CTAS
$115.51
Cintas
$1.67
1.47%
Earnings Details
2nd Quarter November 2016
Thursday, December 22, 2016 4:15:01 PM
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Summary

Cintas Misses

Cintas (CTAS) reported 2nd Quarter November 2016 earnings of $1.15 per share on revenue of $1.3 billion. The consensus earnings estimate was $1.16 per share on revenue of $1.3 billion. The Earnings Whisper number was $1.17 per share. Revenue grew 6.4% on a year-over-year basis.

The company said it expects fiscal 2017 earnings of $4.57 to $4.65 per share on revenue of $5.18 billion to $5.225 billion. The company's previous guidance was earnings of $4.55 to $4.63 per share on revenue of $5.16 billion to $5.225 billion and the current consensus earnings estimate is $4.57 per share on revenue of $5.20 billion for the year ending May 31, 2017.

Cintas Corp is a provider of corporate identity uniforms. It operates in four segments: Rental Uniforms & Ancillary Products, Uniform Direct Sales, First Aid, Safety & Fire Protection Services, & Document Management Services.

Results
Reported Earnings
$1.15
Earnings Whisper
$1.17
Consensus Estimate
$1.16
Reported Revenue
$1.30 Bil
Revenue Estimate
$1.29 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Cintas Corporation Announces Fiscal 2017 Second Quarter Results

Cintas Corporation (CTAS) today reported results for its second quarter of fiscal year 2017 which ended November 30, 2016. Revenue for the second quarter was $1.30 billion, an increase of 6.4% over last year’s second quarter. The organic growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 5.7%. Organic growth for the Uniform Rental and Facility Services segment accelerated to a rate of 6.5%.

Second quarter gross margin improved to 44.1% from 43.3% last year. Scott D. Farmer, Cintas’ Chairman and Chief Executive Officer, stated, "This is our 13th consecutive quarter of year-over-year gross margin improvement. This, along with our industry leading organic sales growth, is a reflection of the significant opportunities that exist for us and of the great execution of our employees, whom we call partners." Gross margin of the Uniform Rental and Facility Services segment improved to 44.7%, an increase of 80 basis points compared to last year’s second quarter. The First Aid and Safety segment gross margin improved to 46.1%, representing both a year-over-year and sequential increase of 290 and 30 basis points, respectively, due to the realization of synergies from the acquisition of ZEE Medical in fiscal 2016.

Selling and administrative expenses as a percentage of revenue were 28.2% in the second quarter compared to 26.8% in last year’s second quarter. The increase was the result of strategic investments in a new enterprise resource planning system, in our national branding campaign (Ready for the Workday(TM)), and in sales resources to grow recently acquired customers in our First Aid and Safety segment, as well as a 70 basis point increase in medical expenses.

Operating income for the second quarter of $203 million increased 1.3% from last year’s second quarter. Operating income margin was 15.6% compared to 16.4% in last year’s second quarter. Second quarter operating income included $3.3 million, or 0.3% of second quarter revenue, of transaction expenses related to the previously announced agreement to acquire G&K Services, Inc. (G&K).

Net income from continuing operations for the second quarter was $123 million compared to $115 million in last year’s second quarter. Earnings per diluted share (EPS) from continuing operations for the second quarter were $1.13 which included a negative $0.02 impact from G&K transaction expenses, compared to $1.03 in last year’s second quarter. Second quarter net income and EPS from continuing operations increased 6.9% and 9.7%, respectively, compared to last year’s second quarter. Excluding the negative impact of the G&K transaction expenses, second quarter net income and EPS from continuing operations increased 8.8% and 11.7%, respectively, compared to last year’s second quarter, and net income margin from continuing operations improved to 9.7% compared to 9.5% in last year’s second quarter.

Mr. Farmer added, "Earlier this month, on December 2nd, we demonstrated our commitment to increasing shareholder value by paying an annual dividend of $1.33 per share, an increase of 26.7% over last year’s annual dividend. We have increased this dividend for 33 consecutive years, which is every year since we went public in 1983."

Mr. Farmer concluded, "We are updating our annual guidance. We expect fiscal 2017 revenue to be in the range of $5.180 billion to $5.225 billion and fiscal 2017 EPS from continuing operations to be in the range of $4.57 to $4.65. This guidance does not include any future financial impact from our acquisition of G&K, including transaction expenses. It does include the impact of one less workday in fiscal 2017 compared to fiscal 2016. Our solid second quarter results, along with our updated guidance, position us to achieve record revenue and to grow our EPS double-digits for a seventh consecutive year. I thank our partners for continuing to deliver best in class results."

The table below provides a comparison of fiscal 2016 revenue and EPS from continuing operations to our fiscal 2017 guidance.

Fiscal 2017
Fiscal 2017
Low End
Growth vs.
High End
Growth vs.
Revenue Guidance
Fiscal 2016
of Range
Fiscal 2016
of Range
Fiscal 2016
Revenue ($s in millions)
$
4,905.5
$
5,180.0
5.6 %
$
5,225.0
6.5 %
EPS Guidance
EPS before the following items
$
4.09
$
4.51
10.3 %
$
4.59
12.2 %
Impact of ASU 2016-09
-
$
0.10
$
0.10
G&K Transaction Expenses
-
($0.04 )
($0.04 )
EPS - Continuing Operations
$
4.09
$
4.57
11.7 %
$
4.65
13.7 %

About Cintas

Cintas Corporation helps more than 900,000 businesses of all types and sizes get Ready(TM) to open their doors with confidence every day by providing a wide range of products and services that enhance our customers’ image and help keep their facilities and employees clean, safe and looking their best. With products and services including uniforms, floor care, restroom supplies, first aid and safety products, fire extinguishers and testing, and safety and compliance training, Cintas helps customers get Ready for the Workday(TM). Headquartered in Cincinnati, Cintas is a publicly held company traded over the Nasdaq Global Select Market under the symbol CTAS and is a component of both the Standard & Poor’s 500 Index and the Nasdaq-100 Index.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. Forward-looking statements may be identified by words such as "estimates," "anticipates," "predicts," "projects," "plans," "expects," "intends," "target," "forecast," "believes," "seeks," "could," "should," "may" and "will" or the negative versions thereof and similar words, terms and expressions and by the context in which they are used. Such statements are based upon current expectations of Cintas and speak only as of the date made. You should not place undue reliance on any forward-looking statement. We cannot guarantee that any forward-looking statement will be realized. These statements are subject to various risks, uncertainties, potentially inaccurate assumptions and other factors that could cause actual results to differ from those set forth in or implied by this Press Release. Factors that might cause such a difference include, but are not limited to, the possibility that the closing conditions to the proposed merger of G&K Services, Inc., or G&K, with a wholly owned subsidiary of Cintas, which we refer to as the transaction, may not be satisfied or waived, including that a governmental entity may prohibit, delay or refuse to grant a necessary regulatory approval; delay in closing the transaction or the possibility of non-consummation of the transaction; the potential for regulatory authorities to require divestitures in connection with the proposed transaction; the occurrence of any event that could give rise to termination of the merger agreement; the risk that stockholder litigation in connection with the transaction may affect the timing or occurrence of the transaction or result in significant costs of defense, indemnification and liability; risks inherent in the achievement of cost synergies and the timing thereof, including whether the transaction will be accretive and within the expected timeframe; risks related to the disruption of the transaction to G&K and its management; the effect of announcement of the transaction on G&K’s ability to retain and hire key personnel and maintain relationships with customers, suppliers and other third parties; our ability to promptly and effectively integrate acquisitions, including G&K and ZEE Medical; the possibility of greater than anticipated operating costs including energy and fuel costs; lower sales volumes; loss of customers due to outsourcing trends; the performance and costs of integration of acquisitions, including G&K and ZEE Medical; fluctuations in costs of materials and labor including increased medical costs; costs and possible effects of union organizing activities; failure to comply with government regulations concerning employment discrimination, employee pay and benefits and employee health and safety; the effect on operations of exchange rate fluctuations, tariffs and other political, economic and regulatory risks; uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation; the cost, results and ongoing assessment of internal controls for financial reporting required by the Sarbanes-Oxley Act of 2002; costs of our SAP system implementation; disruptions caused by the inaccessibility of computer systems data, including cybersecurity risks; the initiation or outcome of litigation, investigations or other proceedings; higher assumed sourcing or distribution costs of products; the disruption of operations from catastrophic or extraordinary events; the amount and timing of repurchases of our common stock, if any; changes in federal and state tax and labor laws; and the reactions of competitors in terms of price and service. Cintas undertakes no obligation to publicly release any revisions to any forward-looking statements or to otherwise update any forward-looking statements whether as a result of new information or to reflect events, circumstances or any other unanticipated developments arising after the date on which such statements are made. A further list and description of risks, uncertainties and other matters can be found in our Annual Report on Form 10-K for the year ended May 31, 2016 and in our reports on Forms 10-Q and 8-K. The risks and uncertainties described herein are not the only ones we may face. Additional risks and uncertainties presently not known to us or that we currently believe to be immaterial may also harm our business.

Cintas Corporation
Consolidated Condensed Statements of Income
(Unaudited)
(In thousands except per share data)
Three Months Ended
November 30,
November 30,
2016
2015
% Change
Revenue:
Uniform rental and facility services
$ 1,005,565
$
937,704
7.2
Other
291,358
281,376
3.5
Total revenue
1,296,923
1,219,080
6.4
Costs and expenses:
Cost of uniform rental and facility services
555,752
526,091
5.6
Cost of other
169,744
165,589
2.5
Selling and administrative expenses
365,222
327,051
11.7
G&K Services, Inc. transaction expenses
3,347
-
100.0
Operating income
202,858
200,349
1.3
Interest income
(31 )
(111 )
-72.1
Interest expense
13,267
16,171
-18.0
Income before income taxes
189,622
184,289
2.9
Income taxes
66,168
68,836
-3.9
Income from continuing operations
123,454
115,453
6.9
Income from discontinued operations, net of tax
16,923
229,647
-92.6
Net income
$
140,377
$
345,100
-59.3
Basic earnings per share:
Continuing operations
$
1.16
$
1.05
10.5
Discontinued operations
0.16
2.06
-92.2
Basic earnings per share
$
1.32
$
3.11
-57.6
Diluted earnings per share:
Continuing operations
$
1.13
$
1.03
9.7
Discontinued operations
0.16
2.03
-92.1
Diluted earnings per share
$
1.29
$
3.06
-57.8
Weighted average number of shares outstanding
104,957
108,301
Diluted average number of shares outstanding
107,647
110,113
Six Months Ended
November 30,
November 30,
2016
2015
% Change
Revenue:
Uniform rental and facility services
$ 2,005,161
$ 1,876,112
6.9
Other
585,892
541,858
8.1
Total revenue
2,591,053
2,417,970
7.2
Costs and expenses:
Cost of uniform rental and facility services
1,096,684
1,044,594
5.0
Cost of other
339,168
321,832
5.4
Selling and administrative expenses
739,248
665,688
11.1
G&K Services, Inc. transaction expenses
6,134
-
100.0
Operating income
409,819
385,856
6.2
Interest income
(96 )
(230 )
-58.3
Interest expense
27,439
32,583
-15.8
Income before income taxes
382,476
353,503
8.2
Income taxes
120,931
131,852
-8.3
Income from continuing operations
261,545
221,651
18.0
Income from discontinued operations, net of tax
16,923
223,630
-92.4
Net income
$
278,468
$
445,281
-37.5
Basic earnings per share:
Continuing operations
$
2.45
$
1.99
23.1
Discontinued operations
0.16
2.01
-92.0
Basic earnings per share
$
2.61
$
4.00
-34.8
Diluted earnings per share:
Continuing operations
$
2.39
$
1.96
21.9
Discontinued operations
0.16
1.98
-91.9
Diluted earnings per share
$
2.55
$
3.94
-35.3
Weighted average number of shares outstanding
104,719
109,455
Diluted average number of shares outstanding
107,278
111,140
CINTAS CORPORATION SUPPLEMENTAL DATA
Three Months Ended
November 30,
November 30,
2016
2015
Uniform rental and facility services gross margin
44.7 %
43.9 %
Other gross margin
41.7 %
41.2 %
Total gross margin
44.1 %
43.3 %
Net income margin, continuing operations
9.5 %
9.5 %
Six Months Ended
November 30,
November 30,
2016
2015
Uniform rental and facility services gross margin
45.3 %
44.3 %
Other gross margin
42.1 %
40.6 %
Total gross margin
44.6 %
43.5 %
Net income margin, continuing operations
10.1 %
9.2 %
Computation of Diluted Earnings Per Share from Continuing
Operations
Three Months Ended
November 30,
November 30,
2016
2015
Income from continuing operations
$ 123,454
$
115,453
Less: income from continuing operations allocated to participating
2,228
1,887
securities
Income from continuing operations available to common shareholders
$ 121,226
$
113,566
Basic weighted average common shares outstanding
104,957
108,301
Effect of dilutive securities - employee stock options
2,690
1,812
Diluted weighted average common shares outstanding
107,647
110,113
Diluted earnings per share from continuing operations
$
1.13
$
1.03
Six Months Ended
November 30,
November 30,
2016
2015
Income from continuing operations
$ 261,545
$
221,651
Less: income from continuing operations allocated to participating
4,955
3,629
securities
Income from continuing operations available to common shareholders
$ 256,590
$
218,022
Basic weighted average common shares outstanding
104,719
109,455
Effect of dilutive securities - employee stock options
2,559
1,685
Diluted weighted average common shares outstanding
107,278
111,140
Diluted earnings per share from continuing operations
$
2.39
$
1.96
Reconciliation of Non-GAAP Financial Measures and Regulation G
Disclosure
The press release contains a non-GAAP financial measure within the
meaning of Regulation G promulgated by the Securities and Exchange
Commission. To supplement its consolidated financial statements
presented in accordance with U.S. generally accepted accounting
principles (GAAP), the Company provides an additional non-GAAP
financial measure of cash flow. The Company believes that this
non-GAAP financial measure is appropriate to enhance understanding
of its past performance as well as prospects for future performance.
A reconciliation of the difference between this non-GAAP financial
measure with the most directly comparable financial measure
calculated in accordance with GAAP is shown below.
Computation of Free Cash Flow
Six Months Ended
November 30,
November 30,
2016
2015
Net cash provided by operations
$
301,721
$
265,037
Capital expenditures
(155,173 )
(121,817 )
Free cash flow
$
146,548
$
143,220
Management uses free cash flow to assess the financial performance
of the Company. Management believes that free cash flow is useful to
investors because it relates the operating cash flow of the Company
to the capital that is spent to continue, improve and grow business
operations.
SUPPLEMENTAL SEGMENT DATA
Uniform
Rental
and
First Aid
Facility
and Safety
All
Services
Services
Other
Corporate
Total
For the three months ended November 30, 2016
Revenue
$ 1,005,565
$ 124,797
$ 166,561
$
-
$ 1,296,923
Gross margin
$
449,813
$
57,545
$
64,069
$
-
$
571,427
Selling and administrative expenses
$
269,105
$
42,766
$
53,351
$
-
$
365,222
G&K Services, Inc. transaction expenses
$
3,347
$
-
$
-
$
-
$
3,347
Interest income
$
-
$
-
$
-
$
(31 )
$
(31 )
Interest expense
$
-
$
-
$
-
$
13,267
$
13,267
Income (loss) before income taxes
$
177,361
$
14,779
$
10,718
$ (13,236 )
$
189,622
For the three months ended November 30, 2015
Revenue
$
937,704
$ 120,438
$ 160,938
$
-
$ 1,219,080
Gross margin
$
411,613
$
52,027
$
63,760
$
-
$
527,400
Selling and administrative expenses
$
242,318
$
37,180
$
47,553
$
-
$
327,051
Interest income
$
-
$
-
$
-
$
(111 )
$
(111 )
Interest expense
$
-
$
-
$
-
$
16,171
$
16,171
Income (loss) before income taxes
$
169,295
$
14,847
$
16,207
$ (16,060 )
$
184,289
For the six months ended November 30, 2016
Revenue
$ 2,005,161
$ 249,636
$ 336,256
$
-
$ 2,591,053
Gross margin
$
908,477
$ 114,671
$ 132,053
$
-
$ 1,155,201
Selling and administrative expenses
$
539,737
$
88,381
$ 111,130
$
-
$
739,248
G&K Services, Inc. transaction expenses
$
6,134
$
-
$
-
$
-
$
6,134
Interest income
$
-
$
-
$
-
$
(96 )
$
(96 )
Interest expense
$
-
$
-
$
-
$
27,439
$
27,439
Income (loss) before income taxes
$
362,606
$
26,290
$
20,923
$ (27,343 )
$
382,476
For the six months ended November 30, 2015
Revenue
$ 1,876,112
$ 219,926
$ 321,932
$
-
$ 2,417,970
Gross margin
$
831,518
$
94,138
$ 125,888
$
-
$ 1,051,544
Selling and administrative expenses
$
496,842
$
70,699
$
98,147
$
-
$
665,688
Interest income
$
-
$
-
$
-
$
(230 )
$
(230 )
Interest expense
$
-
$
-
$
-
$
32,583
$
32,583
Income (loss) before income taxes
$
334,676
$
23,439
$
27,741
$ (32,353 )
$
353,503
Cintas Corporation
Consolidated Condensed Balance Sheets
(In thousands except share data)
ASSETS
November 30,
May 31,
2016
2016
(unaudited)
Current assets:
Cash and cash equivalents
$
143,573
$
139,357
Marketable securities
-
70,405
Accounts receivable, net
607,452
563,178
Inventories, net
263,301
249,362
Uniforms and other rental items in service
543,644
539,956
Income taxes, current
1,228
1,712
Deferred tax asset
Assets held for sale
-
Prepaid expenses and other current assets
41,464
26,065
Total current assets
1,600,662
1,590,035
Property and equipment, at cost, net
1,067,214
994,237
Investments
140,530
124,952
Goodwill
1,301,391
1,291,593
Service contracts, net
85,517
83,715
Other assets, net
19,265
14,283
$
4,214,579
$
4,098,815
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
127,815
$
114,514
Accrued compensation and related liabilities
85,857
101,976
Accrued liabilities
469,085
349,065
Income taxes, current
-
Deferred tax liability
Liabilities held for sale
-
Debt due within one year
66,000
250,000
Total current liabilities
748,757
815,555
Long-term liabilities:
Debt due after one year
1,044,834
1,044,422
Deferred income taxes
265,091
259,475
Accrued liabilities
130,192
136,704
Total long-term liabilities
1,440,117
1,440,601
Shareholders’ equity:
Preferred stock, no par value:
-
-
100,000 shares authorized, none outstanding
Common stock, no par value:
468,392
409,682
425,000,000 shares authorized
FY17: 180,589,260 issued and 105,009,742 outstanding
FY16: 179,598,516 issued and 104,213,479 outstanding
Paid-in capital
178,668
205,260
Retained earnings
4,968,437
4,805,867
Treasury stock:
(3,572,506 )
(3,553,276 )
FY17: 75,579,518 shares
FY16: 75,385,037 shares
Accumulated other comprehensive loss
(17,286 )
(24,874 )
Total shareholders’ equity
2,025,705
1,842,659
$
4,214,579
$
4,098,815
Cintas Corporation
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended
November 30,
November 30,
2016
2015
Cash flows from operating activities:
Net income
$
278,468
$
445,281
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation
79,590
73,130
Amortization of intangible assets
7,460
7,764
Stock-based compensation
39,582
40,241
Gain on Storage transactions
-
(15,786 )
Gain on Shred-it
(16,923 )
(349,738 )
Deferred income taxes
(3,833 )
(98,423 )
Change in current assets and liabilities, net of acquisitions of
businesses:
Accounts receivable, net
(44,920 )
(39,418 )
Inventories, net
(14,616 )
(19,841 )
Uniforms and other rental items in service
(4,315 )
(10,893 )
Prepaid expenses and other current assets
(1,952 )
(2,369 )
Accounts payable
15,451
19,368
Accrued compensation and related liabilities
(18,936 )
(22,771 )
Accrued liabilities and other
(4,866 )
1,041
Income taxes, current
(8,469 )
237,451
Net cash provided by operating activities
301,721
265,037
Cash flows from investing activities:
Capital expenditures
(155,173 )
(121,817 )
Proceeds from redemption of marketable securities
172,968
212,081
Purchase of marketable securities and investments
(118,270 )
(271,341 )
Proceeds from Storage transactions
-
35,338
Proceeds from sale of investment in Shred-it
25,876
578,257
Acquisitions of businesses, net of cash acquired
(17,778 )
(121,237 )
Other, net
332
1,987
Net cash (used in) provided by investing activities
(92,045 )
313,268
Cash flows from financing activities:
Proceeds from issuance of commercial paper, net
66,000
-
Repayment of debt
(250,000 )
(16 )
Prepaid short-term debt financing fees
(13,495 )
-
Proceeds from exercise of stock-based compensation awards
19,225
17,444
Repurchase of common stock
(19,230 )
(402,293 )
Other, net
(5,572 )
646
Net cash used in financing activities
(203,072 )
(384,219 )
Effect of exchange rate changes on cash and cash equivalents
(2,388 )
(4,374 )
Net increase in cash and cash equivalents
4,216
189,712
Cash and cash equivalents at beginning of period
139,357
417,073
Cash and cash equivalents at end of period
$
143,573
$
606,785

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SOURCE: Cintas Corporation

Cintas Corporation
J. Michael Hansen
Senior Vice President-Finance and Chief Financial Officer
513-701-2079
or
Paul F. Adler
Vice President and Treasurer
513-573-4195