Image source: Cintas.
Millions of American employees wear uniforms for their jobs, and that has led to a niche industry to provide those uniforms to workers. Cintas (CTAS 0.29%) has become a giant in the industry, and coming into Monday's fiscal second-quarter financial report, Cintas investors had high hopes that the company would benefit from generally favorable trends in the U.S. economy promoting job growth. Cintas' results were solid, and the company believes that the future could be even brighter for the rest of its fiscal year. Let's look more closely at how Cintas did during the quarter and why investors are celebrating its latest results.
Cintas looks up
Cintas' fiscal second-quarter results continued the growth momentum that the company produced last quarter. Revenue rose 8.5% to $1.22 billion, which was just slightly above the figure that most investors had expected to see. Cintas' news on the bottom line was even better, with an 11% rise in net income to $115.5 million. That worked out to earnings of $1.03 per share, which was $0.03 above the consensus forecast among investors.
Looking more closely at the numbers, Cintas enjoyed success throughout its business. Uniform rental and facilities services sales rose more than 5%, which was slightly slower than in the previous quarter, but costs associated with the segment rose at a slower 4% pace that led to a slight widening in operating margins. The company's Other category, which now includes the first aid, safety, fire protection, and direct-sales businesses, saw revenue climb 21%, and margins for the unit remained relatively steady.
CEO Scott Farmer tried to highlight the facets of Cintas' recent success. "Our solid start to fiscal year 2016 was followed by a second quarter of excellent financial results," Farmer said. "We are pleased to again report strong increases in organic revenue, operating income, and EPS."
Why Cintas sees even better times ahead
As we've seen in past quarter, Cintas was happy enough with its results that it decided to increase its guidance for the remainder of the fiscal year. The company narrowed its revenue guidance toward the top end of its previous range, raising its lower bound by $25 million and now expecting sales of between $4.825 billion and $4.88 billion. Cintas also pushed up its earnings guidance by $0.02 to $0.04 per share, with a new expectation for the bottom line of $3.83 and $3.90 per share during fiscal 2016.
Still, Cintas is being conservative in its expectations. In particular, the company is careful to state that its guidance doesn't include any potential deterioration in the U.S. economy, which some are now concerned could result from the Federal Reserve's recent decision to increase interest rates. In the past, tightening cycles from the central bank have been associated with economic slowdowns and specifically with weaker performance in the job market. If employment starts to get less robust, then Cintas could see the impact quite quickly in its uniform rental business.
One area where Cintas wasn't conservative is with its dividend. The company said in October that it would boost its annual dividend by more than 23% to $1.05 per share. The move extended Cintas' streak of annual dividend increases to 32 straight years, and the size of the boost from the Dividend Aristocrat stood out from companies that were less aggressive in sharing their good fortune with shareholders.
Cintas stock responded favorably to the positive news, opening up about 2% following the announcement. By providing a good read on the health of the U.S. job market, Cintas' results could bode well for other economically sensitive companies as earnings season begins in the next few weeks.
