Cintas Corporation (CTAS) reported first-quarter fiscal 2015 (ended Aug 31, 2014) adjusted earnings of 78 cents per share versus 62 cents in the year-ago quarter, beating the Zacks Consensus Estimate of 76 cents per share. The 25.8% year-over-year increase in earnings was primarily attributable to increased cost efficiency that led to operating margin expansion.
Adjusted net income for the reported quarter came in at $92.4 million, up 20.8% compared with $76.5 million in the year-earlier quarter.
Quarterly revenues remained steady year over year at $1.1 billion, in line with the Zacks Consensus Estimate. Organic growth (adjusted for the impact of acquisitions) was impressive at 7.2%.
Operating income in the reported quarter climbed 17.1% year over year to $163.5 million. Operating margin was 14.8%, 140 basis points higher than 12.4% in the year-earlier quarter.
Segment Performance
Rental Uniforms and Ancillary Products revenues for the quarter improved 8.1% year over year to $856.9 million driven by the improved pricing environment. The segment accounted for 78% of the total revenue, with organic growth of 8.1%. Gross margin increased to 45.1% from 42.6% in the year-ago quarter due to improved operating efficiency.
Revenues for Uniform Direct Sales were $105.1 million (down 2.2% year over year), as lower sales to Fortune 1000 national accounts continued to be a drag. The segment accounted for 9% of the company’s revenues. Gross margin was 29%, up from 27.7% in the year-ago quarter, as the higher-margin hospitality business had more weight in the company’s sales mix.
First Aid, Safety and Fire Protection Services revenues climbed 11.3% to $140.1 million, representing 13% of the company’s total revenue. Gross margin remained relatively steady year over year at 43.7%. Organic growth for the segment came in at 10.1%.
Change in Segment Reporting
During the last quarter, Cintas divested its Document Shredding business by forming a new partnership with the shareholders of privately-held document management firm Shred-it International Inc. The agreement provides for the formation of a new company, 42% of which will be owned by Cintas and 58% by the shareholders of Shred-it. The new entity will operate under the Shred-it brand, combining the Document Shredding businesses of both the companies and is expected to have annual revenues in excess of $600 million.
Effective from this quarter, Cintas will record its 42% share of the partnership income within SG&A line on the income statement and will no longer record the revenue from this business under its Document Management Services segment. During the first quarter of fiscal 2015, there was no impact from the partnership on the results.
Financial Position
Cintas has a solid financial position with adequate liquidity. Cash and cash equivalents stood at $581.4 million at quarter-end. Capital expenditures for the quarter were $68.5 million. Cintas expects capital expenditures for fiscal 2015 to be in the range of $275 million to $325 million.
Long-term debt remained steady at $1.3 billion. Cash flow from operations totaled $148.2 million for the quarter, compared with $82.6 million in the year-ago period. Free cash flow for the quarter increased to $80.2 million from $45.1 million in the year-earlier period.
Moving Forward
For fiscal 2015, Cintas decreased its revenue guidance in the range of $4.40 billion–$4.475 billion from its previous guidance of $4.425 billion–$4.525 billion, to account for the change in classification of the Document Storage and Imaging business to discontinued operations.
Earnings guidance for fiscal 2015 was revised upward from its earlier range of $3.06–3.15 per share to $3.20–$3.29. The guidance includes a gain of 4 cents from the Shred-it transaction.
Cintas continues to deliver organic growth through superior execution of its operational plans. The company expects to build strong momentum in the coming quarters as it focuses on its rental first aid and direct sale businesses. We remain encouraged by the company’s relatively strong quarterly performance.
Cintas currently has a Zacks Rank #1 (Strong Buy). Some other notable stocks that are slated to report earnings very soon include Alcoa Inc. (AA), Johnson & Johnson (JNJ) and Progressive Corp. (PGR), each sporting a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment