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G&K Services Closes Plants, Lays Off Workers

Jason Hicks |

MINNEAPOLIS — G&K Services Inc. has taken actions to reduce expenses, including plant closings, layoffs and outsourcing, as a result of the continued difficult economic environment, and it has established reserves for environmental matters and recent changes in compensation laws, the company reports.
The expenses associated with these activities, additional reserves and continued economic softness will result in fiscal 2009 first-quarter revenue and earnings per diluted share results that will be below previously provided guidance, the company adds.
“Ongoing economic softness continues to pressure our overall performance,” says Richard Marcantonio, G&K’s chairman and chief executive officer. “Accordingly, we are executing against a set of very specific actions. We believe these steps will enable G&K to better address continued challenging economic conditions, deliver improved profitability moving forward and provide reserves for recent events. Our strong financial condition, combined with driving customer focus and competitive advantage, positions G&K for future revenue and earnings growth.”
The company says soft economic conditions and reductions in customer employment levels continue to impact the company’s revenue and earnings. Earnings are also being impacted by higher energy costs and increasing prices for operating items, such as textiles, freight, and hangers, G&K says.
The company has closed, or is planning to close, three processing plants and two branch locations, has reduced selected headcount at U.S. and Canadian corporate locations, and has outsourced certain plant functions.
As a result, G&K will incur severance, facility closure and operational costs that will total approximately $2.5 million. Once complete, these cost-reducing actions will result in annualized pretax savings of approximately $3.5 to $4.5 million, the company says. Revenue related to closed plant and branch locations will transfer to other company facilities to increase plant and route efficiencies.
The company has also increased reserves by approximately $4.5 million for environmental matters and established a reserve of approximately $3.5 million for recent changes in compensation laws.
The expense reduction actions and reserves will impact first quarter operating income by approximately $10.5 million and earnings by approximately $0.42 per diluted share and were not previously included in the company’s guidance.
For the fiscal 2009 first quarter, the company now expects revenue to be in the range of $245 to $246 million. This level of revenue includes continued economic softness, which continues to pressure the company’s organic growth rate, G&K says. First quarter earnings are now estimated to be in the range of $0.07 to $0.09 per diluted share.
 

About the author

Jason Hicks

American Drycleaner

Jason Hicks was assistant editor for American Trade Magazines, which publishes American Coin-Op, American Drycleaner and American Laundry News, for more than nine years, and web editor for three years.

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