Cintas Corporation (CTAS)

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Cintas (CTAS)

Q4 2013 Earnings Call

July 15, 2013 5:00 pm ET


William C. Gale - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

J. Michael Hansen - Vice President and Treasurer


Joe Box - KeyBanc Capital Markets Inc., Research Division

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

Nathan Brochmann - William Blair & Company L.L.C., Research Division

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

John M. Healy - Northcoast Research

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Dan Dolev - Jefferies & Company, Inc., Research Division

Gregory W. Halter - LJR Great Lakes Review

Sara Gubins - BofA Merrill Lynch, Research Division



Good day, everyone, and welcome to the Cintas Quarterly Earnings Results Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Bill Gale, Senior Vice President of Finance and Chief Financial Officer. Please go ahead, sir.

William C. Gale

Good evening. Thank you for joining us as we report our fourth quarter results for fiscal 2013. With me is Mike Hansen, Cintas' Vice President and Treasurer. After some commentary on the results, we will be happy to answer questions.

The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. This conference call contains forward-looking statements that reflect the company's current views as to future events and financial performance. These forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those we may discuss. I refer you to the discussion on these points contained in our most recent filings with the SEC.

We are pleased to report fourth quarter revenue of $1,129,000,000, which represents record quarterly revenue for Cintas and growth of 7.2% from last year's fourth quarter. Organic growth, which adjusts for the impact of acquisitions, was 6.2%. Our operating income was $153.9 million, which is 13.6% of revenue, an improvement over the 13.4% in last year's fourth quarter. This operating margin improvement comes despite adding route capacity during the past 3 quarters, material cost headwinds due to a high volume of new business sold during the fiscal year and a reduction in recycled paper prices of about $10 per ton during the fourth quarter compared to last year's fourth quarter.

Fourth quarter net income increased by 9.4% to $86 million. Earnings per diluted share were $0.69, a 15% increase over last year's fourth quarter EPS of $0.60. Our EPS growth rate was higher than our net income growth rate because of the positive impact of our share buyback program. We purchased roughly $338 million of Cintas stock in the last 15 months, which certainly had a positive impact on our EPS growth rate. During the fourth quarter of fiscal '13, we purchased about $28 million of Cintas stock, which brought our fiscal year 2013 purchases to roughly $208 million. As of May 31, we had about $162 million available under the current board authorization for future share purchases.

May 31 marked the conclusion of a very successful year at Cintas, one in which we achieved both record sales and earnings per share levels. Fiscal '13 revenue topped $4.3 billion, and earnings per share grew 11% to $2.52. This was the third consecutive fiscal year of double-digit earnings per share growth. In fact, our EPS grew 80% in that 3-year period.

Operating income for fiscal 2013 grew by 4.7% over last year to $565 million. This operating income increase came despite a negative year-over-year recycled paper price impact in excess of $13 million. This resulted in a drag on operating margin of 30 basis points.

In addition, operating income increased despite the addition of route capacity during the final 3 quarters of the fiscal year. This route capacity was necessary due to the solid new business sales during the last few years. Our employees, who we call partners, continue to do a great job of executing our game plan in order to achieve these record fiscal 2013 results.

Now I would like to turn the call over to Mike for more details on the fourth quarter, after which, I will provide additional comments on our fiscal 2014 guidance.

J. Michael Hansen

Thanks, Bill, and good evening. As Bill mentioned, total revenue increased 7.2% from the fourth quarter of last year, with total company organic growth being 6.2%. Total company gross margin for the fourth quarter was 41.4%, which is down from last year's fourth quarter gross margin of 42.1% but slightly better than this year's third quarter gross margin of 41.1%. I will discuss these items in more detail by segment.

Before doing so, let me remind you that there were 66 workdays in our fourth quarter, which is the same as last year's fourth quarter. In fiscal '14, we will have 65 workdays in each quarter for a total of 260 workdays. This creates year-over-year workday differences in each quarter except the second and results in 1 less workday for the entire fiscal year.

We have 4 reportable operating segments: Rental Uniforms and Ancillary Products; Uniform Direct Sales; First Aid, Safety and Fire Protection Services and Document Management Services. Uniform Direct Sales, First Aid, Safety and Fire Protection Services and Document Management Services are combined and presented as other services on the face of the income statement.

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