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Cintas (CTAS) Q3 Earnings, Revenues Beat, Outlook Positive

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Cintas Corporation (CTAS - Free Report) posted impressive third-quarter fiscal 2018 (ended Feb 28, 2018) results backed by healthy top-line growth. Net income from continuing operations for the quarter surged 152.9% to $295.8 million or $2.66 per share from $116.9 million or $1.06 per share recorded in the year-earlier quarter. Adjusted earnings came in at $1.37 per share, which comfortably surpassed the Zacks Consensus Estimate of $1.24.

Quarterly revenues increased 26.6% year over year to $1,589.1 million, exceeding the Zacks Consensus Estimate of $1,568 million. Organic growth for the reported quarter improved 7.8% year over year, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations.

Operating income was $200 million, up 4.2% year over year. Operating income, excluding G&K transaction and integration expenses and the one-time cash payment to employees, increased 24% year over year, resulting in an operating margin of 15.7%.

 

Cintas Corporation Price, Consensus and EPS Surprise

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

Segmental Performance

Uniform Rental and Facility Services revenues for the fiscal third quarter improved 30% year over year to $1,284.5 million and accounted for 80.8% of the total revenues. The segment recorded year-over-year organic growth of 6.5%. However, gross margin for the segment decreased to 44.1% from 45.1% in the year-ago quarter.

At the Other segment, revenues were up 14% year over year to $304.6 million and accounted for 19.2% of the total revenues. 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 10%. The segment’s gross margin increased to 44% from 42.9% in the year-ago quarter.

Financial Position

Cintas has a solid financial position with adequate liquidity. At the end of the fiscal third quarter, cash and cash equivalents were $152.6 million, while long-term debt was $2,534.8 million.

In the first nine months of fiscal 2018, net cash from operating activities was $660.9 million compared with $483.8 million in the prior-year period. Free cash flow in the same period increased to $464.8 million from $265.1 million reported in the year-ago period.

Outlook

The benefits from the U.S. tax reform in the third fiscal quarter were significant. Cintas provided specific guidance for fourth-quarter fiscal 2018. Revenues are projected to be $1,625-$1,645 million. Earnings from continuing operations are expected to be between $1.64 and $1.69 per share. This assumes a fiscal fourth-quarter tax rate of 24%. This earnings per share guidance excludes future G&K transaction and integration expenses related to the acquisition.

In the recently-reported quarter, Cintas made solid progress on two significant long-term investments. The first is the acquisition of G&K. It has now closed 60 or 95% of redundant operations, and has converted 65% of G&K locations to Cintas operating systems.

The second is the implementation of an enterprise resource planning system. Cintas continues to convert more operations to the system 79 so far, and the roll-out remains on schedule. It aims to be a stronger company with this new technology.

Moving Ahead

Cintas continues to deliver organic growth through superior execution of its operational plans. We remain encouraged by the company’s stellar quarterly performance. The fiscal fourth quarter will mark the anniversary of the G&K acquisition.

In the fiscal fourth quarter, the G&K transaction and integration expenses will be incurred, as Cintas continues to integrate this significant acquisition, with a total estimate of $10-$15 million.

Zacks Rank & Other Key Picks

Cintas carries a Zacks Rank #2 (Buy). Some other top-ranked stocks in the industry are CRA International, Inc. (CRAI - Free Report) and NV5 Global, Inc. (NVEE - Free Report) , sporting a Zacks Rank #1 (Strong Buy), and Superior Uniform Group, Inc. (SGC - Free Report) , carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

CRA International has beaten earnings estimates thrice over the last four quarters for a positive surprise of 27.9%.

NV5 Global has a long-term earnings growth expectation of 20%. It has beaten earnings estimates in each of the trailing four quarters for a positive surprise of 5.8%.

Superior Uniform has a long-term earnings growth projection of 13.5%. It has beaten earnings estimates in each of the preceding four quarters for a positive surprise of 24.7%

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