Uniform-rental giant UniFirst (NYSE:UNF) is off to a brisk 2020, as revealed by its results filed Wednesday morning before the opening of market trading. The company's fiscal first-quarter 2020 results displayed a continuation of the growth cadence it achieved in 2019, and for now, a projected slowdown in sales and a weakening of operating margin haven't materialized. Below, we'll dig into the quarter's details, keeping in mind that all comparative numbers are presented against the prior-year quarter.
UniFirst results: The headline numbers
|Metric||Q1 2020||Q1 2019||Change|
|Revenue||$465.4 million||$438.6 million||6.1%|
|Net income||$48.2 million||$38.3 million||28.5%|
|Diluted earnings per share||$2.52||$1.99||26.6%|
Essential highlights from the quarter
- Revenue growth in the first quarter kept pace with 2019's 6.6% full-year top-line advance.
- Core laundry-operations revenue improved by 6.6% to $416.3 million.
- Specialty garments revenue fell by 3% to $33.4 million. Management cited a dip in outage activity at U.S. and Canadian nuclear plants for the decline, an effect that was partially absorbed by vigorous growth in garments for cleanroom operations (i.e., facilities in specialized manufacturing or research environments that are free of dust or other contaminants).
- UniFirst's total top-line advance of 6.1% exceeded the high end of its projected fiscal 2020 growth rate of 3%-4%.
- The company's smallest segment, first aid, continued to exhibit meaningful progress, as revenue jumped by 15.2% to $15.7 million.
- Core laundry operating margin, a closely watched metric in judging UniFirst's results, improved by 140 basis points to 12.9%, due to lower energy and payroll expenses, as well as lower depreciation and amortization as a percentage of sales. Management also pointed to a favorable cost environment and the company's sales growth as conducive to higher operating leverage during the quarter. The jump in operating margin was welcomed by investors, as the company has targeted a margin of 10.3% for the entire year.
- Total operating margin mirrored that of core laundry operations, rising 140 basis points to 12.9%.
- Cash flow swelled during the quarter. In my earnings preview, I noted that even after adjustments, UniFirst increased operating cash flow by 17% in fiscal 2019 over the prior year. Progress accelerated in the first quarter of 2020, as operating cash flow leaped by 63% over the prior-year quarter to $52.4 million.
- UniFirst repurchased $10 million worth of its common stock during the quarter.
Management's outlook and shareholder reaction
In today's earnings press release, UniFirst CEO Steven Sintros presented shareholders with a slight earnings tweak and some background on the change, despite impressive first-quarter results:
At this time, we believe that our revenues for fiscal 2020 will be between $1.860 billion and $1.872 billion and full year diluted earnings per share to be between $7.60 and $7.92. We have reduced the high end of our previously provided revenue outlook partially due to reduced business activity and wearer levels in the energy dependent markets that we service. This guidance does not assume any significant further deterioration in the energy sector or the overall economy. As a reminder, our fiscal 2020 will contain one less week compared to fiscal 2019.
The company's previous revenue range forecast was set at $1.860 million to $1.880 million, so today's revision is quite minor. Conversely, UniFirst raised the bottom of its diluted earnings per share (EPS) range in this report: It was previously chalked in at $7.47.
Investors apparently sensed that, even with one less week in fiscal 2020 versus 2019, UniFirst's fast start to the year puts it in fine position to exceed management's benchmarks. Shares were trading up as high as 6.5% in afternoon trading on Wednesday.