Will Cintas (CTAS) Maintain Beat Streak In Q3 Earnings?
Zacks Investment Research | Mar 18, 2019 11:05PM ET
Cintas Corporation (NASDAQ:CTAS) is slated to report third-quarter fiscal 2019 (ended February 2019) results on Mar 21, after market closes.
The company pulled off an average positive earnings surprise of 6.81% in the preceding four quarters. In the fiscal second quarter, Cintas generated adjusted earnings of $1.76 per share that surpassed the Zacks Consensus Estimate of $1.72 by 2.33%.
Let’s see how things are shaping up prior to this announcement.
Factors at Play
Cintas’top line is gaining momentum on the back of consistent performance in the Uniform Rental and Facility Services segment. Notably, the company’s focus on enhancing its product portfolio and improving customer relationships will bolster organic revenue growth in the upcoming quarters. In addition, strength in the National Account, Fire and Uniform Direct Sale businesses is likely to support the uptick.
Also, effective implementation of enterprise resource planning system and integration of G&K Services assets bode well. Notably, the company’s recent business acquisitions have strengthened its product portfolio and processing capacity as well as improvised customer service. As a matter of fact, these benefits are likely to get reflected in the company’s upcoming quarterly releases. In addition, the company believes that lower commission expenses (on account of Accounting Standard Update 2014-09 adoption) and corporate tax expenses will continue to strengthen profitability.
Amid this backdrop, the Zacks Consensus Estimate for fiscal third-quarter revenues in the Uniform Rental and Facility Services segment is currently pegged at $1,371 million, reflecting growth of 6.7% year over year. In addition, revenues in the First Aid and Safety Services segment are anticipated to be strong, with estimates pegged at $150 million. This indicates a rise from revenues of $137 million in the year-ago quarter.
However, rising cost of sales and expenses are major cause of concerns for Cintas. Notably, in second-quarter fiscal 2019, its total cost of sales grew 6% year over year. The company continues to experience cost pressure in certain areas that include rising wages and costs related to hangers. Moreover, costs associated with the G&K Services buyout integration (estimated to be approximately $18-$22 million for fiscal 2019) along with the same incurred for implementation of enterprise resource planning system will continue to hurt margins.
In addition, the company’s first-aid and fire protection services are decidedly commoditized markets and are subject to fierce competition. The company is required to consistently invest in value drivers to fend off competition, which weakens profitability.
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