G&K makes gains, but investors expected more

  • Article by: PATRICK KENNEDY , Star Tribune
  • Updated: January 28, 2014 - 9:36 PM

The provider of uniforms reached two financial metrics it set in 2010.

G&K Services Inc., a provider of branded uniform and facility services programs, on Tuesday reported a 14 percent jump in adjusted profit for its fiscal second quarter and declared it had fully achieved the financial goals it set more than three years ago.

Adjusted earnings from continuing operations grew to a company record of 75 cents a share, up from 66 cents a share in the prior-year period.

The Minnetonka-based company said revenue for the quarter ended Dec. 28 was $225.9 million, up from $218.3 million in last year’s second quarter.

In August 2010, CEO Douglas Milroy announced ambitious goals dubbed 10/10. They amounted to a 10 percent return on invested capital, or ROIC, and 10 percent operating margin within two to four years.

G&K achieved its 10 percent operating margin in the fiscal second quarter a year ago. And in this latest quarter, it hit the ROIC target.

Last August, Milroy announced a “12+ Plan” to achieve 12 percent operating margin and 12 percent ROIC in two to four years, plus grow revenue.

“With adjusted operating margin of 11.5 percent and return on invested capital reaching 10.2 percent, we are already well on the way to delivering our 12+ Plan,” Milroy said in its statement Tuesday.

In the company’s earnings call, Milroy lauded his team for achieving the 10/10 goals and for having one of its best quarters on record. “I can assure you the champagne will be flowing around here,” Milroy said.

But investors were more hesitant to reach for a celebratory glass, and analysts had been expecting sales of $236.2 million. The company’s stock closed down $2.83, or 4.6 percent, to $58.24.

G&K also announced a revision to its fiscal 2014 guidance to reflect the effect of divested businesses. The company now expects fiscal 2014 revenue in the range of $890 million to $900 million and adjusted earnings from continuing operations between $2.80 and $2.90 per diluted share. The company had previously said that its adjusted earnings from continuing operations would be in the $2.80 to $3.00 per share range and that the midpoint of its revenue guidance was $940 million.

Patrick Kennedy • 612-673-7926

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