10-QPeriod: Q1 FY2014

CINTAS CORP Quarterly Report for Q1 Ended Aug 31, 2013

Filed October 10, 2013For Securities:CTAS

Summary

Cintas Corporation's (CTAS) 10-Q filing for the period ending August 31, 2013, demonstrates solid top-line growth driven by its core Rental Uniforms and Ancillary Products segment, which saw a 5.0% revenue increase. Overall revenue grew by 6.6% to $1.12 billion, with organic growth of 7.1% indicating strong underlying business performance. While net income saw a modest increase of 1.3% to $77.8 million, diluted earnings per share rose 5.0% to $0.63, benefiting from a reduction in outstanding shares due to ongoing share repurchases. The company's financial health remains robust, supported by consistent operating cash flow, although slightly lower than the prior year. Cintas continues to actively manage its capital structure, with significant share buybacks undertaken during the quarter. Management highlights operational efficiencies, particularly in selling and administrative expenses, which grew slower than revenue, indicating effective cost leverage. However, investors should note potential headwinds from reduced industrial paper prices impacting the Document Management Services segment and the ongoing litigation risks, though management currently believes these will not have a material adverse effect.

Financial Highlights

50 data points
Beta

Revenue

$1.10B

41.5% Gross Margin

Net Income

$77.75M

7.1% Net Margin

EPS (Diluted)

$0.16

Total Assets

$4.31B

Cash & Equivalents

$348.86M

Free Cash Flow

$45.10M

Financial Statements
Beta
Revenue$1.10B
Gross Profit$456.10M
SG&A Expenses$316.48M
Operating Income$139.61M
Interest Expense$16.52M
Net Income$77.75M
EPS (Basic)$0.16
EPS (Diluted)$0.16
Shares Outstanding (Basic)488.52M
Shares Outstanding (Diluted)491.57M

Key Highlights

  • 1Total revenue increased by 6.6% to $1.12 billion for the three months ended August 31, 2013, compared to the prior year period.
  • 2Rental Uniforms and Ancillary Products segment revenue grew 5.0% to $792.9 million, indicating strength in the core business.
  • 3Net income rose slightly by 1.3% to $77.8 million, while diluted earnings per share increased by 5.0% to $0.63.
  • 4Operating cash flow was $82.6 million, a decrease from the prior year but indicative of continued operational generation.
  • 5The company continued its share repurchase program, buying back 2.1 million shares for $100.8 million during the quarter.
  • 6Selling and administrative expenses as a percentage of revenue were managed effectively, increasing at a slower rate than overall revenue.
  • 7Document Management Services segment revenue grew 10.3%, but profitability was impacted by a 25% decrease in recycled paper prices.

Frequently Asked Questions

Cintas reported a 6.6% increase in total revenue to $1.12 billion for the quarter ended August 31, 2013. Net income saw a modest increase of 1.3% to $77.8 million, while diluted earnings per share grew by 5.0% to $0.63, partly due to share repurchases.

The Rental Uniforms and Ancillary Products segment, Cintas' largest, showed strong revenue growth of 5.0%. The First Aid, Safety and Fire Protection Services segment also performed well with a 13.6% revenue increase. The Document Management Services segment saw a 10.3% revenue increase, but its profitability was negatively affected by lower recycled paper prices.

Net cash provided by operating activities was $82.6 million for the quarter. Cintas continues to actively engage in its share repurchase program, buying back approximately 2.1 million shares for $100.8 million during the period. The company also made significant acquisitions in the First Aid, Safety and Fire Protection Services and Document Management Services segments.

The report mentions ongoing class-action lawsuits related to alleged discrimination, which Cintas is contesting. While management believes these will not have a material adverse effect, they represent a potential risk. The company also faces market risk from fluctuations in interest rates and foreign currency exchange rates, primarily with the Canadian dollar, though hedging activities are noted as not significant.