Markets

Cintas Beats Q1 Earnings on Solid Revenues, Updates View

Business services provider Cintas CorporationCTAS started fiscal 2016 on a strong note by recording solid first quarter results on the back of healthy top-line growth. The company reported first-quarter fiscal 2016 (ended Aug 31, 2015) net income of $106.2 million or 93 cents per share compared with $105.9 million or 89 cents per share in the year-earlier quarter. The reported earnings for the quarter comfortably beat the Zacks Consensus Estimate by 3 cents.

Cintas Corporation - Earnings Surprise | FindTheBest

Quarterly revenues increased 8.8% year over year to $1,198.9 million and exceeded the Zacks Consensus Estimate of $1,174 million. Organic growth for the reported quarter was healthy at 6.8%. The superior top-line performance was primarily attributable to addition of newer customers and higher penetration of existing customers through better and innovative products and services.

Gross margin for the quarter was 43.7% compared with 43.4% in the prior-year quarter. Operating income in the reported quarter was $185.5 million, up 13.5% year over year. Operating margin was 15.5%, modestly higher than 14.8% in the year-earlier quarter.

Segment Performance

Cintas has reorganized its segments effective Jun 1, 2015 into the following operating segments: Uniform Rental and Facility Services, First Aid and Safety Services, and All Other. The All Other segment includes Fire Protection Services and the Direct Sale business division of the company.

Uniform Rental and Facility Services revenues for the quarter improved 7.4% year over year to $938.4 million. The segment accounted for 78.3% of the total revenue, with year-over-year organic growth of 6.8%. Gross margin for the segment increased 90 basis points to 44.7% in the reported quarter.

Revenues for First Aid and Safety Services were up 24.5% year over year to $99.5 million largely due to the Zee Medical acquisition. This segment recorded an organic growth of 10.5% and accounted for 8.3% of the company's revenues. Segment gross margin decreased to 42.3% in the reported quarter from 45.9% in the year-ago quarter due to conversion costs and amortization of intangible assets. The All Other segment recorded revenues of $161.0 million, representing 13.4% of the total revenue.

Financial Position

Cintas has a solid financial position with adequate liquidity. At quarter end, cash and cash equivalents were $146.9 million, while long-term debt was $1.1 billion.

Net cash from operating activities was $143.1 million for the reported quarter compared with $148.2 million in the prior year period. Capital expenditures in the quarter decreased to $62.6 million from $68.1 million in the year-earlier quarter. Free cash flow increased marginally to $80.5 million from $80.2 million in first-quarter fiscal 2015.

Cintas repurchased 4.5 million shares since the beginning of fiscal 2016 for $381.2 million. The company currently has $381.8 million worth of shares available for repurchase

Acquisition

During the quarter, Cintas acquired ZEE Medical -- a van-based provider of occupational first aid and safety products, training and services, for approximately $134 million in cash.

The strategic move by the company was aimed to expand its presence in North America in the first aid, safety, training and emergency products. This acquisition is expected to be accretive to future earnings and also likely to generate annual revenue of $110 million to $120 million. With this acquisition, the company identifies additional product and service opportunities for its current and future customers to expand its geographical footprint.

Updated Fiscal 2016 Guidance

Along with first-quarter fiscal 2016 results, Cintas revised its guidance for fiscal 2016 due to the acquisition of Zee Medical. The company expects fiscal 2016 revenues in the range of $4.80 billion to $4.88 billion, up 7.2%-9% year over year. Earnings from continuing operations are expected to be within $3.79-$3.88 per share, which represents a year-over-year improvement of 13.1%-15.8%.

Moving Forward

Cintas continues to deliver organic growth through superior execution of its operational plans. We are encouraged by the company's strong quarterly performance and its bullish guidance.

Cintas currently has a Zacks Rank #2 (Buy). Other stocks in the industry worth reckoning include Lionbridge Technologies Inc LIOX , NCI, Inc. NCIT and Ebix Inc. EBIX , each carrying the same Zacks Rank as Cintas.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

CINTAS CORP (CTAS): Free Stock Analysis Report

NCI INC-CL A (NCIT): Free Stock Analysis Report

LIONBRIDGE TECH (LIOX): Free Stock Analysis Report

EBIX INC (EBIX): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

EBIX CTAS

Other Topics

Earnings Stocks

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More