U.S. Markets close in 4 hrs 58 mins

Edited Transcript of UNF earnings conference call or presentation 29-Mar-17 2:00pm GMT

Thomson Reuters StreetEvents

Q2 2017 UniFirst Corp Earnings Call

WILMINGTON Mar 29, 2017 (Thomson StreetEvents) -- Edited Transcript of UniFirst Corp earnings conference call or presentation Wednesday, March 29, 2017 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Ronald D. Croatti

UniFirst Corporation - Chairman, CEO and President

* Steven S. Sintros

UniFirst Corporation - CFO and SVP

================================================================================

Conference Call Participants

================================================================================

* Andrew C. Steinerman

JP Morgan Chase & Co, Research Division - MD

* Andrew John Wittmann

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* John Michael Healy

Northcoast Research Partners, LLC - MD and Equity Research Analyst

* Kevin M. Steinke

Barrington Research Associates, Inc., Research Division - MD

* Timothy Michael Mulrooney

William Blair & Company L.L.C., Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing by. Welcome to the Second Quarter Earnings Call. (Operator Instructions)

I would now like to turn the conference over to Steven Sintros, Chief Financial Officer. Please go ahead, sir.

--------------------------------------------------------------------------------

Steven S. Sintros, UniFirst Corporation - CFO and SVP [2]

--------------------------------------------------------------------------------

Thank you, and welcome to the UniFirst Corporation conference call to review our second quarter results for fiscal 2017 and discuss our expectations going forward.

I'm Steven Sintros, UniFirst's Chief Financial Officer. Joining me is Ronald Croatti, UniFirst's President and Chief Executive Officer.

(Operator Instructions)

Now before I turn the call over to Ron, 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, optimistic, believe, estimate, expect, intend and similar 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 risk factors. I refer you to our discussion of these risk factors in our most recent 10-Q and 10-K filings with the Securities and Exchange Commission.

Now, I will turn the call over to Ron Croatti for his comments.

--------------------------------------------------------------------------------

Ronald D. Croatti, UniFirst Corporation - Chairman, CEO and President [3]

--------------------------------------------------------------------------------

Thank you, Steve, and welcome to everyone joining us today for the review of UniFirst's second quarter and 6-month year-to-date financial results for fiscal year 2017. Steve will be covering all the details. But first, I'll deliver a brief overview of the company's performance.

I'm happy to report that UniFirst revenues for the second quarter of fiscal 2017 set a new record high of $391.4 million, increasing 7.8% from the $363.1 million reported second quarter in 2016. Six months year-to-date revenue were also a record coming in at $775.5 million, a 5.6% increase from the 2016 midyear mark.

Net income for the second quarter was $22.4 million, a 4.2% decline from the net income reported in the same period a year ago. Considerably, net income for the first 6 months of the year fell short of the 2016 half year mark by 14.6%.

Our Core Laundry Operations, which make up greater than 90% of UniFirst's total business, had a solid second quarter, reporting record revenues of $358.4 million, which was an increase of 8.2% over 2016 second quarter. These gains were positively influenced by several factors, including improved new sales results over last year's second quarter, additional business generated from our recent Arrow acquisition and a stronger Canadian dollar. The segment's revenue results also benefited from improvements in both customer retention rates company-wide and added total reductions within our existing customers, although still slightly negative.

Second quarter operating income for our laundries dropped off 8.5% from the results of the same period a year ago. The income dip was partially a result of systems integration cost associated with the Arrow acquisition as well as higher selling and administrative expenses during the quarter.

As for our Specialty Garments segment, which consists of our specialized nuclear-related and cleanroom service businesses, these units reported solid gains for the quarter in both revenue and operating income when compared to the same period in 2016. This segment achieved a 6.5% revenue increase and an 82.8% gain in operating income, but as we have mentioned in previous webcast, this niche business is very cyclical based on customers' nuclear reactor shutdown schedules. So although we anticipate fluctuations in their financial results for the remainder of the year, in the end, we expect to report solid full year results for this segment and would align in our original forecast.

And lastly, our First Aid and Safety segment reported a slight 0.2% decrease in revenue and an 8% increase in operating income for the second quarter 2017. Ultimately, we anticipate this segment will report a solid overall performance for the full year.

So as we look ahead to our anticipated results for the remainder of the year, we are encouraged by the recent gains and trends in organic growth and our new sales and our customer retention. We are also cautiously optimistic about the balance of the year based on initial signs of potential rebound in some of our struggling oil and energy markets.

As many of you know, UniFirst witnessed significant uniform wearer losses in the niche markets over the last couple of years that affected our top and bottom lines. But more recently, we've been seeing not only stabilization in these areas, but actually some slight gains in energy-related uniform wearers. It would be premature for us to project any future growth opportunities in these volatile markets, but these modest improvements in uniform wearers have been more than welcome to say the least.

We are also hopeful that with the new presidential administration, national employment levels and the overall economy will soon begin reaping the benefits as a result of its new policies and from loosening up some of the business-related regulations. So we are watching these areas very closely as we move forward to identify any potentials for additional business and related growth opportunities.

Internally, we will be relying on our field and national account sales team to maintain their positive growth trends. We'll continue improving the new business results through innovative sales programs, advanced skill training and professional consultive selling. And as a nonnegotiable, we continue to expect our service teams throughout the U.S., Canada and Europe to remain focused on each and every customer, opening to ensure that their unique business needs are continually being met and every expectation of us is exceeded.

In the end, we fully expect fiscal year 2017 to be a solid year for UniFirst, our shareholders and our thousands of employee team partners.

And now I'd like to turn it back to -- over to Chief Financial Officer, Steve Sintros, for the details of UniFirst's second quarter and 6 months results for 2017 and as our expectations for the remainder of the year.

--------------------------------------------------------------------------------

Steven S. Sintros, UniFirst Corporation - CFO and SVP [4]

--------------------------------------------------------------------------------

Thank you, Ron.

As Ron mentioned, revenues for the quarter were $391.4 million, up 7.8% from $363.1 million a year ago. Net income in the quarter was $22.5 million or $1.10 per diluted share, down 4.2% from $23.5 million or $1.16 per diluted share in the second quarter of fiscal '16. Results from the second quarter include the impact of the company's acquisition of Arrow Uniform, which was completed in September of 2016.

Core Laundry revenues in the quarter were $358.4 million, up 8.2% from those in the prior year second quarter. Adjusted for the estimated effect of acquisitions, including Arrow, as well as the stronger Canadian dollar compared to a year ago, Core Laundry revenues grew 2.2%.

We are encouraged by the improvement during the second quarter of our Core Laundry Operations' organic growth rate. Recent trends indicate that wearer levels at existing customers have stabilized after enduring 2 years of significant reductions in our North American energy-dependent markets. In addition, overall new sales as well as customer retention have also trended positively compared to the first half of 2016. We are cautiously optimistic that these trends will allow us to continue improving our organic growth rates as we move through fiscal 2017.

Core Laundry operating income was $33.1 million during the quarter, an 8.5% decrease from the prior year. Its operating margin was 9.2%, down from 10.9% for the same period in fiscal 2016. The margin decline was primarily the result of higher selling and administrative expenses as a percentage of revenues.

Selling and administrative, payroll and other costs were partially the result of headcount additions and other costs to support our CRM systems project and other technology initiatives as well as higher noncash expenses related to stock compensation due to the restricted stock grant to our CEO in April 2016. In addition, the estimated impact of the acquisition of Arrow decreased the Core Laundry operating margin by 0.6% as we continue to expend transitional costs as well as work to integrate Arrow's operations to optimize deficiencies between our companies.

There were also several other offsetting increases and decreasing in cost of revenues during the quarter. Plant and service labor and other expenses, partially the result of upward pressure of minimum wages, were higher as a percentage of revenues in the quarter as were energy costs, which increased to 4.3% of Core Laundry revenues compared to 3.9% a year ago. These increases were offset by lower merchandise amortization as a percentage of revenues as well as lower health care costs compared to the same quarter a year ago.

Revenues from our Specialty Garments segment, which consist of nuclear decontamination and cleanroom operations, increased 6.5% in the quarter compared to the same period a year ago and operating income was $2.1 million compared to $1.1 million last year. This segment's results can vary significantly from period-to-period due to seasonality and timing of outages and projects. The improvement in results compared to a year ago were driven primarily by this segment's U.S. and Canadian nuclear operations. We continue to expect that this segment's full year results will meet or exceed its fiscal 2016 revenues and operating income.

Our First Aid segment reported revenues and operating income of $11.3 million and $1.0 million, respectively, in the quarter, which were substantially flat compared to the same quarter a year ago.

UniFirst continues to maintain a solid balance sheet and overall financial position. Cash provided by operating activities year-to-date were $114.7 million, an increase of $9.2 million from the comparable period in the prior year when cash provided by operating activities was $105.5 million. The increased cash provided by operating activities was partially the result of a settlement of an environmental litigation the company entered into in the fourth quarter of fiscal '16, which resulted in a gain of $15.9 million. During the first quarter, $12.5 million was received related to this settlement. The positive impact on net cash provided by operating activities as well as the positive timing of other working capital inflows and outflows was partially offset by lower income during the quarter.

Cash and cash equivalents at the end of the quarter totaled $313.5 million, down from $363.8 million at the end of fiscal '16. The decline in cash is primarily related to the cash expend on the acquisition of Arrow during our first quarter. Excluding this cash outflow, cash balances would have increased $69.6 million. Of the cash on hand at quarter-end, $57.5 million has been accumulated by our foreign subsidiaries and intended for future investments outside of the United States.

For the first 6 months of the year, capital expenditures totaled $43 million. We continue to invest in new facility additions, expansions and automation that will help us meet our long-term strategic objectives. We now expect capital expenditures for fiscal '17 to be approximately $100 million.

Other than the Arrow deal, we did not close any other significant acquisition so far this year. Business acquisitions has historically been an integral part of our growth strategy and we'll continue to seek out opportunities that make sense for us to meet our long-term business goals. We continue to have significant cash on hand and borrowing capacity under our line of credit for additional acquisitions or other capital allocation options.

As always, we'd like to provide an update on our outlook with regards to the remainder of our fiscal year. During our last earnings call, we communicated that we expected full year revenues for fiscal '17 would be between $1.550 billion and $1.565 billion and full year diluted earnings per share would be between $4.85 and $5. We now expect that our full year results to come in at the higher end of these previously communicated ranges.

Our improved outlook over the remainder of the year is primarily based on the positive trajectory regarding our revenues as it relates not only to wearer levels, but customer retention, new sales and pricing trends over the last few months. These positive top line trends as well as some moderation in our health care costs have helped offset what has continued to be unfavorable trends in workers' compensation and other related claims during the last 2 quarters. Other than these items, the year is progressing very much as originally expected. We continue to expend time and resources assimilating and integrating the Arrow acquisition into our operations as well as continue to prepare for the eventual deployment of our new CRM system.

I do want to remind investors that our guidance for fiscal '17 does not include any depreciation related to our Unity 20/20 CRM systems project as we do not expect to begin deploying the system during the current fiscal year. As we move closer to deployment, we'll likely begin to incur additional costs that do not qualify for capitalization under the accounting rules as well. In addition, additional headcount may be needed to support the new system during deployment.

We've not included any of these costs in our guidance as it is unclear as to the timing and the amount of these expenses. We'll continue to update shareholders on the impact of any such costs in quarters ahead.

This completes our prepared remarks and we'd now be happy to answer any questions that you may have.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question is from the line of Andrew Steinerman with JP Morgan.

--------------------------------------------------------------------------------

Andrew C. Steinerman, JP Morgan Chase & Co, Research Division - MD [2]

--------------------------------------------------------------------------------

My question is 2. The first one, Ron, you mentioned some enthusiasm, a rather possible Trump bump. Is that general sentiment and hopefulness around your customer base? Or have you seen evidence that the new administration is helpful to your end customer and benefiting UniFirst already?

And then my second question to Steve is about the S&A line. How should that trend throughout the year? Did the S&A line in the first quarter really first -- kind of the first and second quarter, start to give you a sense of how S&A will trend throughout the year or are there more costs ahead?

--------------------------------------------------------------------------------

Ronald D. Croatti, UniFirst Corporation - Chairman, CEO and President [3]

--------------------------------------------------------------------------------

All right. Andrew, I'll go first on the -- on your question. From the customer visits that we've been making over the last quarter, I think there's a general business hopefulness that this gentleman and the President of the United States will spend some money on infrastructure and maybe military spending to get more jobs going, but everybody is kind of wait and see.

--------------------------------------------------------------------------------

Steven S. Sintros, UniFirst Corporation - CFO and SVP [4]

--------------------------------------------------------------------------------

As far as the G&A line, SG&A line there, Andrew, I think the trend you're looking at is probably what we can expect over the second half. The comparisons may get a little bit better. Some of the headwind coming from the stock compensation expense related to Ron's deal will start to annualize as that deal started to have some expenses in the third and fourth quarter of last year. But as I said toward the tail end of the call, there may be some additional transitionary costs as we get into preparing to deploy our CRM system that might creep up as we get toward the end of the year and into '18 as well. So we'll keep you updated there, but I think the run rate we're at now is reasonable.

--------------------------------------------------------------------------------

Andrew C. Steinerman, JP Morgan Chase & Co, Research Division - MD [5]

--------------------------------------------------------------------------------

Great. And it came in line with your expectations for the quarter, right? The S&A line?

--------------------------------------------------------------------------------

Steven S. Sintros, UniFirst Corporation - CFO and SVP [6]

--------------------------------------------------------------------------------

Correct.

--------------------------------------------------------------------------------

Operator [7]

--------------------------------------------------------------------------------

The next question is from the line of Andy Wittmann with Robert W. Baird.

--------------------------------------------------------------------------------

Andrew John Wittmann, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [8]

--------------------------------------------------------------------------------

Great. Let's just keep going with the CRM. I know you guys you said not this year. Do you, Steve, have a sense about when you think we might be able to go live next year? And just to round out the kind of color on that, can you talk about what the incremental spend will be as you look at the fiscal '17 year in terms of the implementation costs that would be specific to the implementation of that CRM?

--------------------------------------------------------------------------------

Steven S. Sintros, UniFirst Corporation - CFO and SVP [9]

--------------------------------------------------------------------------------

Right now with respect to timing, Andrew, we're looking at piloting the system, a live pilot in the fall, so in the beginning of our fiscal '18. As far as when we would start fully deploying after that, it would probably be a couple of months pilot period before we start fully rolling out. So realistically, we're looking at sort of beginning of calendar '18 to start full scale deployment, but there will be some costs that ramp up.

You said fiscal '17 costs. I think you probably meant fiscal '18 as far as incremental deployment costs. We are carrying some heavier costs today with people that are working on this system that will roll into that deployment team. So although there will be some incremental support and deployment costs, we don't anticipate it being overly dramatic. And it's not a specific guidance at this point. And we will have more guidance as we get closer, but there is a fair amount of costs sort of wrapped up in our numbers now that will continue to support this thing as we deploy.

--------------------------------------------------------------------------------

Andrew John Wittmann, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [10]

--------------------------------------------------------------------------------

Okay. That's helpful. Let's -- if you don't mind, let's talk a little bit about the margin profile in the quarter. Thank you for breaking out the pieces that you did. I thought the labor comment that you made that you're seeing some labor inflation was interesting. It's something, I think, as analysts, we have been looking for, for a while and we've been hearing a little bit more of it.

Can you just talk about what labor is? And can you quantify how much that is? And do you expect this trend to continue? And maybe just in terms of how this has hit your P&L so far, is it just starting to creep in where we're going to have to annualize some of these new higher wage rates that you're paying? Or have they been filtering in over the last few quarters?

--------------------------------------------------------------------------------

Steven S. Sintros, UniFirst Corporation - CFO and SVP [11]

--------------------------------------------------------------------------------

They really have been filtering in. I think a number of states have increased minimum wages. And although most of our employees are above those minimum wages, it does cause sort of a wage compression right up the chain. And so we've been moving and having to pay more to hire certain positions from the production level up through the service level. So in our cost to revenue line, our production and service payroll is up 0.3 or 0.4 of a point on the margin in the current quarter, and that's something we'll continue to try to stay ahead of.

Now as the growth starts to come along and we can get more volume in the facilities and start doing a little bit better on the top line, the impact to that should moderate. But we've been dealing with that the last couple of years and it's something, I think, we expect to continue to deal with as many states still have additional initiatives to move minimum wages forward.

--------------------------------------------------------------------------------

Andrew John Wittmann, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [12]

--------------------------------------------------------------------------------

That's really helpful color. Ron, I guess I just have one more question for now for you and that's just thinking about the competitive landscape now with the Cintas and G&K deals done. I think there was some hope from other competitors in the industry that there might be some pieces that would be forced to divest. Certainly, you would have been at the table to pick up any of those pieces.

But, I guess, what I'd say is -- or, I guess, the question is, first, now that there aren't any divestitures out there to pick up, are you more inclined or less inclined to put out your balance sheet towards capital allocation towards your stock or towards a special dividend or something else that way? And also, are you seeing anything from the other players in the uniform market that they feel like they need more scale that there's potential uptick in M&A that might result from this competitively to respond to the greater scale that your largest competitor just gained?

--------------------------------------------------------------------------------

Ronald D. Croatti, UniFirst Corporation - Chairman, CEO and President [13]

--------------------------------------------------------------------------------

I think, Andy, that everybody is trying to digest what happened. I think we're all disappointed that there wasn't any divestitures. But at this point, we see no real increase in the acquisition market at all. I think, like anything else through the consolidation and as our largest competitor tries to get to that $140 million, I think there will be some customer migration. So we're trying to gear up and be ready for those opportunities.

--------------------------------------------------------------------------------

Andrew John Wittmann, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [14]

--------------------------------------------------------------------------------

Okay. As it relate -- if the acquisition activity hasn't picked up, does your thought towards your balance sheet and potentially buying your own stock, is that more likely today than it was 3 months ago or a year ago?

--------------------------------------------------------------------------------

Ronald D. Croatti, UniFirst Corporation - Chairman, CEO and President [15]

--------------------------------------------------------------------------------

No. I think it's about the same.

--------------------------------------------------------------------------------

Operator [16]

--------------------------------------------------------------------------------

The next question is from the line of John Healy with Northcoast Research.

--------------------------------------------------------------------------------

John Michael Healy, Northcoast Research Partners, LLC - MD and Equity Research Analyst [17]

--------------------------------------------------------------------------------

Ron and Steve, I want to ask just a little bit about the Arrow acquisition. Now that you're multiple months into the deal, has there been any surprises with that acquisition? And maybe if you could comment on just maybe what you're starting to get a sense for in terms of customer retention and maybe the revenue synergies, potential of that deal? Just -- I imagine your product catalog is a little bit more extensive than their product catalog. And how do you see that potential playing out over the next 12 months or so?

--------------------------------------------------------------------------------

Ronald D. Croatti, UniFirst Corporation - Chairman, CEO and President [18]

--------------------------------------------------------------------------------

Well, I think John, the first issue is there was a cultural difference even though it was a family company. They're a little more focused towards direct mail than rental. So we're bringing in that culture and we have to build a sales team in the organization. It's not surprising. We anticipated it. We think that we gained a lot of good people. They are now motivated and stepping up, which we are happy to see.

As far as customer migration, there's been no significant migration at this point.

--------------------------------------------------------------------------------

John Michael Healy, Northcoast Research Partners, LLC - MD and Equity Research Analyst [19]

--------------------------------------------------------------------------------

Got you. And just from a cross-sell standpoint, do you see much revenue opportunity in kind of extending the catalog there into the Arrow customer orders? How long does that take for you guys to really get that?

--------------------------------------------------------------------------------

Ronald D. Croatti, UniFirst Corporation - Chairman, CEO and President [20]

--------------------------------------------------------------------------------

Well, I think the first focus is we're trying to get it down and get everything on our system so the whole company is on one system. And we intend to accomplish that by -- before the start of our new fiscal year and that's our focus. And as I said earlier, we're trying to build that sales team now. Once we get those 2 building blocks in place, we will go into what we call additional business selling in each customer.

--------------------------------------------------------------------------------

John Michael Healy, Northcoast Research Partners, LLC - MD and Equity Research Analyst [21]

--------------------------------------------------------------------------------

Great. That's helpful. And now that the Cintas and G&K deal is closed, I wanted to kind of ask you, Ron, how you see that acquisition, now that you've had some time to think about it, impacting pricing in the industry? Do you think it changes the level of competition in the industry where things become more rational going forward? Or do you see it as maybe having the adverse effect? Or do you see it just kind of as a neutral item?

--------------------------------------------------------------------------------

Ronald D. Croatti, UniFirst Corporation - Chairman, CEO and President [22]

--------------------------------------------------------------------------------

I think we'll get a little more rationality on the pricing side.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question is from the line of Kevin Steinke with Barrington Research.

--------------------------------------------------------------------------------

Kevin M. Steinke, Barrington Research Associates, Inc., Research Division - MD [24]

--------------------------------------------------------------------------------

So you talked about you're pleased with the new sales performance in the quarter. That was part of the reason you feel more confident towards the high end of the guidance range now, and that is a little bit of a change from what you were talking about last quarter when new sales came in a little soft. So just wondering if anything has changed as you moved into this quarter and how you're feeling about the new sales outlook for the rest of the year?

--------------------------------------------------------------------------------

Ronald D. Croatti, UniFirst Corporation - Chairman, CEO and President [25]

--------------------------------------------------------------------------------

I think our new sales outlook, based on the momentum we currently got going, we're always in some type of incentive. We're in the March Madness incentive right now. I think we're very comfortable to continue the momentum that we have for the remainder of the year.

--------------------------------------------------------------------------------

Steven S. Sintros, UniFirst Corporation - CFO and SVP [26]

--------------------------------------------------------------------------------

Yes. I think, Kevin, it was just -- it's a cumulative factor. I think we're a little bit behind in new sales through the first quarter. We made up that gap this quarter combined with continued better retention and continued, really, the adds reductions continuing to stabilize and providing that year-over-year improvement in comparison. If you remember last year, at this time, we were still sequentially declining in revenue quarter-to-quarter. And so naturally, the more we get stabilization with the wearers and the bump from decent sales and retention, it's just going to start to move that growth in the right direction.

--------------------------------------------------------------------------------

Kevin M. Steinke, Barrington Research Associates, Inc., Research Division - MD [27]

--------------------------------------------------------------------------------

Okay. Good. What do you believe is contributing to that improved customer retention? Is that more stabilization in oil and gas as well or anything else you would highlight there?

--------------------------------------------------------------------------------

Steven S. Sintros, UniFirst Corporation - CFO and SVP [28]

--------------------------------------------------------------------------------

I think that may be a little bit of it. I think we continue to have a number of initiatives to -- which is really just ongoing, but -- to improve customer service and retention, but I think you're right. I think for the last couple of years, when we've talked about retention rates being a little bit off, there certainly was an impact of some of the energy fallout. And so I think some of those losses are probably behind us now and we're starting to move ahead a little more clean.

--------------------------------------------------------------------------------

Kevin M. Steinke, Barrington Research Associates, Inc., Research Division - MD [29]

--------------------------------------------------------------------------------

Okay. Are you -- does your outlook assume that wearer levels, just the adds versus reductions, is kind of -- are stable for the rest of the year? Or how do you view that as you look to the rest of the year?

--------------------------------------------------------------------------------

Steven S. Sintros, UniFirst Corporation - CFO and SVP [30]

--------------------------------------------------------------------------------

Yes. We would say we're operating right now in more of a normal environment, which is not really a big pull from wearers, but it's not a drag either, so sort of stable and that's our assumption. Ron mentioned we are seeing some pockets of positive adds in some of the energy markets, but again not overly significant. So we don't have anything built in that's a big pull or tailwind.

--------------------------------------------------------------------------------

Kevin M. Steinke, Barrington Research Associates, Inc., Research Division - MD [31]

--------------------------------------------------------------------------------

All right. Fair enough. And then in the Specialty Garments business, solid results year-over-year. You had talked about in the past, I believe, that you expected some strength in that business more in the second half of fiscal 2017. I'm wondering if that is still the case or maybe some revenue was pulled forward to the second quarter and that contributes to the second half maybe being a little softer? What's the outlook there?

--------------------------------------------------------------------------------

Steven S. Sintros, UniFirst Corporation - CFO and SVP [32]

--------------------------------------------------------------------------------

Well, we're still behind year-over-year in profits and we expect to make up that gap in the second half. I think the third quarter is still expected to be their strongest season of the year. It's usually either the first or the third quarter. And this year, it was always projected to be the third quarter. So we still expect a strong third quarter to make up the somewhat year-to-date shortfall in profits that we're sitting at right now.

--------------------------------------------------------------------------------

Kevin M. Steinke, Barrington Research Associates, Inc., Research Division - MD [33]

--------------------------------------------------------------------------------

All right. Great. And then lastly, what was the benefit of the Canadian dollar in the quarter?

--------------------------------------------------------------------------------

Steven S. Sintros, UniFirst Corporation - CFO and SVP [34]

--------------------------------------------------------------------------------

It was about 0.3 on the growth.

--------------------------------------------------------------------------------

Operator [35]

--------------------------------------------------------------------------------

The next question is from the line of Tim Mulrooney with William Blair.

--------------------------------------------------------------------------------

Timothy Michael Mulrooney, William Blair & Company L.L.C., Research Division - Analyst [36]

--------------------------------------------------------------------------------

Can you guys give us an idea of what the negative impact from energy was in the quarter or maybe just what organic growth would have been, excluding energy?

--------------------------------------------------------------------------------

Steven S. Sintros, UniFirst Corporation - CFO and SVP [37]

--------------------------------------------------------------------------------

Yes. Tim, we don't really have -- and really since this energy dynamic has started, we have not had specific numbers to say what growth would have been without the impact of energy customers or energy losses. It's just too difficult to sort of parse out what's an energy customer, what's an energy-related customer and so on. So we do not have that.

What I will say is that we're 2 quarters in now to really not having seen those reductions from the energy sector. And once we sort of get another couple of quarters through, we'll sort of have annualized that impact in that organic rate of growth that we'll be sitting at, which, if you look at our sort of third and fourth quarter guidance, sort of peg this more in that 3% range, sort of tells you what I have been telling you for the last few quarters, which is without some of those reductions, our organic growth probably would have been in about that 3% range. And I think we're starting to get back to that now, but we don't have a specific calculation of that.

--------------------------------------------------------------------------------

Timothy Michael Mulrooney, William Blair & Company L.L.C., Research Division - Analyst [38]

--------------------------------------------------------------------------------

All right. That's fair, Steve. And moving on to your new customers, what percent of the revenue growth from new customers in Core Laundry came from no-programmers versus market share gains? Are you still leveled out or about that 1/3, 2/3 ratio?

--------------------------------------------------------------------------------

Ronald D. Croatti, UniFirst Corporation - Chairman, CEO and President [39]

--------------------------------------------------------------------------------

That's about right, Tim.

--------------------------------------------------------------------------------

Timothy Michael Mulrooney, William Blair & Company L.L.C., Research Division - Analyst [40]

--------------------------------------------------------------------------------

Yes. Okay. So, Ron, can you give us some examples of where these no-programmers are coming from? Are there new verticals and markets opening up for you? Or is it mainly just increasing penetration at existing markets? And do any existing markets stand out?

--------------------------------------------------------------------------------

Ronald D. Croatti, UniFirst Corporation - Chairman, CEO and President [41]

--------------------------------------------------------------------------------

No significant new markets. I think it's just the penetration of a lot of places that were purchasing garments that have now -- we have convinced them we have a better alternative.

--------------------------------------------------------------------------------

Operator [42]

--------------------------------------------------------------------------------

We have no further questions at this time. I'll turn the call back to you.

--------------------------------------------------------------------------------

Ronald D. Croatti, UniFirst Corporation - Chairman, CEO and President [43]

--------------------------------------------------------------------------------

Very good. We'd like to thank everyone for joining us today to review UniFirst's year so far and date -- joining us today to review UniFirst's year-to-date financial results for fiscal 2017. We look forward to speaking with you again in June when we'll be reporting on our third quarter numbers. Thank you very much and have a great day.

--------------------------------------------------------------------------------

Operator [44]

--------------------------------------------------------------------------------

Ladies and gentlemen, that does conclude the call for today. We thank you for your participation and ask that you please disconnect your line.