Summary
Cintas Corporation's (CTAS) Q2 FY2018 results show robust top-line growth, driven significantly by the acquisition of G&K Services, Inc. Total revenue increased by 26.4% year-over-year, with organic growth contributing 7.7%. The Uniform Rental and Facility Services segment remains the largest contributor, showing a 30.8% revenue increase, largely due to G&K's integration. While profitability saw some pressure from integration costs and the lower margins of the acquired business, earnings per share from continuing operations still grew by 10.7%. The company also demonstrated strong operational cash flow, enhancing its liquidity position, and maintained compliance with its debt covenants.
Financial Highlights
51 data pointsBeta
Financial Statements
Beta
| Revenue | $1.61B |
| Gross Profit | $716.37M |
| SG&A Expenses | $468.08M |
| Operating Income | $235.21M |
| Interest Expense | $29.13M |
| Net Income | $137.11M |
| EPS (Basic) | $0.32 |
| EPS (Diluted) | $0.31 |
| Shares Outstanding (Basic) | 425.36M |
| Shares Outstanding (Diluted) | 439.27M |
Key Highlights
- 1Total revenue increased by 26.4% to $1.61 billion, driven by an 18.4% contribution from acquisitions (primarily G&K) and 7.7% organic growth.
- 2Uniform Rental and Facility Services segment revenue grew by 30.8% to $1.31 billion, with 23.2% from acquisitions and 7.3% organic growth.
- 3Net income from continuing operations increased by 12.9% to $137.7 million, leading to a 10.7% rise in diluted EPS from continuing operations to $1.24.
- 4The company generated $379.0 million in net cash from operating activities for the six months ended November 30, 2017, a significant increase of $77.3 million year-over-year.
- 5Integration expenses related to the G&K acquisition negatively impacted operating income by $13.1 million in the quarter and $17.0 million year-to-date.
- 6The company declared an annual cash dividend of $1.62 per share, a 21.8% increase from the prior year.
- 7Cintas maintained strong liquidity, with cash and cash equivalents increasing to $236.0 million from $169.3 million at the beginning of the fiscal year.
Frequently Asked Questions
The acquisition of G&K Services, Inc. was a significant driver of revenue growth, contributing 18.4% to the total revenue increase. While it boosted top-line numbers substantially, particularly in the Uniform Rental and Facility Services segment, it also incurred integration expenses of $13.1 million for the quarter and introduced a business segment with lower margins than Cintas' legacy operations, which slightly impacted gross margins and operating income.
Despite the integration costs and lower margins from the G&K acquisition, Cintas demonstrated resilience with a 12.9% increase in net income from continuing operations and a 10.7% rise in diluted EPS from continuing operations year-over-year. Management is actively managing costs and operational efficiencies, as seen in the First Aid and Safety Services segment's improved margins, suggesting a positive outlook for profitability as integration progresses.
Cintas financed the G&K acquisition through a combination of debt and cash. The company's debt load increased, leading to higher interest expenses. However, Cintas continues to generate strong operating cash flows ($379.0 million for the six months ended Nov 30, 2017) which helps service this debt. The company was in compliance with all debt covenants as of the reporting period, and its credit ratings remained stable, indicating a manageable debt profile.
Cintas is preparing for the adoption of new accounting standards. They are evaluating ASU 2014-09 (Revenue from Contracts with Customers - Topic 606) and expect it to have a minimal impact, planning to adopt it in fiscal year 2019. They are also assessing ASU 2016-02 (Leases - Topic 842), which is effective for periods beginning after December 15, 2018.