Cintas (CTAS) Beats Q1 Earnings & Revenues, Raises Guidance

Business services provider Cintas Corporation (NASDAQ:CTAS) recorded strong first-quarter fiscal 2018 (ended Aug 31, 2017) results on the back of healthy top-line growth. Net income from continuing operations for the reported quarter improved to $161.1 million or $1.45 per share from $136.2 million or $1.24 per share in the year-earlier quarter. Adjusted earnings for the reported quarter were $1.48 per share, which comfortably beat the Zacks Consensus Estimate of $1.29.

Quarterly revenues increased 27.2% year over year to $1,611.5 million, exceeding the Zacks Consensus Estimate of $1,568 million. Organic growth for the reported quarter improved 8.3% year over year. The superior top-line performance was primarily attributable to the accretive acquisition of G&K Services Inc. Moreover, addition of new customers, strong customer retention and higher penetration of existing customers through better and innovative products and services also led to incremental organic growth.

Gross margin increased for the 16th consecutive quarter on a year-over-year basis to 45.9% from 45.5% in the prior-year quarter. Operating income was $249.1 million, up 22.1% year over year. Operating margin was 15.5%, slightly lower than 16.1% in the year-earlier quarter, owing to transaction expenses related to the acquisition of G&K Services.

Segmental Performance

Uniform Rental and Facility Services revenues for the quarter improved 31.9% year over year to $1,311.8 million. The segment accounted for 81.4% of the total revenue, with year-over-year organic growth of 8.1%. Gross margin increased marginally to 46.1% in the reported quarter from 46.0% in the year-ago quarter.

Revenues from Other segment were up 10.1% year over year to $299.7 million, while its gross margin improved to 44.9% from 43.8% in the prior-year quarter. This segment includes the First Aid and Safety Services, and All Other businesses that comprise the Fire Protection Services and Direct Sale business. The First Aid and Safety Services recorded organic growth of 11.9%.

Financial Position

Cintas has a solid financial position with adequate liquidity. At quarter end, cash and cash equivalents were $191.4 million while long-term debt was $2,533.7 million.

Net cash from operating activities was $254.4 million for the first three months of fiscal 2018 compared with $157.6 million in the prior-year period. Free cash flow for the first three months of the fiscal year increased to $191.8 million from $79 million in the year-ago period.

Guidance Raised

With superior quarterly performance, Cintas increased its earlier guidance for fiscal 2018. Revenues are currently expected in the range of $6,325 million − $6,400 million, up from $6,270 million − $6,360 million anticipated earlier. Earnings from continuing operations are expected to be between $5.30 and $5.38 per share, up from earlier projections of $5.15 − $5.25. The guidance, however, includes the preliminary estimates of the negative effect due to Hurricane Harvey and Hurricane Irma affecting Texas, Florida, Puerto Rico and surrounding areas.

Moving Forward

Cintas continues to deliver organic growth through superior execution of its operational plans. We remain encouraged by the company’s strong quarterly performance.

Cintas currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Superior Uniform Group, Inc. (NASDAQ:SGC) , NV5 Global, Inc. (NASDAQ:NVEE) and PageGroup plc MPGPF, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Superior Uniform Group has a long-term earnings growth expectation of 13.5%. It has beaten earnings estimates in all the trailing four quarters for a positive surprise of 18%.

NV5 Global has a long-term earnings growth expectation of 20%. It has beaten earnings estimates thrice in the trailing four quarters for a positive surprise of 2.9%.

PageGroup has a long-term earnings growth expectation of 15%.

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