Cintas Ends Fiscal 2018 on a Strong Note
This week, uniform rental giant Cintas (NASDAQ: CTAS) reported its results for a busy 2018 fiscal year that included integrating its largest acquisition yet. The company ended the period on a strong note by beating management's fourth-quarter sales and earnings targets even as profitability jumped higher.
Here's a look at how the latest results stacked up against the prior-year period:
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What happened this quarter?
Revenue jumped 10% in the core uniform rental division and by 5% in Cintas' other business lines last quarter. Profit margins improved across the board, which allowed the company to post significantly higher gross and operating earnings.
Here are some of the key highlights from the quarter:
- Organic growth, which now includes the impact of Cintas’ 2017 acquisition of G&K Services, rose 5% to beat management’s late March forecast. The uniform services segment expanded at a 5% pace while the safety division grew 9%.
- Overall revenue rose 9.1% to $1.67 billion while the company had predicted sales of between $1.635 billion and $1.645 billion.
- Gross profit margin improved to 45.1% of sales from 44.4%.
- Excluding the integration expenses from the G&K acquisition, operating income rose by 16.4%, which pushed operating margin up to 16.8% of sales from 15.8% a year ago.
- Cintas made further progress closing redundant operations from the G&K buyout and the company converted more of its infrastructure to a new enterprise resource planning (ERP) system.
- The doubling of net income as compared to the prior year was driven by transaction expenses related to acquisition activities. Excluding those one-time events, adjusted earnings rose 42% to $1.77 per share.
What management had to say
CEO Scott Farmer commented on the broader fiscal year that included integrating Cintas' biggest buyout to date and the implementation of a new ERP system. "We finished the year strong," Farmer explained, "and beat our fourth quarter revenue and EPS guidance." He continued, "Fiscal 2018's financial achievement was especially noteworthy given that it was accomplished in a period of extreme change management."
While highlighting the company's ascension into the Fortune 500, Farmer said it was "… a testament to the hard work and dedication of our employee-partners…" The CEO predicted more gains ahead, saying, "We look forward to climbing even higher in the ranking."
Cintas' outlook for the new fiscal year predicts revenue of between $6.75 billion and $6.82 billion as it signs more businesses up for its uniform rental services and expands beyond its current market share of around 20%. The midpoint of that forecast range corresponds to a 5% annual revenue increase. And, while that's far below this past year's 22% bounce, the growth rate no longer benefits from the temporary lift of the G&K segment acquisition.
Cintas expects to book additional charges related to the G&K integration of between $15 million and $20 million this year. Excluding those expenses, adjusted earnings should rise to between $7 per share and $7.15 per share in fiscal 2019, up from last year's $5.93 per share haul.
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Demitrios Kalogeropoulos 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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