The company reported fourth quarter net earnings of $0.59 per diluted share, a 20 percent increase from adjusted earnings of $0.49 per diluted share in the prior-year period. Adjusted earnings in the prior year excluded a charge of $0.08 per share related to plant consolidation and restructuring activities.
“The fourth quarter was a strong finish to a strong year for G&K,” said Douglas A. Milroy, Chief Executive Officer. “Over the past three years we have made lasting improvements in our business, which are clearly reflected in our financial results.
“Fourth quarter revenue, operating margin, earnings per share, and return on invested capital all reached new high points since the initiation of our game plan. Moving into fiscal 2013, we will build on these successes to drive continued performance gains.”
Income Statement Review
Fourth quarter revenue from rental operations grew solidly to $204.1 million, up from $194.0 million in the prior-year quarter. The rental organic growth rate was 5.8 percent. The organic growth rate is calculated using revenue adjusted for foreign currency exchange rate differences, acquisitions and divestitures.
Rental organic growth was primarily driven by continued strong new account sales, increased revenue from existing rental customers, and improved pricing. Fourth quarter direct sales grew by 1.0 percent to $20.2 million, up from $20.0 million in the prior-year.
Fourth quarter operating margin expanded to 8.7 percent, a 100 basis point improvement from an adjusted operating margin of 7.7 percent in the prior-year. The prior-year adjusted operating margin excluded the impact of the previously mentioned charge related to plant consolidation and restructuring activities.
The operating margin increase was driven by revenue growth leveraging fixed costs, lower selling and administrative expenses, and lower rental production and delivery costs as a percentage of revenue. These improvements were partially offset by an expected increase in rental merchandise expense and lower direct sale gross margins.
Net earnings also benefited from lower interest expense. Interest expense in the current quarter was $1.3 million, down from $2.2 million in the prior-year period, primarily due to a lower effective interest rate, partially offset by increased debt levels.
Balance Sheet and Cash Flow
The company ended the fiscal year with total debt, net of cash, of $198.6 million and a debt to total capital ratio of 35.1 percent. Total debt, net of cash, increased by $85.7 million compared to the prior year, due to increased borrowings used to fund the $6.00 per share special dividend payment made during the quarter. Total stockholders’ equity at the end of the fourth quarter was $403.1 million.
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