Angelica Announces Third Quarter Fiscal 2005 Financial Results

FOR IMMEDIATE RELEASE
ST. LOUIS, MISSOURI
December 6, 2005

Angelica Announces Third Quarter Fiscal 2005 Financial Results

Revenues increase 40.3% but energy costs continue to affect earnings

St. Louis, Missouri (December 6, 2005) - Angelica Corporation (NYSE: AGL), a leading provider of healthcare linen management services, announced today third quarter and first nine months fiscal year 2005 financial results for the period ended on October 29, 2005.
 

Third Quarter Ended October 29, 2005


Revenues from continuing operations for the third quarter of fiscal 2005 were $107.6 million, a 40.3 percent increase from $76.7 million recorded in third quarter of fiscal 2004. Acquisitions, net of divestitures, added $28.2 million of the $30.9 million increase in fiscal third quarter 2005 revenue, or 36.8%. Organic growth year-over-year was $2.7 million, a 3.5% increase in revenues.

Gross profit for the third quarter of fiscal 2005 was $13.8 million, a 5.3% increase from $13.1 million in the third quarter of fiscal 2004. Higher revenues were partially offset by production payroll costs increasing as a percent of revenue to 34.6% from 32.7% in third quarter fiscal 2004 and natural gas and delivery fuel costs increasing as a percent of revenue to 7.5% in third quarter fiscal 2005 versus 5.5% of revenue in third quarter fiscal 2004. The increased production payroll cost includes higher wages combined with costs associated with the consolidation of our two Dallas facilities into one. Savings in linen procurement offset other cost increases in production services, operating supplies, repairs and fixed expenses. As a result, gross profit margin was 12.8% in third quarter fiscal 2005, a decrease from 17.0% in the third quarter fiscal 2004.
 
Selling, general and administrative (SG&A) expenses in third quarter fiscal 2005 were $10.8 million compared to $9.6 million in third quarter fiscal 2004. Although SG&A increased in absolute dollars, it decreased as a percent of revenue by 250 basis points to 10.0% in third quarter fiscal 2005, from 12.5% in third quarter fiscal 2004, as revenues increased and operating cost controls continued.

Other operating expense for third quarter fiscal 2005 was $0.9 million compared to other operating expense of $0.1 million in third quarter fiscal 2004, a difference of $0.8 million. Third quarter fiscal 2005 includes $1.1 million of amortization expense substantially related to recent acquisitions, compared to $0.2 million of amortization in third quarter fiscal 2004. Higher interest rates and borrowings to finance acquisitions account for interest expense increasing to $2.0 million in third quarter fiscal 2005 from $0.2 million in third quarter fiscal 2004.

Income from continuing operations for third quarter fiscal 2005 was $0.8 million, or $0.09 per diluted share, compared to income from continuing operations of $2.8 million, or $0.31 per diluted share in third quarter of fiscal 2004.

We completed the sale of all customer contracts from our Columbia, IL facility in September 2005 and exited the St. Louis market. As a result, the facility has closed and is now considered a discontinued operation. Third quarter fiscal 2005 loss from discontinued operations net of tax was $1.2 million, including a $0.8 million loss from operations and a $0.4 million loss on disposal. Third quarter fiscal 2004 loss from discontinued operations was $1.2 million. Of that amount $1.1 million was attributed to the discontinued retail business segment.

Including the discontinued operations, we recorded a net loss in the third quarter fiscal 2005 of $0.4 million, or $0.04 per diluted share, compared to net income of $1.6 million, or $0.18 per diluted share in third quarter of fiscal 2004.

First Nine Months Ended October 29, 2005

For the first nine months of fiscal 2005 ended October 29, 2005, revenues from continuing operations were $313.3 million, a 37.2% increase from $228.3 million in fiscal 2004. Acquisitions, net of divestitures, added $77.8 million to the first nine months fiscal 2005 revenue, a 34.0% increase. Organic growth year-over-year was $7.2 million, a 3.2% increase in revenues.

Gross profit for the first nine months of fiscal 2005 was $42.9 million, a 14.2% increase from $37.6 million in fiscal 2004. The $5.3 million increase in gross profit reflects higher revenues being offset primarily by production payroll costs increasing as a percent of revenue to 34.6% from 32.8% in the first nine months of fiscal 2004 and natural gas and delivery fuel costs increasing as a percent of revenue to 6.9% in the first nine months of fiscal 2005 versus 5.6% in the prior year comparable period. The production payroll cost increase includes higher workers’ compensation expense and increased payroll related to labor strike contingency planning during the first half of this fiscal year, as well as costs associated with the closure of our Vallejo facility and consolidation of our two Dallas facilities into one. Savings in linen procurement costs mostly offset other cost increases in plant security, production services, operating supplies, repairs and fixed expenses. Gross profit margin was 13.7% in the first nine months of fiscal 2005, down from 16.5% in the comparable period of fiscal 2004. 

Selling, general and administrative (SG&A) expenses in the first nine months of fiscal 2005 were $36.1 million, up 22.1% from $29.6 million in the first nine months of fiscal 2004. First nine months fiscal 2005 SG&A included $0.4 million of management transition expense related to the senior management change, $0.8 million of legal expenses associated with the union settlement, and $0.4 million of expenses associated with the financing alternative that the Company chose not to complete. Nevertheless, SG&A decreased by 140 basis points as a percent of revenue to 11.5% in the first nine months of fiscal 2005, compared to 12.9% in the same period fiscal 2004, due to increased revenues and ongoing efforts to control operating costs.

Other operating expense for the first nine months of fiscal 2005 was $2.1 million compared to other operating income of $1.0 million in the first nine months of fiscal 2004, a difference of $3.1 million. First nine months fiscal 2005 include $3.0 million of amortization expense substantially related to recent acquisitions, compared to $0.7 million of amortization in first nine months fiscal 2004. Gains on the sale of non-healthcare business were lower in the first nine months of fiscal 2005 compared to the first nine months fiscal 2004.  Interest expense for the first nine months of fiscal 2005 was $5.0 million compared to $0.8 million in the first nine months of fiscal 2004 due to higher borrowings for acquisitions and higher interest rates.

Income from continuing operations for first nine months fiscal 2005 was $1.2 million, or $0.13 per diluted share, compared to $8.3 million, or $0.91 per diluted share in first nine months fiscal 2004.

The loss from discontinued operations net of tax for the first nine months of fiscal 2005 was $1.5 million, net of tax, including a $1.1 million loss from operations of our Columbia, Illinois plant and a $0.4 million loss on disposal. First nine months fiscal 2004 loss from discontinued operations was $5.0 million. Of that amount $4.7 million was attributed to the discontinued retail business segment.

Net loss including discontinued operations for the first nine months fiscal 2005 was $0.3 million, or $0.03 per diluted share compared to net income of $3.3 million, or $0.36 per share, in the first nine months fiscal 2004.

Steve O’Hara, CEO, commenting on the results, said, "Our revenue growth and operating programs to control costs continue to produce results, but remain eclipsed by increasing energy prices and the labor costs associated with plant consolidation. As we have stated in the past, we changed our energy hedging policy and in October we executed order agreements for natural gas that will provide for nearly 60% of our natural gas needs for the next two years. This additional certainty in energy expense will enable us to negotiate customer contracts with a more certain cost structure.”

“Also during the quarter we made the decision to close our Columbia, Illinois facility. The location had been unprofitable for some time, and with no near term reversal apparent, the closure was unavoidable. Although we did incur some short term costs relating to the closure, it was the right decision for the long term and frees up capital and resources to be utilized in a more efficient and profitable manner.

“Additionally,” Mr. O’Hara continued, “we announced and implemented in November a major reorganization of our field operations designed to provide better customer service and satisfaction. This new, customer-centric structure replaces a plant-centric model that had been in place for several years. This reorganization is designed to achieve our corporate goal to be the leading provider of healthcare linen management services to the U.S. market by providing unsurpassed customer service at a good value.

“Looking forward, we continue to expect this fiscal year’s results from continuing operations to be slightly above breakeven. Looking forward to fiscal 2006, we expect to feel the negative impact of the recent hurricanes on energy prices through the first half of fiscal 2006, but expect significantly higher earnings per share and EBITDA for the total year.

Angelica Corporation, traded on the New York Stock Exchange under the symbol AGL, is a leading provider of textile rental and linen management services to the U.S. healthcare market. More information about Angelica is available on its website, www.angelica.com.

Forward-Looking Statements

Any forward-looking statements made in this document reflect the Company's current views with respect to future events and financial performance and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Such statements are subject to certain risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. These potential risks and uncertainties include, but are not limited to, competitive and general economic conditions, the ability to retain current customers and to add new customers in competitive market environments, competitive pricing in the marketplace, delays in the shipment of orders, availability of labor at appropriate rates, availability and cost of energy and water supplies, the cost of workers' compensation and healthcare benefits, the ability to attract and retain key personnel, the ability of the Company to recover its seller note and avoid future lease obligations as part of its sale of Life Uniform, the ability of the Company to accomplish its strategy of redirecting its resources to its healthcare linen management business in a timely and financially advantageous manner, unusual or unexpected cash needs for operations or capital transactions, the effectiveness the Company’s recently announced initiatives to reduce key operating costs as a percentage of revenues, the ability to obtain financing in required amounts and at appropriate rates and terms, the ability to identify, negotiate, fund, consummate and integrate acquisitions, and other factors which may be identified in the Company's filings with the Securities and Exchange Commission.

Link to Third Quarter Financial Results (PDF)

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