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Cintas (CTAS -9%) is trading lower after reporting Q2 (Nov) earnings results this morning. The company has not missed on EPS in any quarter for the past five years and that was the case again in Q2. Revenues rose 7.8% yr/yr to a record $2.56 bln, which was in-line.

• However, Cintas clipped the high end of its FY25 organic revenue growth guidance a bit lower to +7.0-7.7% vs +7.0-8.1% prior guidance. We think this is the main source for the weakness today. However, Cintas still expects its first $10+ bln revenue year in FY25. Importantly, the company also raised full year EPS guidance for the second quarter in a row. The guidance increase was more than the Q2 beat, which implies upside EPS guidance for Q3-Q4.
• We like to keep an eye on Cintas because it is a window into how businesses see their near term prospects. Cintas is more than just the largest supplier of work uniforms in the US, it also gets more than half of its revenue from facility services (cleaning supplies, mops, first aid cabinets, fire extinguishers, alarms etc.) Cintas said it continued to experience strong demand in Q2 from businesses of all types and sizes.
• The company explained that virtually every business has a need Cintas is ready to meet. Whether it's a front door that needs a mat, a bathroom to service, exit lighting, fire extinguishers and sprinkler systems, first aid and safety needs etc. Cintas is also continually deepening its value proposition particularly within its four focused verticals: health care, hospitality, education and state and local government, which continued to perform well in Q2.
• Its Uniform Rental and Facility Services is the much larger segment of the two. Segment revenue rose 7.6% yr/yr to $1.99 bln. Other revenue, of which its First Aid segment accounts for a big part, rose 8.5% yr/yr to $571.4 mln.
• On the call, Cintas said that obtaining price increases has been more challenging than it was in Q1 (Aug) and earlier in calendar 2024. Price increases are coming down as inflation has come down. However, it still is able to obtain price increases. Nevertheless, Cintas said that new business is quite strong. Its retention rates are still at very attractive levels. Catalog spending is down a little bit but, overall, the business is functioning at a high level and the macro data seems pretty stable.

For much of the past year, this stock has been in an enviable uptrend without a lot of volatility. However, the stock has started to get tripped up in December. Shares of Cintas have been hit by two events this week. First, the Fed slowing its rate cut plans is not great for Cintas. Interest rates impact its customers plans to hire people and make investments. Second, this earnings report was decent, but not great. The main issue is that Cintas shaved a bit off the high end of its guidance for FY25 organic sales growth. That seems to have spooked investors a bit. Also, the comments about price increases being a bit harder to come by is having an impact as well.