01—Abstract
Summary
Summary of the 10-Q filed January 9, 2013. Cited figures are marked; the original filing is the authoritative source.
Cintas Corporation reported solid financial results for the second quarter and the first half of fiscal year 2013, ending November 30, 2012.
Total revenue increased by 4.0%a for the quarter and 3.7% for the six-month period, driven primarily by organic growth in the core Rental Uniforms and Ancillary Products segment. Net income saw a healthy increase of 4.9% for the quarter and 8.2% for the six-month period, with diluted earnings per share rising by 10.5% and 12.8% respectively, benefiting from share repurchases. The company demonstrated effective cost management, with selling and administrative expenses decreasing for both periods.
While the cost of rental uniforms and ancillary products increased due to higher sales volume and material costs, operational efficiencies and strong top-line growth in the core segment helped maintain profitability. The company also successfully managed its debt, issuing new senior notes with a lower interest rate, which contributed to a reduction in net interest expense. Cintas remains focused on its strategy of increasing customer penetration and broadening its customer base, supported by investments in its sales force and strategic acquisitions.
02—Key points
Key Highlights
- Total revenue grew by 4.0% in Q2 FY13 and 3.7% for the first six months of FY13, driven by organic growth.
- Net income increased by 4.9% for the quarter and 8.2% for the six-month period year-over-year.
- Diluted EPS rose by 10.5% for the quarter and 12.8% for the six-month period, aided by a decrease in outstanding shares due to share buybacks.
- The Rental Uniforms and Ancillary Products segment continues to be the primary revenue driver, showing a 4.6% increase in Q2 and 4.7% for the six months.
- Selling and administrative expenses decreased year-over-year for both the quarter and the six-month period.
- The company issued $250 million in new senior notes at a 3.25% interest rate, helping to reduce net interest expense.
- Cintas maintained compliance with all significant debt covenants as of November 30, 2012.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2013, Cintas Corp kept $0.07.
- Revenue$1.06B100.0%
- Cost of revenue−$628.4M59.3%
- Gross profit$432.0M40.7%
- Operating costs−$293.0M27.6%
- Operating income$139.0M13.1%
- Interest, other & tax−$61.0M5.8%
- Net income$78.0M7.4%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2013filed January 9, 2013Financial Statements
Q2 FY2013 against Q2 FY2012
| Line item | Q2 FY2013Q2 FY2012 | Change |
|---|---|---|
| Revenue | $1.06B$1.02B | +4.0% |
| Gross Profit | $432.04M$429.80M | +0.5% |
| SG&A Expenses | $293.01M$297.11M | −1.4% |
| Operating Income | $139.02M$132.69M | +4.8% |
| Interest Expense | $16.29M$17.73M | −8.1% |
| Net Income | $78.03M$74.35M | +4.9% |
| EPS (Basic) | $0.16$0.14 | +10.5% |
| EPS (Diluted) | $0.16$0.14 | +10.5% |
| Shares Outstanding (Basic) | 496.74M518.91M | −4.3% |
| Shares Outstanding (Diluted) | 498.44M518.96M | −4.0% |
05—Questions
Frequently Asked Questions
What was the primary driver of revenue growth in this quarter?
The primary driver of revenue growth was the Rental Uniforms and Ancillary Products operating segment, which saw a 4.6% increase in revenue for the quarter. This growth was largely organic, stemming from improvements in sales representative productivity and an increase in the number of sales representatives.
How did the company manage its debt and interest expenses?
Cintas repaid $225 million of its 6.00% senior notes due 2012 and issued $250 million of new senior notes due 2022 with a lower interest rate of 3.25%. This refinancing strategy contributed to a decrease in net interest expense for both the three and six-month periods.
What is the outlook for the Document Management Services segment?
The Document Management Services segment experienced a decrease in revenue, particularly organic revenue, due to a significant decline in recycled paper prices which impacts revenue from the sale of shredded paper. While acquisitions provided some growth, the segment's profitability was negatively affected by these lower commodity prices.
Are there any significant legal proceedings that could impact the company?
Cintas is involved in class-action lawsuits related to alleged discrimination in hiring practices. While management believes the aggregate liability from ordinary course of business claims will not be material, the outcome of these specific litigations, if adverse, could potentially have a material impact on the company's financial condition, results of operations, or cash flows. The company is actively contesting these matters and has filed for rehearing en banc in one case.
06—Continue