Cintas Corporation (CTAS)

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Cintas (CTAS)

Q3 2011 Earnings Call

March 22, 2011 5:00 pm ET


Michael Hansen -

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


Andrew Steinerman - JP Morgan Chase & Co

James Sanford - Merrill Lynch

Christopher McGinnis - Sidoti & Company, LLC

Vikram Malhorta

Scott Schneeberger - Oppenheimer & Co. Inc.

Andrew Wittmann - Robert W. Baird & Co. Incorporated

John Healy - Northcoast Research

Gary Bisbee - Barclays Capital



Good day, everyone and welcome to the Cintas Quarterly Earnings Results Conference Call. [Operator Instructions] At this time, I'd like to turn the call over to Mr. Bill Gale, Senior Vice President of Finance and Chief Financial Officer. Please go ahead, sir.

William Gale

Good evening, and thank you for joining us to discuss our third quarter fiscal 2011 results. 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 February 28, 2011, total revenue was $938 million, an 8.8% increase from the third quarter of fiscal 2010. Earnings per share were $0.41 versus $0.32 a year ago.

As provided in our press release, we are updating our guidance for the fiscal year ending May 31, 2011. We now expect total revenues to be between $3.75 billion and $3.77 billion, and our total earnings per share to be in the range of $1.60 to $1.63. This guidance takes into consideration our expectation that energy costs will pressure margins in our fourth quarter. We will not be providing guidance for our fiscal year ending May 31, 2012, until we release our fourth quarter 2011 results in mid-July.

We are pleased to see continuing improvement in our revenues among all four of our reportable segments. As mentioned in our release, we ramped up the investment in our sales force in last year's third quarter because we saw signs of stabilization in the U.S. economy. We also expected a slow employment recovery. And we wanted to create revenue momentum by not only increasing our sales force, but also by having the sales force focus on added penetration at existing customers. As we look one year later, we are pleased with the momentum created and with the improvement in our sales productivity. This improved sales productivity, coupled with the stabilization of the economy, have now given Cintas four consecutive quarters of increasing total and organic revenue growth beginning with our fiscal 2010 fourth quarter.

While we continue to see a general reluctance on the part of our customers to add employees, on a positive note, they continue to replace employees and large force -- workforce reductions are minimal. The higher revenue levels, along with ongoing cost control efforts at Cintas, have helped drive margin improvement despite the higher energy costs and the fewer workdays in our third quarter than the prior two quarters this fiscal year. These recent energy cost increases, if they continue, will pressure margins going forward. While not significantly affecting this fiscal year, continued elevated cotton costs could impact fiscal year 2012 results. We will discuss this impact further during our discussion of fiscal 2012 guidance in July.

Our balance sheet remains strong. Total net debt to capitalization is 25%. In December, we paid our annual dividend of $0.49 per share, the 28th consecutive year in which the dividend was increased dating back to 1983, the year we went public.

The Private Securities Litigation Reform Act of 1995 provides the 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. I will now turn the call over to Mike Hansen.

Michael Hansen

Thank you, Bill. Before discussing the quarter in more detail, please note that our fiscal 2011 workdays are the same as last year. That means there were 64 in the third quarter and there will be 66 in the fourth quarter. As a planning note for fiscal 2012, our workdays will be as follows: 66 in the first quarter, 65 in the second quarter, 65 in the third quarter and 66 in the fourth quarter.

As Bill mentioned, total revenue increased 8.8% from the third quarter of last year with total company organic growth being 5.5%. 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, 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. The Rental Uniforms and Ancillary Products operating segment consists of the rental and servicing of uniforms, mats, towels and other related items. This segment also includes restroom supplies and other facility products and services.

Rental Uniforms and Ancillary Products revenue accounted for 71% of company revenue in the third quarter. Rental revenue was $665 million for the quarter, which is up 6.8% compared to last year's third quarter. Organic growth was 4.3% over last year, which is an improvement from last quarter's organic growth of 1.9%. As mentioned earlier, our sales productivity continued to improve this quarter, both in new business opportunities and in customer penetration. We have also seen our account retention improve.

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