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Cintas (CTAS) Q2 Earnings Surpass Estimates, Sales Miss

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Zacks Equity Research
·5 min read
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Cintas Corporation CTAS reported better-than-expected earnings results for the second quarter of fiscal 2021 (ended Nov 30, 2020). Its earnings beat estimates by 20.18%, while sales lagged the same by 0.23%.

The company’s earnings in the reported quarter were $2.62 per share, surpassing the Zacks Consensus Estimate of $2.18. On a year-over-year basis, the bottom line increased 15.4% from the year-ago figure of $2.27 as lower costs and expenses helped more than offset the impacts of a decrease in revenues.

Revenue Details

In the quarter under review, Cintas’ net sales were $1,757 million, reflecting a decline of 4.7% from the year-ago quarter. Organic sales in the quarter decreased 4.4% year over year, while acquisitions, divestitures and foreign currency translation had a net negative impact of 0.3%. The pandemic played a spoilsport in the quarter.

Further, the top line lagged the Zacks Consensus Estimate of $1,761 million.

The company has two reportable segments — Uniform Rental and Facility Services, and First Aid and Safety Services. Other businesses like Uniform Direct Sale and Fire Protection Services are included in All Other. Quarterly sales data is briefly discussed below.

Revenues from the Uniform Rental and Facility Services segment (representing 80.3% of the reported quarter’s net sales) were $1,410.5 million, decreasing 4% year over year. Organic sales in the quarter decreased 3.6%.

Revenues from the First Aid and Safety Services segment (representing 11.1% of the reported quarter’s net sales) totaled $194.4 million, increasing 14.6% year over year. Organic sales in the quarter increased 14.5%.

Revenues from the All Other business (representing 8.6% of the reported quarter’s net sales) were $152.1 million, decreasing 25.5% year over year.

Margin Profile

In the quarter under review, Cintas’ cost of sales (comprising costs related to uniform rental and facility services as well as others) decreased 5.5% year over year to $937.2 million. It represented 53.3% of net sales compared with 53.8% in the year-ago quarter. Gross profit in the quarter decreased 3.8% year over year to $819.9 million. Gross margin increased 50 basis points (bps) year over year to 46.7%.

Selling and administrative expenses totaled $467 million, reflecting a 9.8% decline from the year-ago figure. It represented 26.6% of net sales. Operating margin in the quarter increased 190 bps year over year to 20.1%. Notably, the operating margin in the quarter gained 100 bps from the sale of some assets belonging to the Uniform Rental and Facility Services segment. Interest expenses decreased 6.2% to $24.6 million.

Balance Sheet and Cash Flow

Exiting the quarter, Cintas’ cash and cash equivalents were $703.2 million, up 66.8% from $421.5 million at the end of the previous quarter. Long-term debt remained more or less unchanged sequentially at $2,290.9 million.

In the first half of fiscal 2021, the company generated net cash of $573 million from operating activities, increasing 0.3% from the previous-year period. Capital expenditure totaled $57.7 million, reflecting a year-over-year decline of 54.3%. Free cash flow increased 15.8% year over year to $515.3 million.

During the first half, the company repurchased shares worth $71.4 million. It is worth noting here that Cintas announced a 10.2% hike in its annual dividend rate, which now stands at $2.81. Payment of this dividend will be made on Dec 4, 2020. Also, the quarterly dividend of 70 cents per share will be paid out on this date.

Outlook

The company is still exposed to the challenges and uncertainties related to the coronavirus outbreak. It refrained from providing any projections for fiscal 2021 (ending May 2021).

Cintas Corporation Price, Consensus and EPS Surprise

 

Cintas Corporation Price, Consensus and EPS Surprise
Cintas Corporation Price, Consensus and EPS Surprise

Cintas Corporation price-consensus-eps-surprise-chart | Cintas Corporation Quote

Zacks Rank & Stocks to Consider

With a market capitalization of $37.1 billion, Cintas currently carries a Zacks Rank #3 (Hold).

Three better-ranked stocks in the Zacks Industrial Products sector are EnPro Industries, Inc. NPO, Altra Industrial Motion Corp. AIMC and Graco Inc. GGG. While EnPro Industries sports a Zacks Rank #1 (Strong Buy), both Altra Industrial and Graco carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for EnPro Industries and Altra Industrial have improved for the current year, while the same has been stable for Graco. Further, positive earnings surprise for the last reported quarter was 109.38% for EnPro Industries, 77.55% for Altra Industrial and 40.48% for Graco.

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Cintas Corporation (CTAS) : Free Stock Analysis Report
 
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