10-QPeriod: Q1 FY2017

CINTAS CORP Quarterly Report for Q1 Ended Aug 31, 2016

Filed October 11, 2016For Securities:CTAS

Summary

Cintas Corporation's fiscal Q1 2017 report (ending August 31, 2016) demonstrates robust growth and strategic expansion. The company reported a significant increase in revenue, up 7.9% year-over-year, driven by both organic growth and strategic acquisitions. Net income from continuing operations saw a substantial increase of 30.0%, leading to a 35.5% rise in diluted EPS from continuing operations to $1.26. This performance highlights the company's effective execution of its business strategy, focusing on increasing customer penetration and broadening its customer base through both internal efforts and acquisitions. The company also provided key updates on its financial condition and future outlook. Cintas announced a definitive agreement to acquire G&K Services for approximately $2.2 billion, a move expected to significantly expand its market presence. This acquisition is being financed through a combination of debt and Cintas' strong operating cash flow. The report also details Cintas' ongoing commitment to returning capital to shareholders through share repurchases, with a new $500 million program authorized, demonstrating confidence in its financial strength and future prospects.

Financial Highlights

51 data points
Beta

Revenue

$1.27B

45.5% Gross Margin

Net Income

$138.09M

10.9% Net Margin

EPS (Diluted)

$0.32

Total Assets

$4.17B

Cash & Equivalents

$99.21M

Free Cash Flow

$79.01M

Financial Statements
Beta
Revenue$1.27B
Gross Profit$576.43M
SG&A Expenses$369.70M
Operating Income$203.94M
Interest Expense$14.17M
Net Income$138.09M
EPS (Basic)$0.32
EPS (Diluted)$0.32
Shares Outstanding (Basic)417.93M
Shares Outstanding (Diluted)428.46M

Key Highlights

  • 1Total revenue increased by 7.9% to $1.29 billion, with organic growth contributing 5.7%.
  • 2Net income from continuing operations rose by 30.0% to $138.1 million.
  • 3Diluted earnings per share from continuing operations increased by 35.5% to $1.26.
  • 4The company announced a definitive agreement to acquire G&K Services for approximately $2.2 billion.
  • 5Operating income for the Uniform Rental and Facility Services segment grew by 12.0%, and its gross margin improved by 120 basis points.
  • 6The First Aid and Safety Services segment revenue increased by 25.5%, driven by the ZEE acquisition and organic growth.
  • 7A new $500 million share repurchase program was authorized, underscoring confidence in financial strength.

Frequently Asked Questions

Cintas reported a 7.9% increase in total revenue for the three months ended August 31, 2016, reaching $1.29 billion. This growth was driven by a combination of organic sales volume increase (5.7%) and contributions from acquisitions (2.3%). The Uniform Rental and Facility Services segment saw a 6.5% revenue increase, while the First Aid and Safety Services segment experienced a strong 25.5% growth, largely due to the ZEE acquisition.

Profitability showed significant improvement. Net income from continuing operations increased by 30.0% to $138.1 million. Consequently, diluted earnings per share from continuing operations grew by 35.5% to $1.26. This strong performance reflects improved gross margins, particularly in the Uniform Rental and Facility Services segment, and effective cost management, despite increased selling and administrative expenses related to SAP implementation and acquisitions.

The most significant strategic development is the announced definitive agreement to acquire G&K Services for approximately $2.2 billion. This acquisition is expected to bolster Cintas' market position. Additionally, the company continues to actively manage its capital structure, authorizing a new $500 million share buyback program, signaling confidence in its financial stability and future cash generation.

Cintas is financing the G&K Services acquisition through a combination of short- and long-term debt. The company amended its credit agreement to increase the revolving credit facility capacity to $600 million and added a $250 million term loan facility, to be funded upon closing the merger. As of the reporting date, Cintas was in compliance with all debt covenants and maintained investment-grade credit ratings, although Moody's rating was under review following the acquisition announcement.