UNF - Earnings call transcript Q3 2019

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Operator

Greetings and welcome to the UniFirst Third Quarter Earnings Conference Call.

During the presentation all participants will be in a listen-only mode. After that, we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Steven Sintros, President and CEO. Please go ahead.

Steven Sintros

morning. good and you Thank I'm Steven Executive and UniFirst's President Chief Officer. Sintros,

Corporation's Senior today to and UniFirst and our to is forward. year me expectations for Vice quarter welcome to results third Shane to discuss like Joining XXXX We'd O'Connor, President fiscal review Officer. Chief you going our call Financial

reflect views This call to and remarks. listen-only trends may first, from respect of depending brief a a on that certain indicate forward-looking are results forward-looking But words performance. events conference risk subject expressions contain we and call expect, current until These those will mode anticipated, be factors. the statements and events future future risks to materially forward-looking that identify anticipate, estimate, optimistic, disclaimer. with differ on variety believe, future similar prepared a complete Company's This statements. financial our The and intend statements Actual uncertainties. may

in these please information, and refer more factors the with XX-K Exchange For recent discussion Commission. Securities to of XX-Q filings and risk our the most

fiscal pleased of UniFirst's Company compared setting shareholders. an of new revenues up, report produced strong our the that and to third period X.X% Overall, were quarter for at our for same high $XXX.X to the record a Company year. results million, I'm when both increase XXXX last

came earnings $X.XX third share higher $XX.X to million the last per year's million, at a share than As and profits, quarter. sharply was ago fully income for for diluted $XX.X operating $X.XX reported year compared in per

expectations. Many in expected trended for the our results. third Both came the stronger revenue ahead to favorably quarter results items and of than in expense quarter, contributing profit

of we they although to viewed profitability express at results not level. trend of caution are believe I do quarterly a be these sustained indicative want this However, that should necessarily positively,

to like to costs to recent items overall same note the be also as experienced our quarter. the moderated to continued levels due in most as market care other recruiting as as third payroll cannot challenges expense variable well staffing. continue I'd Certain health being partially and such expected at that quarter related

strategically to that these issues with headcounts our consider work to as optimal what our the continue our we maximize forward we of service goal plan our efficiencies increasing customer. levels We move to will levels and through and

additional overall and And quarter, also growth expectations. profits, although moving a expect of pleased likely in positively challenges the we quarter caution our some segments are variability Company these fully performance short-term to to in this operating it contribute forward, will ongoing margins. we the where Company's cause each Despite and with exceeded our staffing our

quarter, Executive employee That third and send Europe. sincere from XX,XXX like the our for our credit team to folks strong North those Central achieve team growth said, and -- in who partners throughout allow Executive gratitude give to UniFirst I'd our plus America, to our America

first of the continue the of growth. driver our months sales of the encouraged organic our primary nine by to the Through performance be solid organization, year, we

Likewise, sales. on a to levels ago. trend account UniFirst's year retention to Our report customer pace sales when continue year's to positive last for happy to I'm continues record be exceed new time same compared to the group that marginally

our look and into of we same. the ahead fiscal remains XXXX, as to remainder the So XXXX year focus primary

in our service corporate best the We universally recognized in objective our order strategic service achieve be infrastructure our people, in the to continue to long-term smart make company-wide, our and industry. to investments provider technologies as

additional our further team designed deployment healthy balance deliver strong and that last all sheet And position as may Company to for discussed our earnings considering to and for investments opportunities, to capital make other shareholders. call, our and allow flow continues for acquisitions our during any competitive ultimately cash partners our in business sense, value

call the the turn to our like provide I'd of outlook quarterly remainder our Shane, over for XXXX. details that, who'll results fiscal to with on and additional And

Shane O'Connor

third XXXX in million, the million Steve. or net in income share. the and quarter X.X% per increased from up of Operating or quarter our to million from diluted were $XX.X Revenues prior-year $XX.X a $XX.X from $XXX.X or million increased period $XX.X Thanks, million $X.XX per year income diluted XX.X% share $XXX.X ago. for to million $X.XX

of of of up close Laundry acquisitions growth a adjusts effective quarter organic up Operations, from Laundry $XXX.X Core third million, XXXX. was of revenues Our Canadian dollar business, total which the for weaker which the for X.X%. UniFirst's the make to estimated as impact the as XX% quarter X.X% reported Core well

organic improved Core slightly of in increased adjustments. to Laundry solid During $XX.X was ago. benefit up growth our the the the from income year to million from customer and well margin retention, as as certain XX.X% pricing for operating compared sales, continued $XX a operating quarter, impact million to year new quarter, the segment's account prior the XX.X%

than to to adoption production from of lower XXXX. lower of capitalization due quarter larger due health as the percentage care claims, increase as a as payroll new guidance fiscal well revenue accounting sales first revenues, partially benefits our cost This commissioning anticipated of the was of in

merchandise partially several expectations. operating were amortization as of have to the offset moderate percentage revenues, by are cautiously These compared margin other to favorably expenses we improvement. addition, contributors our items as and started our In and costs administrative a higher optimistic positive trended to although, were merchandise previous

of down to decreased a revenues X.X% ago. the quarter year XXXX, X.X% costs from Energy of third in

the the costs quarter, from operating capitalization labor CRM benefited our our of During for internal ongoing income projects. segment's

alternatives fiscal third we incurred of In time. addition, the consulting our quarter CRM benefited quarterly comparison during the the non-capitalizable related from that go-forward evaluation higher of to XXXX, primarily costs in

and quarter. which specialized year due million period. room increased which benefit of revenues decreased and in deliver nuclear decontamination clean or increased the the from ago the $X.X XXXX, Revenues services, Garments XX.X% The X.X%. operating in margin or to to Specialty acquisitions million to by quarterly products from segment's in This fiscal X.X% primarily $XX.X was our segment, increase third XX.X% million $X.X

due its primarily as costs percentage merchandise related to as well was higher decrease of to amortization acquisitions, higher a as XXXX This revenues.

period segment's seasonality nuclear this and services. our outages in can require to specialized mentioned have reactor of from to that significantly results vary past, and timing the projects due we the period As

First and $XX.X due decreased Company's the Our business new first its operating XX.X% expanded segments to $X.X by to primarily reported to the geographies million support to X.X% income its These expand Aid related into are infrastructure. and revenues to investments by aid band increased million. fluctuations the initiative

sheet no operating year. of first $XX.X long-term the months at totaling maintain an third nine with year million to the continue a the was equivalents $XXX.X short-term provided months of Cash first our solid a quarter and $XXX.X million by financial We investments activities and balance cash the and cash, position debt, of of XXXX. million, prior from for nine the fiscal increase of end

in of This system, contractor increase the fiscal million settlement a charge XXXX second the recorded a the million impairment with which was for lead quarter we XXXX. respect in primarily $XX from agreement former to of our cash CRM to $XX.X received due with of version fiscal

working well fiscal by in employees a This or XXXX. quarter XXXX. from environmental fiscal contributing as settlement Also one-time received during the capital of the offset $X the lower as as was increase litigation to to well increase as our needs of the for million -- partially first $X quarter million the business, first bonus the of were paid

of capital invest strategic totaled facility continue with long-term updates we million meet will the in our For systems that and future nine expenditures additions, XXXX, our objective. first $XX.X months new as fiscal expansions, us automation to help

capitalized related internal million our both capitalized $X.X to which we During costs. the labor quarter, of consisted CRM costs project, consulting and new third-party

As internal fiscal had the project, labor million was capitalized in our the XXXX. capitalized of of end to fiscal quarter, $X.X CRM third which of related million we related $X.X to

to expenditures will capital $XXX expect that continue We million. our approximate full-year

for average During the common repurchase of of our quarter $XX.X a shares price under stock an million, at repurchased previously we total announced fiscal of XX,XXX program. share third $XXX.XX XXXX,

XXth, of of the average shares XXX,XXX of an the $XXX.XX repurchased for As total at Company million May common $XX program. price under XXXX, had a

for we continue overall nine aggressively as to look an XXXX additional our pursue in Although of strategy. fiscal months acquisitions first our acquisition of part was the activity and integral growth nominal, remain targets

for update will $X.XXX now billion. between outlook to revenues fiscal be and expect that our take an XXXX XXXX. I'd our provide like billion this We $X.XXX to opportunity on fiscal

quarter, the both income During our operating income expectations. exceeded and our net

$X.XX. the pricing the quarter organic of down sequentially is be an will expected as as now This expect operating be $X.XX range to timing at growth better our results, will forecast of Operations margin fourth an Laundry fiscal approximately diluted adjustment, well between than impact share X%, in of as on our well XXXX, as the and XX.X%. these due of which of assumes midpoint certain the fourth guidance improved earnings year per for our Based we quarter full Core our

As -- that by earlier, provide costs including under-staffing. results provide were several may that lower third care forward, some not our payroll as benefit as not Steve expense, health the going mentioned same well in due part quarter to impacted did items

a and claims are variable not does period. unpredictable these guidance from comparable from our in experience, to assume because benefit Our quarter healthcare fourth period favorable highly can costs be

normalization in of improvement in operating our levels provided and our that fiscal quarter. staffing and current administrative assumes expenses also our some guidance the third of addition, In benefit other

current of fiscal guidance week As one to includes compared fiscal XXXX the assumes to for common our our our calendar of level outstanding shares. timing extra a and fiscal operations reminder, of due XXXX,

remarks This might prepared answer happy questions would be that any we you have. our concludes and now to

Operator

the with Baird. our question [Operator first Instructions] And comes proceed. Wittmann Please Andrew Robert of W. line from

Andrew Wittmann

morning, good Great, guys.

Steven Sintros

Good morning.

Andrew Wittmann

had expected, devil's guess this mean truth for I that's you on really bit which you there think stock advocate much of expected, is the that peers, question a than on based here, too, history, we is room whatever. based a everybody at lot know margins was I also look expected, good. I underlying margins And -- is are good obviously better and first a little folks and and have your good. the my believe question Growth some to upside,

can Help us that really today? business that strength is investments positively that the lots that need here understaffed about little bit the unsustainable. that of quarter and fact here, you get the your like and made, Steve, heard comfortable those be So, was a clear just loud say why you talk unsustainable? we that were of more that to of kind is and in and But facets trending you given

Steven Sintros

Sure.

You know, on comment to too weight under-staffing don't for it things is valid I couple put sure, but of I want the much think either. and

of over we've and market, the quarter-to-quarter on is and the last can one in ups down quarter. there that's think employment I volatility in benefits. things staffing or levels Based a provide I years temporary headwinds in seen you of and think the the the more couple little variability some

regard. that so I in think comment And the was given

of we in there perspective the level the from somewhat to of getting rates, think service feel and staffing a rates and stability levels we're customer to is where shooting side. the to on growth get we to on retention longer-term side I on that so better service optimal, staffing that is primarily the we production need feel and sustain towards, on,

bit So were made regard. the comments little more in that a

is in we I some investments the we're would want perspective, in we have where to a functions. roadmap areas of of need those I terms think like these but consider, and capabilities we perspective go quarter, made that be trends feel from to competitive we're some we of that a But there pleased with still long-term with in capabilities. a the optimize what at said, those from different looking do to

quarter's understand we're understand the as sort be at why question, be not don't -- don't go. that's this everything's and of that be need one viewed optimized and balancing I to -- we're to as investments results these I made, but have So trying we point

Andrew Wittmann

at drill Okay. of recognizing even I think these expect margins, confidently all you, quarters that couple if can year, to I you you conference, bottomed it's that I bit asked the little on ago they now I important. sustainable margins more some but this things say would are and think say of more our in seeing, want margins know -- because we'd had had could do A as the this a these weeks bottomed, that after the as you aren't be. maybe hope of quarter kind you

margins bottom move here that you we feel line place that say leverage Can in to with confidently here expand into the top margin can together feel be that getting that more might fiscal the you like from you and and start the you like beyond. XXXX now is as

Steven Sintros

have we think probably we I technology to will that move think, point, get and year kind closer are that be going forward-looking of impact don't incurred be some there working communication Andy, statement, to what because way we forward through there know as I that next really at costs that could we're along to year-end. the partially preparing into as of that go and more this much to into want system, our is deployment that's expect we what

terms year, swing time. that this the in in customer a and I what was or different terms base of think margins have And can some during merchandise quarter, here the the point -- there always trends that that wildcard point over think I we of we're in being terms to around an encouraging, that a of because some. the or of merchandise of investments was into seen of seeing caution is that One sustain moderate and sort areas. area through the is that are going as went were the couple that

to in encouraged but year together by make release I optimal those that place those timing is and to we'll we I'll we will to service there said, I trend, come to are in growth costs. where we plan other feel level we force place the do the again of we still investments So to think the be as we're the have and labor think well that technology sustainable go for And as like provide to investments back the of lead that to rates made as move what next forward. the get teams

Andrew Wittmann

one, to things, I get guess were these to to some back jump granular And this Okay. going try up of finish queue they Shane, with wanted in might I'm But later. just I on significant. because

here? quantify, willing bigger able to be could merchandise health and care, us to that heard buckets again sales to here the you in that commissions you many helped help you've actually If past, production, year-over-year those understand of from the benefit the do would I do and today?

Shane O'Connor

of off quarter. to some Yeah, the larger coming I buckets, just can speak of last

and these Some of favorably trend our favorably started compared operating sort to originally we or trend -- with it you to see continue what in can expected. as of we expectations, in original to areas, line our -- from results, our

favorably the that in due fact and part I staffing. mentioned mean, Steve had some trended to production service payroll under

And points of last it the quarter, to XX we compared that's XX headwind. basis received obviously improved During benefit sequentially, a comparable actually about to prior-year the where basis was the quarter off points. of quarter

points and Our compared payroll, merchandise points it improved the about is capitalization basis year-over-year. benefited basis influenced also during has moderate headwind, expense also That organic but provided the original started growth from by strongly points the XX to quarter. was strong to of selling expectation. the of XX about commissions, XX our The of to that basis benefit which

the basis of XX energy In that, points. there very, benefit very also, and a that make between strong performance are basis favorably our Healthcare were XX XX claims those then margin also in number lot low to a quarter strong above areas about expense came this that out areas earlier believe a points was trended for that about of to -- cases, the that delta a we in mentioned quarter. was benefit. be points up year-over-year. that operating basis And just to I And subject of timing turned an just

more benefited benefited we third to from areas over are to historical other but that sort we're and are is anticipating normalize they the costs going fourth level, expectation quarter quarter. macro a to actually roll where will that those in cases, of some those of our that that some items in of In the the back the

Steven Sintros

margin benefit, this between growth the a those that so fourth a this strong year due our largely the may revenue are some I just pricing year-over-year that quite not add year, that, the will and from adjustments last take think things quarter. same were And are the step be growth timing to a quarter and a comparison the expectations quarter, some Andy, benefit next organic Shane and on to during mentioned quarter, to perspective, a causing back, of

Andrew Wittmann

you. thank All very helpful answers,

floor later, but from might I'll yield me now. You hear the for

Steven Sintros

Thank you.

Operator

Please next comes William line from The Blair. Mulrooney of Tim proceed. question the with

Tim Mulrooney

Is obviously terms specific morning. for call strength pretty or customers X.X%, growth in you good here Organic where would to particular end-markets a of guys. Yeah, of the of there being quarter strong out pockets anything characterize you as you've very or broad-based? seen strength

Steven Sintros

sales our this I the last would strength coming continued say of strong pretty on off sell sales the more a new broad it's business made based. We've I year. continued year. to comment year organization,

year's about we more the in -- last strong year-to-date, or X% at think year. quarter, I than sold least

perspective, From sector strength in energy not pretty a broad, mean I'd but in Texas, the has the end-market geographic I as been is we're or some little isolated. last seeing bit certainly that's say broad, It's it West perspective a energy cycle.

retention Shane better bit one I a that environment allowed won't overall, a prior from perspective, growth And healthy see that's as next a pricing quarter and adjustments But proportionally help little rates. mentioned the decent helped show timing and of just we broadly, the the to quarters than us -- we're the be think pretty much. year.

Tim Mulrooney

you Yeah. adjustments, Did No, quantify pricing absolutely. those Steve? guys

Steven Sintros

you'd those skew and down reason sort the No. quantifying those before can I've lost we overall. part don't take accounts of growth it are into don't new of effect impact accounts the said that the pricing of pricing is, We have typically adjustments price of of the to components tricky relative break because versus really of always and price you

out. all So we don't break that

Tim Mulrooney

a quarter, major me, that's know more you in this factor from mean, I'm we're quarter? third the flooding all for curious there? at did With wasn't No, the the weather but any felt One last impact you guys hearing. fair. that it lot Yeah. impact services I theme companies, if in a common is Midwest, to you all of rain talking I and a

Steven Sintros

geographic think of Not strong as we there. really in may those some we particularly -- parts not I based didn't on our headwinds any being the real country, have be presence, of

Tim Mulrooney

nice Okay, great. Congrats a on quarter. you. Thank

Operator

JPMorgan. Sokel question The Instructions] line Judah next with Please [Operator of comes from proceed.

Judah Sokel

Hi, good morning, are how you?

Steven Sintros

Good morning.

Judah Sokel

just The week the same-day rental, organic core does to First for question it make X% that guidance extra question. basis? is a a quick housekeeping adjust for

Steven Sintros

it does, It does.

Judah Sokel

Okay.

Steven Sintros

impact will impact [indiscernible] growth the the which that of a extra on X.X% week, We have rate in the quarter. about

Judah Sokel

there high-level large as a as years, of two mergers, then scaled in more Okay, the you. mid-size, large-scale other second After to sector role in question. a you my past industry do you well perfect. think UniFirst expect over services more be the And the couple any of is question will industry activity? And some mergers Thank prospectively? potential uniform mergers play do in

Steven Sintros

I good Judah. Sure, question. mean a it's

think participate the is to, certainly larger would still consolidation be, alluded know they as to regional like you is, some used in I good not out there you to there with. there players further that that players we

far As guess the at good as industry, is as consolidation of top your the as mine.

remains I course. regard available focused right in opportunities And sort But as on next due player to seen plus our years. we'll ourselves the on good that of how over and about said, think now like be a marketplace. in strong feel at look in five the that out come it to acquisitions they shakes Shane we're be opportunity

Judah Sokel

you, Makes guys. sense, thank

Steven Sintros

you. Thank

Operator

Instructions] a from Robert we Wittmann Please [Operator question W. proceed. do Baird. And Andrew follow-up have with

Andrew Wittmann

last both information you Shane to later, have CRM. you more said as the the Steve, you of Yeah. so Great, question, on

progress? might on are an How well update implemented that us on that you? when live? can timing any you updated go And Just give

Steven Sintros

point we'd very, is, well the we'll project at we're is I the optimistic the that made. make going very the time from progress comments perspective, think this our about about that very and that in CRM

company implement system, we also the the farther that as very We we the implementation as to with partnership and the our partnered changes we move along pleased with, are

few I give fiscal an our the As think information update and as make timeline, you still additional where it our comments timing relates as next project. year of on we'll defer those in on the that year months, to we'll end comments of the a that we well the to fiscal

Andrew Wittmann

with kind more little a I specific on bit hoping of -- around my the then I And add environment you that. has just question guess was macro last to Great. stops, could do and comment

of low it. but but that one terms we've data, you at in the jobs shortage the missed, view net tells If labor look rate, increasing me of this there just last of adds kind got markets, unemployment month kind of is that's in labor of an

maybe I if about Steve, driving think how it's business what you're seeing labor their to demand if being -- their behavior you if shortage it's that's add to ability from find a in able levels about not talk of customer terms employees, people, could behavior. your

Just environment some operating be thoughts think would around helpful. I the there,

Steven Sintros

Sure.

for prior In not is the I incrementally sort growth And our a is this, as symptomatic sure. but is of I didn't worse add reductions well. think of labor mention customers year, little a rates. -- there than situation number, our big we're make move our there where bit the to major on a shortage, enough

is are which a we issue we're consistent, that think is is many in just, with from I seeing labor terms in of there supply-demand there But availability. hearing markets customers what many, ourselves

heard have more really but lack broadly relates to We more that labor. business of softness, finding to hiring difficulty the not

So that's a... I think

Andrew Wittmann

-- please Sorry, said ahead. go No, You go ahead.

Steven Sintros

was I much -- completed. was pretty I No,

Andrew Wittmann

still there are add-stops you so but weaker year-over-year, is little a said positive? that Okay,

Steven Sintros

fairly I think tend the adds get on nitty-gritty with metrics, we consistently. and gets reductions some I operating No, it our think to about we've before, run these don't into, garment negative talked into of side this the

on way negative they're incrementally on but based consistent of -- and and things partially not and mean, worse. a have reductions, track certain think I I dramatically sales just typically but are are between they maybe are basis. adds somewhat the they we negative new been they're sort

Andrew Wittmann

That's from all right. Thank you. me. it Okay,

Steven Sintros

Thank you.

Operator

no are telephone lines. on further questions the there And

Steven Sintros

fiscal our quarter as like look full when for our performance, quarter great to summer. today Thank XXXX. again fourth October, speaking and well in report great. forward and Okay, have us with everyone as thank you joining a third our to expect We to you review year we expectations I'd results. for to

Operator

participation ask conclude conference your for thank call and disconnect please for your does today. you you That that line. We the

UniFirst (UNF) 26 Jun 192019 Q3 Earnings call transcript