Cintas Corp. (CTAS 159.41, +0.37, +0.23%) moved higher at the open after the company reported Q2 (Nov) earnings last night. Cintas is the largest supplier of work
uniforms in the U.S. (shirts, jackets, pants, footwear, etc.), operating
primarily on a rental basis.
Corporate customers of Cintas’ uniform services range from McDonald's to Starbucks to W Hotels. Beyond servicing the restaurant and hospitality Industries, Cintas also provides more durable uniforms for mechanics and fire-resistant uniforms for first responders and for workers on oil and gas rigs. In addition to uniforms, Cintas also provides related business services and products, including entrance mats, restroom cleaning services and supplies, carpet and tile cleaning services, and first aid, and safety and fire protection products.
In 2017, Cintas closed on a major acquisition when it bought rival G&K Services for a total enterprise value of approximately $2.2 bln, including acquired net debt. G&K Services added annual revenue of approximately $1 bln.
Turning to the 2Q19 (Nov) results, adjusted EPS rose 34% year/year to $1.76 while revenue rose 7.0% year/year to $1.72 bln. Both results were above market expectations with EPS being well above. In terms of guidance for FY19, Cintas upped its outlook for non-GAAP EPS to $7.30-7.38 from $7.19-7.29. Its revenue outlook was upped to $6.87-6.91 bln from prior guidance of $6.80-6.855 bln.
Overall, CTAS is pleased with its NovQ results, and it continues to make progress on integrating G&K post-acquisition. On the call, CTAS was asked if it's seeing any signs of slowdown from customers. Management demurred and said that its strong quarterly results signal recent health in its economic environment and that its guidance furthermore points to a strong finish for the year. An area of possible concern that was mentioned on the call is the energy segment, as declining oil prices could perhaps create some pressure in that business over the next couple of quarters.
In terms of Cintas' overall take on the market: Absent a significant change in the macro that could throw a wrench in the company’s ability to execute, CTAS likes the way it's performing right now. Its salesforce is performing very well, and its integration with G&K continues. As CTAS puts more and more of that behind it, the company can get more and more efficient in the way it operates.
Looking ahead, CTAS sees a broad opportunity that is certainly not fully penetrated. CTAS likes its opportunity to sell to existing customers.
In sum, this was a nice quarter and guidance for Cintas. Cintas is benefitting from a strong overall economy and the fact that the unemployment rate has been falling. More workers means more uniform rentals. The stock has been pulling back in recent months with the overall market on concerns about China, rising rates, and the impact of that on the economy. As you can imagine given its business and its direct correlation with workers, the stock price will be closely tied to the overall economy. It will probably take a rebound in the overall market to get the stock back on the upswing, but the NovQ results were encouraging.
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