Cintas Corporation
(
CTAS
) reported relatively modest fiscal 2013 third-quarter (ended Feb
28, 2013) results with net income of $74.7 million or 60 cents
per share compared with $76.0 million or 58 cents per share in
the year-earlier quarter. Although earnings per share for the
reported quarter increased year over year, it missed the Zacks
Consensus Estimate by a couple of cents.
Operational Update
Total quarterly revenue increased 6.3% year over year to $1.08
billion, marginally ahead of the Zacks Consensus Estimate of
$1.06 billion. Taking in to account the effect of one less
workday in the reported quarter compared with the previous year,
total revenue increased 7.9%. The record top-line performance was
primarily attributable to strong Uniform Direct Sales.
Organic growth (adjusted for acquisitions and the impact of one
less workday) was 6.9% with strong execution by the global
accounts and supply chain teams. However, the dearth of any
meaningful customer hiring resulted in increased rental material
cost and capacity pressure on routes, owing to which rental
segment material costs exceeded year over year. Consequently,
operating income for the quarter dipped 3.3% to $133.0 million.
Segment Performance
Rental Uniforms and Ancillary Products
revenues for the quarter improved 3.9% year over year to $748.9
million, accounting for 70% of the total company revenue. Gross
margin decreased 120 bps compared with the year-ago quarter to
41.9% due to the adverse effect of one less workday and higher
material and service costs associated with added route capacity.
Uniform Direct Sales
revenues totaled $126.1 million, up 15.6% year over year and
accounted for 12% of the company's revenues. Gross margin
contracted 130 bps to 29.2% due to changes in product mix.
First Aid, Safety and Fire Protection Services
revenues climbed 11.3% to $112.9 million, representing 10% of the
company's total revenue. Gross margin improved 80 bps year over
year to 44.0% due to the continued efficiency gain by a
relatively strong performance in the segment.
Document Management Services
revenues increased 8.9% year over year to $87.8 million and
accounted for 8% of the total company revenue, with higher
average recycled paper price of $140 per ton vis-à-vis $135 per
ton in the prior-year quarter. Gross margin remained
comparatively flat at 47.1%.
Financial Position
Cash and cash equivalents were $217. 5 million at quarter end,
while long-term debt was $1.31 billion. Cash flow from operations
was $368.3 million during the first nine months of fiscal 2013,
representing a 19.7% increase from the comparable period in the
previous fiscal. Cash from operating activities in the reported
quarter was $141 million, compared with $132 million in the
year-ago quarter.
Revised Fiscal Outlook
Cintas raised its revenue guidance for fiscal 2013 in the range
of $4.3 billion-$4.325 billion from its earlier guidance of
$4.275-$4.325 billion. The company also raised its earnings
guidance to $2.50-$2.54 per share from its earlier projection of
$2.50-$2.58.
Moving Forward
Cintas continues to deliver organic growth through superior
execution of its operational plans. The company witnessed
top-line growth across all the segments in the reported quarter
and expects to continue this bull run in the fourth quarter as
well. We also remain encouraged with the relatively strong
performance of the company.
However, Cintas should remain wary of stiff competition from
rivals such as
G&K Services Inc.
(
GK
),
UniFirst Corp.
(
UNF
), and
ABM Industries Incorporated
(
ABM
). Cintas presently has a Zacks Rank #2 (Buy).
ABM INDUSTRIES (ABM): Free Stock Analysis
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CINTAS CORP (CTAS): Free Stock Analysis
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G&K SVCS A (GK): Free Stock Analysis
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UNIFIRST CORP (UNF): Free Stock Analysis
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