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Cintas Corporation Announces Fiscal 2020 First Quarter Results

CINCINNATI--(BUSINESS WIRE)--

Cintas Corporation (CTAS) today reported results for its fiscal 2020 first quarter ended August 31, 2019.

Revenue for the first quarter of fiscal 2020 was $1.81 billion, an increase of 6.7% over last year’s first quarter. The organic revenue growth rate, which adjusts for the impacts of acquisitions, foreign currency exchange rate fluctuations, and differences in the number of workdays, was 8.3%. The organic revenue growth rate for the Uniform Rental and Facility Services operating segment was 7.5%, and the organic revenue growth rate for the First Aid and Safety Services operating segment was 13.8%.

Gross margin for the first quarter of fiscal 2020 of $849.1 million increased 9.6% from last year’s first quarter. Gross margin as a percentage of revenue was 46.9% for the first quarter of fiscal 2020 compared to 45.6% in the first quarter of fiscal 2019. Uniform Rental and Facility Services operating segment gross margin as a percentage of revenue improved 150 basis points from last year’s first quarter to 47.2%, and the First Aid and Safety Services operating segment gross margin as a percentage of revenue improved 110 basis points to 49.0%.

Operating income for the first quarter of fiscal 2020 of $306.1 million increased 15.4% from last year’s first quarter operating income of $265.2 million. Operating income as a percentage of revenue was 16.9% in the first quarter of fiscal 2020 compared to 15.6% in the first quarter of fiscal 2019. Operating income in the first quarter of fiscal 2019 was negatively impacted by integration expenses related to the G&K Services, Inc. (G&K) acquisition by $4.9 million, or 30 basis points.

Net income from continuing operations was $250.8 million for the first quarter of fiscal 2020, compared to $212.5 million in the first quarter of fiscal 2019, an increase of 18.0%. Earnings per diluted share (EPS) from continuing operations were $2.32 for the first quarter of fiscal 2020, compared to $1.89 in the prior year first quarter. G&K acquisition integration expenses negatively impacted EPS in the first quarter of fiscal year 2019 by $0.04.

The following table provides a comparison of fiscal 2020 first quarter EPS to fiscal 2019 first quarter EPS:

 

Three Months Ended

 

August 31,
2019

 

August 31,
2018

 

Growth vs.

FY 2019

 

 

 

 

 

 

EPS - continuing operations

$

2.32

 

 

$

1.89

 

 

 

G&K integration expenses

 

0.00

 

 

 

0.04

 

 

 

EPS excluding above items

$

2.32

 

 

$

1.93

 

 

20.2%

Scott D. Farmer, Cintas' Chairman and Chief Executive Officer, stated, "We are pleased with our start to fiscal 2020. Our employee-partners continue to execute well on our game plan and on our important initiatives, and we look forward to another successful year."

Mr. Farmer concluded, “We are increasing our fiscal 2020 financial guidance. We are raising our annual revenue expectations from a range of $7.24 billion to $7.31 billion to a range of $7.28 billion to $7.32 billion and EPS from a range of $8.30 to $8.45 to a range of $8.47 to $8.57. This financial guidance does not include any potential deterioration in the U.S. economy or future share buybacks. It does incorporate the impact of having one less workday in fiscal 2020 compared to fiscal 2019.”

The following table provides a comparison of fiscal 2020 revenue and EPS guidance to fiscal 2019 actual results:

 

Fiscal

2019

 

Fiscal 2020

Low End

of Range

 

Growth

vs.

2019

 

Fiscal 2020

High End

of Range

 

Growth

vs.

2019

 

 

 

 

 

 

 

 

 

 

Fiscal 2020 Revenue Guidance

 

 

 

 

 

 

 

 

 

($s in millions)

 

 

 

 

 

 

 

 

 

Revenue guidance

$

6,892.3

 

 

$

7,280.0

 

 

5.6%

 

$

7,320.0

 

 

6.2%

 

 

 

 

 

 

 

 

 

 

Growth on constant workday basis (1)

 

 

 

 

6.0%

 

 

 

6.6%

 

 

 

 

 

 

 

 

 

 

Fiscal 2020 Earnings Per Share Guidance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPS - continuing operations

$

7.97

 

 

$

8.47

 

 

 

 

$

8.57

 

 

 

G&K integration expenses

0.10

 

 

 

 

 

 

 

 

 

Non-recurring gain on sale of investment

(0.47

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPS guidance (2) (3)

$

7.60

 

 

$

8.47

 

 

11.4%

 

$

8.57

 

 

12.8%

(1)

Fiscal 2020 contains one less workday than fiscal 2019. One less workday negatively impacts revenue growth by 40 basis points.

(2)

One less workday negatively impacts fiscal 2020 EPS guidance by about $0.06 and EPS growth by about 90 basis points.

(3)

Fiscal 2020 guidance assumes an effective tax rate of 20.3% compared to a rate of 19.7% for fiscal 2019. The higher effective tax rate negatively impacts fiscal 2020 EPS guidance by about $0.06 and EPS growth by about 80 basis points.

About Cintas

Cintas Corporation helps more than one million businesses of all types and sizes get Ready™ 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™. Headquartered in Cincinnati, Cintas is a publicly held Fortune 500 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 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; the effect of new accounting pronouncements; 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, 2019 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,

2019

 

August 31,

2018

 

%

Change

Revenue:

 

 

 

 

 

Uniform rental and facility services

$

1,454,527

 

 

$

1,374,938

 

 

5.8%

Other

356,612

 

 

323,037

 

 

10.4%

Total revenue

1,811,139

 

 

1,697,975

 

 

6.7%

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

Cost of uniform rental and facility services

768,676

 

 

746,453

 

 

3.0%

Cost of other

193,321

 

 

176,810

 

 

9.3%

Selling and administrative expenses

542,996

 

 

504,634

 

 

7.6%

G&K Services, Inc. integration expenses

 

 

4,850

 

 

(100.0)%

 

 

 

 

 

 

Operating income

306,146

 

 

265,228

 

 

15.4%

 

 

 

 

 

 

Interest income

(162

)

 

(496

)

 

(67.3)%

Interest expense

27,321

 

 

24,304

 

 

12.4%

 

 

 

 

 

 

Income before income taxes

278,987

 

 

241,420

 

 

15.6%

Income taxes

28,175

 

 

28,873

 

 

(2.4)%

Income from continuing operations

250,812

 

 

212,547

 

 

18.0%

Loss from discontinued operations, net of tax

 

 

(32

)

 

(100.0)%

Net income

$

250,812

 

 

$

212,515

 

 

18.0%

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

Continuing operations

$

2.40

 

 

$

1.96

 

 

22.4%

Discontinued operations

0.00

 

 

0.00

 

 

—%

Basic earnings per share

$

2.40

 

 

$

1.96

 

 

22.4%

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

Continuing operations

$

2.32

 

 

$

1.89

 

 

22.8%

Discontinued operations

0.00

 

 

0.00

 

 

—%

Diluted earnings per share

$

2.32

 

 

$

1.89

 

 

22.8%

 

 

 

 

 

 

Weighted average number of shares outstanding

103,543

 

 

106,835

 

 

 

Diluted average number of shares outstanding

107,083

 

 

110,648

 

 

 

CINTAS CORPORATION SUPPLEMENTAL DATA

Gross Margin Results

 

Three Months Ended

 

August 31,

2019

 

August 31,

2018

 

 

 

 

Uniform rental and facility services gross margin

47.2%

 

45.7%

Other gross margin

45.8%

 

45.3%

Total gross margin

46.9%

 

45.6%

Net income margin, continuing operations

13.8%

 

12.5%

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 condensed financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company provides the additional non-GAAP financial measures of earnings per diluted share, cash flow and workday adjusted revenue growth. 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. A reconciliation 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

 

August 31,

2019

 

August 31,

2018

 

Growth vs.

FY 2019

EPS - continuing operations

$

2.32

 

 

$

1.89

 

 

 

G&K Services, Inc. integration expenses

0.00

 

 

0.04

 

 

 

EPS excluding above items

$

2.32

 

 

$

1.93

 

 

20.2%

 

Computation of Free Cash Flow

 

 

Three Months Ended

 

August 31,

2019

 

August 31,

2018

Net cash provided by operations

$

276,901

 

 

$

162,985

 

Capital expenditures

(64,743

)

 

(64,528

)

Free cash flow

$

212,158

 

 

$

98,457

 

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.

 

Computation of Growth on a Constant Workday Basis

 

 

Three Months Ended

 

August 31,

2019

 

August 31,

2018

 

Growth %

 

A

 

B

 

G

Revenue

$

1,811,139

 

 

$

1,697,975

 

 

6.7%

 

 

 

 

 

G=(A-B)/B

 

C

 

D

 

 

Workdays in the period

65

 

66

 

 

 

 

 

 

 

 

 

E

 

F

 

H

Revenue adjusted for workday difference

$

1,839,003

 

 

$

1,697,975

 

 

8.3%

 

E=(A/C)*D

 

F=(B/D)*D

 

H=(E-F)/F

 

Fiscal

2019

 

Fiscal 2020

Low End

of Range

 

Growth

vs.

2019

 

Fiscal 2020

High End

of Range

 

Growth

vs.

2019

 

 

 

 

 

 

 

 

 

 

Fiscal 2020 Revenue Guidance

 

 

 

 

 

 

 

 

 

($s in millions)

A

 

B

 

C

 

D

 

E

Revenue guidance

$

6,892.3

 

 

$

7,280.0

 

 

5.6%

 

$

7,320.0

 

 

6.2%

 

 

 

 

 

C=(B-A)/A

 

 

 

E=(D-A)/A

 

F

 

G

 

 

 

G

 

 

Workdays in the period

261

 

260

 

 

 

260

 

 

 

H

 

I

 

J

 

K

 

L

Revenue guidance adjusted for workday difference

$

6,892.3

 

 

$

7,308.0

 

 

6.0%

 

$

7,348.2

 

 

6.6%

 

H=(A/F)*F

 

I=(B/G)*F

 

J=(I-H)/H

 

K=(D/G)*F

 

L=(K-H)/H

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.

SUPPLEMENTAL SEGMENT DATA

 

 

Uniform

Rental

and Facility

Services

 

First Aid

and Safety

Services

 

All

Other

 

Corporate

 

Total

 

 

 

 

 

 

 

 

 

 

 

For the three months ended August 31, 2019

 

 

 

 

 

 

 

 

Revenue

 

$

1,454,527

 

 

$

172,090

 

 

$

184,522

 

 

$

 

 

$

1,811,139

 

Gross margin

 

$

685,851

 

 

$

84,287

 

 

$

79,004

 

 

$

 

 

$

849,142

 

Selling and administrative expenses

 

$

416,840

 

 

$

59,518

 

 

$

66,638

 

 

$

 

 

$

542,996

 

Interest income

 

$

 

 

$

 

 

$

 

 

$

(162

)

 

$

(162

)

Interest expense

 

$

 

 

$

 

 

$

 

 

$

27,321

 

 

$

27,321

 

Income (loss) before income taxes

 

$

269,011

 

 

$

24,769

 

 

$

12,366

 

 

$

(27,159

)

 

$

278,987

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended August 31, 2018

 

 

 

 

 

 

 

 

Revenue

 

$

1,374,938

 

 

$

153,417

 

 

$

169,620

 

 

$

 

 

$

1,697,975

 

Gross margin

 

$

628,485

 

 

$

73,485

 

 

$

72,742

 

 

$

 

 

$

774,712

 

Selling and administrative expenses

 

$

392,101

 

 

$

51,502

 

 

$

61,031

 

 

$

 

 

$

504,634

 

G&K Services, Inc. integration expenses

 

$

4,850

 

 

$

 

 

$

 

 

$

 

 

$

4,850

 

Interest income

 

$

 

 

$

 

 

$

 

 

$

(496

)

 

$

(496

)

Interest expense

 

$

 

 

$

 

 

$

 

 

$

24,304

 

 

$

24,304

 

Income (loss) before income taxes

$

231,534

$

21,983

$

11,711

 

$

(23,808

)

 

$

241,420

 

Cintas Corporation

Consolidated Condensed Balance Sheets

(In thousands except per share data)

 

 

August 31,

2019

 

May 31,

2019

 

(Unaudited)

 

 

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

102,131

 

 

$

96,645

 

Accounts receivable, net

917,535

 

 

910,120

 

Inventories, net

336,290

 

 

334,589

 

Uniforms and other rental items in service

796,187

 

 

784,133

 

Income taxes, current

 

 

7,475

 

Prepaid expenses and other current assets

137,675

 

 

103,318

 

Total current assets

2,289,818

 

 

2,236,280

 

 

 

 

 

Property and equipment, net

1,422,351

 

 

1,430,685

 

 

 

 

 

Investments

208,987

 

 

192,346

 

Goodwill

2,849,613

 

 

2,842,441

 

Service contracts, net

482,977

 

 

494,595

 

Operating lease right-of-use assets, net

163,089

 

 

 

Other assets, net

245,065

 

 

240,315

 

 

$

7,661,900

 

 

$

7,436,662

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

237,242

 

 

$

226,020

 

Accrued compensation and related liabilities

99,200

 

 

155,509

 

Accrued liabilities

395,416

 

 

433,940

 

Income taxes, current

9,238

 

 

 

Operating lease liabilities, current

43,010

 

 

 

Debt due within one year

338,776

 

 

312,264

 

Total current liabilities

1,122,882

 

 

1,127,733

 

 

 

 

 

Long-term liabilities:

 

 

 

Debt due after one year

2,538,057

 

 

2,537,507

 

Deferred income taxes

436,755

 

 

438,179

 

Operating lease liabilities

125,684

 

 

 

Accrued liabilities

387,816

 

 

330,522

 

Total long-term liabilities

3,488,312

 

 

3,306,208

 

 

 

 

 

Shareholders’ equity:

 

 

 

Preferred stock, no par value:

 

 

 

100,000 shares authorized, none outstanding

Common stock, no par value:

1,036,125

 

 

840,328

 

425,000,000 shares authorized

FY20: 185,952,964 issued and 103,364,545 outstanding

FY19: 184,790,626 issued and 103,284,401 outstanding

Paid-in capital

110,441

 

 

227,928

 

Retained earnings

6,939,240

 

 

6,691,236

 

Treasury stock:

(4,974,449

)

 

(4,717,619

)

FY20: 82,588,419 shares

FY19: 81,506,225 shares

Accumulated other comprehensive loss

(60,651

)

 

(39,152

)

Total shareholders’ equity

3,050,706

 

 

3,002,721

 

 

$

7,661,900

 

 

$

7,436,662

 

 

Cintas Corporation

Consolidated Condensed Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

Three Months Ended

 

August 31,

2019

 

August 31,

2018

Cash flows from operating activities:

 

 

 

Net income

$

250,812

 

 

$

212,515

 

 

 

 

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation

56,726

 

 

52,745

 

Amortization of intangible assets and capitalized contract costs

35,268

 

 

33,550

 

Stock-based compensation

40,395

 

 

46,172

 

Deferred income taxes

7,910

 

 

9,022

 

Change in current assets and liabilities, net of acquisitions of businesses:

 

 

 

Accounts receivable, net

(6,636

)

 

(15,051

)

Inventories, net

(1,726

)

 

(34,629

)

Uniforms and other rental items in service

(11,305

)

 

(23,019

)

Prepaid expenses and other current assets and capitalized contract costs

(41,928

)

 

(46,930

)

Accounts payable

13,357

 

 

(329

)

Accrued compensation and related liabilities

(58,718

)

 

(56,186

)

Accrued liabilities and other

(24,082

)

 

(27,556

)

Income taxes, current

16,828

 

 

12,681

 

Net cash provided by operating activities

276,901

 

 

162,985

 

 

 

 

 

Cash flows from investing activities:

 

 

 

Capital expenditures

(64,743

)

 

(64,528

)

Proceeds from redemption of marketable securities and investments

 

 

1,558

 

Purchase of marketable securities and investments

(9,391

)

 

 

Acquisitions of businesses, net of cash acquired

(3,896

)

 

(7,613

)

Other, net

(109

)

 

(202

)

Net cash used in investing activities

(78,139

)

 

(70,785

)

 

 

 

 

Cash flows from financing activities:

 

 

 

Issuance of commercial paper, net

26,500

 

 

 

Proceeds from exercise of stock-based compensation awards

37,915

 

 

27,512

 

Repurchase of common stock

(256,830

)

 

(139,468

)

Other, net

(1,192

)

 

(552

)

Net cash used in financing activities

(193,607

)

 

(112,508

)

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

331

 

 

(60

)

 

 

 

 

Net increase (decrease) in cash and cash equivalents

5,486

 

 

(20,368

)

Cash and cash equivalents at beginning of period

96,645

 

 

138,724

 

Cash and cash equivalents at end of period

$

102,131

 

 

$

118,356

 

 

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