10-QPeriod: Q2 FY2020

CINTAS CORP Quarterly Report for Q2 Ended Nov 30, 2019

Filed January 9, 2020For Securities:CTAS

Summary

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 billion, 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.

Financial Highlights

49 data points
Beta

Revenue

$1.84B

46.2% Gross Margin

Net Income

$246.12M

13.3% Net Margin

EPS (Diluted)

$0.57

Total Assets

$7.89B

Cash & Equivalents

$226.53M

Free Cash Flow

$233.03M

Financial Statements
Beta
Revenue$1.84B
Gross Profit$852.39M
SG&A Expenses$517.93M
Operating Income$334.46M
Interest Expense$26.18M
Net Income$246.12M
EPS (Basic)$0.59
EPS (Diluted)$0.57
Shares Outstanding (Basic)415.84M
Shares Outstanding (Diluted)429.34M

Key Highlights

  • 1Total 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.
  • 2Operating 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.
  • 3Diluted 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.
  • 4Uniform 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.
  • 5Other 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.
  • 6The company declared an annual cash dividend of $2.55 per share, a 24.4% increase over the prior year, demonstrating commitment to shareholder returns.
  • 7Cintas is actively managing its capital structure, with a significant share buyback program in place and compliance with all debt covenants.

Frequently Asked Questions

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.

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.

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.

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.