Cintas (CTAS 205.59, -7.37, -3.46%) falls to two-month lows
despite reporting first quarter earnings which beat expectations; investors
seem to be reacting to the earnings and revenue guidance raise for fiscal 2019,
which perhaps wasn’t as bulky as anticipated given the solid start to the year.
The workplace uniform manufacturer reported first quarter sales growth of 5.4% to $1.70 bln on earnings per share of $1.93. The company’s Uniform Rental and Facility Services business saw revenue growth of 4.8% to $1.37 bln.
Cintas’ organic revenue growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 5.2%. The organic revenue growth rate for the Uniform Rental and Facility Services segment was 4.9%, and the organic growth rate of the First Aid and Safety Services segment was 9.0%.
The company added that the lower organic growth rate for the Uniform Rental and Facility Services segment was expected and was due to the lapping of the G&K Services acquisition. Cintas expects this organic growth rate to increase during the remainder of FY2019.
Cintas reported operating income of $265 mln in Q1 and noted a $5 mln reduction due to the G&K deal, as well as about $4 mln a year ago due to integration expenses.
Cintas' Uniform Rental and Facility Services segment reported a 40 basis point Q1 gross margin decline to 45.7% as the company noted it is starting to see cost pressures in a few areas. Specifically, energy expense was a headwind of about 20 bps. Additionally, Cintas is experiencing wage inflation in certain areas, and the company has seen some cost pressures on its hangers, which largely are sourced from China.
As a result of the Q1 marks, Cintas raised its annual guidance: the company now sees FY19 revenue in the range of $6.75-6.82 bln to a range of $6.8-6.855 bln and EPS from continuing operations from a range of $7.00-7.15 to a range of $7.19-7.29.
This morning CTAS gapped under its 50-day simple moving average (210.26) on its way to two-month lows. Even with today’s declines, shares of CTAS still hold about a 30% gain on the year, with about 10% of that move coming since the start of July.
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