What K-Bro Linen (KBL) Said on Its Q3 Earnings Call

Key Points

• Q3 revenue rose 2.6% to CAD 160.1 million, while adjusted EBITDA was flat at CAD 33.5 million and margin eased to 20.9%, mainly due to higher fuel costs. Management said persistent diesel prices could further pressure Q4 margins, with expiring U.K. energy hedges posing a potential 2027 headwind.
• Healthcare revenue grew about 7% and now represents roughly 55% of sales; K-Bro renewed several U.K. healthcare contracts with price increases covering cost increases. The Stellar integration is progressing as planned, with about half of anticipated synergies achieved by Q3 end.
• Hospitality revenue increased about 2%, but management described the quarter as soft, especially in U.K. leisure travel. It expects the weakness to be temporary and said mid-single-digit organic growth over the next 12 months is a reasonable prospect.

K-Bro Linen TSE: KBL reported a 2.6% increase in third-quarter revenue, while higher fuel costs weighed on margins and management warned that expiring U.K. energy hedges could add to cost pressures in 2027.

Revenue rose to CAD 160.1 million, and adjusted EBITDA was flat year over year at CAD 33.5 million, Chief Financial Officer Kristie Plaquin said on the company’s earnings call. Adjusted EBITDA margin fell to 20.9% from 21.4%, largely because of higher fuel costs.

President and CEO Linda McCurdy said the results were consistent with the company’s expectations. Healthcare revenue increased by approximately 7%, while hospitality revenue rose by approximately 2%. Healthcare accounted for about 55% of consolidated revenue, up from approximately 53% in 2025, following the acquisition of Stellar.

Energy Costs and 2027 Margins

Plaquin said fuel costs also reduced divisional margins. Canada’s adjusted EBITDA margin slipped to 22.4% from 22.8%, while the U.K. margin fell to 19.6%, a decline of 0.7 percentage points.

McCurdy said diesel prices reduced consolidated adjusted EBITDA margins by approximately 0.7 percentage points in the third quarter. If prevailing diesel prices continue, she expects a roughly one-percentage-point negative impact on fourth-quarter margins relative to historical levels.

The company’s U.K. diesel and natural gas hedges expire at the end of 2026. Half of its U.K. diesel usage is hedged, while Canadian diesel usage is unhedged, McCurdy said.

During the question-and-answer session, Plaquin agreed with Raymond James analyst Michael Glen’s estimate that natural gas and diesel could create a combined 1.3- to 1.4-percentage-point margin headwind in 2027 relative to margins forecast at the end of 2026. She said that estimate reflected costs at a point in time and excluded potential price increases, which the company believes could mitigate some of the pressure.

Healthcare Renewals and Stellar Integration

K-Bro renewed several U.K. healthcare contracts for three- to five-year terms during the quarter, including its largest U.K. customer, which represents approximately 3% of consolidated revenue, McCurdy said. She said the renewals included price increases that covered cost increases.

Future price increases under the U.K. renewals are tied to a national textile index that weights natural gas and diesel in a way that better reflects a laundry’s cost structure, McCurdy said. She added that incremental healthcare volume could come from customers converting to reusable products, although she said there had not yet been meaningful progress on those conversions.

McCurdy said the Stellar integration was progressing as expected, with anticipated run-rate cost synergies to be realized over a 24-month period. In prepared remarks, she estimated that approximately half of the anticipated synergies had been achieved through the end of the third quarter. In response to an analyst’s question, she said the company anticipated half would be achieved by year-end.

One of four plants has transitioned to seven-day operations, with benefits expected to begin accruing at the start of 2027, McCurdy said. A second transition is planned for December and the remaining two for the new year.

Hospitality Softness and Outlook

McCurdy described the third quarter as soft for hospitality compared with historical experience, particularly in the U.K. She said the softness was more pronounced in leisure travel and that competitive pressure had been concentrated in the north.

“We have seen some aggressive behavior by certain market participants,” McCurdy said, adding that K-Bro expects the impact to be temporary and remains confident in its ability to win U.K. hospitality business.

Asked by Stifel analyst Justin Keywood whether mid-single-digit organic growth could be achievable over the next 12 months, McCurdy said that was “a fair enough number.” She cited confidence in the company’s 2027 pipeline and said she expected recent softness to be temporary.

Cash Flow and Debt

Adjusted net earnings rose to CAD 13 million from CAD 12 million a year earlier, Plaquin said. Distributable cash flow was CAD 21.6 million, with a quarterly payout ratio of 18.1%. The company paid CAD 0.30 per share in dividends, totaling CAD 3.9 million.

At quarter-end, K-Bro had total debt net of cash of CAD 211.7 million and close to CAD 76 million undrawn on its operating line, excluding an additional CAD 50 million accordion facility. Plaquin said the company’s pro forma debt-to-EBITDA ratio, excluding leases, was just under 2.5 times.

About K-Bro Linen (TSE:KBL)

K-Bro Linen Inc is a healthcare and hospitality laundry and linen processor in Canada. It operates in major cities across Canada, and has two distribution centers, providing management services and laundry processing of hospitality, healthcare, and specialty linens. The company provides vital products and services that help people heal, travel, live, and play. It helps hospitals and extended care centers care for the young, old, and vulnerable in environmentally responsible ways. It operates through two divisions, which are the Canadian division and the United Kingdom division.

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