CLC Clarcor Inc. (delisted)

Cintas Corporation (CTAS) reported third quarter fiscal 2014 (ended Feb 28, 2014) earnings of 69 cents per share versus 60 cents in the year-ago quarter. The 15.0% year-over-year increase in earnings was primarily attributable to a healthy improvement in the top line. However, the reported earnings marginally missed the Zacks Consensus Estimate by a penny. Net income for the reported quarter was $84.6 million compared with $74.7 million in the year-earlier quarter.

Total quarterly revenue increased 5.1% year over year to $1,130 million, slightly below the Zacks Consensus Estimate of $1,137 million. Organic growth (adjusted for the impact of acquisitions) aggregated 3.1%. The improvement in revenue was driven by an increase in sales across all segments, except Uniform Direct Sales.

Operating income in the reported quarter climbed 12.9% to $150.2 million. Operating margin was 90 basis points higher than 12.4% in the year-earlier quarter.

Segment Performance

Rental Uniforms and Ancillary Products revenues for the quarter improved 7.1% year over year to $801.7 million, accounting for 71% of the total revenue. Organic growth of the segment was 5.4%. Gross margin increased to 43.9% from 41.9% in the year-ago quarter due to improved efficiency levels from added route capacity.

Revenues for Uniform Direct Sales were $107.7 million (down 14.6% year over year), accounting for 10% of the company’s revenues. Gross margin was 27.5%, down from 29.2% in the year-ago quarter.

First Aid, Safety and Fire Protection Services revenues climbed 12.3% to $126.7 million, representing 11% of the company’s total revenue. Gross margin fell to 43.5% in the reported quarter from 44.0% in the year-ago quarter due to severe weather conditions, which impacted margin. Organic growth for the segment totaled 9.2%

Revenues for Document Management Services segment stood at $94.1 million, up 7.1% year over year and represented 8% of total revenue.

Cintas announced an agreement for the formation of a new partnership with the shareholders of privately-held document management firm Shred-it International Inc. The agreement provides for the formation of a new company, 42% of which will be owned by Cintas and 58% by the shareholders of Shred-it. Additionally, Cintas will receive approximately $180 million in cash at the closing of the transaction, which is expected to occur before May 31, 2014. The new entity will operate under the Shred-it brand, combining the Document Shredding businesses of both the companies and is expected to have annual revenues in excess of $600 million.

Financial Position

Cintas has a solid financial position with adequate liquidity. Cash and cash equivalents were $348.9 million at quarter end. Capital expenditures for the quarter were $113.6 million. Cintas expects capital expenditures for fiscal 2014 to be in the range of $150 million to $180 million. Long-term debt was $1.4 billion as of Feb 28, 2014. Cash flow from operations totaled $385.8 million for the first nine months of fiscal 2014 compared with $368.3 million in the year-ago period. Free cash flow increased to $272.1 million from $216.5 million in the year-earlier period.

Moving Forward

For fiscal 2014, Cintas updated its revenue guidance in the range of $4.550 billion–$4.575 billion from its previous guidance of $4.525 billion–$4.575 billion. Earnings guidance was also revised from its earlier range of $2.73–2.79 per share to $2.75–$2.79.

Cintas continues to deliver organic growth through superior execution of its operational plans. The company witnessed top-line growth and expects to continue this bull run in the coming quarters as well. We also remain encouraged by the company’s relatively strong quarterly performance.

Cintas currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth a look are 3M Company (MMM), Global Payments Inc. (GPN) and CLARCOR Inc. (CLC), each carrying a Zacks Rank #2 (Buy).
 

 
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