10-QPeriod: Q3 FY2017

CINTAS CORP Quarterly Report for Q3 Ended Feb 28, 2017

Filed April 7, 2017For Securities:CTAS

Summary

Cintas Corporation's Q3 FY2017 report (filed April 2017) indicates a strong performance driven by consistent revenue growth across its core segments, particularly Uniform Rental and Facility Services. Total revenue for the nine months ended February 28, 2017, increased by 6.6% year-over-year to $3.87 billion, with organic growth contributing significantly. The company's focus on increasing customer penetration and broadening its customer base continues to yield positive results, supported by its extensive service professional network and strategic acquisitions. Despite increased selling and administrative expenses, partly due to investments in growth initiatives and preparations for the G&K Services acquisition, Cintas demonstrated solid profitability. Net income from continuing operations for the nine months rose by 12.2% to $380.2 million, translating to a 15.3% increase in diluted earnings per share from continuing operations to $3.47. The company also provided an update on its significant acquisition of G&K Services, Inc., which closed shortly after the quarter's end, signaling a strategic move to further consolidate its market position and drive future growth. Overall, the report suggests continued operational strength and a proactive approach to strategic expansion.

Financial Highlights

51 data points
Beta

Revenue

$1.26B

44.6% Gross Margin

Net Income

$118.00M

9.4% Net Margin

EPS (Diluted)

$0.27

Total Assets

$4.27B

Cash & Equivalents

$147.24M

Free Cash Flow

$118.59M

Financial Statements
Beta
Revenue$1.26B
Gross Profit$559.92M
SG&A Expenses$358.59M
Operating Income$191.99M
Interest Expense$13.70M
Net Income$118.00M
EPS (Basic)$0.28
EPS (Diluted)$0.27
Shares Outstanding (Basic)420.37M
Shares Outstanding (Diluted)431.57M

Key Highlights

  • 1Total revenue for the nine months ended February 28, 2017, increased by 6.6% to $3.87 billion, driven by strong performance in Uniform Rental and Facility Services.
  • 2Net income from continuing operations for the nine months increased by 12.2% to $380.2 million.
  • 3Diluted earnings per share from continuing operations grew by 15.3% to $3.47 for the nine-month period.
  • 4The company reported increased selling and administrative expenses, partly due to investments in new systems, growth initiatives, and costs associated with the pending G&K Services acquisition.
  • 5Cintas completed the acquisition of G&K Services, Inc. for approximately $2.2 billion shortly after the reporting period, a significant strategic move aimed at market expansion.
  • 6Cash flow from operating activities for the nine months was robust at $483.8 million, an increase from the prior year.
  • 7The company continued its share repurchase program, completing a $500 million buyback authorization and initiating a new one.

Frequently Asked Questions

Revenue growth was primarily driven by an increase in sales volume, reflecting higher penetration at existing customers and successful acquisition of new customers. The Uniform Rental and Facility Services segment showed particularly strong performance, along with continued growth in the First Aid and Safety Services segment.

The acquisition of G&K Services, Inc. was announced and in progress during this period. Transaction expenses related to the merger were recorded, impacting operating income and diluted earnings per share negatively by $0.06 for the three-month period and $0.10 for the nine-month period. Increased labor and employee-partner expenses were also incurred in anticipation of the acquisition. The acquisition itself was completed in March 2017, shortly after the reporting period.

Despite increased selling and administrative expenses related to investments and the G&K acquisition, Cintas demonstrated strong profitability. Net income and EPS from continuing operations saw significant increases. The company's ability to grow revenue and manage costs, particularly through operational efficiencies and strategic acquisitions like ZEE Medical, suggests a positive outlook for sustained profitability. The successful integration of G&K is expected to contribute to future growth and synergies.

The G&K acquisition was financed through a combination of new senior notes, a term loan, other borrowings, and cash on hand, totaling approximately $2.1 billion in new debt. The company also acquired $100 million in debt from G&K. While this significantly increased total debt, Cintas has a strong track record of accessing debt markets and maintains credit ratings that support its financing needs. The company expects to manage its debt load through operating cash flows and continued access to financing markets.