Cintas Issues Third Quarter 2017 Financial Results, Completes G&K Services Acquisition
Cintas Corporation (PPAI 303547) has reported the results for its third quarter of fiscal year 2017, which ended February 28. The Cincinnati, Ohio-based distributor’s revenue for the third quarter was $1.28 billion, an increase of 5.3 percent over the same period last year. It has also completed the $2.2-billion acquisition of G&K Services, first announced in August 2016.
Adjusting for acquisitions, foreign currency exchange rate fluctuations and differences in the number of workdays, Cintas’s overall growth rate for the quarter was 6.5 percent, and the uniform rental and facility services segment grew 7.3 percent. Third quarter’s gross margin improved to 44.2 percent from 43.1 percent last year. Third quarter gross margin for the uniform rental and facility services segment improved to 45 percent, an increase of 100 basis points compared to last year’s third quarter. The first aid and safety services segment third quarter gross margin improved to 44.8 percent, an increase of 260 basis points compared to last year’s third quarter primarily due to the realization of synergies from the acquisition of ZEE Medical in fiscal year 2016.
“This is our 14th consecutive quarter of year-over-year gross margin improvement,” says Scott D. Farmer, Cintas chairman and chief executive officer. “This and our industry-leading revenue growth are indicative of a healthy company with significant opportunities ahead. I thank our employees, whom we call partners, for the continuous commitment to improvement that leads to best-in-class execution and results.”
The third-quarter operating income of $195 million was up 0.9 percent from last year, and the operating income margin was 15.2 percent compared to 15.9 percent. Third-quarter operating income included $9 million, or 0.7 percent of third-quarter revenue, of transaction expenses related to the acquisition of G&K.
Farmer adds, “We are excited to have the G&K employees join us as Cintas partners and now begin the process of integration. We expect to realize annual synergies in the range of $130 million to $140 million in the fourth full year following the acquisition. The integration process needed to achieve the annual synergies will result in certain non-recurring costs. In addition, we will continue the purchase accounting process, including certain third-party valuations, which may have a significant impact on our future results. While we have estimated these integration costs and the impact of the purchase price accounting results using assumptions from our due diligence, we must confirm our assumptions and complete the purchase accounting process. Therefore, we are pulling our guidance for the remainder of our 2017 fiscal year. We will provide our expectations for results when the impact of these items becomes clearer.”