Cintas Beats on Q3 Earnings, Updates Fiscal 2016 Guidance

Business services provider Cintas Corporation CTAS continued its bull run in fiscal 2016 and recorded strong third-quarter results on the back of healthy organic growth. The company reported third-quarter fiscal 2016 (ended Feb 29, 2016) net income of $117.3 million or $1.05 per share from continuing operations compared with $100.3 million or 85 cents per share in the year-earlier quarter. The reported earnings for the quarter comfortably beat the Zacks Consensus Estimate by 10 cents.

 

Quarterly revenues increased 9.7% year over year to $1,216.1 million and exceeded the Zacks Consensus Estimate of $1,202 million. Organic growth for the reported quarter improved 6.8% year over year. The superior top-line performance was primarily attributable to the addition of newer customers, higher product prices and higher penetration of existing customers through better and innovative products and services.

Gross margin for the quarter improved to 43.1% from 42.9% in the prior-year quarter. Operating income in the reported quarter was $192.9 million, up 11.1% year over year. Operating margin was 15.9%, slightly higher than 15.7% reported in the year-earlier quarter.

Segment Performance

Uniform Rental and Facility Services revenues for the quarter improved 6.0% year over year to $936.6 million. The segment accounted for 77% of the total revenue, with year-over-year organic growth of 6.1%. Gross margin for the segment increased 70 basis points to 44.0% in the reported quarter.
 
Revenues for First Aid and Safety Services were up 24.0% year over year to $279.5 million. This segment recorded organic growth of 11.9% and accounted for 23% of the company's revenues. Segment gross margin decreased to 40.3% in the reported quarter from 41.3% in the year-ago quarter due to acquisition and integration costs.

Financial Position

Cintas has a solid financial position with adequate liquidity. At quarter end, cash and cash equivalents were $315.1 million, while long-term debt was $1.1 billion.

Net cash from operating activities was $297.2 million for the first nine months of fiscal 2016 compared with $377.6 million in the prior-year period. Free cash flow for the first nine months of fiscal 2016 decreased to $89.7 million from $214.6 million in the year-ago period.

Cintas repurchased 5.7 million shares since the beginning of fiscal 2016 for $482.9 million, including $100 million in the reported quarter. The company currently has $280 million worth of shares available for repurchase
 
Updated Fiscal 2016 Guidance

Buoyed by the healthy third-quarter fiscal 2016 results, Cintas revised its guidance for fiscal 2016. The company expects fiscal 2016 revenues in the range of $4.860 billion to $4.890 billion, up 8.6%–9.2% year over year. Earnings from continuing operations are expected to be within $3.98–$4.03 per share, which represents a year-over-year improvement of 18.8%–20.3%.

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 and its bullish guidance.

Cintas currently has a Zacks Rank #3 (Hold). Other stocks in the industry worth reckoning include The Hackett Group, Inc. HCKT and Exponent Inc. EXPO, both carrying a Zacks Rank #2 (Buy) and CBIZ, Inc. CBZ, carrying a Zacks Rank #1 (Strong Buy).

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