Cintas Corporation (CTAS) on Q2 2023 Results - Earnings Call Transcript
Operator: Good day, everyone, and welcome to the Cintas Second Quarter Fiscal Year 2023 Earnings Release Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Paul Adler, Vice President, Treasurer and Investor Relations. Please go ahead, sir. Paul Adler: Thanks, Russ, and thank you for joining us. With me is Todd Schneider, President and Chief Executive Officer; and Mike Hansen, Executive Vice President and Chief Financial Officer. We will discuss our fiscal 2023 second quarter results. After our commentary, we will open the call to questions from analysts. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor from civil litigation for forward-looking statements. This conference call contains forward-looking statements that reflect the company's current views as to future events and financial performance. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those we may discuss. I refer you to the discussion on these points contained in our most recent filings with the Securities and Exchange Commission. I'll now turn the call over to Todd. Todd Schneider: Thank you, Paul. Second quarter total revenue grew 13.1% to $2.17 billion. Each of our businesses increased revenue at a double-digit rate. The benefits of our strong revenue growth flowed through to our bottom line. Operating income margin increased 70 basis points to 20.5% and diluted EPS grew 13% to $3.12. I thank our employees whom we call partners for their continued focus on our customers, our shareholders and each other. Uniform Rental and Facility Services operating segment revenue for the second quarter of fiscal '23 was $1.71 billion compared to $1.54 billion last year. The organic revenue growth rate was 11.3%. Revenue growth was driven mostly from increased volume. Our sales force continues to add new customers and penetrate and cross-sell our existing customer base. Businesses prioritize all we provide including image, safety, cleanliness and compliance. Challenge with labor scarcity and rising costs, businesses continue to turn to Cintas to help them get ready for the workday. Additionally, price increases contributed at a higher level than historically. We believe such a mix of revenue drivers, volume and price is healthy and supportive of continued long-term growth. Our First Aid and Safety Services operating segment revenue for the second quarter was $236.0 million compared to $202.2 million last year. The organic revenue growth rate was 15.1%. This rate reflects the continued momentum of our First Aid cabinet business, which continues to grow more than 20%. Whether it is COVID-19 or influenza, the health and safety of employees remains top-of-mind. We provide businesses with access to quick and effective products and services that promote health and well-being in workplace. Personal Protective Equipment or PPE, while still elevated compared to pre-COVID levels, declined slightly on a sequential basis. The revenue mix-shift benefits our financial results because the cabinet service is a more consistent revenue stream and has higher profit margins than PPE. Our Fire Protection Services and Uniform Direct Sale businesses are reported in the All Other segment. All Other revenue was $228.9 million compared to $184.9 million last year. The Fire business organic revenue growth rate was 18.0% and the Uniform Direct Sale business organic growth rate was 33.9%. Before turning the call over to Mike to provide details of our second quarter results, I'll provide our updated financial expectations for fiscal year. We are increasing our financial guidance. We are raising our annual revenue expectations from a range of $8.58 billion to $8.67 billion to a range of $8.67 billion to $8.75 billion, a total growth rate of 10.4% to 11.4%. Also, we are raising our annual diluted EPS expectations from a range of $12.30 to $12.65 to a range of $12.50 to $12.80, a growth rate of 10.8% to 13.5%. Mike? Mike Hansen: Thanks, Todd, and good morning. Our fiscal 2023 second quarter revenue was $2.17 billion compared to $1.92 billion last year. The organic revenue growth rate adjusted for acquisitions, divestitures and foreign currency exchange rate fluctuations was 12.8%. Gross margin for the second quarter of fiscal '23 was $1 billion compared to $885.1 million last year, an increase of 15.5%. Gross margin as a percent of revenue was 47% for the second quarter of fiscal '23 compared to 46% last year. Energy expenses comprised of gasoline, natural gas and electricity were a headwind, increasing 10 basis points from last year. Strong volume growth from new customers and the penetration of existing customers with more products and services helped generate great operating leverage. Gross margin percentage by business was 47% for Uniform Rental and Facility Services. 50.5% for First Aid and Safety Services. 47.4% for Fire Protection Services, and 37.2% for Uniform Direct Sale. Operating income of $444.9 million compared to $381.2 million last year. Fiscal '23 second quarter operating income increased 16.7% and operating income margin increased 70 basis points to 20.5% from 19.8% last year. Our effective tax rate for the second quarter was 22.1% compared to 18% last year. The tax rate can move from period-to-period based on discrete events, including the amount of stock compensation expense. Net income for the second quarter was $324.3 million compared to $294.7 million last year, an increase of 10.1%. This year's diluted EPS of $3.12 compared to $2.76 last year, an increase of 13%. We had to overcome higher inflation, interest expense and tax rate, therefore we are especially pleased with these financial results. Cash flow remains strong on September 15th, 2022. We declared dividends and pay them on December 15th, 2022 in the amount of $117.4 million in quarterly dividends. To provide our annual -- Todd provided our annual financial guidance related to the guidance. Please note the following. Fiscal '22 included a gain on sale of operating assets in the first quarter and a gain on an equity method investment in the third quarter. Excluding these items, fiscal '22 operating income was $1.55 billion, a margin of 19.7% and diluted EPS was $11.28. Please see the table in our earnings press release for more information. Fiscal '23 operating income is expected to be in the range of $1.75 billion to $1.79 billion compared to $1.55 billion in fiscal '22 after excluding the gains. Fiscal '23 interest expense is expected to be $113 million compared to $88.8 million in fiscal '22 due in part to higher interest rates. Our fiscal '23 effective tax rate is expected to be 20.7%. This compares to a rate of 17.9% in fiscal '22 after excluding the gains and their related tax impacts. Please keep the following in mind when modeling third quarter versus fourth quarter financial results. The number of work days in the third and fourth quarter of fiscal '23 are unchanged from fiscal '22. There are 64 days in the third quarter and 66 days in the fourth. Less work days results in less revenue to cover certain fixed and amortizing costs. In last year's third quarter, First Aid and Safety sold about $15 million in COVID test kits. We don't expect that revenue to repeat this year. Uniform Direct Sale organic revenue growth rates have been very strong year-to-date, however we expect these rates to be pressured in the second half of the fiscal year as the business faces increasingly challenging comparisons. Payroll taxes reset in our fiscal third quarter, increasing our SG&A costs on a sequential basis. Our financial guidance does not include the impact of any future share buybacks and we remain in a dynamic environment that can continue to change. Our guidance contemplates a stable economy and excludes pandemic related setbacks or economic downturns. I'll turn it back over to Paul. Paul Adler: That concludes our prepared remarks. Now we are happy to answer questions from the analysts. Please ask just one question and a single follow-up if needed. Thank you. Operator: [Operator Instructions] And our first question comes from Faiza Alwy from Deutsche Bank Securities. Please go ahead, Faiza. Operator: And our next question comes from Ashish Sabadra from RBC. Please go ahead, Ashish. Operator: Our next question comes from George Tong from Goldman Sachs. Please go ahead, George. Operator: And our next question comes from Andy Wittmann from R.W. Baird. Please go ahead, Andy. Operator: And our next question comes from Tim Mulrooney from William Blair. Please go ahead, Tim. Operator: And our next question comes from Manav Patnaik from Barclays. Please go ahead, Manav. Operator: Our next question comes from Andrew Steinerman from JPMorgan Securities. Please go ahead, Andrew. Operator: And our next question comes from Heather Balsky from Bank of America. Please go ahead, Heather. Operator: Our next question comes from Kartik Mehta from Northcoast Research. Please go ahead, Kartik. Operator: And our next question comes from Seth Weber from Wells Fargo Securities. Please go ahead, Seth. Operator: Our next question comes from Shlomo Rosenbaum from Stifel Nicolaus. Please go ahead, Shlomo. Operator: Our next question comes from Scott Schneeberger from Oppenheimer. Please go ahead, Scott. Operator: And our next question comes from Toni Kaplan from Morgan Stanley. Please go ahead, Toni. Operator: And at this time there are no further questions. I would like to turn the call back to Paul for closing remarks. Paul Adler: All right. Well thank you for joining us this morning. We will issue our third quarter of fiscal '23 financial results in late March and we look forward to speaking with you again at that time. Take care. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Cintas’ CFO Meeting Takeaways
RBC Capital analysts provided their key takeaways from Cintas Corporation (NASDAQ:CTAS) CFO meeting, where he highlighted strong momentum in the business driven by an increased propensity to outsource, targeting a large addressable market, including recession-resilient end markets with a broad set of offerings and robust retention.
CFO Mike Hansen highlighted Scale, Innovation, and Technology as the key competitive advantage driving accelerated growth while expanding margins.
With an under-levered balance sheet, the analysts expect a greater focus on M&A. Lastly, the facility tour helped them appreciate the benefits of automation and SAP implementation. The analysts reiterated their Outperform rating and $525 price target.
Cintas Reports Q2 Beat, Provides Guidance
Cintas Corp. (NASDAQ:CTAS) reported its Q2 results, with EPS of $3.12 coming in better than the Street estimate of $3.03. Revenue was $2.17 billion, beating the Street estimate of $2.13 billion.
The company delivered on high expectations with organic growth of 12.8% (vs. Street estimate of 10%), a gross margin beat of approximately 70 bps, and an operating margin beat of nearly 50 bps vs. Street.
Management raised its fiscal 2023 outlook, now expecting 10.4-11.4% organic growth and an EPS raise that flowed through more than the beat. The company expects fiscal 2023 EPS in the range of $12.50-$12.80, compared to the prior guidance of $12.30-$12.65 and the Street estimate of $12.58. Full-year revenue is expected to be in the range of $8.67-8.75 billion, compared to the prior guidance of $8.58-$8.67 billion and the Street estimate of $8.63 billion.
Cintas Reports Q2 Beat, Provides Guidance
Cintas Corp. (NASDAQ:CTAS) reported its Q2 results, with EPS of $3.12 coming in better than the Street estimate of $3.03. Revenue was $2.17 billion, beating the Street estimate of $2.13 billion.
The company delivered on high expectations with organic growth of 12.8% (vs. Street estimate of 10%), a gross margin beat of approximately 70 bps, and an operating margin beat of nearly 50 bps vs. Street.
Management raised its fiscal 2023 outlook, now expecting 10.4-11.4% organic growth and an EPS raise that flowed through more than the beat. The company expects fiscal 2023 EPS in the range of $12.50-$12.80, compared to the prior guidance of $12.30-$12.65 and the Street estimate of $12.58. Full-year revenue is expected to be in the range of $8.67-8.75 billion, compared to the prior guidance of $8.58-$8.67 billion and the Street estimate of $8.63 billion.
Cintas Corporation’s Upcoming Q2 Results Preview
Deutsche Bank analysts provided their outlook on Cintas Corporation (NASDAQ:CTAS) ahead of the company’s Q2 earnings, scheduled to be reported on Dec 21.
Following the strong stock price outperformance over the last three months, the analysts see implicit expectations as elevated into the print next week, with another "beat and raise" anticipated. The analysts are modeling over 10% organic growth for fiscal Q2/23, a deceleration from the Q1/23 level of 13.9% amidst tougher comps and a slowdown in year-over-year labor growth.
Acknowledging that there is some uncertainty with respect to the overall macro environment later in 2023, the analysts don't expect to hear of any slowing on the ground. The analysts raised their price target to $490 from $465 while reiterating their Buy rating.
Cintas Corporation’s Upcoming Q2 Results Preview
Deutsche Bank analysts provided their outlook on Cintas Corporation (NASDAQ:CTAS) ahead of the company’s Q2 earnings, scheduled to be reported on Dec 21.
Following the strong stock price outperformance over the last three months, the analysts see implicit expectations as elevated into the print next week, with another "beat and raise" anticipated. The analysts are modeling over 10% organic growth for fiscal Q2/23, a deceleration from the Q1/23 level of 13.9% amidst tougher comps and a slowdown in year-over-year labor growth.
Acknowledging that there is some uncertainty with respect to the overall macro environment later in 2023, the analysts don't expect to hear of any slowing on the ground. The analysts raised their price target to $490 from $465 while reiterating their Buy rating.
Cintas Reports Q1 Beat, Raises 2023 Outlook
Cintas Corp. (NASDAQ:CTAS) reported its Q1 results, with EPS of $3.39 coming in better than the Street estimate of $3.11. Revenue was $2.17 billion, beating the Street estimate of $2.08 billion.
The company raised its fiscal 2023 outlook, expecting EPS to be in the range of $12.30-$12.65, compared to the Street estimate of $12.27, and revenue in the range of $8.58-8.67 billion, compared to the Street estimate of $8.5 billion.
Implied top-line growth for the remainder of the year of 8.5% at midpoint suggests upside – notwithstanding tougher comps – given strong and continued business momentum across verticals with strong retention and new business wins.
According to the analysts at RBC Capital, the company's recent investments (particularly in technology) are allowing it to gain a share and win new business. On the margin front, the labor environment is easing ever so slightly and energy costs are rolling over.
Cintas Reports Q1 Beat, Raises 2023 Outlook
Cintas Corp. (NASDAQ:CTAS) reported its Q1 results, with EPS of $3.39 coming in better than the Street estimate of $3.11. Revenue was $2.17 billion, beating the Street estimate of $2.08 billion.
The company raised its fiscal 2023 outlook, expecting EPS to be in the range of $12.30-$12.65, compared to the Street estimate of $12.27, and revenue in the range of $8.58-8.67 billion, compared to the Street estimate of $8.5 billion.
Implied top-line growth for the remainder of the year of 8.5% at midpoint suggests upside – notwithstanding tougher comps – given strong and continued business momentum across verticals with strong retention and new business wins.
According to the analysts at RBC Capital, the company's recent investments (particularly in technology) are allowing it to gain a share and win new business. On the margin front, the labor environment is easing ever so slightly and energy costs are rolling over.
