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Cintas (CTAS) Beats Q4 Earnings & Revenues on Organic Growth

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Business services provider Cintas Corporation (CTAS - Free Report) recorded strong fourth-quarter fiscal 2017 (ended May 31, 2017) results on the back of healthy top-line growth. Net income from continuing operations for the reported quarter was $82.2 million or 75 cents per share compared with $115.7 million or $1.06 per share in the year-earlier quarter.  Adjusted earnings for the reported quarter beat the Zacks Consensus Estimate by 10 cents.

Cintas Corporation Price, Consensus and EPS Surprise


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

Quarterly revenues increased 23.1% year over year to $1,530.3 million, exceeding the Zacks Consensus Estimate of $1,509 million. Organic growth for the reported quarter improved 8.1% 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 2017, net income and earnings per share (EPS) from continuing operations were $457.3 million and $4.17, respectively, compared with $448.6 million and $4.02 last fiscal year. The company reported adjusted earnings of $4.53 per share. Revenues for the year were $5,323.4 million compared with $4,795.8 million in the prior-year period. The increase was driven by an organic growth rate of 6.7%.

Gross margin increased for the 15th consecutive quarter on a year-over-year basis to 44.4% from 43.9% in the prior-year quarter. Operating income was $ 177.3 million, down 11.2% year over year. Operating margin was 11.6%, lower than 16.1% in the year-earlier quarter, owing to expenses related to the acquisition of G&K Services, Inc.

Segmental Performance

Uniform Rental and Facility Services revenues for the quarter improved 27.1% year over year to $1220 million. Gross margin increased 20 basis points (bps) to 44.6% in the reported quarter.
Revenues from Other segment were up 9.3% year over year to $310.3 million while its gross margin improved 120 bps to 43.5%. This segment includes First Aid and Safety Services, and All Other businesses that comprise Fire Protection Services and Direct Sale business.

G&K Services Acquisition Update

Subsequent to the quarter end, Cintas completed the acquisition of G&K Services for approximately $2.2 billion, including acquired net debt, after receiving all the requisite regulatory approvals.

Headquartered in Minneapolis, MN, G&K Services operates as a branded uniform and facility services program provider in the U.S. and Canada. With over 8,000 employees serving over 170,000 customers from 160 facilities in North America, it reported annual revenues of $978 million in fiscal 2016.

G&K Services would operate as a wholly-owned subsidiary of Cintas and is likely to retain its existing brand name. The successful integration of G&K Services is likely to expand Cintas’ customer profile and augment its revenues. The combined company is likely to cater to over one billion business customers with an extended product portfolio and additional processing capacity.

Financial Position

Cintas has a solid financial position with adequate liquidity. At fiscal year end, cash and cash equivalents were $169.3 million while total long-term debt was $3,410.4 million.

Net cash from operating activities was $763.9 million for fiscal 2017 compared with $465.8 million in the prior year. Free cash flow for the fiscal year increased to $490.6 million from $190.5 million a year ago.

Moving Forward

Cintas continues to deliver organic growth through superior execution of its operational plans. We remain encouraged by the company’s strong quarterly performance.

For fiscal 2018, the company expects Capital Expenditure to be in the range of $280−$320 million. Revenues are expected in the range of $6,270−$6,360 million while EPS is expected to be between $5.15 and $5.25 per share.                                

Cintas currently has a Zacks Rank #2 (Buy). Some other stocks worth considering in the industry include NV5 Global, Inc. (NVEE - Free Report) , Gartner, Inc. (IT - Free Report) and Exponent, Inc. (EXPO - Free Report) . NV5 Global and Gartner both carry the same Zacks Rank as Cintas, while Exponent sports a Zacks Rank #1(Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NV5 Global has a long-term earnings growth expectation of 20%.

Gartner has a long-term earnings growth expectation of 17.33%.

Exponent has a long-term earnings growth expectation of 12%

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