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Why Is Cintas (CTAS) Down 1.4% 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 lost about 1.4% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Cintas due for a breakout? 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 catalysts.

Cintas Q4 Earnings & Revenues Beat Estimates, Up Y/Y

Cintas posted better-than-expected fourth-quarter fiscal 2019 (ended May 2019) results, with both earnings and revenues surpassing the Zacks Consensus Estimate.

Earnings/Revenues

Net income from continuing operations for the quarter jumped 19.5% to a record level of $226.2 million from $189.3 million in the year-ago quarter. Notably, adjusted earnings came in at $2.07 per share, up 16.9% year over year. Also, the bottom line surpassed the Zacks Consensus Estimate of $1.94.

Revenues increased 7.4% year over year to a record level of $1,793.7 million. The metric also improved 7.6% organically. Moreover, the top line surpassed the consensus estimate of $1,782 million.

For fiscal 2019, net income and earnings per share from continuing operations were $882.6 million and $7.97, respectively, compared with $783.9 million and $7.03 last fiscal. The company reported adjusted earnings of $7.60 per share for fiscal 2019. Revenues for the year were $6,892.3 million compared with $6,476.6 million in fiscal 2018. The increase was driven by an organic growth rate of 6.5%.

Segmental Breakup

The Uniform Rental and Facility Services segment generated revenues worth $1,428.4 million in the fiscal fourth quarter, up 6.4% year over year. First Aid and Safety Services segment’s top line improved 10.7% year over year to $163.5 million. Aggregate revenues from Other businesses came in at $201.8 million, up 12.7%.

Costs/Margins

Aggregate cost and expenses for the fiscal fourth quarter was $1,479.3 million, up 5.4% year over year. Gross profit margin improved 80 basis points (bps) to 45.9%.

Selling and administrative expenses were up 7.7% year over year to $508.2 million in the reported quarter. Integration expenses related to G&K Services, Inc. (acquired in March 2017) declined 93.9% year over year to $0.9 million. Operating margin in the reported quarter was 17.5%, up 160 bps.

Balance Sheet/Cash Flow

At the end of the fiscal fourth quarter, cash and cash equivalents came in at $96.6 million compared with $138.7 million at the end of prior fiscal year. Total long-term liabilities increased to $3,306.2 million from $3,165.8 million recorded a year ago.

For fiscal 2019, the company generated $1,067.8 million cash from operating activities, up 10.8% year over year. Capital expenditures were $276.8 million, up 1.9% year over year.

In fiscal 2019, Cintas repurchased common stock worth $1,016.3 million under its buyback program. Notably, the company paid an annual dividend of $220.8 million during fiscal 2019.

Outlook

For fiscal 2020 (ending May 2020), revenues are expected in the range of $7.24-$7.31 billion while earnings from continuing operations are expected to be between $8.30 and $8.45 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Cintas has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise 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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