CTAS
$112.60
Cintas
$1.24
1.11%
Earnings Details
1st Quarter August 2016
Tuesday, September 27, 2016 4:15:00 PM
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Summary

Cintas Beats

Cintas (CTAS) reported 1st Quarter August 2016 earnings of $1.12 per share on revenue of $1.3 billion. The consensus earnings estimate was $1.09 per share on revenue of $1.3 billion. The Earnings Whisper number was $1.11 per share. Revenue grew 7.9% on a year-over-year basis.

The company said it expects fiscal 2017 earnings of $4.55 to $4.63 per share on revenue of $5.16 billion to $5.225 billion. The company's previous guidance was earnings of $4.35 to $4.45 per share on revenue of $5.15 billion to $5.225 billion and the current consensus earnings estimate is $4.43 per share on revenue of $5.16 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
$1.12
Earnings Whisper
$1.11
Consensus Estimate
$1.09
Reported Revenue
$1.29 Bil
Revenue Estimate
$1.29 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Cintas Corporation Announces Fiscal 2017 First Quarter Results

Cintas Corporation (CTAS) today reported results for its first quarter of fiscal year 2017 which ended August 31, 2016.

Revenue for the first quarter was $1.29 billion, an increase of 7.9% over the prior year period. Organic growth, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 5.7%.

Operating income for the first quarter of fiscal year 2017 of $207.0 million increased 11.6% from the prior year period. Operating income margin improved to 16.0% from 15.5% of revenue in last year’s first quarter. Fiscal year 2017 operating income includes $2.8 million of transaction expenses related to the recently announced agreement to acquire G&K Services, Inc. (G&K).

Net income from continuing operations for the first quarter of fiscal 2017 was $138.1 million compared to $106.2 million in the prior year period, and earnings per diluted share (EPS) from continuing operations for the first quarter of fiscal year 2017 were $1.26 compared to $0.93 for last year’s first quarter. First quarter of fiscal 2017 net income and EPS from continuing operations increased 30.0% and 35.5%, respectively, compared to the prior year period. Net income from continuing operations as a percent of revenue improved to 10.7% from 8.9% in last year’s first quarter.

During the first quarter of fiscal 2017, Accounting Standards Update 2016-09 (ASU 2016-09), Improvements to Employee Share-Based Payment Accounting, was adopted. Under ASU 2016-09, excess tax benefits and deficiencies associated with employee share-based payments are no longer recognized as additional paid-in capital on the balance sheet but instead recognized directly to income tax expense or benefit in the income statement in the reporting period in which they occur. Other financial statement items impacted include share-based compensation expense and the computation of fully diluted shares outstanding. The first quarter of fiscal 2017 net benefit to EPS from the adoption of ASU 2016-09 was $0.14, consisting of a reduction of income tax expense of $0.16 partially offset by a $0.01 negative impact from additional employee share-based compensation expense reducing operating income and a $0.01 negative impact from an increase in the number of dilutive shares outstanding.

Scott D. Farmer, Cintas’ Chief Executive Officer, stated, "In our recently ended fiscal year 2016, we achieved record revenue and EPS and increased EPS by double-digits for the sixth consecutive year. We are pleased to report a continuation of strong results into the first quarter of fiscal 2017. This solid start positions us for another year of record-breaking results."

Mr. Farmer concluded, "As a result of our first quarter results, we are updating our annual guidance. We expect fiscal 2017 revenue to be in the range of $5.160 billion to $5.225 billion and fiscal 2017 EPS from continuing operations to be in the range of $4.55 to $4.63. This guidance does not include any potential deterioration in the U.S. economy, future share buybacks, or 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, and it assumes a negative impact in the remaining quarters of fiscal 2017 from adoption of ASU 2016-09 such that we end fiscal 2017 with an estimated net benefit to EPS of $0.07."

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

Fiscal 2017
Growth vs.
Fiscal 2017
Growth vs.
Fiscal 2016
Low End
Fiscal 2016
High End
Fiscal 2016
of Range
of Range
Revenue (dollar amounts in millions)
$4,905.5
$5,160.0
5.2%
$5,225.0
6.5%
EPS from continuing operations
$4.09
$4.55
11.2%
$4.63
13.2%

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 the Standard & Poor’s 500 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 failure to obtain G&K stockholder approval of the proposed transaction; the possibility that the closing conditions to the contemplated 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 proposed transaction or the possibility of non-consummation of the proposed 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 contemplated transaction may affect the timing or occurrence of the contemplated 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 proposed 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; the reactions of competitors in terms of price and service; and the finalization of our financial statements for the quarter ended August 31, 2016. 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
August 31,
August 31,
% Change
2016
2015
Revenue:
Uniform rental and facility services
$
999,596
$
938,408
6.5
Other
294,534
260,482
13.1
Total revenue
1,294,130
1,198,890
7.9
Costs and expenses:
Cost of uniform rental and facility services
540,932
518,503
4.3
Cost of other
169,424
156,243
8.4
Selling and administrative expenses
374,026
338,637
10.5
G&K Services acquisition expenses
2,787
-
100.0
Operating income
206,961
185,507
11.6
Interest income
(65 )
(119 )
-45.4
Interest expense
14,172
16,412
-13.6
Income before income taxes
192,854
169,214
14.0
Income taxes
54,763
63,016
-13.1
Income from continuing operations
138,091
106,198
30.0
Loss from discontinued operations, net of tax
-
(6,017 )
100.0
Net income
$
138,091
$
100,181
37.8
Basic earnings (loss) per share:
Continuing operations
$
1.29
$
0.94
37.2
Discontinued operations
0.00
(0.05 )
100.0
Basic earnings per share
$
1.29
$
0.89
44.9
Diluted earnings (loss) per share:
Continuing operations
$
1.26
$
0.93
35.5
Discontinued operations
0.00
(0.05 )
100.0
Diluted earnings per share
$
1.26
$
0.88
43.2
Weighted average number of shares outstanding
104,483
110,597
Diluted average number of shares outstanding
107,114
112,229
CINTAS CORPORATION SUPPLEMENTAL DATA
Three Months Ended
August 31,
August 31,
2016
2015
Uniform rental and facility services gross margin
45.9 %
44.7 %
Other gross margin
42.5 %
40.0 %
Total gross margin
45.1 %
43.7 %
Net margin, continuing operations
10.7 %
8.9 %
Computation of Diluted Earnings Per Share from Continuing
Operations
Three Months Ended
August 31,
August 31,
2016
2015
Income from continuing operations
$
138,091
$
106,198
Less: income from continuing operations allocated to participating
2,727
1,742
securities
Income from continuing operations available to common shareholders
$
135,364
$
104,456
Basic weighted average common shares outstanding
104,483
110,597
Effect of dilutive securities - employee stock options
2,631
1,632
Diluted weighted average common shares outstanding
107,114
112,229
Diluted earnings per share from continuing operations
$
1.26
$
0.93
Reconciliation of Non-GAAP Financial Measures and Regulation G
Disclosure
The press release contains non-GAAP financial measures 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, net income,
earnings per diluted share, 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 the differences between these
non-GAAP financial measures with the most directly comparable
financial measures calculated in accordance with GAAP are shown in
the tables within the narrative of the press release or below.
Computation of Free Cash Flow
Three Months Ended
August 31,
August 31,
2016
2015
Net Cash Provided by Operations
$ 157,588
$ 143,083
Capital Expenditures
(78,580 )
(62,631 )
Free Cash Flow
$
79,008
$
80,452
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
First Aid
All
Corporate(1)
Total
and Facility
and Safety
Other
Services
Services
As of and for the three months ended August 31, 2016
Revenue
$
999,596
$ 124,839
$ 169,695
$
-
$ 1,294,130
Gross margin
$
458,664
$
57,126
$
67,984
$
-
$
583,774
Selling and administrative expenses
$
270,632
$
45,615
$
57,779
$
-
$
374,026
G&K Services acquisition expenses
$
2,787
$
-
$
-
$
-
$
2,787
Interest income
$
-
$
-
$
-
$
(65 )
$
(65 )
Interest expense
$
-
$
-
$
-
$
14,172
$
14,172
Income (loss) before income taxes
$
185,245
$
11,511
$
10,205
$ (14,107 )
$
192,854
Assets
$ 3,109,120
$ 578,855
$ 315,403
$ 163,767
$ 4,167,145
As of and for the three months ended August 31, 2015
Revenue
$
938,408
$
99,488
$ 160,994
$
-
$ 1,198,890
Gross margin
$
419,905
$
42,111
$
62,128
$
-
$
524,144
Selling and administrative expenses
$
254,524
$
33,519
$
50,594
$
-
$
338,637
Interest income
$
-
$
-
$
-
$
(119 )
$
(119 )
Interest expense
$
-
$
-
$
-
$
16,412
$
16,412
Income (loss) before income taxes
$
165,381
$
8,592
$
11,534
$ (16,293 )
$
169,214
Assets
$ 2,865,675
$ 397,573
$ 341,839
$ 511,378
$ 4,116,465
(1) Corporate assets include cash and marketable
securities in all periods. Corporate assets as of August 31, 2015
include the investment in the Shred-it Partnership.
Cintas Corporation
Consolidated Condensed Balance Sheets
(In thousands except share data)
ASSETS
August 31,
May 31,
2016
2016
(unaudited)
Current assets:
Cash and cash equivalents
$
99,209
$
139,357
Marketable securities
64,558
70,405
Accounts receivable, net
586,372
563,178
Inventories, net
262,156
249,362
Uniforms and other rental items in service
542,124
539,956
Income taxes, current
-
1,712
Prepaid expenses and other current assets
40,329
26,065
Total current assets
1,594,748
1,590,035
Property and equipment, at cost, net
1,033,160
994,237
Investments
140,876
124,952
Goodwill
1,298,375
1,291,593
Service contracts, net
84,792
83,715
Other assets, net
15,194
14,283
$
4,167,145
$
4,098,815
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
129,650
$
114,514
Accrued compensation and related liabilities
64,692
101,976
Accrued liabilities
313,888
349,065
Income taxes, current
38,829
-
Debt due within one year
163,800
250,000
Total current liabilities
710,859
815,555
Long-term liabilities:
Debt due after one year
1,044,628
1,044,422
Deferred income taxes
255,380
259,475
Accrued liabilities
168,876
136,704
Total long-term liabilities
1,468,884
1,440,601
Shareholders’ equity:
Preferred stock, no par value:
-
100,000 shares authorized, none outstanding
Common stock, no par value:
463,375
409,682
425,000,000 shares authorized
FY17: 180,482,036 issued and 104,905,807 outstanding
FY16: 179,598,516 issued and 104,213,479 outstanding
Paid-in capital
161,938
205,260
Retained earnings
4,970,647
4,805,867
Treasury stock:
(3,572,146 )
(3,553,276 )
FY17: 75,576,229 shares
FY16: 75,385,037 shares
Accumulated other comprehensive loss
(36,412 )
(24,874 )
Total shareholders’ equity
1,987,402
1,842,659
$
4,167,145
$
4,098,815
Cintas Corporation
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended
August 31,
August 31,
2016
2015
Cash flows from operating activities:
Net income
$
138,091
$
100,181
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation
39,679
36,165
Amortization of intangible assets
3,489
3,603
Stock-based compensation
20,779
23,917
Gain on Storage transaction
-
(4,843 )
Loss on Shred-it
-
14,516
Deferred income taxes
1,970
5,632
Change in current assets and liabilities, net of acquisitions of
businesses:
Accounts receivable, net
(22,946 )
(19,255 )
Inventories, net
(13,017 )
(8,109 )
Uniforms and other rental items in service
(1,872 )
(4,939 )
Prepaid expenses and other current assets
(5,655 )
(6,024 )
Accounts payable
17,480
15,531
Accrued compensation and related liabilities
(37,276 )
(35,579 )
Accrued liabilities and other
(23,676 )
(26,253 )
Income taxes, current
40,542
48,540
Net cash provided by operating activities
157,588
143,083
Cash flows from investing activities:
Capital expenditures
(78,580 )
(62,631 )
Proceeds from redemption of marketable securities
109,612
152,907
Purchase of marketable securities and investments
(119,729 )
(196,020 )
Proceeds from Storage transaction
-
24,395
Acquisitions of businesses, net of cash acquired
(10,991 )
(121,434 )
Other, net
(918 )
921
Net cash used in investing activities
(100,606 )
(201,862 )
Cash flows from financing activities:
Proceeds from issuance of commercial paper, net
163,800
-
Repayment of debt
(250,000 )
(16 )
Prepaid short-term debt financing fees
(8,625 )
-
Proceeds from exercise of stock-based compensation awards
16,282
11,844
Repurchase of common stock
(18,870 )
(221,598 )
Other, net
385
51
Net cash used in financing activities
(97,028 )
(209,719 )
Effect of exchange rate changes on cash and cash equivalents
(102 )
(1,715 )
Net decrease in cash and cash equivalents
(40,148 )
(270,213 )
Cash and cash equivalents at beginning of year
139,357
417,073
Cash and cash equivalents at end of year
$
99,209
$
146,860

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SOURCE: Cintas Corporation

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