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Cintas (CTAS) is trading roughly flat after closing out FY23 with solid upside results. This morning, it reported another double-digit EPS beat with its Q4 (May) results with modest revenue upside. The main problem was its FY24 guidance.

We like to keep an eye on Cintas because it is a window into how businesses see their near term prospects. Cintas is best known as the largest supplier of work uniforms in the US, but it also gets more than half of its revenue from facility services (cleaning supplies, mops, first aid cabinets, PPE, fire extinguishers, alarms etc.)

• One of the best things about Cintas is its consistency. The company has now posted double-digit EPS beats in 17 of the past 18 quarters and has not missed in any quarter in the past five fiscal years. A potential concern is that investors have gotten spoiled with monster beats from Cintas, so that may be holding back the stock today somewhat.
• The Uniform Rental and Facility Services segment is by far the larger segment. Revenue grew 8.8% yr/yr to $1.77 bln, while other revenue jumped 15% yr/yr to $511 mln. CTAS noted that it was lapping its most difficult quarter of the fiscal year.
• Cintas reported a nice increase in margins with gross margin bumping up to 47.7% from 45.6% a year ago. Lower energy expenses (gasoline, natural gas and electricity) helped with margins. Cintas drives a lot of trucks around, so gas prices are important for them. This flowed down to operating margin, which improved to 20.6% from 19.5% last year.
• With the fiscal year ending, we got our first look at FY24 guidance. Cintas sees FY24 EPS of $13.85-14.35, nicely above adjusted EPS of $12.99 in FY23 and $11.28 in FY22. However, this EPS guidance is below analyst expectations. The FY24 revenue guidance was in-line although the mid-point was slightly below analyst expectations.

Overall, this was a solid report, but the stock reaction is pretty muted. We think the market had already priced in a sizeable EPS beat as that has been Cintas' history. At the same time, we think investors are not punishing Cintas too much for the downside EPS guidance. Cintas tends to be conservative with guidance and investors know that, so we think they are punishing them less than they would other companies. Also, the guidance assumes no share buybacks.

We are generally a fan of Cintas. Its business tends to be consistent and predictable. Also, Cintas benefits from the trend toward businesses wanting to outsource functions so that its employees can focus on their core business. Cintas' large size brings efficiencies that its clients cannot match. We also like Cintas' cross-selling opportunity. That is a big reason why Cintas has expanded beyond uniforms. It already had great corporate accounts, so it made sense to start selling them other products/services that businesses rely on. Finally, the stock is getting close to that $500 level, we had thought maybe a stock split might be announced with the new fiscal year starting, but that was not to be.