10-QPeriod: Q1 FY2011

CINTAS CORP Quarterly Report for Q1 Ended Aug 31, 2010

Filed October 8, 2010For Securities:CTAS

Summary

Cintas Corporation reported a modest increase in revenue for the fiscal first quarter ended August 31, 2010, compared to the prior year, driven by growth in "Other Services" and acquisitions, offsetting slower performance in its core "Rental Uniforms and Ancillary Products" segment. Net income saw a healthy rise, largely due to a year-over-year reduction in expenses, notably the absence of a significant legal settlement expense incurred in the prior year, and a lower effective tax rate. Diluted Earnings Per Share (EPS) improved by 14.3%, reflecting the positive impact on profitability. The company's balance sheet indicates a decrease in cash and cash equivalents, primarily due to substantial share repurchases, capital expenditures, and acquisitions. Despite this, Cintas maintains a solid liquidity position and a stable debt-to-capitalization ratio. The company's strategic focus remains on expanding customer penetration and broadening its customer base through organic growth and strategic acquisitions across its diverse service offerings.

Financial Highlights

50 data points
Beta

Revenue

$923.90M

42.6% Gross Margin

Net Income

$61.28M

6.6% Net Margin

EPS (Diluted)

$0.10

Total Assets

$3.89B

Cash & Equivalents

$290.65M

Free Cash Flow

-$12.90M

Financial Statements
Beta
Revenue$923.90M
Gross Profit$393.67M
SG&A Expenses$293.43M
Operating Income$100.25M
Interest Expense$12.27M
Net Income$61.28M
EPS (Basic)$0.10
EPS (Diluted)$0.10
Shares Outstanding (Basic)608.66M
Shares Outstanding (Diluted)608.66M

Key Highlights

  • 1Total revenue increased by 3.6% to $923.9 million, driven by a 2.8% internal growth and acquisitions.
  • 2Net income increased by 13.5% to $61.3 million, and diluted EPS grew by 14.3% to $0.40.
  • 3The "Other Services" revenue segment showed strong growth of 12.9%, particularly in Document Management Services (+30.7%) and Uniform Direct Sales (+10.6%).
  • 4Operating income remained robust at $100.2 million, a slight increase from $98.9 million in the prior year.
  • 5Cash and cash equivalents decreased significantly by $120.6 million, primarily due to $131.3 million in share repurchases and $47.8 million in acquisitions.
  • 6The effective tax rate decreased from 38.1% to 30.8% due to the closure of certain tax audits.
  • 7The company renewed its revolving credit facility with a reduced capacity of $300 million, with no outstanding borrowings on it as of the period end.

Frequently Asked Questions

Revenue growth was primarily driven by an internal increase of 2.8% and an additional 0.8% from acquisitions. The "Other Services" segment, which includes Uniform Direct Sales, First Aid, Safety and Fire Protection Services, and Document Management Services, saw a substantial 12.9% increase, with Document Management Services experiencing over 30% growth.

Profitability improved due to a combination of factors including revenue growth, a lower effective tax rate (down to 30.8% from 38.1%), and the absence of a large legal settlement expense that impacted the prior year's results. While selling and administrative expenses increased, the overall net income and EPS showed significant year-over-year improvement.

Cintas experienced a significant decrease in cash and cash equivalents ($120.6 million). This was largely a result of substantial share repurchases ($131.3 million), capital expenditures ($48.2 million), and business acquisitions ($47.8 million). Despite the reduction, the company still held $290.6 million in cash and cash equivalents, with plans to use these funds for future expansion, capital expenditures, and acquisitions.

Cintas has $775 million in fixed-rate notes outstanding. The company renewed its revolving credit facility in September 2010, reducing its capacity to $300 million but adding an accordion feature for up to $450 million. Importantly, there were no outstanding borrowings on the revolving credit facility or commercial paper at the end of the reporting period, indicating a strong liquidity position.