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Business services provider Cintas Corporation (CTAS - Free Report) recorded relatively modest second-quarter fiscal 2017 (ended Nov 30, 2016) results on the back of healthy top-line growth. The company’s net income was $123.5 million or $1.13 per share from continuing operations compared with $115.5 million or $1.03 per share in the year-earlier quarter. Adjusted earnings for the reported quarter were $1.15 per share, which missed the Zacks Consensus Estimate by a penny.
Quarterly revenues increased 6.4% year over year to $1,296.9 million, exceeding the Zacks Consensus Estimate of $1,292 million. Organic growth for the reported quarter improved 5.7% year over year. The superior top-line performance was primarily attributable to the addition of new customers, strong customer retention and higher penetration of existing customers through better and innovative products and services.
Gross margin for the reported quarter was 44.1% compared with 43.3% in the prior-year quarter. Operating income was $202.9 million, up 1.3% year over year. Operating margin was 15.6%, slightly lower than 16.4% in the year-earlier quarter.
Cintas barely outperformed the Zacks categorized Linen Supply & Related industry in the last three months with an average return of 6.1% compared with 5.6% for the latter.
Segmental Performance
Uniform Rental and Facility Services revenues for the quarter improved 7.2% year over year to $1,005.6 million. The segment accounted for 77.5% of the total revenue, with year-over-year organic growth of 6.5%. Gross margin increased 80 basis points to 44.7% in the reported quarter.
Revenues from Other segment were up 3.5% year over year to $291.4 million. This segment includes the First Aid and Safety Services, and All Other businesses that comprise the Fire Protection Services and Direct Sale business. The First Aid and Safety Services recorded organic growth of 3.3%, while its gross margin increased 290 basis points to 46.1% due to improved sourcing and leverage from existing warehouses. The All Other segment recorded organic revenue growth of 2.8%, although gross margin decreased to 38.5% from 39.6% in the year-ago quarter due to macroeconomic volatility.
Financial Position
Cintas has a solid financial position with adequate liquidity. At the quarter end, cash and cash equivalents were $143.6 million, while long-term debt was $1,044.8 million.
Net cash from operating activities was $301.7 million for the first six months of fiscal 2017 compared with $265.0 million in the prior-year period. Capital expenditures in the quarter were $76 million. Free cash flow for the first half of fiscal 2017 increased to $146.5 million from $143.2 million in the year-ago period.
Cintas updated its guidance for fiscal 2017. The company currently expects revenues in the range of $5.180 billion to $5.225 billion compared with earlier projection of $5.160 billion to $5.225 billion. Earnings from continuing operations are expected to be within $4.57–$4.65 per share, up from $4.55–$4.63 anticipated earlier. The guidance, however, has not taken into consideration any potential deterioration in the U.S. economy, future share repurchases or any future financial impact from the acquisition of G&K.
Moving Forward
Cintas continues to deliver organic growth through superior execution of its operational plans. We remain encouraged by the company’s strong quarterly and fiscal performance and its bullish guidance.
CRA International has a long-term earnings growth expectation of 8% and has beaten estimates thrice in the trailing four quarters with an average negative earnings surprise of 3%.
Gartner has long-term earnings growth expectation of 17.3% and has beaten estimates in each of the trailing four quarters with an average positive earnings surprise of 14.5%.
Hackett has long-term earnings growth expectation of 17.3% and has missed estimates twice in the trailing four quarters for an average negative earnings surprise of 5.1%.
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Cintas (CTAS) Misses Q2 Earnings, Updates FY17 Guidance
Business services provider Cintas Corporation (CTAS - Free Report) recorded relatively modest second-quarter fiscal 2017 (ended Nov 30, 2016) results on the back of healthy top-line growth. The company’s net income was $123.5 million or $1.13 per share from continuing operations compared with $115.5 million or $1.03 per share in the year-earlier quarter. Adjusted earnings for the reported quarter were $1.15 per share, which missed the Zacks Consensus Estimate by a penny.
Quarterly revenues increased 6.4% year over year to $1,296.9 million, exceeding the Zacks Consensus Estimate of $1,292 million. Organic growth for the reported quarter improved 5.7% year over year. The superior top-line performance was primarily attributable to the addition of new customers, strong customer retention and higher penetration of existing customers through better and innovative products and services.
Gross margin for the reported quarter was 44.1% compared with 43.3% in the prior-year quarter. Operating income was $202.9 million, up 1.3% year over year. Operating margin was 15.6%, slightly lower than 16.4% in the year-earlier quarter.
Cintas barely outperformed the Zacks categorized Linen Supply & Related industry in the last three months with an average return of 6.1% compared with 5.6% for the latter.
Segmental Performance
Uniform Rental and Facility Services revenues for the quarter improved 7.2% year over year to $1,005.6 million. The segment accounted for 77.5% of the total revenue, with year-over-year organic growth of 6.5%. Gross margin increased 80 basis points to 44.7% in the reported quarter.
Revenues from Other segment were up 3.5% year over year to $291.4 million. This segment includes the First Aid and Safety Services, and All Other businesses that comprise the Fire Protection Services and Direct Sale business. The First Aid and Safety Services recorded organic growth of 3.3%, while its gross margin increased 290 basis points to 46.1% due to improved sourcing and leverage from existing warehouses. The All Other segment recorded organic revenue growth of 2.8%, although gross margin decreased to 38.5% from 39.6% in the year-ago quarter due to macroeconomic volatility.
Financial Position
Cintas has a solid financial position with adequate liquidity. At the quarter end, cash and cash equivalents were $143.6 million, while long-term debt was $1,044.8 million.
Net cash from operating activities was $301.7 million for the first six months of fiscal 2017 compared with $265.0 million in the prior-year period. Capital expenditures in the quarter were $76 million. Free cash flow for the first half of fiscal 2017 increased to $146.5 million from $143.2 million in the year-ago period.
CINTAS CORP Price, Consensus and EPS Surprise
CINTAS CORP Price, Consensus and EPS Surprise | CINTAS CORP Quote
Updated Fiscal 2017 Guidance
Cintas updated its guidance for fiscal 2017. The company currently expects revenues in the range of $5.180 billion to $5.225 billion compared with earlier projection of $5.160 billion to $5.225 billion. Earnings from continuing operations are expected to be within $4.57–$4.65 per share, up from $4.55–$4.63 anticipated earlier. The guidance, however, has not taken into consideration any potential deterioration in the U.S. economy, future share repurchases or any future financial impact from the acquisition of G&K.
Moving Forward
Cintas continues to deliver organic growth through superior execution of its operational plans. We remain encouraged by the company’s strong quarterly and fiscal performance and its bullish guidance.
Cintas currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include CRA International, Inc. (CRAI - Free Report) , Gartner, Inc. (IT - Free Report) and The Hackett Group, Inc. (HCKT - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CRA International has a long-term earnings growth expectation of 8% and has beaten estimates thrice in the trailing four quarters with an average negative earnings surprise of 3%.
Gartner has long-term earnings growth expectation of 17.3% and has beaten estimates in each of the trailing four quarters with an average positive earnings surprise of 14.5%.
Hackett has long-term earnings growth expectation of 17.3% and has missed estimates twice in the trailing four quarters for an average negative earnings surprise of 5.1%.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>