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Analyst Blog

Cintas Corporation (CTAS - Analyst Report) reported earnings of 52 cents per share for fiscal first quarter 2012 ending August 31. Results comfortably surpassed the Zacks Consensus Estimate of 47 cents and were 30% higher than 40 cents earned in the year-ago quarter.

Strong performance across all the business segments helped the company to deliver better-than-expected results.

Operational Update

Total revenue in the quarter under review increased 10.1% to $1.02 billion from $0.92 billion in the year-ago quarter, striding ahead of the Zacks Consensus Estimate of $0.998 billion. A double-digit growth from Other services coupled with high single-digit growth in Rental uniforms and ancillary products led to the overall climb. The quarter marks second consecutive period of double-digit revenue growth

Cintas' cost of goods sold increased 9% year over year to $578 million during the quarter. Selling general and administrative expenses rose 5.8% on a year-over-year basis to $311 million.

Operating income during the quarter improved 28.3% to $128.6 million. Operating margin expanded 170 basis points year over year to 12.6%.

Interest expense shot up 41.2% to $17.3 million in the quarter.

Net income was $68.6 million, an improvement of 12% from $61.3 million in fiscal first quarter 2011. Net margin improved 10 basis points year over year to 6.7%

Segment Update

Rental uniform and ancillary products revenue of $719.4 million in the quarter increased 9.4% from $657.6 million in the year-ago quarter.

Uniform Direct Sales revenue during the quarter grossed to $101.7 million, up 2.9% from $98.8 million in the year-ago quarter.

First Aid, Safety and Fire Protection revenue was $103.7 million, up 10.9% from $93.5 million in the year-earlier quarter.

Document Management revenue of $91.5 million in the quarter shot up 24.7% from $74.0 million in the year-ago quarter.

Financial Position

Cintas exited the quarter with cash and cash equivalent of $150.3 million, a substantial decline from $438.1 million at fiscal 2011 end.

Long-term debt declined to $1.1 billion at quarter end from $1.3 billion at fiscal 2011 end.

As of August 31, 2011, the debt-to-capitalization ratio increased to 37.8% from 24.2% as of August 31, 2010

Cash flow from operations was $56.6 million in the quarter, up sharply 60% year over year.

Capital expenditure was less at $44.4 million from $48.2 million in the year-ago quarter.

Free cash flow was a positive $12.1 million compared with a negative $12.9 million in fiscal first quarter of 2011.

Looking Ahead

Cintas, in fiscal 2012, expects to generate revenue in the band of $4.0 billion to $4.1 billion and guides earnings to a range of $1.97 to $2.05 per share.

The company expects capital expenditure to be between $180 million and $200 million in fiscal 2012.

We retain our Outperform rating on Cintas Corporation. The quantitative Zacks #2 Rank (short term Buy rating) for the company indicates upward pressure on the stock over the near term.

Cincinnati, Ohio-based Cintas Corporation designs, manufactures and implements corporate identity uniform programs, and provides entrance mats, restroom supplies, promotional products, and first aid and safety products for approximately 900,000 businesses. Cintas competes with G&K Services Inc. and privately held Alsco Inc. and ARAMARK Corporation.

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