01—Abstract
Summary
Summary of the 10-Q filed October 6, 2017. Cited figures are marked; the original filing is the authoritative source.
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 billiona, 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 millionb, 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 millionc. The company remains compliant with its debt covenants and continues to manage its capital structure effectively.
02—Key points
Key Highlights
- Total 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.
- Uniform Rental and Facility Services segment revenue grew 31.9% to $1.31 billion, benefiting from both organic growth and the G&K acquisition.
- Net income from continuing operations rose 18.3% to $161.1 million, with diluted EPS from continuing operations increasing 16.9% to $1.45.
- Income from discontinued operations was a significant contributor ($56.1 million), reflecting the sale of a business during the quarter.
- Operating cash flow surged by 61.4% to $254.4 million, indicating strong cash generation capabilities.
- The company reported $2.81 billion in goodwill, primarily from the G&K acquisition, and has a substantial intangible asset base related to service contracts.
- Cintas maintained compliance with all debt covenants and ended the period with $191.4 million in cash and cash equivalents.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2018, Cintas Corp kept $0.13.
- Revenue$1.61B100.0%
- Cost of revenue−$872.1M54.1%
- Gross profit$739.4M45.9%
- Operating costs−$490.3M30.4%
- Operating income$249.1M15.5%
- Interest, other & tax−$31.9M2.0%
- Net income$217.2M13.5%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2018filed October 6, 2017Financial Statements
Q1 FY2018 against Q1 FY2017
| Line item | Q1 FY2018Q1 FY2017 | Change |
|---|---|---|
| Revenue | $1.61B$1.27B | +27.2% |
| Gross Profit | $739.35M$576.43M | +28.3% |
| SG&A Expenses | $486.28M$369.70M | +31.5% |
| Operating Income | $249.10M$203.94M | +22.1% |
| Interest Expense | $30.32M$14.17M | +113.9% |
| Net Income | $217.21M$138.09M | +57.3% |
| EPS (Basic) | $0.51$0.32 | +56.6% |
| EPS (Diluted) | $0.49$0.32 | +55.6% |
| Shares Outstanding (Basic) | 422.96M417.93M | +1.2% |
| Shares Outstanding (Diluted) | 434.15M428.46M | +1.3% |
05—Questions
Frequently Asked Questions
What was the primary driver of Cintas' revenue growth in this quarter?
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.
How did the G&K acquisition impact the company's expenses and profitability?
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.
What is the significance of 'Discontinued Operations' in the financial statements?
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.
How is Cintas managing its debt obligations following the G&K acquisition?
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.
06—Continue