10-QPeriod: Q1 FY2018

CINTAS CORP Quarterly Report for Q1 Ended Aug 31, 2017

Filed October 6, 2017For Securities:CTAS

Summary

Cintas Corporation's (CTAS) 10-Q filing for the period ending August 31, 2017, reveals a strong performance driven by the significant acquisition of G&K Services, Inc. Total revenue surged by 27.2% to $1.61 billion, with organic growth contributing 8.3%. The Uniform Rental and Facility Services segment was the primary growth engine, up 31.9% year-over-year, largely due to the G&K acquisition. Despite increased costs and selling, general, and administrative expenses associated with integration and investments, Cintas demonstrated robust profitability. Net income from continuing operations increased by 18.3% to $161.1 million, translating to diluted EPS from continuing operations of $1.45, up 16.9%. The company also reported significant income from discontinued operations following the sale of a business. Cintas maintained a strong liquidity position, with operating cash flow increasing substantially to $254.4 million. The company remains compliant with its debt covenants and continues to manage its capital structure effectively.

Financial Highlights

51 data points
Beta

Revenue

$1.61B

45.9% Gross Margin

Net Income

$217.21M

13.5% Net Margin

EPS (Diluted)

$0.49

Total Assets

$6.85B

Cash & Equivalents

$191.41M

Free Cash Flow

$191.85M

Financial Statements
Beta
Revenue$1.61B
Gross Profit$739.35M
SG&A Expenses$486.28M
Operating Income$249.10M
Interest Expense$30.32M
Net Income$217.21M
EPS (Basic)$0.51
EPS (Diluted)$0.49
Shares Outstanding (Basic)422.96M
Shares Outstanding (Diluted)434.15M

Key Highlights

  • 1Total revenue increased by 27.2% to $1.61 billion, driven by a 18.9% contribution from acquisitions, primarily G&K Services, Inc., and 8.3% organic growth.
  • 2Uniform Rental and Facility Services segment revenue grew 31.9% to $1.31 billion, benefiting from both organic growth and the G&K acquisition.
  • 3Net income from continuing operations rose 18.3% to $161.1 million, with diluted EPS from continuing operations increasing 16.9% to $1.45.
  • 4Income from discontinued operations was a significant contributor ($56.1 million), reflecting the sale of a business during the quarter.
  • 5Operating cash flow surged by 61.4% to $254.4 million, indicating strong cash generation capabilities.
  • 6The company reported $2.81 billion in goodwill, primarily from the G&K acquisition, and has a substantial intangible asset base related to service contracts.
  • 7Cintas maintained compliance with all debt covenants and ended the period with $191.4 million in cash and cash equivalents.

Frequently Asked Questions

The primary driver of revenue growth was the acquisition of G&K Services, Inc., which contributed significantly to the Uniform Rental and Facility Services segment. Organic growth also played a role, demonstrating continued demand for Cintas' core services.

The G&K acquisition led to increased costs, including higher cost of services and selling, general, and administrative expenses due to integration efforts, amortization of acquired intangibles, and investments in new systems. Despite these increased expenses, Cintas managed to grow net income from continuing operations, indicating effective cost management and operational leverage.

The significant income reported under 'Discontinued Operations' is due to the sale of a business segment during the quarter. This reflects Cintas' strategic decision to divest non-core assets, allowing the company to focus on its primary growth areas and realizing a gain on the sale.

Cintas financed the G&K acquisition with a combination of debt and cash. While the company has increased its debt, it remains compliant with all debt covenants. The company generated strong operating cash flow, which will assist in managing its debt service obligations and future financial flexibility.