Cintas Revenues Up In Fiscal Third Quarter
Cintas Corporation (PPAI 303547) has released results of its fiscal 2019 third quarter, which ended February 28 and is reporting revenues of $1.68 billion, an increase of 5.9 percent over third quarter 2018. The Cincinnati, Ohio-based distributor’s organic growth rate, which adjusts for the impact of acquisitions and foreign currency exchange rate fluctuations, was six percent.
Cintas reports that in the quarter, the organic growth rate for the Uniform Rental and Facility Services operating segment was 6.2 percent, and the organic growth rate for the First Aid and Safety Services operating segment was 8.6 percent.
“Customer closures caused by the severe weather and the holiday calendar during the quarter created challenges within our route schedules. Despite these challenges, we still delivered solid organic growth for the quarter,” says Scott D. Farmer, Cintas’ chairman and chief executive officer.
The company’s gross margin for the quarter, $755.2 million, increased 7.8 percent from last year’s third quarter. As a percentage of revenue, the gross margin was 44.9 percent, compared to 44.1 percent in the previous year. Uniform Rental and Facility Services’ operating segment gross margin as a percentage of revenue also improved 80 basis points from last year’s third quarter to 44.9 percent, and the First Aid and Safety Services’ operating segment gross margin percentage improved 130 basis points to 48.2 percent.
Operating income the quarter of $278.3 million represents an increase of 39.1 percent from the previous year’s third quarter operating income of $200 million. Operating income as a percentage of revenue was 16.5 percent this year compared to 12.6 percent one year ago. Operating income was negatively impacted by integration expenses related to the G&K Services, Inc. (G&K) acquisition by approximately $800,000 in the third quarter of fiscal 2019 and $9.8 million in the third quarter of fiscal 2018. Operating income in the third quarter of fiscal 2018 was also reduced $39.7 million by a one-time cash payment to Cintas employees following the enactment of The Tax Cuts and Jobs Act. Excluding the integration expenses related to the G&K acquisition and the one-time cash payment to employees, operating income as a percentage of revenue was 16.6 percent in the third quarter of fiscal 2019 compared to 15.7 percent in the third quarter of the last fiscal year.
Farmer adds, “Strong financial performance is a result of the dedication of our employee-partners to getting our customers ready for the workday. I thank our employee-partners for exceeding customer expectations while also making significant progress on integrating the G&K acquisition and converting more operations to our new enterprise resource planning system.”
Net income from continuing operations was $200.9 million for fiscal 2019’s third quarter, compared to $295.8 million in the same quarter of fiscal 2018. Earnings per diluted share (EPS) from continuing operations were $1.83 for third quarter 2019, compared to $2.66 in the prior year third quarter. G&K acquisition integration expenses negatively impacted EPS in the third quarter of fiscal year 2019 and 2018 by $0.01 and $0.06, respectively. Earnings per diluted share from continuing operations in third quarter fiscal 2018 also included a negative impact of $0.24 from the one-time cash payment to employees and a positive impact of $1.59 from benefits under the Tax Act, primarily due to a one-time revaluation of deferred tax assets and liabilities.
“We are updating our annual guidance for fiscal 2019,” says Farmer. “We expect revenue to be in the range of $6.870 billion to $6.885 billion. This implies a strong finish to our fiscal 2019 with fiscal fourth-quarter revenue growth in the range of six to seven percent and operating income margin in the range of 17 to 17.5 percent. We expect EPS from continuing operations excluding certain items to be in the range of $7.42 to $7.48. This guidance does not include any potential deterioration in the U.S. economy, future share buybacks, or any future integration expenses related to the acquisition of G&K.”