It has been about a month since the last earnings report for Cintas Corp. CTAS . Shares have lost over 5% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Cintas Misses Q2 Earnings Estimates
Cintas recorded relatively modest second-quarter fiscal 2017 (ended Nov 30, 2016) results on the back of healthy top-line growth. The company's net income was $123.5 million or $1.13 per share from continuing operations compared with $115.5 million or $1.03 per share in the year-earlier quarter. Adjusted earnings for the reported quarter were $1.15 per share, which missed the Zacks Consensus Estimate by $0.01.
Quarterly revenues increased 6.4% year over year to $1,296.9 million, exceeding the Zacks Consensus Estimate of $1,292 million. Organic growth for the reported quarter improved 5.7% year over year. The superior top-line performance was primarily attributable to the addition of new customers, strong customer retention and higher penetration of existing customers through better and innovative products and services.
Gross margin for the reported quarter was 44.1% compared with 43.3% in the prior-year quarter. Operating income was $202.9 million, up 1.3% year over year. Operating margin was 15.6%, slightly lower than 16.4% in the year-earlier quarter.
Uniform Rental and Facility Services revenues for the quarter improved 7.2% year over year to $1,005.6 million. The segment accounted for 77.5% of the total revenue, with year-over-year organic growth of 6.5%. Gross margin increased 80 basis points to 44.7% in the reported quarter.
Revenues from Other segment were up 3.5% year over year to $291.4 million. This segment includes the First Aid and Safety Services, and All Other businesses that comprise the Fire Protection Services and Direct Sale business. The First Aid and Safety Services recorded organic growth of 3.3%, while its gross margin increased 290 basis points to 46.1% due to improved sourcing and leverage from existing warehouses. The All Other segment recorded organic revenue growth of 2.8%, although gross margin decreased to 38.5% from 39.6% in the year-ago quarter due to macroeconomic volatility.
Cintas has a solid financial position with adequate liquidity. At the quarter end, cash and cash equivalents were $143.6 million, while long-term debt was $1,044.8 million.
Net cash from operating activities was $301.7 million for the first six months of fiscal 2017 compared with $265.0 million in the prior-year period. Capital expenditures in the quarter were $76 million. Free cash flow for the first half of fiscal 2017 increased to $146.5 million from $143.2 million in the year-ago period.
Updated Fiscal 2017 Guidance
Cintas updated its guidance for fiscal 2017. The company currently expects revenues in the range of $5.180 billion to $5.225 billion compared with earlier projection of $5.160 billion to $5.225 billion. Earnings from continuing operations are expected to be within $4.57-$4.65 per share, up from $4.55-$4.63 anticipated earlier. The guidance, however, has not taken into consideration any potential deterioration in the U.S. economy, future share repurchases or any future financial impact from the acquisition of G&K.
How Have Estimates Been Moving Since Then?
Since the earnings release, the stock has witnessed a mixed trend in fresh estimates. There have been two revisions in either direction.
Cintas Corp. Price and Consensus
At this time, Cintas stock has a nice Growth score of 'B', though it is lagging a lot on the momentum front with a 'D'. Following the same course, the stock was also allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, stocks has an aggregte VGM score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable soley for growth investors based on our styles scores.
While estimate revisions have been mixed, the magnitude of these revisions has been net zero. However, as the stock carries a Zacks Rank #2 (Buy), we are looking for an above average return in the next few months.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.