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Cintas (CTAS) is trading modestly higher after reporting strong results for Q1 (Aug). The company has not missed on EPS in any quarter for the past five years and that was the case again in Q1. Revenue rose 6.8% yr/yr to a record $2.50 bln, slightly better than expected. Importantly, CTAS raised full year EPS guidance to $4.17-4.25 from $4.06-4.19 and raised the low end of FY25 revenue guidance. Of note, Cintas expects its first $10+ bln revenue year in FY25.

• Cintas recently completed a 4-for-1 stock split in early September, so we had to adjust prior EPS guidance. Also, 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.)
• Its Uniform Rental and Facility Services is the much larger segment of the two. Segment revenue rose 5.9% yr/yr to $1.93 bln. Q1 was negatively impacted by one less workday yr/yr. On a same workday basis, Q1 revenue growth was 8.4%. Other revenue, of which its First Aid segment accounts for a big part, rose 10.1% yr/yr to $567.7 mln.
• On its call, Cintas said that it continued to experience strong demand for its services in Q1, not only from existing customers, but across its new business pipeline across. Its four focused verticals (healthcare, hospitality, education and state and local government) continue to perform well.
• Margins were a bright spot in Q1 as gross margin improved to a record 50.1% from 48.7% a year ago as energy expenses (gasoline, natural gas and electricity) were 20 bps lower yr/yr. Cintas drives a lot of trucks to make uniform deliveries, so gas prices make a big difference with margins. The higher gross margin fueled a nice increase in Q1 operating margin to 22.4% vs 21.4% a year ago.

Overall, this was a usual quarter for Cintas with nice upside EPS with generally in-line revenue. Perhaps a minor disappointment was the FY25 guidance. The high end of the range was not increased as much as the lower end of the range. However, we think Cintas is likely just being conservative as we are so early in the fiscal year. The bigger picture is that demand remains healthy and margins expanded nicely. More broadly, we remain a fan of Cintas. Its business tends to be consistent and predictable with a strong recurring revenue component. Also, Cintas benefits from the trend toward businesses wanting to outsource functions so that its employees can focus on their core business.