Cintas Marginally Misses on Q3 Earnings - Analyst Blog
20 März 2014 - 2:00PM
Zacks
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).
CLARCOR INC (CLC): Free Stock Analysis Report
CINTAS CORP (CTAS): Free Stock Analysis Report
GLOBAL PAYMENTS (GPN): Free Stock Analysis Report
3M CO (MMM): Free Stock Analysis Report
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