Release Date: September 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total revenue grew 6.8% to $2.51 billion, an all-time high for the company.
- Gross margin increased 9.7% over the prior year to a record 50.1%.
- Operating income as a percentage of revenue reached an all-time high of 22.4%.
- Diluted EPS grew robustly by 18.3% to $1.10.
- Free cash flow increased significantly by 62.4% over the prior year.
Negative Points
- Revenue growth was negatively impacted by one less workday in the first quarter.
- Uniform direct sale segment saw a decline of 1.8% in organic growth.
- Selling and administrative expenses as a percentage of revenue increased by 20 basis points.
- The effective tax rate for the first quarter was lower at 15.8% compared to 19.2% last year, indicating potential volatility.
- The company faces ongoing challenges in the competitive environment, particularly in pricing and customer retention.
Q & A Highlights
Q: Can you talk a little bit about the overall selling environment and any changes in customer purchasing behaviors in response to the overall macro environment?
A: We have not seen much change in customer behavior since our last report. Demand from our customers remains strong, and we continue to help them with their image, safety, cleanliness, and compliance needs, allowing them to focus on their core operations.
Q: Can you provide the breakdown in new sales between market share wins and conversion of no-programmers for the quarter?
A: Historically, about two out of three of our new customers come from the no-program market, meaning they are not with a traditional competitor. They might be using products and services but not from a traditional competitor, and we help them do it better, faster, and cheaper.
Q: How is the traction in your key focus verticals like healthcare, hospitality, education, and government compared to the broader company?
A: We have invested significantly in these verticals and run them holistically. For example, in healthcare, we have introduced technology like government dispensing to manage inventory and privacy curtains to address compliance issues, which have been well-received by our customers.
Q: What level of price increases are you implementing this year, and how are customers reacting?
A: Our price adjustments are much lower than they were at the peak of inflation and are closer to historical levels. These adjustments are always challenging conversations, but we focus on providing the best service to justify them.
Q: Could you discuss the margin expansion drivers and whether there are any one-time factors involved?
A: There are no one-time factors to call out. We are focused on extracting inefficiencies from our business, and we see more opportunities to do so. Our operating margin guidance reflects a range of 25% to 35% incremental margins.
Q: How is the hiring market for your business, and has it gotten easier or harder to hire people?
A: The hiring market has eased compared to the pandemic period but remains challenging. We are still investing for the future because we see significant opportunities ahead.
Q: Can you elaborate on the trends in the uniform direct sales business, which has seen organic declines for several quarters?
A: The uniform direct sales business is lumpy and highly impacted by rollouts of national accounts. The recent declines are more about timing and lumpiness rather than any fundamental change in the business.
Q: Could you talk about the M&A pipeline and your appetite for potentially large M&A deals?
A: M&A is an important part of our strategy, and we are open to deals of various shapes and sizes across our platform. However, some acquisitions, like the one involving an international company, may pose challenges due to underinvestment.
Q: What are the drivers behind the strong growth in the First Aid business, and what is the long-term opportunity there?
A: The First Aid business has seen strong growth due to increased focus on health and wellness post-pandemic. We provide a range of products and services like first aid cabinets, AEDs, eye wash stations, and training, which resonate well with our customer base.
Q: How do you view the competitive environment within your industry, and are you seeing any changes in competitive activity?
A: The competitive environment has always been intense, and we don't see any significant changes. We focus on investing in our business to provide the best solutions for our customers and position our people to compete effectively.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
