Temporary labor service Labor Ready (NYSE:LRW) last night reported third-quarter financial results, turning in 22% net income growth on a slight year-over-year improvement in revenue. But what investors should be more interested in is the company's full-year guidance, which suggests that its efforts to combat a sluggish economy are working.
Labor Ready provides temporary manual laborers to industries like transportation, warehousing, sanitation, landscaping, and construction, operating through a network of nearly 800 branches in all 50 states, Puerto Rico, Canada, and the UK. Paid by the companies that hire its workers, its costs include wages, payroll taxes, and worker's compensation.
The company's shares have performed well this year reflecting strong growth. Now, Labor Ready is pointing investors toward a 40% growth in net income for the full year, suggesting net profits of approximately $16.2 million on sales of between $870 and $875 million -- up from $863 million in 2002.
(As an aside, kudos to Labor Ready for including a balance sheet in its earnings release. A cash flow statement would be nice, too...)
The return to top- and bottom-line growth for 2003 is encouraging after two years of slumping results on both counts. In 2002 and 2001 the company had to close dispatch offices -- not an enormously costly act on a cash basis, but unpleasant nonetheless -- and consolidate facilities to fight underperformance and maintain "store-level" profitability.
A weak economy compounded an already tough competitive situation, leading to lower bill rates and revenues per branch. The cost of doing business, meanwhile, increased in part because of workers' compensation costs.
To management's credit, in 2003 the company has fought back, despite continued margin pressure. Performance in its individual geographic markets has improved at a time when falling pay rates have helped gross margins. And lower full-time salary costs and other expenses have boosted operating profits.
Those are all steps in the right direction for Labor Ready, which must deliver profit growth even while it waits for employment to pick up.
Dave Marino-Nachison doesn't own shares of Labor Ready. He can be reached at [email protected].
