UniFirst Corp (UNF) 2006 Q3 法說會逐字稿

Welcome to the UniFirst Corporation third quarter earnings conference call. [OPERATOR INSTRUCTIONS] I would like the turn the conference over to Mr. John Bartlett, Senior Vice President.

Please go ahead, sir.

Thank you.

Welcome to UniFirst's conference call to review our third quarter operating results for fiscal 2006 and to discuss our expectations going forward.

My name is John Bartlett.

I am the Chief Financial Officer.

Joining me are Ronald Croatti, UniFirst's President and CEO; and Dennis Assad, our Senior Vice President of Sales and Marketing.

This call will be in a listen-only mode until we complete our prepared remarks.

Before I begin I would like to give a brief disclaimer.

This conference call may contain forward-looking statements that reflect the Company's current views with respect to future events and financial performance.

These forward-looking statements are subject to certain risks and uncertainties.

The words anticipate, believe, and other expressions that indicate future events and trends identify forward-looking statements.

Actual future results may differ materially from those anticipated depending on a variety of factors including but not limited to performance of acquisitions, fluctuations in the cost of materials, fuel and labor, economic and other developments associated with the ongoing war on terrorism, and the outcome of pending and future litigation in environmental matters.

Now I would like to turn the call over to Ron Croatti for his comments.

Thank you, John.

I would like to welcome all of you who are joining us for the review of our third fiscal quarter.

Another period of record revenues for our company.

John will cover the financial details in a few minutes, so let me begin with just a brief recap.

Revenues for the third quarter of fiscal 2006 were a record 211.9 million, an 8.2% increase over the same quarter a year ago.

A major upside influence came from our UniFirst laundry operations which grew 10.9% over the same quarter in fiscal 2005.

First Aid division revenues were up 15.6% over the same quarter a year ago, while Specialty Garments revenues were off 18.9% from the comparable period of fiscal 2005.

The drop off in revenue from our Specialty Garment segment is the result of the completion of a major UniTech contract at the government's Rocky Flats nuclear site.

As we previously explained, loss of this business was expected.

Even the best planning couldn't immediately fill the revenue gap it left.

UniTech has a new business that they expect to install between now and the end of the year which should help with the revenue recovery, but only a portion of the volume will be seen this fiscal year.

Year-to-date through three quarters company revenues were 613.4 million, a 6.7% increase over the 575.1 million for the same period in fiscal year 2005.

For the first three quarters of fiscal year 2006 core laundry revenues were up 9.3% and First Aid revenues were up 9.8% while UniTech revenues were down 21.1%.

Acquisitions account for about 1.8% of the increase in laundry revenue growth with a combination of organic growth and modest price increases accounting for the balance.

Net income for the third quarter of fiscal year 2006 was 10.9 million, a 7.6% reduction from the 11.8 million reported the same quarter in fiscal 2005.

Earnings per diluted common share were $0.57 as compared to the last year's third quarter earnings per diluted share of $0.61.

Through three quarters net income was 28.6 million, an 18.7% reduction from the 35.2 million reported in fiscal 2005.

Earnings per diluted common share for the three quarters of fiscal 2006 were $1.48 as compared to $1.82 through the first three quarters of fiscal 2005.

Income from operations in the Company core laundry business increased 2.5 million or 15.5% in the third quarter primarily due to strong revenue growth in this segment.

The growth resulted in lower production costs as a percentage of revenue and was achieved despite continual higher energy costs.

As with revenues, the main reason for the decrease in net income was the drop off in UniTech profit related to the contract expiration I have already mentioned.

As a result, our Specialty Garment segment continues to show unfavorable income from operations comparisons.

Down 3.5 million and 9.6 million for a comparable quarter and nine month period in fiscal year 2005.

Our First Aid and Safety division continues to show growth after a slow start at the beginning of the year turning another good profit contribution for the quarter.

Total operating costs for the third quarter and fiscal year-to-date were up slightly, particularly those being driven by oil prices.

Salary expense increased both in dollar terms and as a percent of revenue.

Merchandise cost continues to run slightly higher than a year ago, with much of that due to the higher garment usage rate necessary for the installation of new accounts.

Overall sales performance as well as sales productivity we see reflected in weekly sales averages was up for the quarter and year-to-date.

This gives further to support to our general positive outlook for market conditions the business will face for the balance of the year.

The economy as reflected by real GAAP continues to expand, and the May unemployment rate came in at 4.6, down from a six-month high of 4.9 in December of 2005.

The institute of supply management reports on business shows that the manufacturing sector grew in May for the 36th consecutive month.

The overall economy showing its 55th consecutive month of growth.

Business activity in an unmanufacturing sector increased for the 38th consecutive month with 13 of the 17 non-manufacturing industry seconds reporting increased activity in May.

Both indexes continue to run well above the 50% rate that marks overall economic expansion.

In mid-April we acquired the national account business of Uniform Supply Alliance, a strategic partner of several regional uniform rental service companies.

These suppliers have created a separate marketing and administrative entity headquartered just outside of Nashville for the specific purpose of developing national account business in competition with the nationals.

They were successful in building some volume, but servicing accounts became an issue as certain key members withdrew from the group when their businesses were acquired.

We were fortunate to be able to step in and make a buy offer that appealed to the remaining partners.

Consequently, we are now in the process of integrating the USA accounts into our own national account structure and are just now beginning to benefit from the approximate 12 million in annual revenue that will result.

Our capital spending will remain on track.

We plan projects seeing predictive spending levels.

With no anticipated demands we expect full year spending will come in at or below our budgeted projections.

We are working on some minor business acquisitions but nothing of sufficient consequences to highlight here.

As you would anticipate, though, we continue to investigate acquisition opportunities in all our primary business areas, and we'll remain active in pursuing good quality business.

Now I give you the additional financial details I would like to reintroduce John Bartlett.

Thank you, Ron.

As Ron explained, the first nine months of fiscal 2006 were solid from a growth standpoint in our core laundry operations, but reflected the anticipated decrease in revenues and contribution from our Specialty Garment segment which includes our nuclear and cleanroom operations.

They also reflect the impact of increased energy costs as well as the impact of our expanded salesforce.

These increases were somewhat offset by a decrease in our production payroll expense and all payroll related costs as a percentage of revenues.

Revenues for the 13 weeks ended May 2006 were a record $211.9 million, an 8.2% increase over the prior year.

Excluding the Company's Specialty Garment and First Aid segments, the revenues from the core uniform rental business grew 10.9%, $169.8 million to $188.3 million.

However, revenues during the quarter for the Specialty Garment segment declined 18.9% from $19.1 million to $15.5 million.

This decrease in revenues was anticipated and is primarily due to the completion of a large government contract in fiscal 2005 as well as lower than anticipated revenues from other customers particularly in Canada.

Nevertheless we are pleased with the growth in our core uniform rental business.

Of the 10.9% increase, approximately 9.0% was from internal growth and modest price increases, and the balance was from acquisitions.

Revenues for the nine months of fiscal 2006 were a record $613.4 million, a 6.7% increase over the prior year.

Again, excluding the Company's Specialty Garment and First Aid segments, the core uniform rental business grew 9.3% from $503.7 million to $550.8 million.

However, revenues during the nine month period for the Specialty Garment segment declined 21.1% from $50.7 million to $40 million.

Of the 9.3% increase in our core laundry operations, approximately 7.5% was from internal growth and modest eases price increases, and the balance was from acquisitions.

Looking at our results of operations by segment for the first nine months of fiscal 2006, the income from operations for our core laundry operations increased from $50.7 million to $52 million but as a percent of revenues decreased from 10.1% to 9.4%.

This decrease in operating margin can be attributed to several factors.

The first and most significant factor is the increase in energy costs.

These costs have increased as a percent of revenues by approximately 9/10 of a percent during the two comparable periods.

Another significant factor in comparing fiscal 2006 to fiscal 2005 is the increase in expenditures for our selling effort.

As a percent of revenues, total selling expenses have increased approximately 4/10 of a percent over the prior year.

On the positive side, the Company realized a $600,000 gain in the third quarter of fiscal 2006 from the sale of one of the laundry's closed in conjunction with the Textilease acquisition.

Also, depreciation and amortization in the core laundry operations declined as a percent of revenues in both the third quarter and for the nine-month periods from the prior year.

In addition, production payroll, and all payroll related costs were lower as a percent of sales as compared to fiscal 2005.

The Company continues to be pleased with the results of the core laundry business and anticipates that the results for the final quarter for the total company will exceed the comparable period last year.

The results for our Specialty Garment segment continue to be disappointed but not unexpected.

On a year-to-date basis the income from operations for this segment was $500,000 versus a profit of $10.1 million in the prior year.

In addition to the loss of revenues and profits from a large contract completed in fiscal 2005, the Company has received significantly less revenues from certain customers due to projects being deferred.

The income from operations for this segment for our final quarter of fiscal 2005 reflected a loss of $3.2 million.

We are optimistic that the results for this segment and the final quarter of fiscal 2006 will be a break even or a small loss which will provide a very favorable comparison to the final quarter of fiscal 2006.

Finally, our First Aid segment had significantly improved results in the third quarter of fiscal 2006.

Revenues for this segment increased 15.6% over the prior comparable quarter, and income from operations increased from $353,000 in fiscal 2005 to $739,000 in the third quarter of fiscal 2006 for an increase of over 100%.

On a year-to-date basis revenues increased 9.8% over the prior year and income from operations increased from 1.0 million in fiscal 2005 to $1.4 million in fiscal 2006 or 37%.

Depreciation and amortization increased $900,000 for the nine-month periods from $32.9 million in fiscal 2005 to $33.7 million in fiscal 2006 and $400,000 from $11.1 million to $11.5 million for the third quarter periods.

As a percent of revenues, depreciation and amortization declined in both periods.

The net result of the above factors was that income from operations decreased 12.7% or $7.8 million from $61.7 million to $53.9 million for the nine-month period and 2.7% or $600,000 from $20.9 million to $20.3 million for the 13-week periods.

For the percent of revenues income from operations decreased from 10.7% to 8.8% for the nine-month period and from 10.7% to 9.6% for the 13-week period.

Net interest expense for the first nine months of 2006 increased from $4.9 million to $6.8 million and for the third quarter from $1.9 million to $2.6 million.

These increases are primarily due to higher interest rates on the Company's variable interest rate debt as well as slightly higher debt outstanding during the fiscal 2006 periods.

The provision for income taxes was 39.1% for the first nine months of fiscal 2006 as compared to 38% in the same period in fiscal 2005.

The income tax provision in the second quarter of fiscal 2006 was increased by $300,000 to provide for tax exposure assessed by the Company.

Excluding this additional $300,000 amount, the provision for the nine-month period in fiscal 2006 would have been 38.5%.

Of the 13-weeks ended May, 2006, the income tax provision was 38.5%, 38.5% as compared to 38.0% in fiscal 2005.

Finally net income for the first nine months of fiscal 2006 decreased $6.6 million or 18.7% and $35.2 million or $1.82 per diluted common share to $28.6 million or $1.48 per diluted common share.

For the third quarter net income decreased $900,000 or 7.5% from $11.8 million or $0.61 per diluted common share to $10.9 million or $0.57 per diluted common share.

Overall we are pleased with the results of the core laundry operations and disappointed with results for Specialty Garment business for the first nine months of fiscal 2006, but remain optimistic for the balance of the year.

We are optimistic that the results for our final quarter will exceed the results of the prior comparable quarter.

Our balance sheet continues to be very strong.

Accounts receivable at May 27, 2006 were $87.8 million or 11.8% more than the $78.5 million at August of 2005.

These receivables represent 37.7 days of sales as of May 2006, a slight decrease from the 37.8 days of sales at August of 2005.

New inventory declined slightly from $31 million at August of 2005 to $29.1 million at May of 2006 and merchandise and service has increase almost 20% from $69.8 million at August of 2005 to $83.6 million at May of 2006.

Net property and equipment has increased 2.2% from $305 million at August of 2005 to $311.8 million at May of 2006.

During the first nine months of fiscal 2006 the Company funded $35.2 million of capital expenditures.

In our last conference call we estimated that fiscal 2006 capital expenditures of approximately $50 million.

We continue to believe this is a reasonable estimate for the full year, but it might come in slightly below that amount.

During the nine months ended May 2006 we expended about $34 million on several acquisitions.

None of these acquisitions were individually significant in size.

Current liabilities excluding current debt and accrued taxes increased slightly to $117.4 million at May of 2006 from $112.9 million at August of 2005.

Total debt has increased from $176.7 million at August of 2005 to $203.7 million at May of 2006.

Finally total shareholders equity increased from $412.3 million at August of 2005 to $442.6 million at May of 2006.

Total debt as a percent of capital was 31.5% as of May 2006 as compared to 30.0% at August of 2005.

Looking ahead, we're optimistic that the results of operations in the last quarter of fiscal 2006 will exceed the prior comparable quarter.

In our April 2006 conference call we provided guidance that our full year revenues would be between 805 and $810 million.

We now believe that revenues for the full year will be approximately $820 million.

In our April 2006 conference call we estimated that our diluted income per common share would be between $1.95 and $2 per share.

We continue to think that this is a reasonable estimate.

Now I will turn the call over to Dennis Assad, our Senior Vice President of Sales and Marketing for his comments.

Thank you, John.

For both the third quarter of fiscal 2006 and the three quarters year-to-date, combined professional and service sales were ahead of last year's numbers.

Year-to-date, new business growth was up about 12% from the year starting volume with professional rep weekly averages showing improvement in all but one region.

Year-to-date rep work -- week's work were up almost 7% from the same period a year ago, and this is consistent with the additional sales head count we've authorized.

In our efforts through direct sales people to larger no program or prospects is having a positive effect on the quality of the new rental business we're bringing in.

After a good start it now appears that annualized rep turnover numbers will probably finish the year at about the same level as in fiscal 2005.

But that's largely a reflection of our efforts to cull the sales ranks of performers who are not meeting our standards for weekly sales performance or keeping up with or more stringent reporting requirements.

We're working hard to upgrade the quality of our field sales organization and one of the short-term victims of that effort will be our turnover statistic.

Overall sales expense was up consistent with personnel increases we've made but productivity improvement acted as a counter balance.

Sales were up 19% without national accounts, and productivity was up 12% with the difference made up in head count.

Our national account sales team continue to grow with their year-to-date rental sales performance running ahead of quota.

We've added some major new accounts, and we're working on several important contract renewals.

At the same time we're looking to expand the organization with the addition of three new reps and a specialized sales manager.

We continue to reorganize our internal sales function to more effectively accelerate account development through the more effective sell-in of additional services.

As Ron mentioned, we acquired the Uniform Supply Alliance national account business.

A big task for our national account team is the integration of these customers into our service base and the effective transfer of account administration to our systems.

Also to the extent that there are agreements with the short remaining term, we're taking the necessary action to get renewals done as quickly as possible.

Along with the Vice President of National Accounts I have been personally involved in a high percentage of these transition contacts.

Our facility service product category primarily floor and restroom services continues its expansion.

We're now getting roughly 20% of our new sales from these products, and we expect to see additional category growth as our emphasis and focus expands.

These items are sold by our mixed product professional sales representatives and our service sales team but are also the exclusive selling focus of our professional facility service sales reps who work from a limited number of dedicated facility service locations around the country.

From a sales support and sales training standpoint, we've continued to expand the resources and tools we have for the education of both reps and field managers.

We've added some new training materials, techniques, and delivery vehicles.

Many training components that were previously available only via formal corporate training classes are now available as online modules accessible via the Internet in streaming video and more are coming.

This allows more convenient access for both new and seasoned reps and allows sales managers to more effectively tailor specific training elements to fit their local needs.

All online training components are packaged with an accompanying test model that allows our corporate training department to track the accomplishments of each individual and develop a progress log that helps in status assessment.

As I noted last time I continue to be involved in regular sales performance assessment meetings within each of our regions and in working with regional sales managers and location managers to create plans for performance improvement and performance enhancement.

I believe this level of direct executive contact is making a difference in results and will remain a part of our action plan for fiscal year 2007.

Overall I am very satisfied that our combined sales teams are making good progress and that they will finish the fiscal year on a strong note.

John?

Thank you, Dennis, and now we'll turn it back to the operator for questions and answers.

[OPERATOR INSTRUCTIONS] Our first question comes from the line of Michael Schneider.

Please proceed.

Mr. Schneider, your line is open.

Please proceed with your question or comment.

Good afternoon, guys, how are you.

Good, Mike, how are you.

Doing real well.

I guess, first, congratulations.

The organic growth of 10.9 is the best in the industry right now and year-to-date as well.

But it begs the question, how do you go from 6.7% last quarter to 10 or call it 9% organic growth this quarter?

Was what was the biggest incremental change?

Because it is difficult to see how you moved that needle so quickly in one quarter.

Michael, this is Ron.

I think it is a combination of two or three things, I think.

Dennis' sales has been kicking in and rolling over for us.

The price increase, we put a price increase in that helped move it along.

David's power routes.

We got some good results off the power route effort during the quarter.

I think it is a little bit of this and a little bit of that, but it really seemed to jump together.

And the price increase, Ron, what's the magnitude that you've gone out with and is it being pushed out as a surcharge or an actual price increase?

It is both actually.

We actually put through a price increase to the customer and a -- what do you want to call it, fuel add-on charge.

Okay.

A combination of both.

In fact, can you give us the break down this quarter, Ron, between add/stops, pricing retention, and new business?

For the quarter?

Yes.

It has been, new business was 16.5.

Lost business was 7.8.

The negative -- the adds reductions were negative 1.2.

The price increase was 1.6.

Acquisitions were 1.8.

I believe that totals to 10.9.

Okay.

And, Dennis, when you say -- did I hear you correctly that week's work were up 7%?

Yes.

What do you mean by that metric?

Well, in other words, we calculate things by the number of work weeks per week throughout the year.

We are 7% ahead of last year which means the head count is up by about 7%.

Okay.

Got it.

And then national accounts during the quarter, Dennis, what were those up?

The national accounts, they're up about 11, 11.5%.

So it isn't just the national accounts that explain why the core uniform business is up so strongly?

Obviously that helped.

But it is more than that, it is the base business as well?

The field is doing actually better than national accounts.

They're really performing well right now.

Like I said earlier, the sales productivity is up 12% which is a very good number.

There is no question about it.

It is hard to achieve those numbers, and the field seems to be responding pretty well to some of the initiatives we laid out over the last year or so.

Dennis has a major incentive going that -- at his President's Club that he is going to take them to Hawaii.

They're really running right now.

Okay.

11.9%.

No.

Actually, that certainly is an incentive, but the real issue is, in my opinion two things that are really creating the positive results.

Number one is the location manager involvement.

They are much more involved than they've ever been in sales, and the second thing is salesforce automation.

We've had that going now for almost a couple of years.

That's really starting to kick in in terms of making our people more efficient.

Okay.

Dennis, if you look at it by product, is the uniform itself keeping pace or is it the ancillary products that's leading the growth right now within the uniform business?

Uniforms are still the big number.

There is no question about it, but ancillary products are coming right along.

But the bulk of it is in uniforms.

Okay.

And, Ron, just final question.

Give me your sense as to just the pace of the economy, if you separate the sales efforts and the sales success, what's your read on just basic employment and basic demand within your end markets?

I think what we've seen for the maybe the spring push or so forth, again a lot of our business is the smaller mid-size accounts.

Our adverse reductions came closer this month, or this quarter than ever really.

Maybe it is a tightening of the job force, less people are unemployed, but we've seen it come a little closer.

We kind of think things are going to at least bump along until the election at a pretty consistent level that we're currently at.

And what should we look for in the fourth quarter and kind of heading into fiscal '07, Ron?

Is organic growth at this 9% rate sustainable or is it more function of comparisons and we should expect it to back off a bit?

I think obviously we would like to see it stay there.

We're doing everything we can possibly think of to try to keep it at that level.

I mean, we've revised what we think we're going to do for the rest of the year, and if we can keep the sales crew going and the losses down, I think we can sustain that rate.

Okay.

Thanks again, guys, and congratulations.

Thank you.

Thank you, Mike.

[OPERATOR INSTRUCTIONS] Our next question comes from the line of David Lynn.

Please proceed.

Hello.

I second the congratulations on the strong organic growth.

Thank you.

Can you guys clarify for me the UniTech revenue again?

I thought we had anniversaried the Rocky Flats contract ending, and so no surprise that it was -- that revenue had declined so much, but I know that you mentioned in your prepared remarks that you had sustained a little bit of revenue loss in other areas within there.

Can you just add some color on that?

I will start and then Ron can fill in.

This is John Bartlett.

Yes, I think toward the end of fiscal 2005 we got fairly substantial revenues from Canada, and we were pretty optimistic that Canada was going to not only replicate what they did in 2005, but kind of pick up some of the shortfall from the Rocky Flats contract, and that business just has not come through.

A lot of it is -- some of it is not going to come through because they decided not to reopen a couple of the reactors, I believe in Pickering, and some of the other has just been deferred.

As we talk to our management there, they keep telling us it is coming, it is coming, but it keeps getting delayed.

Yes, you're right, it is not all the Rocky Flats.

It is that contract, and I think we also lost some revenue in the Midwest from Excelon, not that we lost it forever, it is just we didn't get as much this year as we had gotten in fiscal 2005.

Okay.

Do you want to add anything to that, Ron?

No.

I think you had it all.

Just if I can touch on merchandise costs a little bit, I know you said that it appears to be trending higher than it did last year, but I remember -- I think I remember last quarter that you said that it was surprisingly a larger last quarter.

Was there anything surprising about it this quarter or was it pretty much in line with what you guys expected?

Well, I guess what was surprising to me, it wasn't higher than I thought -- I thought it was going to be a little higher on a year-to-date basis.

As it turns out, it was relatively flat versus a year ago.

But I think we are concerned as we go forward that those costs are going to trend up.

I think it is a combination of the new business we're writing, and it is also a combination that some of the flame retardant business are no mix units that we're putting in service are a little more pricier and take a little more time to amortize as we enter that flame retardant market.

We're watching that merchandise cost very close.

Okay.

Thanks, guys.

Keep up the good work.

Thank you.

Our next question comes from the line of Jeff Bork.

Please proceed.

Good morning or good afternoon, guys.

A couple of questions on the gain during the quarter.

Can you clarify a couple of things.

First of all, where is that?

Is that in SG&A?

I believe it is in operating.

Operating.

I will explain it a little bit.

It was for our Richmond plant that we ended up closing the Richmond plant that we had and moving into the Richmond plant we acquired as part of Textilease but, probably five or six quarters ago we took a $600,000 charge to reserve for the sale of it.

Exactly.

So my question was going to be -- to follow-up on that, was this gain included in your guidance beforehand?

No.

Is it included now?

Well, everything is included now.

Yes.

We don't hold things out the way you guys do.

Right, but did you anticipate the gain when you reiterated the guidance or lowered the guidance last quarter?

We've known for awhile that we were going to sell it for a little bit more than we had on our books, but it is just one of a lot of things that go into the numbers, Jeff.

We're not smart enough to consider that on our guidance.

Okay.

And then last question, you mentioned some new business that's going to start rolling in for UniTech.

Is that the Bruce Power contract you have already talked about or is there something else?

No, that's it.

It's the Bruce and OPD.

The subcontractor of Bruce.

Okay.

Great.

Thanks, guys.

Our next question comes from the line of Rick Gutte.

Please proceed.

How are you, Rick.

I'm doing well.

Just to follow-up on a couple things I think I heard on the call.

The fourth quarter UniTech is, did you say that's going to be close to break even?

We hope it is going to be break even or possibly a small loss, yes.

The guys -- we talked to them yesterday, and they told us they thought they were going to break even.

Does that mean some of the deferred stuff is kicking in or what does it take to, I guess, move it from what it's been doing to that level?

It made money in this quarter.

Okay.

But the year-over-year comparison going into the fourth quarter is particularly strong because that's when it started to fall off the cliff last year, right?

I think last year it fell off the cliff, and then also there were some fairly significant charges in the fourth quarter for a plant we were closing.

Close and were decontaminating as we got to the final stages of closing that costs to do it kept ratcheting up.

I think it was 7 or $800,000 in the fourth quarter of fiscal 2005 for that, and then another fairly substantial amount in the first quarter of 2006 that the costs kept coming in to get that closed.

That was under UniTech?

Yes, that was in UniTech.

But that was one of the reasons that it had such a big loss in the fourth quarter of last year.

Okay.

Just -- I can understand year-to-date that what I'd expect to see with the kind of numbers you put out, particularly in this quarter on the uniform rental side, we would expect to see more leverage to the bottom line with that kind of growth, but the offset has been the head wind from the UniTech side of the equation, Specialty Garments.

With that largely behind us, going into Q4 and the expectation of still continued strong uniform rental business, why don't we see stronger leverage to the bottom line?

By giving the full year guidance, you're telling us we can back into what you're presuming for the fourth quarter, and I guess I would expect better numbers with a $3.5 million plus comparison on UniTech alone with the kind of growth you're showing, adding in the kind of growth you're showing on the uniform rental business?

Who wants to go?

Well, first, I don't think it is quite 3.5 million for UniTech.

I think it is 3 million plus or minus a gain or loss they have in the fourth quarter.

Okay.

I think we had a fairly strong quarter in the fourth quarter last year irrespective of the UniTech situation, and we're -- that's just our best shot at this point.

The fourth quarter generally for the Company from a revenue standpoint usually falls off a little bit.

We're usually strongest in the first and third quarter and weak in the second quarter and sometimes in the fourth quarter.

It is our best estimate of where we think we're going.

Maybe I heard you wrong, then.

Did you say that year-over-year in Q4 -- I might have been to -- I can't remember who asked the question, but that this 10% kind of level is not unrealistic for the uniform rental business or not?

Growth?

Growth.

That's what Ron said.

It is our objective to keep that rolling.

Okay.

You said last year was a particularly strong fourth quarter.

I guess what am I missing? 10% growth off a strong quarter makes a stronger quarter, right?

Well, I was meaning not so much the revenues but the profitwise in the fourth quarter.

Okay.

Then how come we're not getting positive leverage from that?

To the bottom line, positive operating leverage?

Well, without getting into the detail of it, I think there is a -- we still have the negative year-over-year comparisons with the energy costs and the selling effort is up as Dennis talked and he has more sales people on the street, and there is a lot of other things that go into the numbers rather than just revenue growth.

But I mean it would be disappointing for me as a shareholder to look at this as a business that has negative operating leverage, 10% top line gives you weaker than that on the base -- the core business.

That shouldn't be the case, but you said you are passing on price increases.

I would think that somewhat offsets some of the cost pressures you're talking about.

And any other factor I think we shared this in the past, as we grow, we have -- we sort of front end the merchandise cost to some degree that -- in the early years as we're growing it.

I am -- I think I am concerned that the merchandise costs is going to creep up a little bit in the fourth quarter and next year.

Okay.

Thanks.

We do have another question from the line of Alex Paris.

Please proceed.

Hi, guys.

My question is sort of in line with what Rick was just talking about.

If indeed Specialty Garments is close to break even, if I have my numbers right here, and I am doing my math right, the only way that you do $1.95 to $2 is if the core laundry operating income is down in the fourth quarter.

I think.

So I would think--.

I hope that doesn't happen.

Okay.

I think we're going to be at the high-end of that range, Alex.

I would think you might be above the high-end of the range.

We might be a little conservative here, Alex.

We hope you're right.

Great.

Congratulations and good luck.

Thanks.

Gentlemen, there appear to be no further questions at this time.

I will turn the call back over to you.

Well, we certainly thank you for the interest in the Company, and we are happy with the Company on the revenue side.

We will continue to keep the revenue moving, and we are working to improve the bottom line and we're confident that the UniTech division will come out of it, if not this fourth quarter certainly in fiscal 2007.

Again, I thank you for your interest in UniFirst and good evening.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation and ask that you please disconnect your lines.