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Why Is Cintas (CTAS) Up 16.3% Since Last Earnings Report?

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A month has gone by since the last earnings report for Cintas (CTAS - Free Report) . Shares have added about 16.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Cintas due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Cintas Tops Q2 Earnings Estimates, Raises FY19 View

Cintas reported better-than-expected second-quarter fiscal 2019 (ended November 2018) results.

Earnings/Revenues

Quarterly adjusted earnings came in at $1.76 per share, up 34.4% year over year. The bottom line also surpassed the Zacks Consensus Estimate of $1.72.

Revenues in the reported quarter improved 7% year over year to $1,718.2 million. The metric also improved 7% year over year organically. Additionally, the top-line numbers surpassed the Zacks Consensus Estimate of $1,695 million.  

Segmental Break-Up

The Uniform Rental and Facility Services segment generated $1,390.8 million revenues in the fiscal second quarter, up 6.3% year over year. The First Aid and Safety Services segment’s top-line performance improved 10.3% year over year to $153.3 million. Aggregate revenues from Other businesses came in at $174.1 million, up 9.3% year over year.

Costs/Margins

Aggregate cost of sales in the fiscal second quarter was $943.1 million, up 6% year over year. Gross profit margin improved 50 basis points (bps) year over year to 45.1% in the fiscal second quarter.

Selling and administrative expenses flared up 5% year over year to $491.7 million in the reported quarter. G&K Services, Inc. (acquired in March 2017) integration expenses tanked 40% year over year to $7.8 million. Operating margin in the reported quarter was 16%, up 140 bps year over year.

Balance Sheet/Cash Flow

Exiting the fiscal second quarter, Cintas had cash and cash equivalents of $88.5 million, down from $138.7 million recorded as of May 31, 2018. Long-term debt stood at $2,536.4 million, as against $2,535.3 million recorded at the end of fiscal 2018.

In first-half fiscal 2019, the company generated $344.6 million cash from operating activities, down 9.1% year over year. Capital expenditures were $137.6 million, up 3.9% year over year.

In the six months of fiscal 2019, Cintas repurchased common stock worth $447 million, under its buyback program. Notably, the company’s latest dividend payout of $2.05 per share (Dec 7, 2018) was 26.5% higher than the previous year’s dividend.

Outlook

Cintas is poised to enhance its competency on the basis of the successful G&K Services’ integration and effective implementation of its strategic enterprise resource planning system. The company also remains on track to boost its shareholders’ remuneration over time.

The company raised its revenue guidance for fiscal 2019 (ending May 2019) from $6.80-$6.855 billion to $6.87-$6.91 billion. Also, adjusted earnings view for the fiscal has been raised from $7.19-$7.29 per share to $7.30-$7.38 per share.

G&K Services’ integration expenses are predicted to lie within $18-$22 million in fiscal 2019.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months.

VGM Scores

At this time, Cintas has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Cintas has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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