Why Is Cintas (CTAS) Up 5.7% Since Last Earnings Report?
A month has gone by since the last earnings report for Cintas (CTAS). Shares have added about 5.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cintas due for a pullback? 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 catalysts.
Cintas Q4 Earnings & Sales Beat Estimates, Fall Y/Y
Cintas has kept its earnings streak alive in the fourth quarter of fiscal 2020 (ended May 31, 2020). It recorded an earnings beat of 9.8% and a sales beat of 4.1% in the quarter under review.
The company’s earnings in the reported quarter were $1.35 per share, surpassing the Zacks Consensus Estimate of $1.23. On a year-over-year basis, the bottom line decreased 34.8% from the year-ago figure of $2.07 on weak sales and a fall in the margin.
For fiscal 2020, the company’s earnings were $8.11 per share, surpassing the Zacks Consensus Estimate of $7.98. Also, the bottom line expanded 6.7% year over year.
In the quarter under review, Cintas’ net sales were $1,619.6 million, reflecting a decline of 9.7% from the year-ago quarter. Organic sales in the quarter decreased 8.4% year over year. The pandemic played a spoilsport in the quarter.
Further, the top line surpassed the Zacks Consensus Estimate of $1,556 million.
The company has two reportable segments — Uniform Rental and Facility Services, and First Aid and Safety Services. Other businesses like Uniform Direct Sale and Fire Protection Services are included in All Other. Quarterly sales data is briefly discussed below.
Revenues from the Uniform Rental and Facility Services segment (representing 78.5% of the reported quarter’s net sales) were $1,271 million, decreasing 11% year over year. Organic sales in the quarter decreased 9.6%.
Revenues from the First Aid and Safety Services segment (representing 12.1% of the reported quarter’s net sales) totaled $196.3 million, increasing 20% year over year. Organic sales in the quarter increased 21.9%.
Revenues from the All Other business (representing 9.4% of the reported quarter’s net sales) were $152.3 million, decreasing 24.5% year over year.
For fiscal 2020, the company’s net sales were $7.085 billion, surpassing the Zacks Consensus Estimate of $7.02 billion. On a year-over-year basis, net sales increased 2.8%.
In the quarter under review, Cintas’ cost of sales (comprising costs related to uniform rental and facility services as well as others) decreased 6% year over year to $911.8 million. It represented 56.3% of net sales compared with 54.1% in the year-ago quarter. Gross profit in the quarter decreased 14.1% year over year to $707.8 million. Gross margin decreased 220 basis points (bps) year over year to 43.7%.
Selling and administrative expenses totaled $500.4 million, reflecting a 1.5% decline from the year-ago figure. It represented 30.9% of net sales. Operating margin in the quarter decreased 470 bps year over year to 12.8%.
Balance Sheet and Cash Flow
Exiting the quarter, Cintas’ cash and cash equivalents were $145.4 million, down 38% from $234.4 million at the end of the previous quarter. Long-term debt remained more or less unchanged sequentially at $2,539.7 million.
In fiscal 2020, the company generated net cash of $1,291.5 million from operating activities, increasing 20.9% from the previous year. Capital expenditure totaled $230.3 million, reflecting a year-over-year decline of 16.8%. Free cash flow increased 34.1% year over year to $1,061.2 million.
During fiscal 2020, the company repurchased shares worth $464.5 million and paid out dividends totaling $268 million.
The company is wary about the uncertainties related to the coronavirus outbreak. It refrained from providing any projections for fiscal 2021 (ending May 2021).
However, the company provided projections for the first quarter. It anticipates revenues of $1.675-$1.700 billion for the quarter, while earnings are expected to be $2.00-$2.20 per share.
The projections for both revenues and earnings suggest improvements from that reported in the fourth quarter of fiscal 2020.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 31.27% due to these changes.
Currently, Cintas has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Cintas has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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