CTAS

Cintas Corporation (CTAS)

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Cintas (CTAS)

Q1 2012 Earnings Call

September 22, 2011 5:00 pm ET

Executives

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

J. Michael Hansen - Vice President and Treasurer

Analysts

Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division

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

Christopher McGinnis - Sidoti & Company, LLC

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

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

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

James Samford - Citigroup Inc, Research Division

Gary E. Bisbee - Barclays Capital, Research Division

David Ridley-Lane - BofA Merrill Lynch, Research Division

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'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 C. Gale

Thank you for joining us this evening to report our first quarter results for fiscal 2012. With me is Mike Hansen, Cintas' Vice President and Treasurer. After some commentary on the results, we will be happy to answer questions.

We are pleased to report that our first quarter revenue grew 10.1% from last year's first quarter to a record revenue of $1,017,000,000. It was also our second consecutive quarter of double-digit growth. Net income increased by 12% to $68.6 million, and earnings per share were $0.52, a 30% increase over last year.

As noted in the release, we are particularly pleased with the expansion of our operating margin compared to last year's first quarter. Despite increases in energy-related costs and garment material costs, our operating margin improved from 10.9% in last year's first quarter to 12.6% this year.

We continue to focus on selling profitable business, controlling our costs and improving the efficiency of our operations. These initiatives have allowed us to improve our overall gross margin by 60 basis points over last year's first quarter, more than offsetting the headwinds of higher energy-related costs and commodity costs, and to improve our SG&A by 130 basis points compared to last year's first quarter.

Looking forward, we reiterate our guidance for fiscal 2012, which includes revenue in the range of $4 billion to $4.1 billion and earnings per diluted share in the range of $1.97 to $2.05. While we continue to be encouraged by our results, we are cautious about the state of the U.S. economy. We have now seen 4 consecutive months of employment growth under 100,000 per month. We have also seen numerous 2011 and 2012 economic forecasts being revised downward, which have generally resulted in lower employment expectations for those years. While we have not yet seen a significant change in our business due to the state of the economy, we do, however, remain cautious.

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.

Now I would like to turn the call over to Mike Hansen for more details on the first quarter.

J. Michael Hansen

Thanks, Bill, and good evening. As Bill mentioned, total revenue increased 10.1% from the first quarter of last year, with total company organic growth being 7.6%. Total company gross margin for the first quarter was 43.2%, which is up from last year's first quarter gross margin of 42.6% despite a 50-basis-point increase in energy-related costs.

Before providing you with details about our first quarter performance, please note that there were 66 workdays in our first quarter, which is the same as last year. As a planning note for the remainder of fiscal 2012, our workdays will be as follows: 65 in the second quarter, 65 in the third quarter and 66 in the fourth quarter. The total workdays in the fiscal 2012 year are 262.

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.

The rental uniforms and ancillary products operating segment consists of the rental and servicing of uniforms, masks, towels and other related items. The 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 first quarter. Rental revenue was $719.4 million for the quarter, which is up 9.4% compared to last year's first quarter and up 7.3% organically over last year.

We continue to be pleased with our increase in uniform wearers and the growth generated by our newer product lines. Our new business and customer adds through the quarter were not quite as robust as in our fourth quarter. We did, however, begin to see some easing of the pricing environment during the quarter as expected, most likely due to the input costs headwinds facing our industry.

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