The U.S. economy has been strong recently, and job growth has played a key role in the recovery since the 2008 recession. Cintas (CTAS 0.56%) has benefited from an improved job market, and strategic moves to grow its business have helped the uniform rental and facility services specialist get into a better position to take advantage of the opportunities that favorable industry conditions for its customer base will bring.
Coming into Tuesday's fiscal first-quarter financial report, Cintas shareholders wanted to see signs that the company would be able to sustain the growth it has seen in previous quarters. Cintas was able to give investors most of what they wanted, and the future looks bright even with some one-time obstacles that it will have to overcome. Let's look more closely at Cintas and what its most recent report means for long-term investors.
Image source: Cintas.
Cintas keeps gaining ground
Cintas' fiscal first-quarter results reflected the upbeat environment for the company's clients. Revenue of $1.61 billion was up 27% from the year-ago quarter and was better than the consensus forecast for $1.57 billion. Net income from continuing operations climbed 18% to $161.1 million, and after making adjustments for some acquisition-related expenses, adjusted earnings of $1.48 per share were far better than the $1.31 per share that most of those following the stock had expected.
Looking more closely at Cintas' results, the company maintained solid growth in its core business. Even taking out the impact of the G&K Services acquisition, overall organic growth on the top line amounted to more than 8%. That growth was fairly evenly split between Cintas' two main business categories, with first aid and safety services seeing a nearly 12% organic rise in sales while the larger uniform rental and facility services category came in closer to 8%.
Even so, uniform rental and facility services remained the most important component of Cintas' success. Revenue from the segment rose by close to a third, and a similar rise in expenses allocable to the unit helped boost its contribution to overall profitability. The other category, which includes first aid and safety, saw more sluggish growth of just 10% in sales, but costs rose at a slower pace that enabled the unit to have a larger contribution to the rise in operating income. General administrative and selling expenses jumped at a more than 30% rate, weighing on profits somewhat and explaining why bottom-line growth was slower than the added sales that Cintas brought in.
CEO Scott Farmer was quite pleased with how things are going. "The integration of G&K continues to proceed as expected," Farmer said, "and we remain on track to meet the acquisition's financial and non-financial objectives." The CEO also pointed to the ongoing Ready for the Workday initiative to boost client counts and provide a more complete suite of services to existing customers.
Can Cintas keep climbing?
Cintas is optimistic about its ability to keep growing. A favorable economic environment has its customers in a good position to consider greater investment in workforce development, and that has positive implications for the company going forward.
In response, Cintas was able to boost its guidance for fiscal 2018 even in the wake of hurricane-related problems. The company now expects full-year revenue of $6.325 billion to $6.4 billion, up between $40 million and $55 million from previous estimates. Adjusted earnings of $5.30 to $5.38 per share represent an increase of roughly $0.15 from past guidance. Those measures include an estimated $10 million to $15 million in lost revenue stemming from the loss of business in Texas, Florida, Puerto Rico, and surrounding areas. Early assessments suggest a $0.05 to $0.08 per share reduction in earnings for the year, but even so, the resulting figures point to double-digit percentage growth for Cintas for the remainder of the year.
Cintas investors were happy about the results, and the stock climbed more than 5% on Wednesday following the Tuesday afternoon announcement. As long as the employers that help support Cintas' business remain healthy, then the uniform rental and services specialist will be in a great position to keep capitalizing on demand and boosting its own growth.
