CTAS

Cintas Corporation (CTAS)

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Cintas Corporation (CTAS)

F2Q2011 (Qtr End 11/30/2010) Earnings Call

December 21, 2010 5:00 pm ET

Executives

Bill Gale - SVP, Finance and CFO

Mike Hansen - Treasurer

Analysts

John Healy - Northcoast Research

Gary Bisbee - Barclays

Scott Schneeberger - Oppenheimer

Ashwin Shirvaikar - Citi

Vance Edelson - Morgan Stanley

Andrew Steinerman - JPMorgan

Greg Halter - Great Lakes Review

Justin Hawk - Robert W. Baird

Chris McGinnis - Sidoti & Company

Presentation

Operator

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.

Bill Gale

Good evening and thank you for joining us. With me today is Mike Hansen, Cintas' Vice President and Treasurer. After some comments on the quarter's results, we will open the call to questions. For the quarter ending November 30, 2010, total revenue was $936.6 million, an increase of almost 6% compared to the second quarter last year. Organic growth was 4.2%.

As noted in the release, revenue in all of our business segments grew over last year, with rates even better in Rental, and First Aid, and Safety and Fire than what we saw in the first quarter of this fiscal year. We also saw improved revenue per work day of 3% compared to our first quarter results. Net income was $55.9 million and earnings per diluted share were $0.38.

Our tax rate in the second quarter was 38.3% versus 30.8% in our first quarter. The first quarter tax rate reflected the release of certain tax reserves, resulting from the resolution of several tax audits. As we mentioned in our first quarter call, we expected the tax rate to be higher in the second through fourth quarters.

While unemployment continues to be stubbornly high, we are encouraged that business confidence has appeared to turn the corner. We have seen the third consecutive quarter of increased wears in our uniform rental business and our direct sale business posted another good growth quarter. Our emerging businesses are First Aid, Safety and Fire Protection and Document Management had good revenue increases also.

We continue to reiterate the guidance we've provided at the beginning of the fiscal year and updated at the end of the first quarter for the share buyback. We expect our revenues to be between $3.55 billion and $3.75 billion and our earnings per share to be between $1.55 and $1.63. Our financial condition remains very strong, while we did use approximately $200 million of our U.S. cash to purchase our stock.

We still have sufficient borrowing capacity, as well as sufficient cash outside the U.S. to fund our growth initiatives. The board of directors also gave us another $500 million share authorization in late October, to be used as directed by the board if market conditions warrant. None of that authorization has been used as of this time.

Cintas paid its annual dividend of $0.49 per share on December 15, approximately three months earlier than our traditional March date. The dividend was increased from the $0.48 paid last year, the 28th consecutive year we have increased our annual dividend since we went public in 1983.

The last couple of years have been very difficult for the U.S. economy with the loss of millions of jobs, while it could take some time for employment to return to pre-recession levels. We are encouraged by some of the positive signs that are appearing. Generally speaking, our customers businesses have stabilized their work forces and appear to be on the verge of modestly expanding.

We also are very appreciative of the efforts of all of our employees, who we call partners, who made it their mission to take care of our customers and to continue to keep Cintas profitable and cash flow positive during the difficult past few years. We see growth opportunities with all of our business segments. We believe that with the growth as well as the ongoing productivity initiatives underway in the company, we will continue to see margin improvement and positive operating cash flow.

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 flings with the SEC.

I will now turn the call over to Mike Hansen.

Mike Hansen

Thank you, Bill. Total revenue for the second quarter of fiscal 2011 was $936.6 million, representing a 5.9% increase from the second quarter of last year. Total company internal growth was 4.2%, an increase from the 2.8% internal growth in our first quarter. Each operating segment's revenue grew compared to last year, both in total and organically.

Before discussing the quarter in more detail, please note that our fiscal 2011 work days are the same as last year. That means there were 65 days in the second quarter and there will be 64 in Q3, and 66 in Q4.

We have four 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 and 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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