G&K Services, Inc. reported operating results for the fourth quarter of its fiscal year 2013, which ended on June 29, 2013.
Revenue in the quarter grew by 2.3 percent to $229.5 million, up from $224.3 million in last year’s fourth quarter, driven by growth in rental operations, partially offset by lower revenue from direct sales.
Fourth quarter adjusted earnings per diluted share grew 12 percent to $0.66, up from $0.59 per diluted share in the prior year period. Adjusted earnings in the quarter excluded net charges of $0.26 per share. Including these charges, the company recorded net earnings per diluted share of $0.40.
For the fiscal year ended June 29, 2013, revenue was $907.7 million, a 4.3 percent increase from the prior fiscal year. Full year adjusted operating margin improved to 9.5 percent, up 170 basis points from 7.8 percent in fiscal 2012, and adjusted earnings per diluted share grew 29 percent, to $2.65, compared to adjusted earnings of $2.06 per share in the prior year.
“Our team delivered truly outstanding results in fiscal 2013,” said Douglas A. Milroy, Chief Executive Officer. “G&K is clearly a much stronger, more capable company than when we initiated our game plan four years ago. The improvements we’ve made in our business give us the confidence to again set new, challenging financial goals, targeting continued gains in margins and returns, and an increased focus on profitable top-line growth.”
Income Statement Review
Fourth quarter revenue from rental operations grew 3.8 percent to $211.8 million, up from $204.1 million in the prior-year quarter. The rental organic growth rate, which adjusts for the impact of currency exchange rate differences, acquisitions and divestitures, was 3.2 percent. Fourth quarter revenue from direct sales decreased to $17.7 million, from $20.2 million in the prior-year, with lower sales of both program and catalog products.
Fourth quarter adjusted operating margin expanded to 9.8 percent, a 110 basis point increase from 8.7 percent in the prior year quarter. The improvement in adjusted operating margin was primarily driven by increased operating leverage from revenue growth, productivity improvements in rental production, and lower health insurance costs.
Fourth quarter adjusted operating margin excluded the impact of the previously mentioned net charges. These charges were primarily related to a plant closure in the rental business, restructuring the company’s direct sale catalog and direct sale program businesses, and an increase to the company’s estimated multi-employer pension plan withdrawal liability, partially offset by the benefit from a change in estimated merchandise amortization lives. Including these items, operating margin in the fourth quarter was 6.2 percent.
Interest expense in the quarter was $1.6 million, up from $1.3 million in the prior-year quarter, primarily due to a higher effective interest rate resulting from the company’s private placement debt issuance during the quarter. Fourth quarter diluted share count increased to 19.7 million, up from 18.9 million last year.
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