01—Abstract
Summary
Summary of the 10-Q filed January 9, 2020. Cited figures are marked; the original filing is the authoritative source.
Cintas Corporation (CTAS) reported strong financial results for the quarter ending November 29, 2019.
Total revenue increased by 7.3% year-over-year, reaching $1.84 billiona, driven by robust organic growth of 7.3% across its Uniform Rental and Facility Services and other revenue segments. The company demonstrated effective cost management, with selling and administrative expenses as a percentage of revenue decreasing, leading to a significant increase in operating income of 21.3%. Net income from continuing operations grew by 1.4% to $246.4 million, resulting in diluted earnings per share (EPS) from continuing operations of $2.27, a 4.1% increase.
The company also continues to return value to shareholders, evident in its increased dividend and active share repurchase program. Cintas' strong operational performance and financial discipline position it well for continued growth.
02—Key points
Key Highlights
- Total revenue for the three months ended November 30, 2019, increased by 7.3% to $1.84 billion, compared to $1.72 billion in the prior year, driven by organic growth.
- Operating income saw a substantial increase of 21.3% to $334.5 million, compared to $275.6 million in the prior year, reflecting strong operational efficiency.
- Diluted earnings per share (EPS) from continuing operations grew by 4.1% to $2.27, up from $2.18 in the prior year's comparable period.
- Uniform Rental and Facility Services revenue increased by 5.7% to $1.47 billion, with organic growth of 5.8%, showcasing the segment's continued strength.
- Other revenue (First Aid and Safety Services and All Other) increased by 14.1% to $373.8 million, with organic growth of 13.7%, indicating strong performance in diversified segments.
- The company declared an annual cash dividend of $2.55 per share, a 24.4% increase over the prior year, demonstrating commitment to shareholder returns.
- Cintas is actively managing its capital structure, with a significant share buyback program in place and compliance with all debt covenants.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2020, Cintas Corp kept $0.13.
- Revenue$1.84B100.0%
- Cost of revenue−$991.4M53.8%
- Gross profit$852.4M46.2%
- Operating costs−$517.9M28.1%
- Operating income$334.5M18.1%
- Interest, other & tax−$88.3M4.8%
- Net income$246.1M13.3%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2020filed January 9, 2020Financial Statements
Q2 FY2020 against Q2 FY2019
| Line item | Q2 FY2020Q2 FY2019 | Change |
|---|---|---|
| Revenue | $1.84B$1.72B | +7.3% |
| Gross Profit | $852.39M$775.16M | +10.0% |
| SG&A Expenses | $517.93M$491.67M | +5.3% |
| Operating Income | $334.46M$275.64M | +21.3% |
| Interest Expense | $26.18M$24.88M | +5.2% |
| Net Income | $246.12M$243.01M | +1.3% |
| EPS (Basic) | $0.59$0.56 | +4.4% |
| EPS (Diluted) | $0.57$0.55 | +4.1% |
| Shares Outstanding (Basic) | 415.84M425.90M | −2.4% |
| Shares Outstanding (Diluted) | 429.34M439.50M | −2.3% |
05—Questions
Frequently Asked Questions
What was the primary driver of revenue growth in this quarter?
Revenue growth was primarily driven by organic growth across all segments, particularly in Uniform Rental and Facility Services and Other revenue categories, stemming from increased sales volume, new business acquisition, and penetration of additional products and services into existing customer accounts. Acquisitions also contributed positively to the 'Other' revenue segment, mainly in the Fire Protection business.
How did Cintas manage its expenses relative to revenue growth?
Cintas demonstrated effective expense management. While selling and administrative expenses increased in absolute terms, they decreased as a percentage of revenue to 28.1% compared to 28.6% in the prior year's comparable quarter. This indicates improved operational efficiencies and cost control, which contributed to the significant increase in operating income.
What is the company's approach to returning capital to shareholders?
Cintas is committed to returning capital to shareholders through dividends and share repurchases. The company declared an annual cash dividend of $2.55 per share, a 24.4% increase over the previous year. Additionally, Cintas has an active share buyback program in place, and during the six months ended November 30, 2019, it repurchased approximately 0.8 million shares.
Are there any significant new accounting standards adopted that impact the financial statements?
Yes, Cintas adopted ASU 2016-02, 'Leases (Topic 842)' effective June 1, 2019, which requires the recognition of right-of-use assets and lease liabilities for operating leases. The adoption resulted in the recognition of approximately $168.0 million in right-of-use assets and $173.4 million in lease liabilities, with no material impact on the income statement or cash flows. The company also adopted ASU 2018-02, 'Income Statement - Reporting Comprehensive Income,' which allows for reclassification of certain tax effects from accumulated other comprehensive income to retained earnings.
06—Continue