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Cintas Keeps Working Hard

By Dan Caplinger – Sep 25, 2019 at 12:06PM

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Favorable economic conditions are helping the uniform rental and office supplies company.

If you're looking for a barometer of how the U.S. economy is doing, Cintas (CTAS -0.94%) is a great place to start. The company's emphasis on uniform rentals for workers across the nation gives it a first-hand perspective on the strength of the job market, and for quite a while now, low levels of unemployment and solid growth in jobs have combined to help produce good results for Cintas.

Coming into Tuesday's fiscal first-quarter financial report, Cintas shareholders hoped that they'd keep seeing favorable results from the uniform and business services specialist. Cintas didn't disappoint, and its outlook was encouraging for those hoping that the company's positive momentum will continue well into the future.

Solid gains at Cintas

Cintas' fiscal first-quarter results continued a long stretch of good numbers from the company. Revenue of $1.81 billion was higher by 6.7% year over year, decelerating slightly from last quarter's growth rate but still exceeding what most investors had expected. Net income from continuing operations climbed 22% to $212.5 million, and the resulting earnings of $2.32 per share easily topped the $2.15-per-share consensus figure among those following the stock.

Person pouring red liquid into a dispenser.

Image source: Cintas.

Investors saw some of the same trends within Cintas' business as in recent quarters. The core uniform rental and facility services segment posted organic revenue growth of 7.5%, adjusting for impacts from acquisitions, currency movements, and calendar differences. The first aid and safety services division saw an even faster organic growth rate of 13.8%, which was more than 3 percentage points higher than it was three months ago.

Cintas also kept getting more efficient. Gross margin in both segments of the business rose by more than a full percentage point. Despite some expenses from the integration of the company's G&K Services acquisition, operating margin figures companywide rose 1.3 percentage points to 16.9%.

CEO Scott Farmer was succinct in his comments about the quarter. "We are pleased with our start to fiscal 2020," he said, and he pointed to the continued work of employees in helping to move the business services company forward.

What's ahead for Cintas?

The strong economy has Cintas feeling optimistic. "We look forward to another successful year," Farmer said, and the company's strategy of seeking to bring on new clients while searching for possible combinations with outside businesses seems to be working well.

Cintas also increased its guidance for the full fiscal year. The company now expects revenue to come in between $7.28 billion and $7.32 billion for the year, up $10 million to $40 million from its previous projections. On the earnings front, a $0.12 to $0.17 per share boost will bring guidance up to $8.30 to $8.45 per share.

CFO Mike Hansen provided some color on what sorts of strategic combinations Cintas might seek. Hansen pointed to targets that would supplement the areas that Cintas already covers, such as fire, first aid, and uniform rentals. Yet Cintas is also open to larger deals, with a focus of staying within the U.S. and Canada in order to maximize the opportunity for cost-saving synergies from an acquisition.

Cintas investors responded favorably to the report, and the stock was higher 5% Wednesday morning following the Tuesday afternoon announcement. There are no guarantees that the strong U.S. economy will be able to stay strong forever, and some fears about a recession  have started to crop up. For now, though, Cintas is above the fray and continues to generate promising performance for its shareholders.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends Cintas. The Motley Fool has a disclosure policy.

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