As I was reviewing the second-quarter results from Cintas
I don't know about you, but as an investor, I traditionally give very little thought to all of the mats you see this time of year in front of the entrances to shops, restaurants, schools, and other buildings. But somebody provides them, and while Cintas may have competitors, it's tough for a company to compete with Cintas, because of its scale.
Overall for the quarter, sales were up 10.4%, and diluted earnings per share rose 7%. Within the company's two business segments -- rentals and "other services" -- sales were up 8.2% and 18%, respectively. The "other services" portion contains the company's national accounts business, first aid and safety, fire protection services, and the document management business. Combined, the "other services" businesses represented 24.1% of revenue through the first six months of the year. Particularly notable is the document management business, which competes with industry titan IronMountain
Across the board, it's a pretty solid performance, and had the company not suffered lost sales because of the three major hurricanes this year, it looks as though it would have turned in a fantastic quarter. The loss of revenues from the hurricanes is particularly important because the company still has uniforms to depreciate and labor to pay for. Spread a normal level of revenues over these costs, and the bottom line would have been much higher.
Aside from hurricane impacts, the only real problem for Cintas in the quarter were its costs. Some of these costs, such as the write-off of a $700,000 DeltaAir Lines receivable, are one-time. But others, such as health care, worker's compensation, energy, and legal costs associated with defending itself against a labor union campaign, are ongoing, and investors will need to pay attention to Cintas' management of each these expense items.
A final item for investors to watch is the company's acquisitions that are fueling a portion of its growth. To date, the organic growth of the business is healthy, but for investors who are paying close attention to free cash flow, you'll also want to keep an eye on the line item for acquisitions and the investment return the company is getting from these acquisitions over the coming years.
Putting it all together, Cintas looks neither cheap nor expensive to me. However, after listening to the company's conference call, I like management's strategy, the stability of the rental business, and the potential growth of the smaller services businesses. For those reasons, I think Cintas deservers a spot on investors' watch lists.
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