K-Bro Linen's Q2 Revenue Jumps 33% as Stellar Mayan Integration Advances
K-Bro Linen Inc. (TSE:KBL) reported a 33% jump in second-quarter revenue, helped by the June 2025 acquisition of Stellar Mayan, price increases and steady demand from healthcare and hospitality customers. Adjusted EBITDA rose 25.6% to C$29.8 million, while the adjusted EBITDA margin slipped 1.2 percentage points to 19.8%, reflecting the acquired company's lower margin profile and higher fuel costs.
President and Chief Executive Officer Linda McCurdy said the results were in line with expectations and highlighted the benefits of K-Bro's national platforms in Canada and the United Kingdom. Healthcare revenue increased 50% from a year earlier, and hospitality revenue rose 15%. Healthcare represented about 58% of consolidated revenue, up from roughly 51% a year earlier, primarily because of the Stellar Mayan deal.
The Stellar Mayan acquisition marked its first anniversary on July 11. K-Bro said it has achieved about 40% of the anticipated run-rate cost synergies and continues to expect the full program to be realized over the originally planned 24-month period. McCurdy said the remaining synergies should be delivered over the next 12 months, with a major initiative involving the conversion of healthcare plants to seven-day operations. One plant has been converted, and the more complex healthcare-site transitions are expected over the next six months.
Other integration actions include bringing engineering and maintenance functions in-house, optimizing workflows, modifying compensation structures, replacing certain managers and seeking additional customer volumes. McCurdy said the compensation changes were introduced recently and are expected to have a larger impact in the coming quarters.
K-Bro said its U.K. platform is now one of the top three players in that market, and more than half of consolidated revenue is generated there. The company also added John Lynch to its board. McCurdy said Lynch's experience in European infrastructure investing and international finance gives K-Bro a useful U.K. perspective as it expands.
Canadian adjusted EBITDA margin was essentially unchanged from a year earlier at 21.1%. The U.K. division's margin fell 2.1 percentage points to 18.6%, reflecting Stellar Mayan's margin profile and higher fuel costs. Management estimated that diesel prices reduced adjusted EBITDA margin by about 0.5 percentage point in the second quarter. If diesel prices stay at current levels, K-Bro expects a similar drag for the rest of 2026. Roughly half of U.K. diesel usage is hedged and half is exposed to floating prices, while Canadian diesel usage is floating. Chief Financial Officer Kristie Plaquin said the company has not entered additional fuel hedges since its first-quarter call.
Margin resilience during the quarter came from pricing, route optimization, labor containment and new equipment. Plaquin said the benefit was roughly evenly split between pricing and operational initiatives, and she expects those efforts to remain achievable through the second half of the year. On natural gas, Plaquin said K-Bro's Canadian hedges roll off over several years, with no material maturities in 2027. In the U.K., current natural gas costs are somewhat above the company's existing hedge levels. Locking in prices at current levels would produce an estimated negative margin impact of about 0.5 percentage point, she said.
McCurdy said hospitality growth was slower than in prior years. In Canada, she linked weaker hotel occupancy in Toronto and Vancouver partly to FIFA-related room blocks and high room rates, which limited public availability and discouraged travel. In the U.K., extreme heat also reduced volumes and occupancies relative to historical norms. K-Bro still sees hospitality growth, though at a slower pace, and management said it is not yet clear what the second-quarter trends will mean for the third quarter.
On healthcare contracts, McCurdy said K-Bro expects request-for-proposal activity in Ontario and the Greater Toronto Area to continue through the third and fourth quarters and into 2027. She estimated that opportunities over the next six to 12 months could total about C$10 million, with additional value over the next two to three years. K-Bro is also participating in a competitive renewal process for a Vancouver contract it has served since 2000. McCurdy said the company is well positioned because of its large, efficient and state-of-the-art facility.
Adjusted net earnings increased to C$10.1 million from C$7.8 million a year earlier. Distributable cash flow totaled C$14.7 million, and the quarterly payout ratio was 26.6%. K-Bro paid C$0.30 per share in dividends, totaling C$3.9 million, and repurchased and canceled 58,000 common shares for C$2.5 million under its normal course issuer bid.
At quarter-end, the company had nearly C$69.6 million undrawn on its C$175 million operating line, excluding a further C$50 million accordion facility. Total debt net of cash was C$213.5 million, and pro forma funded debt to EBITDA, excluding leases, was just under 2.5 times. K-Bro entered into an interest-rate swap in June to convert floating-rate exposure on its term loan to a fixed rate. Plaquin said the company does not expect significant changes in interest expense relative to the second quarter.
Looking ahead, management expects combined adjusted EBITDA margins to remain near seasonally adjusted historical levels. U.K. margins are expected to stay below historical levels because of Stellar Mayan's lower margin profile. The company also plans to pursue organic growth and potential acquisitions, with McCurdy noting that the U.K. market remains more fragmented than Canada's.
K-Bro Linen Inc. is a healthcare and hospitality laundry and linen processor with operations in major cities across Canada and the U.K. The company also has two distribution centers and provides management services and laundry processing for healthcare, hospitality and specialty linen customers.