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Why Is Cintas (CTAS) Down 5.5% Since Last Earnings Report?
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A month has gone by since the last earnings report for Cintas (CTAS - Free Report) . Shares have lost about 5.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Cintas due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Cintas Surpasses Q2 Earnings and Sales Estimates
Cintas reported second-quarter fiscal 2023 (ended Nov 30, 2022) earnings of $3.12 per share, beating the Zacks Consensus Estimate of $3.03. The bottom line increased 13% year over year despite high costs.
Total revenues of $2,174.9 million also outperformed the Zacks Consensus Estimate of $2,128 million. The top line climbed 14.2% year over year due to higher segmental revenues. Organic sales were up 13.1% year over year.
Segmental Results
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 78.6% of the reported quarter’s net sales) reached $1,710 million, increasing 11.4% year over year.
Revenues from the First Aid and Safety Services segment (representing 10.9% of the reported quarter’s net sales) totaled $236 million, increasing 16.8% year over year.
Revenues from the All Other business (representing 10.5% of the reported quarter’s net sales) reached $229 million, increasing 23.8% year over year.
Margin Profile
In the quarter under review, Cintas’ cost of sales (comprising costs related to uniform rental and facility services and others) increased 10% year over year to $1,152.4 million. It represented 53% of net sales. Gross profit increased 15.5% to $1,022.4 million. The gross margin was 47%, up from 46% in the year-ago fiscal quarter.
Selling and administrative expenses totaled $ 577.5 million, reflecting a 14.6% increase from the year-ago figure. It represented 26.6% of net sales. The operating margin in the reported quarter increased 70 basis points to 20.5%. Interest expenses increased 32% to $28.9 million.
Balance Sheet and Cash Flow
Exiting the fiscal second quarter, Cintas had cash and cash equivalents of $89.8 million, down 0.8% from the figure reported at the end of the fourth quarter of fiscal 2022. Long-term debt was $2,485.3 million, flat from the figure reported at the end of the fourth quarter of fiscal 2022.
In the fiscal second quarter, CTAS generated net cash of $619.1 million from operating activities, increasing 4.3% from the year-ago period. Capital expenditure totaled $146.4 million, reflecting a year-over-year increase of 34.8%. Free cash flow decreased 2.6% to $472.7 million in the reported quarter.
In second-quarter fiscal 2023, the company repurchased shares worth $348.7 million, down from $664.7 million in the year-ago period. Dividend payments totaled $215 million in the fiscal second quarter.
Fiscal 2023 Outlook Improved
Following a strong second-quarter fiscal 2023 performance, Cintas improved its fiscal 2023 outlook. The company now expects revenues of $8.67-$8.75 billion in fiscal 2023 compared with $8.58-$8.67 billion anticipated earlier. Earnings are estimated in the range of $12.50-$12.80 per share compared with $12.30-$12.65 expected earlier.
For fiscal 2023, Cintas expects adjusted operating income between $1.75 to $1.79 billion($1.55 billion reported in fiscal 2022).The adjusted effective tax rate in the period is expected to be approximately 20.7% compared with 17.9% in the fiscal year 2022. Due to higher interest rates, interest expenses are expected to increase to approximately $113 million in fiscal 2023 from $88.8 million in fiscal 2022.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
At this time, Cintas has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cintas has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Why Is Cintas (CTAS) Down 5.5% Since Last Earnings Report?
A month has gone by since the last earnings report for Cintas (CTAS - Free Report) . Shares have lost about 5.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Cintas due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Cintas Surpasses Q2 Earnings and Sales Estimates
Cintas reported second-quarter fiscal 2023 (ended Nov 30, 2022) earnings of $3.12 per share, beating the Zacks Consensus Estimate of $3.03. The bottom line increased 13% year over year despite high costs.
Total revenues of $2,174.9 million also outperformed the Zacks Consensus Estimate of $2,128 million. The top line climbed 14.2% year over year due to higher segmental revenues. Organic sales were up 13.1% year over year.
Segmental Results
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 78.6% of the reported quarter’s net sales) reached $1,710 million, increasing 11.4% year over year.
Revenues from the First Aid and Safety Services segment (representing 10.9% of the reported quarter’s net sales) totaled $236 million, increasing 16.8% year over year.
Revenues from the All Other business (representing 10.5% of the reported quarter’s net sales) reached $229 million, increasing 23.8% year over year.
Margin Profile
In the quarter under review, Cintas’ cost of sales (comprising costs related to uniform rental and facility services and others) increased 10% year over year to $1,152.4 million. It represented 53% of net sales. Gross profit increased 15.5% to $1,022.4 million. The gross margin was 47%, up from 46% in the year-ago fiscal quarter.
Selling and administrative expenses totaled $ 577.5 million, reflecting a 14.6% increase from the year-ago figure. It represented 26.6% of net sales. The operating margin in the reported quarter increased 70 basis points to 20.5%. Interest expenses increased 32% to $28.9 million.
Balance Sheet and Cash Flow
Exiting the fiscal second quarter, Cintas had cash and cash equivalents of $89.8 million, down 0.8% from the figure reported at the end of the fourth quarter of fiscal 2022. Long-term debt was $2,485.3 million, flat from the figure reported at the end of the fourth quarter of fiscal 2022.
In the fiscal second quarter, CTAS generated net cash of $619.1 million from operating activities, increasing 4.3% from the year-ago period. Capital expenditure totaled $146.4 million, reflecting a year-over-year increase of 34.8%. Free cash flow decreased 2.6% to $472.7 million in the reported quarter.
In second-quarter fiscal 2023, the company repurchased shares worth $348.7 million, down from $664.7 million in the year-ago period. Dividend payments totaled $215 million in the fiscal second quarter.
Fiscal 2023 Outlook Improved
Following a strong second-quarter fiscal 2023 performance, Cintas improved its fiscal 2023 outlook. The company now expects revenues of $8.67-$8.75 billion in fiscal 2023 compared with $8.58-$8.67 billion anticipated earlier. Earnings are estimated in the range of $12.50-$12.80 per share compared with $12.30-$12.65 expected earlier.
For fiscal 2023, Cintas expects adjusted operating income between $1.75 to $1.79 billion($1.55 billion reported in fiscal 2022).The adjusted effective tax rate in the period is expected to be approximately 20.7% compared with 17.9% in the fiscal year 2022. Due to higher interest rates, interest expenses are expected to increase to approximately $113 million in fiscal 2023 from $88.8 million in fiscal 2022.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
At this time, Cintas has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cintas has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.