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Cintas (CTAS) Beats Q4 Earnings, Offers Bullish Outlook

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Business services provider Cintas Corporation (CTAS - Free Report) ended fiscal 2016 with a bang, recording solid fourth-quarter results on the back of healthy top-line growth. The company reported fourth-quarter fiscal 2016 (ended May 31, 2016) net income of $118.0 million or $1.08 per share from continuing operations compared with $100.6 million or 86 cents per share in the year-earlier quarter. The reported earnings for the quarter comfortably beat the Zacks Consensus Estimate by 6 cents.

Cintas Corporation (CTAS - Free Report) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

Quarterly revenues increased 11.3% year over year to $1,271.4 million, exceeding the Zacks Consensus Estimate of $1,250 million. Organic growth for the reported quarter improved 6.7% 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.

For fiscal 2016, Cintas reported net income of $456.9 million or $4.09 per share from continuing operations compared with $410.5 million or $3.46 per share in fiscal 2015. Revenues for fiscal 2016 improved 9.6% year over year to $4,905.5 million.

Gross margin for the reported quarter was 43.6% compared with 42.6% in the prior-year quarter. Operating income in the quarter was $202.9 million, up 14.2% year over year. Operating margin was 16.0%, slightly higher than 15.6% in the year-earlier quarter.

Segmental Performance

Uniform Rental and Facility Services revenues for the quarter improved 8.3% year over year to $965.1 million. The segment accounted for 75.9% of the total revenue, with year-over-year organic growth of 6.3%. Gross margin increased 150 basis points to 44.3% in the reported quarter.
 
Revenues for First Aid and Safety Services were up 45% year over year to $122.8 million largely due to the Zee Medical acquisition. This segment recorded organic growth of 6.9% and accounted for 9.7% of the total revenue. Segment gross margin decreased to 42.9% in the reported quarter from 46.8% in the year-ago quarter due to acquisition and integration costs. The All Other segment recorded revenues of $183.5 million, representing 14.4% of total revenue of the company.

Financial Position

Cintas has a solid financial position with adequate liquidity. At fiscal end, cash and cash equivalents were $139.4 million, significantly down from $417.1 million in the prior-year period. The year-over-year decrease was largely due to cash utilization for stock repurchases during the quarter. Cintas repurchased $759 million worth of shares in fiscal 2016, including $276 million in the reported quarter. Long-term debt at fiscal 2016 end was $1.1 billion compared with $1.3 billion at fiscal 2015 end.

Net cash from operating activities was $465.8 million for fiscal 2016 compared with $580.3 million in the prior-year period. Capital expenditures in the quarter were $68 million. Free cash flow for fiscal 2016 decreased to $190.5 million from $362.6 million in the year-ago period. The company has increased its dividend payout in fiscal 2016 by 23.5% on a year-over-year basis. Notably, since going public in 1983, Cintas has been consistently increasing its annual dividends every year.
 

CINTAS CORP Price, Consensus and EPS Surprise

CINTAS CORP Price, Consensus and EPS Surprise | CINTAS CORP Quote

Fiscal 2017 Guidance

Buoyed by the healthy fourth-quarter fiscal 2016 results, Cintas offered a bullish guidance for fiscal 2017. The company expects fiscal 2017 revenues in the range of $5.150 billion to $5.225 billion, up 5–6.5% year over year. Earnings from continuing operations are expected to be within $4.35–$4.45 per share, which represents a year-over-year improvement of 6.4–8.8%.

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 #4 (Sell). Some better-ranked stocks in the industry include Accenture plc (ACN - Free Report) , Accretive Health, Inc. and FTI Consulting, Inc. (FCN - Free Report) , each carrying a Zacks Rank #2 (Buy).

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