CTAS
$162.35
Cintas
($.32)
(.20%)
Earnings Details
2nd Quarter November 2017
Thursday, December 21, 2017 4:16:00 PM
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Summary

Cintas Reports In-line

Cintas (CTAS) reported 2nd Quarter November 2017 earnings of $1.31 per share on revenue of $1.6 billion. The consensus earnings estimate was $1.26 per share on revenue of $1.6 billion. The Earnings Whisper number was $1.31 per share. Revenue grew 23.9% on a year-over-year basis.

The company said it now expects fiscal 2018 earnings of $5.39 to $5.46 per share on revenue of $6.365 billion to $6.430 billion. The company's previous guidance was earnings of $5.30 to $5.38 per share on revenue of $6.325 billion to $6.40 billion and the current consensus earnings estimate is $5.36 per share on revenue of $6.39 billion for the year ending May 31, 2018.

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
$1.31
Earnings Whisper
$1.31
Consensus Estimate
$1.26
Reported Revenue
$1.61 Bil
Revenue Estimate
$1.59 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Cintas Corporation Announces Fiscal 2018 Second Quarter Results

Cintas Corporation (CTAS) today reported results for its fiscal 2018 second quarter ended November 30, 2017.

Revenue for the second quarter was $1.61 billion, an increase of 26.4% over last year’s second quarter. The organic revenue growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 7.7%. The organic revenue growth rates for the Uniform Rental and Facility Services and First Aid and Safety Services reportable operating segments were 7.3% and 10.8%, respectively.

Operating income for the second quarter of $235 million increased 17.3% from last year’s second quarter operating income of $200 million. Operating income was negatively impacted by transaction and integration expenses related to the G&K Services, Inc. (G&K) acquisition by $13 million in the second quarter of fiscal 2018 and $3 million in the second quarter of fiscal 2017.

Net income from continuing operations for the second quarter of $137 million increased 12.9% from last year’s second quarter. Earnings per diluted share (EPS) from continuing operations for the second quarter were $1.24 compared to $1.12 for last year’s second quarter. Fiscal 2018 and fiscal 2017 second quarter EPS included a negative impact of $0.07 and $0.02, respectively, from transaction and integration expenses related to the G&K acquisition. The following table provides a comparison of fiscal 2018 EPS to the comparable period of fiscal 2017:

Earnings Per Share Results
Three Months Ended
November 30,
November 30,
Growth vs.
2017
2016
FY 2017
EPS - continuing operations
$
1.24
$
1.12
G&K transaction and integration expenses
0.07
0.02
EPS after above items
$
1.31
$
1.14
14.9 %
Six Months Ended
November 30,
November 30,
Growth vs.
2017
2016
FY 2017
EPS - continuing operations
$
2.69
$
2.36
G&K transaction and integration expenses
0.10
0.04
EPS after above items
$
2.79
$
2.40
16.3 %

Scott D. Farmer, Cintas’ Chairman and Chief Executive Officer, stated, "The integration of G&K continues to proceed as planned. Our pace increased in the second quarter, and we realized about $14 million in synergies, which is almost twice the amount achieved in the first quarter. Also, significant progress was made in our implementation of an enterprise resource planning system, which remains on schedule. Finally, I thank our employees, whom we call partners, for steady focus on profitable growth as evidenced by strong organic revenue and earnings per share growth rates."

Mr. Farmer added, "Earlier this month, on December 8th, we were pleased to increase total shareholder return by paying an annual dividend of $1.62 per share, an increase of 21.8% over last year’s annual dividend. We have increased the annual dividend for 34 consecutive years."

Mr. Farmer concluded, "As a result of our second quarter results, we are increasing our annual guidance for fiscal 2018. We are raising our revenue guidance from a range of $6.325 billion to $6.400 billion to a range of $6.365 billion to $6.430 billion and EPS from continuing operations from a range of $5.30 to $5.38 to a range of $5.39 to $5.46. Fiscal 2018 guidance excludes any potential impact of U.S. tax reform. It also excludes any future transaction and integration expenses related to the G&K acquisition. However, we do expect these expenses to be incurred as we continue to integrate this significant acquisition, and we estimate that these expenses will total $50 million to $60 million for the full fiscal year."

The table below provides a comparison of fiscal 2017 revenue and EPS to our fiscal 2018 guidance.

Fiscal 2018
Fiscal 2018
Fiscal
Low end
Growth
High end
Growth
2017
of Range
vs. 2017
of Range
vs. 2017
Revenue Guidance
($s in millions)
Total Revenue
$ 5,323.4
$ 6,365.0
19.6%
$ 6,430.0
20.8%
Earnings Per Share Guidance
EPS - continuing operations
$
4.17
$
5.29
$
5.36
G&K transaction and integration expenses
0.60
0.10
0.10
EPS after above items
$
4.77
$
5.39
13.0%
$
5.46
14.5%

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 and the actual amounts of future transaction and integration expenses; 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, including the negative impacts from hurricanes Harvey and Irma; 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, 2017 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,
2017
2016
% Change
Revenue:
Uniform rental and facility services
$ 1,308,038
$ 1,000,015
30.8
Other
298,403
271,062
10.1
Total revenue
1,606,441
1,271,077
26.4
Costs and expenses:
Cost of uniform rental and facility services
723,960
551,498
31.3
Cost of other
166,112
154,361
7.6
Selling and administrative expenses
468,084
361,415
29.5
G&K Services, Inc. transaction and integration expenses
13,074
3,347
290.6
Operating income
235,211
200,456
17.3
Interest income
(291 )
(31 )
838.7
Interest expense
29,129
13,267
119.6
Income before income taxes
206,373
187,220
10.2
Income taxes
68,636
65,270
5.2
Income from continuing operations
137,737
121,950
12.9
(Loss) income from discontinued operations, net of tax
(628 )
18,427
-103.4
Net income
$
137,109
$
140,377
-2.3
Basic earnings (loss) per share:
Continuing operations
$
1.27
$
1.15
10.4
Discontinued operations
(0.01 )
0.17
-105.9
Basic earnings per share
$
1.26
$
1.32
-4.5
Diluted earnings (loss) per share:
Continuing operations
$
1.24
$
1.12
10.7
Discontinued operations
(0.01 )
0.17
-105.9
Diluted earnings per share
$
1.23
$
1.29
-4.7
Weighted average number of shares outstanding
106,340
104,957
Diluted average number of shares outstanding
109,818
107,647
Six Months Ended
November 30,
November 30,
2017
2016
% Change
Revenue:
Uniform rental and facility services
$ 2,619,822
$ 1,994,297
31.4
Other
598,122
543,430
10.1
Total revenue
3,217,944
2,537,727
26.8
Costs and expenses:
Cost of uniform rental and facility services
1,430,823
1,088,595
31.4
Cost of other
331,399
307,487
7.8
Selling and administrative expenses
954,367
731,118
30.5
G&K Services, Inc. transaction and integration expenses
17,045
6,134
177.9
Operating income
484,310
404,393
19.8
Interest income
(588 )
(96 )
512.5
Interest expense
59,446
27,439
116.6
Income before income taxes
425,452
377,050
12.8
Income taxes
126,607
118,892
6.5
Income from continuing operations
298,845
258,158
15.8
Income from discontinued operations, net of tax
55,475
20,310
173.1
Net income
$
354,320
$
278,468
27.2
Basic earnings per share:
Continuing operations
$
2.77
$
2.42
14.5
Discontinued operations
0.51
0.19
168.4
Basic earnings per share
$
3.28
$
2.61
25.7
Diluted earnings per share:
Continuing operations
$
2.69
$
2.36
14.0
Discontinued operations
0.50
0.19
163.2
Diluted earnings per share
$
3.19
$
2.55
25.1
Weighted average number of shares outstanding
106,039
104,719
Diluted average number of shares outstanding
108,938
107,278
CINTAS CORPORATION SUPPLEMENTAL DATA
Three Months Ended
November 30,
November 30,
2017
2016
Uniform rental and facility services gross margin
44.7%
44.9%
Other gross margin
44.3%
43.1%
Total gross margin
44.6%
44.5%
Net margin, continuing operations
8.6%
9.6%
Six Months Ended
November 30,
November 30,
2017
2016
Uniform rental and facility services gross margin
45.4%
45.4%
Other gross margin
44.6%
43.4%
Total gross margin
45.2%
45.0%
Net margin, continuing operations
9.3%
10.2%
Computation of Diluted Earnings Per Share from Continuing
Operations
Three Months Ended
November 30,
November 30,
2017
2016
Income from continuing operations
$
137,737
$
121,950
Less: income from continuing operations allocated to participating
2,111
1,923
securities
Income from continuing operations available to common shareholders
$
135,626
$
120,027
Basic weighted average common shares outstanding
106,340
104,957
Effect of dilutive securities - employee stock options
3,478
2,690
Diluted weighted average common shares outstanding
109,818
107,647
Diluted earnings per share from continuing operations
$
1.24
$
1.12
Six Months Ended
November 30,
November 30,
2017
2016
Income from continuing operations
$
298,845
$
258,158
Less: income from continuing operations allocated to participating
5,298
4,775
securities
Income from continuing operations available to common shareholders
$
293,547
$
253,383
Basic weighted average common shares outstanding
106,039
104,719
Effect of dilutive securities - employee stock options
2,899
2,559
Diluted weighted average common shares outstanding
108,938
107,278
Diluted earnings per share from continuing operations
$
2.69
$
2.36

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 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.

Earnings Per Share Results
Three Months Ended
November 30,
November 30,
Growth vs.
2017
2016
FY 2017
EPS - continuing operations
$ 1.24
$ 1.12
G&K Services, Inc. transaction and integration expenses
0.07
0.02
EPS after above items
$ 1.31
$ 1.14
14.9%
Six Months Ended
November 30,
November 30,
Growth vs.
2017
2016
FY 2017
EPS - continuing operations
$ 2.69
$ 2.36
G&K Services, Inc. transaction and integration expenses
0.10
0.04
EPS after above items
$ 2.79
$ 2.40
16.3%
Computation of Free Cash Flow
Six Months Ended
November 30,
November 30,
2017
2016
Net Cash Provided by Operations
$
379,009
$
301,721
Capital Expenditures
(132,466 )
(155,173 )
Free Cash Flow
$
246,543
$
146,548

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
and Facility
and Safety
All
Services
Services
Other
Corporate
Total
For the three months ended November 30, 2017
Revenue
$ 1,308,038
$ 139,090
$ 159,313
$
-
$ 1,606,441
Gross margin
$
584,078
$
65,260
$
67,031
$
-
$
716,369
Selling and administrative expenses
$
367,190
$
47,285
$
53,609
$
-
$
468,084
G&K Services, Inc. transaction and integration expenses
$
13,074
$
-
$
-
$
-
$
13,074
Interest income
$
-
$
-
$
-
$
(291 )
$
(291 )
Interest expense
$
-
$
-
$
-
$
29,129
$
29,129
Income (loss) before income taxes
$
203,814
$
17,975
$
13,422
$ (28,838 )
$
206,373
For the three months ended November 30, 2016
Revenue
$ 1,000,015
$ 124,797
$ 146,265
$
-
$ 1,271,077
Gross margin
$
448,517
$
57,545
$
59,156
$
-
$
565,218
Selling and administrative expenses
$
268,223
$
42,766
$
50,426
$
-
$
361,415
G&K Services, Inc. transaction and integration expenses
$
3,347
$
-
$
-
$
-
$
3,347
Interest income
$
-
$
-
$
-
$
(31 )
$
(31 )
Interest expense
$
-
$
-
$
-
$
13,267
$
13,267
Income (loss) before income taxes
$
176,947
$
14,779
$
8,730
$ (13,236 )
$
187,220
For the six months ended November 30, 2017
Revenue
$ 2,619,822
$ 279,672
$ 318,450
$
-
$ 3,217,944
Gross margin
$ 1,188,999
$ 132,035
$ 134,688
$
-
$ 1,455,722
Selling and administrative expenses
$
749,230
$
94,649
$ 110,488
$
-
$
954,367
G&K Services, Inc. transaction and integration expenses
$
17,045
$
-
$
-
$
-
$
17,045
Interest income
$
-
$
-
$
-
$
(588 )
$
(588 )
Interest expense
$
-
$
-
$
-
$
59,446
$
59,446
Income (loss) before income taxes
$
422,724
$
37,386
$
24,200
$ (58,858 )
$
425,452
For the six months ended November 30, 2016
Revenue
$ 1,994,297
$ 249,636
$ 293,794
$
-
$ 2,537,727
Gross margin
$
905,702
$ 114,671
$ 121,272
$
-
$ 1,141,645
Selling and administrative expenses
$
537,833
$
88,381
$ 104,904
$
-
$
731,118
G&K Services, Inc. transaction and integration expenses
$
6,134
$
-
$
-
$
-
$
6,134
Interest income
$
-
$
-
$
-
$
(96 )
$
(96 )
Interest expense
$
-
$
-
$
-
$
27,439
$
27,439
Income (loss) before income taxes
$
361,735
$
26,290
$
16,368
$ (27,343 )
$
377,050
Cintas Corporation
Consolidated Condensed Balance Sheets
(In thousands except share data)
November 30,
May 31,
ASSETS
2017
2017
(Unaudited)
Current assets:
Cash and cash equivalents
$
236,002
$
169,266
Marketable securities
22,732
22,219
Accounts receivable, net
763,555
736,008
Inventories, net
272,830
278,218
Uniforms and other rental items in service
674,572
635,702
Income taxes, current
35,700
44,320
Prepaid expenses and other current assets
38,058
30,132
Assets held for sale
-
38,613
Total current assets
2,043,449
1,954,478
Property and equipment, net
1,353,159
1,323,501
Investments
175,663
164,788
Goodwill
2,811,796
2,782,335
Service contracts, net
565,574
586,988
Other assets, net
29,160
31,967
$
6,978,801
$
6,844,057
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
162,981
$
177,051
Accrued compensation and related liabilities
113,430
149,635
Accrued liabilities
577,960
429,809
Debt due within one year
300,000
362,900
Liabilities held for sale
-
11,457
Total current liabilities
1,154,371
1,130,852
Long-term liabilities:
Debt due after one year
2,534,222
2,770,624
Deferred income taxes
539,043
469,328
Accrued liabilities
198,132
170,460
Total long-term liabilities
3,271,397
3,410,412
Shareholders’ equity:
Preferred stock, no par value:
-
-
100,000 shares authorized, none outstanding
Common stock, no par value:
600,563
485,068
425,000,000 shares authorized
FY18: 182,338,749 issued and 106,470,073 outstanding
FY17: 180,992,605 issued and 105,400,629 outstanding
Paid-in capital
192,191
223,924
Retained earnings
5,349,539
5,170,830
Treasury stock:
(3,609,697 )
(3,574,000 )
FY18: 75,868,676 shares
FY17: 75,591,976 shares
Accumulated other comprehensive income (loss)
20,437
(3,029 )
Total shareholders’ equity
2,553,033
2,302,793
$
6,978,801
$
6,844,057
Cintas Corporation
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended
November 30,
November 30,
2017
2016
Cash flows from operating activities:
Net income
$
354,320
$
278,468
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation
107,578
79,590
Amortization of intangible assets
31,261
7,460
Stock-based compensation
55,204
39,582
Gain on sale of business
(99,060 )
-
Gain on Shred-it
-
(25,876 )
Deferred income taxes
42,162
(3,833 )
Change in current assets and liabilities, net of
acquisitions of businesses:
Accounts receivable, net
(24,800 )
(44,920 )
Inventories, net
2,595
(14,616 )
Uniforms and other rental items in service
(33,294 )
(4,315 )
Prepaid expenses and other current assets
(18,573 )
(1,952 )
Accounts payable
(8,706 )
15,451
Accrued compensation and related liabilities
(36,480 )
(18,936 )
Accrued liabilities and other
(1,940 )
(4,866 )
Income taxes, current
8,742
484
Net cash provided by operating activities
379,009
301,721
Cash flows from investing activities:
Capital expenditures
(132,466 )
(155,173 )
Proceeds from redemption of marketable securities and investments
100,259
172,968
Purchase of marketable securities and investments
(99,877 )
(118,270 )
Proceeds from sale of business
127,835
-
Proceeds from sale of investment in Shred-it
-
25,876
Acquisitions of businesses, net of cash acquired
(1,099 )
(17,778 )
Other, net
(870 )
332
Net cash used in investing activities
(6,218 )
(92,045 )
Cash flows from financing activities:
(Payments) issuance of commercial paper, net
(50,500 )
66,000
Repayment of debt
(250,000 )
(250,000 )
Prepaid short-term debt financing fees
-
(13,495 )
Proceeds from exercise of stock-based compensation awards
28,558
19,225
Repurchase of common stock
(35,697 )
(19,230 )
Other, net
(1,882 )
(5,572 )
Net cash used in financing activities
(309,521 )
(203,072 )
Effect of exchange rate changes on cash and cash equivalents
3,466
(2,388 )
Net increase in cash and cash equivalents
66,736
4,216
Cash and cash equivalents at beginning of period
169,266
139,357
Cash and cash equivalents at end of period
$
236,002
$
143,573

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SOURCE: Cintas Corporation

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