01—Abstract
Summary
Summary of the 10-Q filed January 9, 2015. Cited figures are marked; the original filing is the authoritative source.
Cintas Corporation (CTAS) reported solid performance for the second quarter of fiscal year 2015, ending November 29, 2014.
The company demonstrated consistent revenue growth, driven primarily by its core Rental Uniforms and Ancillary Products segment, which saw an organic increase of 8.1%a year-over-year. This growth was bolstered by new business acquisition and increased penetration within existing customer relationships, indicating the effectiveness of Cintas' sales strategy and strong customer service. While overall revenue remained relatively flat due to the deconsolidation of its shredding business, the underlying operational strength is evident.
Profitability improved significantly, with net income from continuing operations increasing by 22.5%b for the quarter, leading to a notable 24.6% rise in diluted earnings per share from continuing operations. This performance reflects improved gross margins and disciplined management of selling and administrative expenses, particularly within the flagship Rental Uniforms and Ancillary Products segment. The company also continued its commitment to shareholder returns through share repurchases and dividend payments.
02—Key points
Key Highlights
- Total revenue for the three months ended November 30, 2014, was approximately equal to the prior year, but organic revenue increased by 7.2%.
- Rental Uniforms and Ancillary Products segment revenue grew by 7.6%, with an organic increase of 8.1%, driven by new sales and deeper customer penetration.
- Net income from continuing operations increased by 22.5% to $103.4 million compared to the prior year period.
- Diluted earnings per share from continuing operations rose by 24.6% to $0.86.
- Gross margin for the Rental Uniforms and Ancillary Products segment improved to 44.8% from 42.9% in the prior year.
- The company repurchased approximately 0.8 million shares of common stock for $49.7 million during the six months ended November 30, 2014, as part of its ongoing share buyback program.
- Cintas declared a total dividend of $1.70 per share, paid on December 5, 2014.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2015, Cintas Corp kept $0.11.
- Revenue$1.12B100.0%
- Cost of revenue−$642.0M57.1%
- Gross profit$481.4M42.9%
- Operating costs−$299.8M26.7%
- Operating income$181.6M16.2%
- Interest, other & tax−$61.2M5.4%
- Net income$120.4M10.7%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2015filed January 9, 2015Financial Statements
Q2 FY2015 against Q2 FY2014
| Line item | Q2 FY2015Q2 FY2014 | Change |
|---|---|---|
| Revenue | $1.12B$1.12B | 0.0% |
| Gross Profit | $481.42M$467.08M | +3.1% |
| SG&A Expenses | $299.84M$314.87M | −4.8% |
| Operating Income | $181.58M$152.21M | +19.3% |
| Interest Expense | $15.93M$16.48M | −3.4% |
| Net Income | $120.41M$84.86M | +41.9% |
| EPS (Basic) | $0.26$0.18 | +43.7% |
| EPS (Diluted) | $0.25$0.17 | +42.9% |
| Shares Outstanding (Basic) | 468.46M479.63M | −2.3% |
| Shares Outstanding (Diluted) | 474.62M484.20M | −2.0% |
05—Questions
Frequently Asked Questions
What was the impact of the shredding business deconsolidation on Cintas' financial results?
The deconsolidation of the shredding business negatively impacted reported revenue by 7.0% for the quarter and 7.1% for the six-month period compared to the prior year. However, excluding this impact, the underlying organic revenue growth remained strong.
How did Cintas' core Rental Uniforms and Ancillary Products segment perform?
The Rental Uniforms and Ancillary Products segment showed robust performance, with revenue increasing by 7.6% year-over-year, driven by an 8.1% organic growth rate. This segment also saw an improvement in gross margin to 44.8% and a significant increase in income before income taxes.
What is Cintas doing to return value to shareholders?
Cintas is actively returning value to shareholders through its share repurchase program, having bought back approximately 0.8 million shares for $49.7 million in the first six months of fiscal 2015. Additionally, the company declared a total dividend of $1.70 per share, reflecting an increase over the prior year.
Are there any significant legal proceedings that could impact Cintas?
Cintas is involved in a class action lawsuit regarding alleged discrimination in hiring. While management believes ordinary course litigation will not have a material adverse effect, the outcome of this specific larger litigation is uncertain and could potentially result in a material liability. Cintas may enter settlement discussions if deemed in the best interest of shareholders.
06—Continue