with information
regarding expected trends in their operating results, anticipated
business developments and other prospective information. Statements
made in this press release concerning our intentions, expectations
or predictions about future results or events are "forward-looking
statements" within the meaning of the Act. These statements reflect
our 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.
Given that circumstances may change, and new risks to the business
may emerge from time to time, having the potential to negatively
impact our business in ways we could not anticipate at the time of
making a forward-looking statement, you are cautioned not to place
undue reliance on these statements, and we undertake no obligation
to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
Some of the factors that could cause actual results or events to
vary from stated expectations include, but are not limited to, the
following: unforeseen operating risks; the effects of overall
economic conditions and employment; fluctuations in costs of
insurance and energy; acquisition integration costs; the
performance of acquired businesses; preservation of positive labor
relationships; competition, including pricing, within the corporate
identity apparel and facility services industry; and the
availability of capital to finance planned growth. Additional
information concerning potential factors that could affect future
financial results is included in our Annual Report on Form 10-K for
the fiscal year ended July 3, 2004. About G&K Services, Inc.
Headquartered in Minneapolis, Minnesota, G&K Services, Inc. is
a market leader in branded identity apparel programs and facility
services in the United States, and is the largest such provider in
Canada. G&K operates over 140 processing facilities and branch
offices, serving more than 160,000 customers. -0- *T CONSOLIDATED
STATEMENTS OF OPERATIONS G&K Services, Inc. and Subsidiaries
(Unaudited) For the Three For the Nine Months Ended Months Ended
--------------------------------------- (U.S. Dollars, in
thousands, April 2, March 27, April 2, March 27, except per share
data) 2005 2004 2005 2004
----------------------------------------------------------------------
Revenues Rental operations $188,064 $173,531 $547,465 $521,431
Direct sales 15,746 5,494 33,912 18,736
----------------------------------------------------------------------
Total revenues 203,810 179,025 581,377 540,167
----------------------------------------------------------------------
Operating Expenses Cost of rental operations 119,139 110,382
346,563 331,289 Cost of direct sales 12,011 4,061 25,348 14,145
Selling and administrative 42,518 37,353 122,363 114,677
Depreciation and amortization 10,407 9,865 30,726 29,328
----------------------------------------------------------------------
Total operating expenses 184,075 161,661 525,000 489,439
----------------------------------------------------------------------
Income from Operations 19,735 17,364 56,377 50,728 Interest expense
2,891 2,826 8,080 8,914
----------------------------------------------------------------------
Income before Income Taxes 16,844 14,538 48,297 41,814 Provision
for income taxes 6,418 5,524 18,174 15,889
----------------------------------------------------------------------
Net Income $10,426 $9,014 $30,123 $25,925
----------------------------------------------------------------------
Basic weighted average number of shares outstanding 20,994 20,767
20,910 20,681 Basic Earnings Per Common Share $0.50 $0.43 $1.44
$1.25
----------------------------------------------------------------------
Diluted weighted average number of shares outstanding 21,290 20,974
21,186 20,851 Diluted Earnings Per Common Share $0.49 $0.43 $1.42
$1.24
----------------------------------------------------------------------
Dividends per share $0.0175 $0.0175 $0.0525 $0.0525 CONSOLIDATED
CONDENSED BALANCE SHEETS G&K Services, Inc. and Subsidiaries
April 2, 2005 July 3, (U.S. dollars, in thousands) (Unaudited) 2004
----------------------------------------------------------------------
ASSETS Current Assets Cash and cash equivalents $10,864 $26,931
Accounts receivable, net 84,458 71,058 Inventories 115,745 94,476
Prepaid expenses 12,127 14,902
----------------------------------------------------------------------
Total current assets 223,194 207,367
----------------------------------------------------------------------
Property, Plant and Equipment, net 242,228 240,609 Other Assets
425,394 354,771
----------------------------------------------------------------------
$890,816 $802,747
----------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts
payable $21,720 $20,511 Accrued expenses 80,610 76,470 Deferred
income taxes 7,836 7,395 Current maturities of long-term debt
25,183 24,018
----------------------------------------------------------------------
Total current liabilities 135,349 128,394
----------------------------------------------------------------------
Long-Term Debt, net of current maturities 215,794 184,305 Deferred
Income Taxes 40,244 38,256 Other Noncurrent Liabilities 29,413
26,369 Stockholders' Equity 470,016 425,423
----------------------------------------------------------------------
$890,816 $802,747
----------------------------------------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS G&K Services,
Inc. and Subsidiaries (Unaudited) For the Nine Months Ended
------------------- April 2, March 27, (U.S. dollars, in thousands)
2005 2004
----------------------------------------------------------------------
Operating Activities: Net income $30,123 $25,925 Adjustments to
reconcile net income to net cash provided by operating activities -
Depreciation and amortization 30,726 29,328 Deferred income taxes
509 671 Amortization of deferred compensation - restricted stock
677 659 Changes in current operating items, exclusive of
acquisitions (19,418) 24,758 Other assets and liabilities 1,159 308
----------------------------------------------------------------------
Net cash provided by operating activities 43,776 81,649
----------------------------------------------------------------------
Investing Activities: Property, plant and equipment additions, net
(10,194) (12,790) Acquisition of business assets and other (74,895)
(26,082)
----------------------------------------------------------------------
Net cash used for investing activities (85,089) (38,872)
----------------------------------------------------------------------
Financing Activities: Proceeds from issuance of long-term debt -
1,345 Repayments of long-term debt (21,317) (9,647) Proceeds from
(repayments of) short-term borrowings, net 41,200 (24,100) Cash
dividends paid (1,100) (1,090) Sale of common stock 4,855 3,714
----------------------------------------------------------------------
Net cash provided by (used for) financing activities 23,638
(29,778)
----------------------------------------------------------------------
(Decrease) Increase in Cash and Cash Equivalents (17,675) 12,999
Effect of Exchange Rates on Cash 1,608 254 Cash and Cash
Equivalents: Beginning of period 26,931 11,504
----------------------------------------------------------------------
End of period $10,864 $24,757
----------------------------------------------------------------------
Supplemental Cash Flow Information: Non-Cash Transactions - Debt
issued in connection with business acquisitions $11,890 $-
----------------------------------------------------------------------
*T
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