CTAS
$123.14
Cintas
$.04
.03%
Earnings Details
3rd Quarter February 2017
Wednesday, March 22, 2017 4:15:03 PM
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Summary

Cintas Beats

Cintas (CTAS) reported 3rd Quarter February 2017 earnings of $1.11 per share on revenue of $1.3 billion. The consensus earnings estimate was $1.06 per share on revenue of $1.3 billion. The Earnings Whisper number was $1.07 per share. Revenue grew 5.3% on a year-over-year basis.

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
$1.11
Earnings Whisper
$1.07
Consensus Estimate
$1.06
Reported Revenue
$1.28 Bil
Revenue Estimate
$1.28 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Cintas Corporation Announces Fiscal 2017 Third Quarter Results

Cintas Corporation (CTAS) today reported results for its third quarter of fiscal year 2017 which ended February 28, 2017. Revenue for the third quarter was $1.28 billion, an increase of 5.3% over last year’s third quarter. The organic growth rate, which adjusts for the impacts of acquisitions, foreign currency exchange rate fluctuations and differences in the number of workdays, was 6.5%. Organic growth for the Uniform Rental and Facility Services segment accelerated to a rate of 7.3%.

Third quarter gross margin improved to 44.2% from 43.1% last year. Scott D. Farmer, Cintas’ Chairman and Chief Executive Officer, stated, "This is our 14th consecutive quarter of year-over-year gross margin improvement. This and our industry-leading revenue growth are indicative of a healthy company with significant opportunities ahead. I thank our employees, whom we call partners, for the continuous commitment to improvement that leads to best-in-class execution and results." Third quarter gross margin for the Uniform Rental and Facility Services segment improved to 45.0%, an increase of 100 basis points compared to last year’s third quarter. The First Aid and Safety Services segment third quarter gross margin improved to 44.8%, an increase of 260 basis points compared to last year’s third quarter primarily 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 28.3% in the third quarter compared to 27.3% in last year’s third quarter. Fifty basis points of the increase was the result of favorable workers’ compensation experience in last year’s third quarter. In addition, labor and related expenses increased as a percentage of revenue as we continue to prepare for the acquisition of G&K Services, Inc. (G&K).

Operating income for the third quarter of $195 million increased 0.9% from last year’s third quarter. Operating income margin was 15.2% compared to 15.9% in last year’s third quarter. Third quarter operating income included $9 million, or 0.7% of third quarter revenue, of transaction expenses related to the acquisition of G&K.

Net income and earnings per diluted share (EPS) from continuing operations for the third quarter were $119 million and $1.08, respectively. This quarter’s EPS includes a positive impact from a change in the accounting for equity compensation as required under ASU 2016-09, which was adopted in the first quarter of fiscal 2017, as well as a negative impact from transaction expenses such as legal and professional expenses associated with the regulatory review related to the acquisition of G&K. The following table provides a comparison of fiscal 2017 EPS to the comparable period of fiscal 2016:

Three Months Ended
Nine Months Ended
Earnings Per Share Results
2/28/17
2/29/16
2/28/17
2/29/16
EPS-Continuing Operations
$
1.08
$ 1.05
$
3.47
$
3.01
Impact of ASU 2016-09
$ (0.03 )
$
-
$ (0.17 )
$
-
G&K transaction expenses
$
0.06
$
-
$
0.10
$
-
EPS after above items
$
1.11
$ 1.05
$
3.40
$
3.01

Mr. Farmer concluded, "Yesterday we completed the acquisition of G&K. We are excited to have the G&K employees join us as Cintas partners and now begin the process of integration. We expect to realize annual synergies in the range of $130 million to $140 million in the fourth full year following the acquisition. The integration process needed to achieve the annual synergies will result in certain non-recurring costs. In addition, we will continue the purchase accounting process, including certain third-party valuations, which may have a significant impact on our future results. While we have estimated these integration costs and the impact of the purchase price accounting results using assumptions from our due diligence, we must confirm our assumptions and complete the purchase accounting process. Therefore, we are pulling our guidance for the remainder of our 2017 fiscal year. We will provide our expectations for results when the impact of these items becomes clearer."

About Cintas

Cintas Corporation helps more than one million 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, risks inherent with the G&K transaction in the achievement of cost synergies and the timing thereof, including whether the transaction will be accretive and within the expected timeframe; 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 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
February 28,
February 29,
2017
2016
% Change
Revenue:
Uniform rental and facility services
$
993,398
$
936,565
6.1
Other
287,737
279,518
2.9
Total revenue
1,281,135
1,216,083
5.3
Costs and expenses:
Cost of uniform rental and facility services
546,538
524,656
4.2
Cost of other
168,173
166,819
0.8
Selling and administrative expenses
362,385
331,656
9.3
G&K Services, Inc. transaction expenses
9,344
-
100.0
Operating income
194,695
192,952
0.9
Interest income
(11 )
(335 )
-96.7
Interest expense
13,696
16,163
-15.3
Income before income taxes
181,010
177,124
2.2
Income taxes
62,363
59,845
4.2
Income from continuing operations
118,647
117,279
1.2
(Loss) income from discontinued operations, net of tax
(642 )
62
-1135.5
Net income
$
118,005
$
117,341
0.6
Basic earnings (loss) per share:
Continuing operations
$
1.11
$
1.07
3.7
Discontinued operations
(0.01 )
0.00
-100.0
Basic earnings per share
$
1.10
$
1.07
2.8
Diluted earnings (loss) per share:
Continuing operations
$
1.08
$
1.05
2.9
Discontinued operations
(0.01 )
0.00
-100.0
Diluted earnings per share
$
1.07
$
1.05
1.9
Weighted average number of shares outstanding
105,093
107,843
Diluted average number of shares outstanding
107,892
109,463
Nine Months Ended
February 28,
February 29,
2017
2016
% Change
Revenue:
Uniform rental and facility services
$ 2,998,559
$ 2,812,677
6.6
Other
873,629
821,376
6.4
Total revenue
3,872,188
3,634,053
6.6
Costs and expenses:
Cost of uniform rental and facility services
1,643,222
1,569,250
4.7
Cost of other
507,341
488,651
3.8
Selling and administrative expenses
1,101,633
997,344
10.5
G&K Services, Inc. transaction expenses
15,478
-
100.0
Operating income
604,514
578,808
4.4
Interest income
(107 )
(565 )
-81.1
Interest expense
41,135
48,746
-15.6
Income before income taxes
563,486
530,627
6.2
Income taxes
183,294
191,697
-4.4
Income from continuing operations
380,192
338,930
12.2
Income from discontinued operations, net of tax
16,281
223,692
-92.7
Net income
$
396,473
$
562,622
-29.5
Basic earnings per share:
Continuing operations
$
3.56
$
3.06
16.3
Discontinued operations
0.15
2.02
-92.6
Basic earnings per share
$
3.71
$
5.08
-27.0
Diluted earnings per share:
Continuing operations
$
3.47
$
3.01
15.3
Discontinued operations
0.15
1.99
-92.5
Diluted earnings per share
$
3.62
$
5.00
-27.6
Weighted average number of shares outstanding
104,842
108,923
Diluted average number of shares outstanding
107,508
110,612
CINTAS CORPORATION SUPPLEMENTAL DATA
Three Months Ended
February 28,
February 29,
2017
2016
Uniform rental and facility services gross margin
45.0 %
44.0 %
Other gross margin
41.6 %
40.3 %
Total gross margin
44.2 %
43.1 %
Net income margin, continuing operations
9.3 %
9.6 %
Nine Months Ended
February 28,
February 29,
2017
2016
Uniform rental and facility services gross margin
45.2 %
44.2 %
Other gross margin
41.9 %
40.5 %
Total gross margin
44.5 %
43.4 %
Net income margin, continuing operations
9.8 %
9.3 %
Computation of Diluted Earnings Per Share from Continuing
Operations
Three Months Ended
February 28,
February 29,
2017
2016
Income from continuing operations
$ 118,647
$
117,279
Less: income from continuing operations allocated to participating
2,262
1,871
securities
Income from continuing operations available to common shareholders
$ 116,385
$
115,408
Basic weighted average common shares outstanding
105,093
107,843
Effect of dilutive securities - employee stock options
2,799
1,620
Diluted weighted average common shares outstanding
107,892
109,463
Diluted earnings per share from continuing operations
$
1.08
$
1.05
Nine Months Ended
February 28,
February 29,
2017
2016
Income from continuing operations
$ 380,192
$
338,930
Less: income from continuing operations allocated to participating
7,217
5,500
securities
Income from continuing operations available to common shareholders
$ 372,975
$
333,430
Basic weighted average common shares outstanding
104,842
108,923
Effect of dilutive securities - employee stock options
2,666
1,689
Diluted weighted average common shares outstanding
107,508
110,612
Diluted earnings per share from continuing operations
$
3.47
$
3.01
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 additional non-GAAP
financial measures of revenue and related growth and cash flow. The
Company believes that these non-GAAP financial measures are
appropriate to enhance understanding of its past performance as well
as prospects for future performance. Reconciliations of these
difference between these non-GAAP financial measures with the most
directly comparable financial measures calculated in accordance with
GAAP are shown below.
Computation of Workday Adjusted Revenue Growth
Three Months Ended
Nine Months Ended
February 28,
February 29,
February 28,
February 29,
2017
2016
Growth %
2017
2016
Growth %
A
B
G
I
J
O
Revenue
$
1,281,135
$
1,216,083
5.3 %
$
3,872,188
$
3,634,053
6.6 %
G=(A-B)/B
O=(I-J)/J
C
D
K
L
Workdays in the period
64
65
195
196
E
F
H
M
N
P
Revenue adjusted for workday difference
1,301,153
$
1,216,083
7.0 %
$
3,892,045
$
3,634,053
7.1 %
H=(E-F)/F
P=(M-N)/N
E=(A/C)*D
F=(B/D)*D
M=(I/K)*L
N=(J/L)*L
Management believes that workday adjusted revenue growth is valuable
to investors because it reflects the revenue performance compared to
a prior period with the same number of revenue generating days.
Computation of Free Cash Flow
Nine Months Ended
February 28,
February 29,
2017
2016
Net cash provided by operations
$
483,758
$
297,154
Capital expenditures
(218,621 )
(207,502 )
Free cash flow
$
265,137
$
89,652
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 February 28, 2017
Revenue
$
993,398
$ 124,239
$ 163,498
$
-
$ 1,281,135
Gross margin
$
446,860
$
55,681
$
63,883
$
-
$
566,424
Selling and administrative expenses
$
264,973
$
43,446
$
53,966
$
-
$
362,385
G&K Services, Inc. transaction expenses
$
9,344
$
-
$
-
$
-
$
9,344
Interest income
$
-
$
-
$
-
$
(11 )
$
(11 )
Interest expense
$
-
$
-
$
-
$
13,696
$
13,696
Income (loss) before income taxes
$
172,543
$
12,235
$
9,917
$ (13,685 )
$
181,010
For the three months ended February 29, 2016
Revenue
$
936,565
$ 119,064
$ 160,454
$
-
$ 1,216,083
Gross margin
$
411,909
$
50,241
$
62,458
$
-
$
524,608
Selling and administrative expenses
$
244,407
$
37,607
$
49,642
$
-
$
331,656
Interest income
$
-
$
-
$
-
$
(335 )
$
(335 )
Interest expense
$
-
$
-
$
-
$
16,163
$
16,163
Income (loss) before income taxes
$
167,502
$
12,634
$
12,816
$ (15,828 )
$
177,124
For the nine months ended February 28, 2017
Revenue
$ 2,998,559
$ 373,875
$ 499,754
$
-
$ 3,872,188
Gross margin
$ 1,355,337
$ 170,352
$ 195,936
$
-
$ 1,721,625
Selling and administrative expenses
$
804,710
$ 131,827
$ 165,096
$
-
$ 1,101,633
G&K Services, Inc. transaction expenses
$
15,478
$
-
$
-
$
-
$
15,478
Interest income
$
-
$
-
$
-
$
(107 )
$
(107 )
Interest expense
$
-
$
-
$
-
$
41,135
$
41,135
Income (loss) before income taxes
$
535,149
$
38,525
$
30,840
$ (41,028 )
$
563,486
For the nine months ended February 29, 2016
Revenue
$ 2,812,677
$ 338,990
$ 482,386
$
-
$ 3,634,053
Gross margin
$ 1,243,427
$ 144,379
$ 188,346
$
-
$ 1,576,152
Selling and administrative expenses
$
741,249
$ 108,306
$ 147,789
$
-
$
997,344
Interest income
$
-
$
-
$
-
$
(565 )
$
(565 )
Interest expense
$
-
$
-
$
-
$
48,746
$
48,746
Income (loss) before income taxes
$
502,178
$
36,073
$
40,557
$ (48,181 )
$
530,627
Cintas Corporation
Consolidated Condensed Balance Sheets
(In thousands except share data)
ASSETS
February 28,
May 31,
2017
2016
(Unaudited)
Current assets:
Cash and cash equivalents
$
147,244
$
139,357
Marketable securities
-
70,405
Accounts receivable, net
606,209
563,178
Inventories, net
272,181
249,362
Uniforms and other rental items in service
539,730
539,956
Income taxes, current
20,560
1,712
Deferred tax asset
Assets held for sale
-
Prepaid expenses and other current assets
44,017
26,065
Total current assets
1,629,941
1,590,035
Property and equipment, at cost, net
1,090,209
994,237
Investments
148,168
124,952
Goodwill
1,303,038
1,291,593
Service contracts, net
83,720
83,715
Other assets, net
16,088
14,283
$
4,271,164
$
4,098,815
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
127,940
$
114,514
Accrued compensation and related liabilities
95,353
101,976
Accrued liabilities
321,324
349,065
Income taxes, current
-
Deferred tax liability
Debt due within one year
399,351
250,000
Total current liabilities
943,968
815,555
Long-term liabilities:
Debt due after one year
745,189
1,044,422
Deferred income taxes
267,065
259,475
Accrued liabilities
136,684
136,704
Total long-term liabilities
1,148,938
1,440,601
Shareholders’ equity:
Preferred stock, no par value:
-
-
100,000 shares authorized, none outstanding
Common stock, no par value:
476,373
409,682
425,000,000 shares authorized
FY17: 180,777,903 issued and 105,191,298 outstanding
FY16: 179,598,516 issued and 104,213,479 outstanding
Paid-in capital
200,572
205,260
Retained earnings
5,086,584
4,805,867
Treasury stock:
(3,573,330 )
(3,553,276 )
FY17: 75,586,605 shares
FY16: 75,385,037 shares
Accumulated other comprehensive loss
(11,941 )
(24,874 )
Total shareholders’ equity
2,178,258
1,842,659
$
4,271,164
$
4,098,815
Cintas Corporation
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended
February 28,
February 29,
2017
2016
Cash flows from operating activities:
Net income
$
396,473
$
562,622
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation
120,493
110,535
Amortization of intangible assets
11,221
12,136
Stock-based compensation
63,578
57,169
Gain on Storage transactions
-
(15,786 )
Gain on Shred-it
(25,876 )
(349,738 )
Deferred income taxes
(3,472 )
(74,540 )
Change in current assets and liabilities, net of acquisitions of
businesses:
Accounts receivable, net
(35,992 )
(41,523 )
Inventories, net
(23,364 )
(24,009 )
Uniforms and other rental items in service
(53 )
(6,905 )
Prepaid expenses and other current assets
(4,041 )
(1,580 )
Accounts payable
15,538
37,370
Accrued compensation and related liabilities
(5,812 )
(3,731 )
Accrued liabilities and other
(6,079 )
(18,301 )
Income taxes, current
(18,856 )
53,435
Net cash provided by operating activities
483,758
297,154
Cash flows from investing activities:
Capital expenditures
(218,621 )
(207,502 )
Proceeds from redemption of marketable securities
172,506
327,779
Purchase of marketable securities and investments
(125,634 )
(384,796 )
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
(19,630 )
(151,731 )
Other, net
28
4,433
Net cash (used in) provided by investing activities
(165,475 )
201,778
Cash flows from financing activities:
Proceeds from issuance of commercial paper, net
99,500
-
Repayment of debt
(250,000 )
(16 )
Prepaid short-term debt financing fees
(13,949 )
-
Proceeds from exercise of stock-based compensation awards
25,114
22,260
Dividends paid
(142,444 )
(115,273 )
Repurchase of common stock
(20,054 )
(502,439 )
Other, net
(5,801 )
1,153
Net cash used in financing activities
(307,634 )
(594,315 )
Effect of exchange rate changes on cash and cash equivalents
(2,762 )
(6,574 )
Net increase (decrease) in cash and cash equivalents
7,887
(101,957 )
Cash and cash equivalents at beginning of period
139,357
417,073
Cash and cash equivalents at end of period
$
147,244
$
315,116

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SOURCE: Cintas Corporation

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