UniFirst Corp

NYSE:UNF

Earnings Call Analysis

UniFirst Q1: Revenue and Profits Grow, Caution Ahead

UniFirst's first quarter showcased a revenue increase of 9.5% to $593.5 million, with Core Laundry Operations up 9.8% and organic growth at 5.2%. The First Aid and Safety division impressed with a 22.4% growth, although it incurred a $1.1 million operating loss due to ongoing investments. Profits rose over 20% from the previous year, with operating income up by 22.4% to $53.1 million and net income increasing to $42.3 million. The company maintains a strong balance sheet, devoid of long-term debt and with cash and investments totaling $88.8 million. Looking forward, UniFirst forecasts a cautious stance for organic growth amid pricing and customer retention headwinds and focuses on margin improvements. They predict FY2024 revenues between $2.415 billion and $2.435 billion, with the lower end more probable, and diluted EPS between $6.52 and $7.16.

Strong Revenue Growth and Optimized Costs Propel Profits

UniFirst Corporation has exhibited a robust performance with first quarter revenues climbing 9.5% compared to the same period last year, reaching $593.5 million. This impressive growth was attributed to the acquisition of Clean Uniform and strong organic growth within the Core Laundry Operations, which saw a 5.2% increase. Significantly, profits soared over 20% thanks to top-line growth and reduced costs related to key company initiatives such as technology transformation and branding. The company’s successful sales strategies have not only surpassed new sales from the previous year but also secured a top 3 account for Core Laundry Operations, reinforcing UniFirst’s competitive market position.

Investments in First Aid and Safety Division Pay Off

The company's strategic emphasis on expanding its First Aid and Safety division has borne fruit with a striking 22.4% growth in the quarter. This is a testament to UniFirst's commitment to building a sustainable sales and service infrastructure to extend its reach to existing and new clients, which in turn is expected to boost long-term profitability.

Operational Efficiencies and ESG Contributions

Cost-saving measures such as lower energy costs, which declined from 4.7% to 4.1% of revenues, have significantly aided in ramping up the Core Laundry operating margin to 8%. Furthermore, UniFirst has engaged in environmental, social, and governance initiatives like transitioning to energy-efficient LED lighting across operational plants, highlighting the company’s pivot towards sustainable practices without compromising on customer service and operational excellence.

Specialty Garments Segment Shows Promising Margins

Revenue in the Specialty Garments segment, which includes nuclear decontamination and cleanroom services, saw modest growth. However, it's the impressive jump in operating margin from 23.1% to 27.1% that showcases efficiency gains, particularly from lower merchandise costs in cleanroom operations, thus adding to the overall performance uplift.

Adjusting Guidance Amid Moderate Headwinds

With a solid first-quarter performance in 2024, UniFirst has adjusted its fiscal 2024 revenue guidance upwards to a range of $2.45 billion to $2.48 billion, with anticipated flat Core Laundry organic revenue growth for the fiscal year. Nevertheless, the company is cautiously projecting the lower end of the range due to observed headwinds including price sensitivity, customer retention challenges, and less tailwind from apparel wearer levels later in the quarter. Consequently, diluted earnings per share are expected to rest between $6.52 and $7.16 for the year, reflective of these trends and current market conditions.

Earnings Call Transcript 2024-Q1

[Operator]

Greetings, and welcome to the UniFirst Corporation First Quarter Earnings Call.

During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session.

I would now like to turn the conference over to Steven Sintros, President and Chief Executive Officer. Please go ahead.

[Steven Sintros, executive]

Good morning. Joining me today is Shane O'Connor, Executive Vice President and Chief Financial Officer. We'd like to welcome you to UniFirst rations conference call to review our first quarter results for the fiscal year 2024. And this call will be on a listen-only mode until we complete our prepared remarks, but first, 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 events may differ materially from those anticipated depending on a variety of risk factors. For more information, please refer to the discussion of these risk factors in our most recent Form 10-K and 10-Q filings with the Securities and Exchange Committee.

We are pleased with the results of our first quarter, which represent a solid start to our new fiscal year. I want to thank all of our teams and partners who continue to always deliver for each other and our customers as we strive towards our vision of being recognized as the best service provider in the industry all while living our mission of serving the people who do the hard work. The people who do the hard work are the workforce that keeps our communities up and running. So many of them are our existing and prospective customers as well as our own UniFirst team partners.

Our mission is to support those employees by providing the right products and services that allow them to do their job successfully and safely. Whether that means providing uniforms, workwear, facility service first aid and safety clean room or other products and services. Our goal is to partner with our customers to ensure we have the right structure to ensure that we structure the right program, products and services for their business and their teams. Overall, revenues in our first quarter were up 9.5% compared to the first quarter of 2023.

Consolidated growth benefited from the acquisition of clean uniform in March of 2023 strong growth in our First Aid and Safety division. Core Laundry Operations' organic growth in the quarter was 5.2%. The Profits were up over 20% in the quarter compared to a year ago, largely driven by the growth of our top line and lower cost expended during the quarter related to key initiatives. As a reminder, we have been expanding costs over the last couple of years related to our technology transformation as well as a rebranding initiative. As expected, these costs are declining due to the completion of our rebranding as well as activities surrounding the deployment of our CRM largely winding down. We continue to expend dollars related to our ERP project. However, as we enter implementation phases of the project, more costs are being capitalized.

Our performance in the quarter from a new account sales perspective was very strong, exceeding our new sales from a year ago at this time by a healthy margin. Part of this outcome was driven by the addition of a top 3 account in our core laundry operations. We continue to sell prospects on the value that UniFirst can bring their businesses. Our approach is a consultative one where, as I mentioned, we focus on creating the right programs with the right prominence and products for our customers. Conversely, we did experience more headwinds against our top line performance as the quarter progressed in the areas of price and customer retention. And although still stable overall, we are getting less tailwind from wearer levels currently than we were a year ago. Although our first quarter top line results were well within our range of expectations, we do expect these items will pressure organic growth as the year progresses.

As we look towards the rest of fiscal '24 and beyond, margin improvement will certainly be a key focus of the organization. Executing on our growth model, while also managing costs in areas we control will be critical, all while assuring we don't impact the ability to execute on our transformational initiatives or adversely affect customer service levels. In addition to day-to-day execution, we are focused on margin opportunities in many areas. We continue to work to optimize the use of our new CRM, including leveraging some of Clean's proprietary technology across all of UniFirst areas such as strategic pricing and account profitability as well as strategic manufacturing and sourcing represent significant opportunities. Although some of these benefits going forward will be more significantly enabled through the implementation of our ERP, we continue to focus on these areas and others that we feel can move the needle in the near to midterm.

Our clean acquisition continues to perform very well with several recent wins resigning long-term customer relationships. This shows the confidence that Clean's customer base has in joining UniFirst and continuing to receive industry-leading service. We continue to believe very strongly in the bright future of our First Aid and Safety division, which grew 22.4% in the current quarter compared to the first quarter of 2023. We continue to make investments in sales and service infrastructure of this segment to expand our footprint and ensure we can reach existing UniFirst customers as well as new prospects in the markets that have a strong need for these products and services. As we progress increasing route density in addition to penetrating customers with the full breadth of services that we provide will be critical steps in building the profitability of this segment. As I mentioned last quarter, the company continues to make solid progress and contributions in the area of environmental, social and governance. The nature of the industry and rental model has always allowed us and the company to do our part, enhancing the economy's environmental footprint, given our role as a natural recycler as well as the better utilization of resources and operations like ours enables.

As an example of our efforts, during the quarter, we engaged a company that is going to convert the remainder of our operating plants and our core laundries to energy-efficient LED lighting. We continue to be focused on making the right investments to meaningfully impact the environment, support our customers and have a positive impact on our business. With that, I'll turn the call over to Shane, who will provide more details of our first quarter as well as the outlook for the remainder of 2024.

[Shane O’Connor, executive]

Thanks, Steve. In our first quarter of 2024, consolidated revenues were $593.5 million, up 9.5% from $541.8 million a year ago and consolidated operating income increased to $53.1 million from $43.4 million or 22.4%. The Net income for the quarter increased to $42.3 million or $2.26 per diluted share from $34 million or $1.81 per diluted share. Consolidated EBITDA increased to $86.2 million compared to $69.7 million in the prior year or 23.7%.

Our financial results in the first quarters of fiscal 2024 and 2023 included approximately $2.9 million and $10 million, respectively, of costs directly attributable to the key initiatives that Steve discussed. The effect of these items on the first quarter of fiscal 2024 and 2023 and to decrease operating income and EBITDA by $2.9 million and $10 million, respectively. Net income by $2.4 million and $7.6 million, respectively, and EPS by $0.12 and $0.40, respectively. Net income and EPS also benefited from approximately $2.1 million of interest income recognized in the first quarter of 2024 as a result of a tax dispute we were able to favorably resolve. Our Core Laundry Operations revenues for the quarter were $524 million, up 9.8% from the first quarter of 2023. Core Laundry organic growth, which adjusts for the estimated effect of acquisitions as well as fluctuations in the Canadian dollar, was 5.2%. This solid organic growth rate was primarily the result of solid new account sales and improved pricing related to the efforts over the last year to share with our customers the cost increases that we incurred in our business.

Core Laundry operating margin increased to 8% for the quarter or $42.1 million from 7.1% in prior year or $33.8 million and the segment's EBITDA margin increased to 14% from 12.2%. The costs we incurred related to our key initiatives were recorded to the Core Laundry Operations segment and combined to decrease the Core Laundry operating and EBITDA margins for the first quarter of fiscal 2024 and 2023 by 0.6% and 2.1%, respectively. Excluding these items, the segment's operating and EBITDA margins were also impacted by higher costs we incurred related to investments we have made in building our corporate capabilities over the last year and higher merchandise costs. These items were partially offset by lower energy costs during the quarter, which decreased to 4.1% of revenues in the first quarter of 2024, down from 4.7% in 2023. Revenues from our Specialty Garments segment, which delivers specialized nuclear decontamination and cleanroom products and services, increased slightly to $44.7 million from $44.1 million in prior year or 1.3%. This increase was primarily due to growth in our cleanroom operations. Segment's operating margin increased 27.1% from 23.1%, primarily the result of lower merchandise costs in our cleanroom operations.

As we mentioned in the past, this segment's results can vary significantly from period to period due to seasonality as well as timing and profitability of nuclear reactor outages and projects. Our First Aid segment's revenues increased to $24.9 million from $20.3 million in prior year or 22.4%. However, the segment had an operating loss of $1.1 million during the quarter. These results continue to reflect the investments we have been making in our First Aid van business that Steve discussed. At the end of our first fiscal quarter, we continue to reflect a solid balance sheet and financial position with no long-term debt and cash, cash equivalents and short-term investments totaling $88.8 million. Cash provided by operating activities for the first quarter increased to $45.7 million from $27.7 million in prior year or 64.9% primarily due to our improved profitability and we continue to invest in our future with capital expenditures during this period of $39.1 million.

I'd like to take this opportunity to provide an update on our outlook. At this time, we continue to expect our full year consolidated revenues for fiscal 2024 will be between $2.415 billion and $2.435 billion. However, due to recent trends in our core laundry operations in the latter half of the quarter, we anticipate that the lower half of this range is more likely. We continue to expect diluted earnings per share to be between $6.52 and $7.16. This concludes our prepared remarks, and we would now be happy to answer any questions that you might have.

[Operator]

Thank you. [Operator Instructions] Our first question comes from the line of Manav Patni with Barclays.

[Unknown Analyst]

This is Roni Kennedy on for Manav. Happy New Year. Could you please kind of unpack with regards to what you alluded to, I think the headwinds from price and customer retention, also less of a tailwind from where levels. And if that is specifically the driver of guiding to the lower half of guidance and what you anticipate based on what had played out in the latter stages of the quarter, just if you could unpack that in further detail, please.

[Steven Sintros, executive]

Sure. Ronan, this is -- that is the driver of us tweaking down the guidance or making the commentary that the lower end is more likely over the back half of the quarter, we certainly started seeing some more price sensitivity. And again, this is all compared to what our expectations were kind of coming in. Not -- somewhat not surprising, maybe based on some moderating cost, energy and so on that we are seeing. But that was a little bit off of what we had projected kind of coming into the year. And any of those type of changes kind of early on in the year have more of an impact as sort of you think about it over the course of the year.

With respect to customer retention, we had mentioned over the back half of last year, the things were trending a little bit lower. We saw some of that over the quarter. A couple of strategic losses, I'll call them during the quarter that ended up being recognized. And again, those kind of things have more of an impact as you work them out over the full year. With respect to the adds versus reductions, we've been talking about the environment being relatively stable, and I would still categorize it as such, but certainly compared to a year ago and even somewhat compared to maybe the back half of last year, we're seeing a little less in the way of where additions. I wouldn't say net-net, it's turned negative in a large way, but a little off of our expectation for the quarter.

[Unknown Analyst]

That's helpful. And then could I just ask for your assessment or characterization of demand and what conversations with customers are like and how that's incorporated within the guidance for the remainder of the year?

[Steven Sintros, executive]

Yes. In general, we guide looking at things in the environment as we see them today, we often make the comment that we don't assume sort of more deterioration if there were to be a broader pickup in where reductions at our customers, we don't really build that in. That being said, I'm not sure that we're hearing allowed from our customers that, that's imminent.

I think people are taking a little bit more of a cautious tone out there with respect to hiring. But we're not also not hearing broad calls for reductions. I mean one of the things that makes us reporting this time of year somewhat unique is that a lot of those conversations with customers start to become clear sort of after the holidays as they kind of get into their new year what demand looks like coming out of the holidays and set their plan going into their calendar year. So it's a little bit of a tricky time having those conversations this time of year. But in general, we're not hearing anything that should raise major flags, but some caution.

[Operator]

Our next question comes from the line of Andy Wittman with [ Baird ] .

[Andrew J. Wittmann, analyst]

Great. I guess I first started -- first thing I wanted to do is drill a little bit more on the customer retention, Steve. I guess in prior quarters, you've talked a little bit about how might be moderating somewhat. I guess the question is to what do you attribute the customer retention? Is it customers that are closing doors, holding up shop? Is it -- is it the pricing initiatives that you're trying to get in going other ways.

You heard the term -- I think used the term here, strategic losses, which I guess means that customers that you try to get the price and it wasn't going and you're okay with not okay with footing, but okay with in because it wasn't a profitable account. I mean, maybe you could just elaborate on the retention factors in more detail.

[Steven Sintros, executive]

Sure. It's a little bit of all of the above, Andy. A couple of those strategic accounts. I think they were an instance where sort of at the end of the day, we decided not to move forward. I do -- and I should have said in my answer to the first question, I do believe that the pricing environment is a factor, at least in the way we measure retention. When we measure retention, we're looking at sort of the all-in impact of these accounts over the last 12 months.

And I do think that through the strong period of inflation that as we all were trying to get more from customers, not saying that's necessarily the reason that you lose an account. But if you do lose that in account, it may be priced higher than it otherwise would have been a year or so ago, if that makes sense. And so I do think some of the way our numbers are falling out are an impact of pricing -- and it's sort of another. I've talked about it before, when you sell a new account and you lose an account, those accounts could be a similar profile. Often they don't have the same pricing -- an account you've had for longer, likely has higher pricing, particularly in this period that we've been going through with inflation.

So I think price has been somewhat a part of it. And look, not to overestimate it. The competitive environment is always part of it, but I'm not sure that there's a significant difference in that regard. I think it's a little bit more of the pricing environment and people working through inflation, more likely maybe to say, hey, I want to go out to bid or put my account out to bid, and that's had some impact. We have seen some customers not being able to pay by terms and some things like that. I think we've seen an increase in most of the metrics we track as part of our retention. So hopefully, that helps a little bit.

[Andrew J. Wittmann, analyst]

Appreciate the color on that. I guess next, I wanted to just dig into merchandise costs. I feel like I've been asking this one almost every quarter, but we're going to ask it again this quarter. I guess it's -- given that compares on merchandise costs now has been a headwind to your margins for a while. I guess it seems reasonable to be thinking about merchandise costs maybe flipping positive in the few upcoming quarters. It wasn't this quarter. But maybe can you quantify the impact of merchandise costs were year-over-year here? And talk about when you think that could flip positively?

[Shane O’Connor, executive]

Yes, I can do that. So when we talk about our merchandise costs coming into the year, we had sort of said our expectations were that merchandise was going to be like a 10 to 20 basis point headwind. Obviously, that headwind was greatly reduced from what we have been seeing for the previous couple of years as our merchandise levels adjusted coming out of the pandemic.

We still expect that, that's going to be the headwind that we're going to see, it's relatively moderate in the quarter. It was a headwind. It was only 20 basis points. At this point in time, given a 10 to 20 basis point headwind we would characterize that as merchandise or merchandise flattening. That's sort of where we're at from the maturity of our merchandise. We don't have any expectation or we haven't included in our guidance an assumption that merchandise is going to flip and become a benefit throughout the remainder of 2024. At this point in time, our expectation is that it's going to be relatively flat with just a little bit of a headwind.

[Andrew J. Wittmann, analyst]

Okay. That's helpful. And then -- yes, go ahead, Steve.

[Steven Sintros, executive]

No, I just going to add one thing there, and it's not a major item, but I did mention that we added a large account in the quarter, a big infusion of merchandise with that account as well. And given we're talking about merchandise being relatively flat, that is an item that has caused -- will cause a headwind over this course of this year until it kind of falls off and is amortized kind of next year at this time. So that's a factor in there as well.

[Andrew J. Wittmann, analyst]

Yes. That makes sense. Okay. Just a couple of technical questions here, I guess. Just was there any change? Is there any change to the amount of key initiatives, costs or some of the other factors. This quarter in your press release talking about your outlook, you didn't have the same level of detail as you did last quarter when you gave your initial guidance.

And I was just wondering if there's any changes to the other assumptions here, maybe the margin rates, key initiative costs, other things that you detailed previously, but we're not reiterated specifically this quarter.

[Shane O’Connor, executive]

Yes. Largely, we're maintaining that guidance which is one of the reasons why we didn't include the additional detail because it would have been somewhat redundant. My expectation or what's included in my in my model at this point in time. It continues to be about $16 million worth of initiative costs. Tax rate for the year continues to be 25%. Largely, we're maintaining the expectations from the guidance.

As it relates to the lower half of the range, the commentary there, yes, 20 to 30 basis points of organic growth within my core laundry is probably at risk based on some of the things we have seen in the latter half. That will -- revenue impact would pressure my margins. But at this point in time, we have some things that are going in the opposite direction, most notably in the form of energy. Previously, when I had guided or provided guidance, my expectation was that energy was going to be about 4.3% of revenues for the year at this point in time based on recent fluctuations in fuel prices, I now expect that to be about 4.1%. So our expectation is that, that's going to be able offset maybe some of the pressure related to the revenue trends.

[Andrew J. Wittmann, analyst]

All right. This is all super helpful. I'm going to sneak in 1 other one, sorry. Just on the comment on the $2.1 million on the interest expense line, you had a tax dispute that was settled. Was there like -- were they -- was that like interest on the cash taxes that was like implicit in that, that caused you to recognize that as income this quarter. Is that what it is, Shane, or I don't know, I'm following here. You tell us.

[Shane O’Connor, executive]

No, that's exactly right. there was an ongoing tax dispute as a result of the favorable resolution, we received a certain interest related to that. So we were able to recognize that in the quarter.

[Steven Sintros, executive]

It's been going on for a long time.

[Andrew J. Wittmann, analyst]

This is the one that's been disclosed in your filings, presumably with [ Westin ]government, I think it was.

[Steven Sintros, executive]

No. Interestingly enough, it was related to Mexico, but unrelated to that one we disclosed in the filing. This was a separate one from I don't know, 3 or 4 years ago, maybe more that was able to be resolved, and therefore, we were able to recoup the interest. But the other one is still out there and sort of pending. Usually, when you have those tax disputes, you owe money and those higher interest rates are somewhat punitive when you're actually getting money back, they disproportionately benefit you to. So -- that was our experience in the quarter.

[Operator]

Our next question comes from the line of Josh Chan with UBS.

[Unknown Analyst]

Shane, Happy New Year. I was wondering I was wondering if there's any conclusions that you can draw from, I guess, the accounts that you're losing or walking away from -- versus the large accounts that you're winning kind of what what's causing the losses and what's causing you to win the large accounts specifically?

[Steven Sintros, executive]

Yes. Great question. I mean at the end of the day, I sort of alluded to as we sell our value proposition, go into account, sell them on the right program for the -- with the right products for those customers. We sell on our process, we sell in our procedures, our ability to execute at times, if those accounts feel like they haven't been receiving the service that they want, it provides an opportunity.

I mean, the same goes just, quite frankly, if we lose an account. Again, it doesn't all fall into one category when you lose a piece of business. Sometimes it's strategic, like I mentioned, sometimes it can be local lack of execution by the route driver if we've had more turnover. And sometimes it can be that an account is going out to bid and they get a very competitive offer, and we struggle to match that offer. So it's really on both sides, it's execution, it's selling our value. It's continuing to provide consistent service and showing that we can as I talk about our vision, be recognized as the service provider that's going to be the best for those customers. So I know it's a little bit of a generic answer, but the devil is in the execution on both sides.

[Unknown Analyst]

Yes. That makes a lot of sense. And then I guess if I can follow up on the Specialty segment. I was under the impression that this quarter, things would be a little bit weaker than what you showed because of the nuclear dynamic. So I was just wondering if the full year could be a little stronger than what you had previously guided based on just the strength this quarter.

[Steven Sintros, executive]

I think right now that is somewhat true. We probably have the full year a little bit ahead as to where it was before. We do still expect the rest of the year to show some drop off and not to necessarily replicate some of the strength in the first quarter. There were some sort of onetime things in the first quarter that sort of [indiscernible] a bit. Again, that segment is made up of the 2 subsegments, the clean room and the nuclear.

The clean room continues to be very consistent. And as we talked about in our last earnings call, we do expect kind of the nuclear slowdown based on some reduction in business with some of our Canadian customers. So we still expect that trend. But right now in the model, the full year does have that segment a little bit ahead of what we had guided, but still below last year's profitability.

[Operator]

Our next question comes from the line of Tim Maloney with William Blair.

[Unknown Analyst]

This is Lu McCann on for Tim. So your First Aid business had a nice start to the fiscal year. has performed well for several consecutive quarters now. Should we still expect to see that business inflect in the positive profitability by year-end? And how should we think about the cadence of profitability as we move through fiscal 2024.

[Steven Sintros, executive]

Yes. Look, for the full year, we think that the division could be around breakeven. So we do expect a little bit of a pickup in profitability over the course of the year. We're still at that point in our investment in this division where it's more about expanding the breadth of our service offerings and -- or our geographic offerings, I should say, or coverage.

And over the course of the next couple of years, and we're starting it this year, we really are starting to focus more on filling out the customers with the products and services, filling out the routes with more density, and that will start to turn the profitability. But for the most part, our guidance for the full year has us in that sort of treading water around breakeven.

[Unknown Analyst]

Great. Very helpful. And then if I can follow up with just one more. I know you provided just a bit of color on kind of how early year conversations have been going with customers. But maybe just as a follow-up to that, are there any of your end markets that are showing particularly outside strength or weakness as you're looking at them today.

[Steven Sintros, executive]

No, I wouldn't say so. I think that as we kind of look at metrics and where levels across the country, there really aren't any particular pockets that jump out something I've been watching is we've had a couple of decent years in the energy sector, and that continues to be pretty solid as long as oil prices hold up. But no, I wouldn't say we're seeing any particular geographic or industry-driven trends that are worth noting.

[Operator]

Our next question comes from the line of Andrew Steinerman with JPMorgan.

[Andrew Steinerman, analyst]

I just want to confirm something that I think is pretty clear, but I just want to confirm that in the 24 guide, when you point to the lower half of the range, I think that's just for revenues and not for EPS. I think for [ 204 ] EPS, you're still pointing to the whole range. I just wanted confirm that. But could you also update us on what you're assuming for interest in '24 kind of given the first quarter benefit and you could imagine what I really want to kind of point to is like what are you embedding in terms of the margin progress through the year and what gives you confidence in that margin outlook?

[Shane O’Connor, executive]

Yes. So, Yes. actually. Can you ask the first part of the question again? I'm sorry.

[Andrew Steinerman, analyst]

Okay. So it's a multipart question. Sorry. So the first one, I just want to confirm, when you point to the lower half of the range for the guide, I think that's just a comment for revenues and not a comment for EPS. In other words, I think when you say lower half, you're talking about revenues and for EPS, you're still pointed to the whole range.

[Shane O’Connor, executive]

Yes. Sorry about that. No, that's correct. The comments about the lower half is just top line related. We are still pointing to the full range from an EPS perspective. From an interest perspective, you take a look at my interest income in the first quarter. It largely benefited from about $2.1 million in the first quarter.

Subsequent to that, my expectation is that the interest income, I'll realize sort of be Q1's run rate exclusive of that $2.1 million, so about $1 million worth of interest income per quarter.

[Steven Sintros, executive]

And Andrew, I think the second part of your question, which was alluding to the confidence in sort of the back -- the rest of the year is kind of margin outlook given everything that we've been saying here is -- the one comment I'd make to that, Shane alluded to it to some extent with respect to what we're seeing on merchandise. But I think in general, when you look across all of our costs, unlike the last couple of years where there was a lot more deviation and increases we were seeing across our cost base. We are seeing more stabilization there, right?

Obviously, merchandise is a big piece of that. from a labor perspective, it's consistent with what you read out there. It's still a challenging labor environment, but certainly not as challenging in terms of staffing pressure on wages and so on. That doesn't mean those costs have retreated, but the confidence in them over the next few quarters is higher than in past couple of years when we were going through a lot of inflation. And the energy which Shane talked about as well as a helpful item that we're -- we've modeled in.

[Operator]

[Operator Instructions] Our next question comes from the line of Kartik Mehta with Northcoast Research.

[Kartik Mehta, analyst]

Thank you Steve, you've talked about maybe what's happening in terms of ad ops and maybe some customers extending payments. But if you look at just overall at your customers, how would you assess the health of those customers? And -- how do you feel about their ongoing viability. Any changes?

[Steven Sintros, executive]

No, I wouldn't say that when we look across our customer base, we think that there's any sort of weakening of overall financial viability and how we look at that. So no, I think stable in that area. I think my commentary was more just around probably a normal amount of caution given the environment for their businesses and their growth outlooks and so on and so forth as we look over the course of the year.

[Kartik Mehta, analyst]

And Shane, you talked about, obviously, energy, hopefully benefiting you for the rest of the year, assuming things kind of stay where they are. And I know previously, you were able to put in some fuel surcharges because of fuel prices -- are those surges surcharges still in effect? Or is that part of maybe some of the pricing dynamics that you've talked about?

[Steven Sintros, executive]

So this is Steve. We did take a step back in the energy surcharge last year at some point. Right now, we're sort of holding even. We sort of have a schedule that we're looking at. I do think that lower energy price does put some pressure, not just on the surcharge, which is a relatively smaller amount at this point in the grand scheme of things. but customers sort of pushing back on general price increase and new account pricing and so on. So yes, I would say indirectly, what you're saying is true that the lower energy prices is part of, I think, the pressure on price.

[Kartik Mehta, analyst]

And then one last question. I know you've been inquisitive at least last year, and you've looked at acquisitions. And I'm wondering if you're seeing any change in the environment in terms of pricing or maybe what people might be willing or not going to do?

[Steven Sintros, executive]

I wouldn't say any real change. I mean I think if you kind of look over the last number of years, aside from clean, which was a larger deal and a little bit of a larger 1 that's happened in the industry over the last number of years. There continues to be a small handful of potential deals that emerge and people kind of test the waters.

And so -- and I think that really continues. I think the sellers in this industry continue to be driven by sort of their planning and succession planning and family dynamics, and that continues to be true. I think the multiples have gone up. And as I've said before, we will be aggressive for deals that we think make sense in our in either strategic geographies for us or that we feel the quality of the business really warrants that. So I would say that really hasn't changed much over the last couple of years.

[Operator]

[Operator Instructions] There are no further questions at this time. I will turn the call back to you.

[Steven Sintros, executive]

Great. I'd like to thank everyone for joining us today to review our first quarter results and we look forward to speaking with everybody again in March when we expect to be reporting our second quarter performance. Thank you, and have a great day. Happy New Year.

[Operator]

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