Steve Sintros – SVP and CFO Ronald Croatti – Chairman, President and CEO.

Joe Box – KeyBanc Capital Markets John Healy – Northcoast Research Alan Mitrani – Sylvan Lake Asset Management Chris McGinnis – Sidoti and Company.

Ladies and gentlemen, thank you for standing by. Welcome to the UniFirst Corporation Fourth Quarter Earnings Conference Call. During the presentation, all participates will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session.

[Operator Instructions] I would now like to turn the conference over to Steve Sintros, Chief Financial Officer. Please go ahead..

Thank you and welcome to the UniFirst Corporation conference call to review our fourth quarter results for fiscal 2015 and to discuss our expectations going forward. I’m Steven Sintros, UniFirst Chief Financial Officer. Joining me today is Ronald Croatti, UniFirst President and Chief Executive Officer.

This call will be on a listen-only mode until we complete our prepared remarks. 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 the discussion of these risk factors in our most recent 10-K and 10-Q filings with the Securities and Exchange Commission. Now, I’ll turn the call over to Ronald Croatti for his comments..

Thank you, Steve, and welcome to everyone joining us for this review of UniFirst fourth quarter and full fiscal year results for 2015. Our financial numbers were released earlier today and I’m pleased to report that 2015 was another year of record results for UniFirst.

Steve will be going over both the fourth quarter and full year details as well as our guidance for fiscal 2016, but first let me present an overview of our 2015 performance. UniFirst revenues for the fiscal year set a new record at $1.457 billion, a 4.4% increase over 2014’s $1.395 billion.

Likewise net income for 2015 also set a new full-year record at $124.3 million up 3.6% from last year’s $119.9 million.

We recognized that our positive financial results, our annual growth, and our ongoing shareholder return are a testament to the hard work and customer commitment consistently demonstrated by our thousands of employees, team partners across North America and in Europe.

So I would like to sincerely thank them for their ongoing dedication to deliver service excellence to our customers and their ongoing dedication to UniFirst.

When speaking to our annual growth rate throughout fiscal 2015, UniFirst continue to gain market share in existing service areas, increase the ancillary service penetration with current customers, improved sales and service training and productivity programs and effectively communicate through new account prospects, the UniFirst difference and overall value in our very competitive marketplace.

And as always, our core laundry operations which make up 90% of our UniFirst total business, led the way for a positive 2015 performance reporting a 5% year-over-year revenue increase in 2014 – over 2014, which was a new revenue record for this segment.

Income from operations from our core laundries also set a new fiscal year record in 2015, increasing 2.9% over last year.

These gains were achieved by the [convergence] [ph] of several successful, thorough, throughout the year, including among other things, record new account sales acquired through both our professional field and national account teams, continued improvement in operational and service efficiencies in our hundreds of local service facilities coast to coast and positive trends in customer pricing and add-on services.

It should be noted that these record gains in revenue and income were achieved despite uniform wearers and ancillary service losses associated with lower oil prices in energy and energy related industries, as well as a weaker Canadian dollar exchange rate that negatively affected our top and bottom lines.

As for UniFirst subsidiaries, our specialty garment division as anticipated had a down year in revenues when compared to 2014, but was able to increase profit slightly from last year. The group provides workwear and other specialized services specifically for the nuclear and cleanroom industries.

And as we’ve mentioned on previous webcast, this is a very cyclical type business, highly related on scheduled nuclear outage projects, planned projects that significantly affect this segment’s revenue with schedules that are beyond our control.

That said we expect some improvements for this division in the fiscal period end based on increased project-based work in the U.S., Canada and in Europe. New revenue opportunities that include expanded service offering to these niche industries, services that don’t require reactor shutdowns.

Lastly, our First Aid and Safety segment reported solid gains in both annual revenues and profits for 2015, when compared to 2014.

These increases were the result of several factors, including expanding B2B safety offering, continued growth in our pharmaceutical packaging and wholesale operations as a result of increased demand for private labels and other counter medications through retail chain stores and specialty distributors.

So as we look ahead to the coming year, we anticipate continued marketing challenges, based on slower growing national economy, which is forecasted to remain sluggish in 2016, and the sustained weaker Canadian dollar exchange rate that will affect our top-line over the course of the year.

We’re also concerned related to the high rates of uniform rental and ancillary services loss in our energy dependent markets that I mentioned earlier. The weekly drop has continued into our new fiscal year.

Unfortunately, the associated revenue loss will continue having a negative impact on us through 2016, losses that will require considerable effort on our part to replace. We will be watching this situation very closely and if these industries should further decline in the coming year, we’ll strategize accordingly.

Operationally, we anticipate being faced with ongoing internal and external cost increases, such as those related to our ongoing CRM system overall project, labor and staff reductions.

And of course, we fully expect to be challenged by the stronger than ever competitive and customer pricing pressure that affect new account sales, customer retention and our top line. So to overcome these challenges, in 2016, we’ll be staying the course with our active business approach that’s proven effective for us in the past.

We’ll be focusing on continued staff eduction at all levels, new sales productivity programs, improved training for our sales reps, so they can effectively communicate UniFirst differentiation in the marketplace and to lead the charge for our organic growth.

I will also be focusing on Companywide processes and systems to ensure delivery of consistent service excellence that exceed customer expectations and improve customer retention and prospect referrals, and, of course, we will be maintaining optimum operational efficiencies, strict cost controls at all locations, at all levels, to help support our bottom line.

By staying on this course and adhering to our [indiscernible] 2020 strategic business plan, we fully expect to produce another year of solid results for UniFirst and its shareholders in fiscal 2016. And with that said, I will turn it back over to our Chief Financial Officer, Steve Sintros, for details of our 2015 numbers and our outlook for 2016..

Thank you, Ron. Revenues for the fourth quarter were $359.2 million up 2.1% from $352 million a year ago. Net income was $28.9 million or a $1.43 per diluted share in the – in both the current quarter and the fourth quarter of fiscal 2014. Full year revenues, as Ron mentioned, were $1.457 billion up 4.4% from fiscal 2014.

Full year net income was $124.3 million or $6.15 per diluted share, up 3.6% from a $119.9 million or $5.95 per diluted share reported in the prior year. Revenues in the fourth quarter of our core laundry operations were $326.6 million, up 1.8% from those reported in the prior year’s fourth quarter.

Adjusting for the effects of acquisitions and a weaker Canadian dollar, revenues grew 2.2%. New sales finished the year slightly ahead of fiscal 2014. However, fourth-quarter sales were behind the same quarter a year ago.

As we discussed last quarter, the largest driver of the sequential decline in our core laundry revenues, continues to be the reduction of wearers and ancillary products at our customers in energy-dependent markets.

During the quarter, we continued to experience significant reductions in these markets, including Texas and surrounding states, as well as Western Canada. Excluding these markets, overall additions versus reductions were also slightly worse than a year ago. In addition, our overall customer retention was not as strong this year as in fiscal 2014.

This was partially a result of the same economic pressures in energy-dependent markets, as well as certain competitive pressures that are not atypical in our industry. This segment’s income from operations decreased 6.7% compared to the fourth quarter of fiscal 2014, while the operating margin decreased at 13.1% from 14.3% a year ago.

The margin compared to the prior year was impacted by higher merchandise costs, selling and administrative expenses and depreciation as a percentage of revenues. The items – these items were partially offset by lower energy, payroll related and legal cost compared to a year ago.

The decline in revenues throughout the year was a contributing factor to merchandise and many of our other expenses running higher as percentage of revenues. Higher administrative costs were also due to certain expenses related to our ongoing CRM systems project, and other IT infrastructure investments.

Higher depreciation expense was partially due to the timing of ongoing vehicle facility and equipment investments being placed and serviced, as well as certain asset write-offs taken during the quarter, the result of various facility reorganizations.

Energy cost decreased during the quarter to 4.4% of revenues compared to 5.2% a year ago, due to lower fuel cost for our fleet of delivery vehicles as well as lower natural gas cost for our production facilities.

In addition, the operating income comparison to the prior year benefited from lower expenses related to the New England Compounding Center litigation, which was resolved during the current year.

Revenues for our specialty garment segment, which consisted nuclear decontamination and cleanroom operations were $20.5 million up 7.9% from $19 million in the fourth quarter of 2014, due in part to the proved revenue performance, this segment’s income from operations increased to $1.5 million in the current quarter from $0.1 million in last year’s fiscal fourth quarter.

This segment’s result also benefited in the quarter from lower workers’ compensation and other insurance related expenses compared to a year ago. Our First Aid segment reported revenues of $12 million in both the fourth quarters of fiscal 2015 and 2014.

Operating income for this segment increased to $1.5 million in the fourth quarter compared to $1.4 million in the fourth quarter of 2014. The comparison of net income in the quarter was impacted by a lower effective income tax rate of 37.4% compared to 39.2% in the fourth quarter of 2014.

This decrease was due to a lower provision for state income taxes, as well as changes in the earnings mix for our foreign subsidiaries, compared to the fourth quarter of year ago. We expect our effective income tax rate to be approximately 38.5% in fiscal 2016. UniFirst continues to maintain a solid balance sheet and financial position.

Cash and cash equivalents at the end of the year totaled $276.6 million, up from $191.8 million at the end of fiscal 2014. Cash provided by operating activities for the full fiscal year was $226.9 million, up 16.6% from a year ago.

The improved cash from operating activities is partially the result of the increase in net income, as well as increases in other non-cash expenses, primarily depreciation. In addition, the company expended less funds on working capital needs, primarily due to a decrease in net cash expended on merchandising service.

During the year we utilized $101.1 million on capital expenditures. We continue to invest on our Unity 20/20 systems project, as well as plan updates, expansions and automation that will enable us to achieve our long-term strategic objectives. We expect capital expenditures for fiscal 2016 to be approximately $100 million.

Year-to-date the company has also spend $22.4 million on several small acquisitions, primarily in our core laundry operations. We continue to look for additional acquisition targets, as acquisitions remain an integral part of our overall growth strategy.

Of our cash on hand at quarter end, $54.7 million has been accumulated by our foreign subsidiaries and intended for future investments outside the United States. The company also continue to have significant capacity under its existing bank line of credit to fund potential acquisitions or other capital allocation options.

Despite the overall challenges we face heading into fiscal 2016, we continue to be optimistic about the company’s ability to generate significant free cash flows and ultimately delivery value to its shareholders. At this time, we would like to provide you with our initial outlook regarding our operating results for fiscal 2016.

We currently expect that revenues for fiscal 2016 will be between $1.46 billion and $1.48 billion. And full year diluted earnings per share will be between $5.60 and $5.80. Our guidance assume, core laundry organic revenue growth coming in at approximately 1% in fiscal 2016. Growth rates are primarily being impacted by two macroeconomic factors.

First as Ron discussed, our revenues continue to be negatively impacted by reductions in wearer levels in energy dependent markets in the U.S. and Canada.

Although, we continue to experience these reductions in higher than normal levels, our current guidance did not assume any significant further deterioration in our wearer base and it is difficult to project how long and at what depth our results may be impacted.

Secondly, further weakening of the Canadian dollar will also impact growth rates compared to fiscal 2015. At the current exchange rate, our projected fiscal 2016 Canadian revenue will be approximately $7.5 million lower than it would have been using the average exchange rate from fiscal 2015.

On the profit side, we’re currently projecting our core laundry operating margin to be approximately 13%. The decline in operating margin is partially the result of slowing growth rates and the related impact of our cost structure.

Rising labor costs, as well as continued investments in IT and operational infrastructure are also projected to pressure our margins. Profits in our Canadian operations are also specifically being impacted by not only the loss of volume in the energy-dependent markets in Western Canada, but also in increases in cost due to the weaker Canadian dollar.

On the positive side, we anticipate revenues from our Specialty Garments segment to be up approximately 5% in fiscal 2016. We also believe that this segment’s operating margins will rebound to approximately 10% in fiscal 2016.

Our guidance for fiscal 2016 does not include any depreciation related to our Unity 20/20 CRM system’s project, as it is not certain whether we will begin deploying the system during the current year. We’ve experienced additional delays in the overall timeline of the project, causing our most recent go-live projections to slip further out.

If we do begin to deploy in fiscal 2016, it will be towards the latter part of the year and we will update you on the potential impact of this in future quarters.

As I mentioned, our guidance does not – does include additional costs related to other investments in IT infrastructure, including headcount, to support this and other technology initiatives. This completes our prepared remarks and we’ll now be happy to answer any questions that you may have..

[Operator Instructions] We do have the question from the line of Joe Box with KeyBanc Capital Markets. Please go ahead..

Hey, good morning, guys..

Good morning..

Steve, you said that, ex-energy, the [add quit] [ph] would have been slightly negative, I think for the quarter.

Can you maybe just give us an idea of how organic growth would have looked if you would take out the energy-related items?.

Yes, we – it’s a difficult number to project, Joe. I think that’s a question we anticipated. Our best estimates are that organic growth would have been close to 4% during the quarter, exclusive of some of the reductions and losses in the energy-related markets. That being said, like you said, we did see some negative wearer levels in other markets.

Whether it was specifically or tied to energy or not is difficult to project as there are some businesses in other markets that do have some downstream relation to energy, whether it be oil or natural gas. But we think it would have been around that 4% range without the reductions from energy specific..

Okay, great. That’s helpful.

And then, as you sit down and put together your outlook for FY’16, I’m just curious how that indirect impact from energy and just kind of a general weakening within the core industrial customers, how that factors into your low single-digit growth for next year?.

Yes, I think similarly, I think our growth for next year based on what we know now, would have been closer organically to 3.5% to 4% exclusive of some of this energy specific. I referenced that our lost accounts did run higher during the year as well. Again, some energy related.

Difficult to project how much of that increase related to other maybe energy-dependent companies. We do have a strong presence in the Southwest, as well as Canada, as well as other portions of the U.S. that support energy, not maybe as much oil, but natural gas.

And certainly, we are seeing pockets of other weakness related to energy, maybe not as much oil, but in other parts of the country. So I guess that’s the best we can tell you.

I think that we are keeping a close eye on it, and as I mentioned, we are still seeing as reductions run worse than what we consider more normal, even during the early part of the first quarter here..

Right, right. And then, you said earlier that your expectation is you should be able to generate significant free cash flow. I guess, is the outlook there for an increase in the free cash flow number? And then, just a follow-up to that, I think you said you expect to add value for investors.

Hoping you could just put some more color around that statement..

First, with respect to the free cash flows, it’s not a particular number that we specifically model out to provide, but I would say it would be comparable to this year. Some of the increases that we’re seeing in costs relate to depreciation of some of our investments and that obviously will be an add back from a cash flow perspective.

So we may come up a little short of this year, but still strong free cash flows. As far as value to our investors, we continue to evaluate what to do with the excess cash that we have on our balance sheet, as well as what we plan on generating in the next year.

Acquisitions continues to be at the forefront of what we’re trying to do with that capital, but to the extent that those don’t materialize, we continue to talk about other alternatives, whether it be buying back stock or doing something different with the capital..

So, just to be clear, are you incrementally more flexible to do something with that capital now? If you don’t see a deal materialize within the next 12 months, you would move to your plan B?.

I think incrementally yes. We’ve talked about over the last couple of years that’s been our priority to look at acquisitions. But we’ve sort of always said that the longer they don’t materialize the more likely we will look at other alternatives for the capital..

Thanks, guys. I will hop back in queue..

Thank you..

We have a question from the line of John Healy with Northcoast Research. Please go ahead..

Good morning, guys. I wanted to ask about the comment you made about oil and gas in Texas and Canada.

Is there a way to think about how those two markets are performing separately of one another? Are you seeing the – I guess the trajectory of the Canadian business and the trajectory of the Texas business, is one getting more worse than the – is it getting worse than the other or are you seeing a meaningful change in how those two markets separately are performing?.

I think the one thing that John that I would say separately from Texas and Canada. I think similarly, they continue to have reductions. I think there are some parts of Canada with the cost to get the oil out of the ground is a little more expensive than some of our Texas business.

So maybe hitting them a little bit harder, I think the other challenging Canada right now as I’ve referenced is that, as an overall economy energy probably has more of an impact on the country, as a whole, combined with the fact that the exchange rate weakening has made business more challenging in Canada, as a whole not just for laundry companies, but for our customers.

So I think that’s the difference really between the U.S. and Canada. And as I also mentioned with the exchange rate weakening, our customers are experiencing cost increases in a lot of different areas, which is making things more challenging from them. And in turn, they look to us to help them through price concessions and so on.

So those are the things we are working through..

Okay, great and I wanted to ask about margin expectations in the Canadian business. I couldn't remember if you guys source product for that Canadian business in the U.S.

or if it gets sourced through Canada, and given how you run that business, expectations for margins based on FX movements there?.

Yes, I think you hit the nail on the head, John. They're having challenges because very little of the products that they sourced from Canada or from inside Canada.

Most of the garments and other products come from outside the country, whether it would be from the U.S., from UniFirst manufactured products or from other vendors that ultimately are getting fabric from outside of Canada.

So the cost of that merchandise is going up and that’s something that we need to work with our customers on to the best way we can..

Okay, great. And then, I just wanted to ask about the competitive environment. Are you seeing much change out there? It seems like [add stops] [ph] are kind of flattening out a little bit for everybody and it just seems like the growth rates are plateauing a bit, even outside of the oil and gas markets.

And curious to know if you are seeing anyone get a little bit more aggressive than maybe you were a quarter or two ago?.

John, this is Ron. I think in the national account arena, it’s got a little more aggressive..

Okay, great. Thank you guys..

[Operator Instruction] We do have a question from the line of Alan Mitrani with Sylvan Lake Asset Management. Please go ahead..

Hi, guys, thank you. I had a question just following up on the acquisition environment.

You talk about possibly being more willing to deploy if there is any opportunities, but could you talk about the competitive environment in terms of the other three large players and what they are seeing? They all seem to be flush with cash, Cintas a little more so now.

And just talk about what kind of multiples maybe you paid for those small names and what you are seeing in that. It seems hard to get a big transaction done when everybody has cash, unless one of the four players is willing to merge with the other three..

I think you’re right from a large acquisition side at the top of the industry. There are still some nice regional companies out there that would do well for us depending on our market share in those markets. I think you are right.

Competition for acquisitions can be there if an acquisition makes sense for multiple of the large players in the same market. The multiples for acquisitions have always been a little bit on the higher side from what I would like to see. But I think that for the smaller ones you can justify because the synergies are there.

If you’re looking at a larger regional player, I think you are correct there. There could be some fair amount of competition. But I think the bigger issue is really getting those players to shake loose.

They are generally family run companies and generally motivated by family issues to drive a transaction versus money in particular or just an offer to sell the company.

So it becomes more of a waiting game with some of those mid-sized companies and that’s where I think if we don’t think those are going to materialize, we’ll have to look at other opportunities for the capital..

Thank you..

[Operator Instruction] And one moment please we do have a question coming from the line of Chris McGinnis with Sidoti and Company. Please go ahead..

Good morning, thanks for taking my question.

Could you maybe just talk about the delays in the implementation of CRM and maybe how that maybe impacted your guidance for 2016?.

Sure, Chris. As far as the guidance for fiscal 2016, it didn’t really impact the guidance much. We don’t have any depreciation from the deployment of the system in there.

We’ve talked about in prior quarters that ultimately our projections are when we do deploy the system that there will be some incremental depreciation in the $8 million range or so once we do start to deploy, we did mention, we have had some additional delays.

It is a large project revamping a fair amount of our customer facing systems and it’s something obviously we want to make sure, we’ve done right and done in the most efficient manner.

So we’ve had some delays we’ll continue to keep you updated over the course of the year and to not only the status of the project, but how it may impact our numbers going forward..

Great, thank you..

[Operator Instructions] We have no further questions at this time..

All right. We would like to thank all of you for your interest in UniFirst in our 2015 fiscal performance. We look forward to talking to you again in January we will be reviewing our first quarter results for fiscal year 2016. Thank you and have a great day..

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