Cintas Rises 2% on Upbeat Q3 Results

Cintas Corporation (NASDAQ: CTAS) has reported better-than-expected results for the third quarter of Fiscal 2022 (ended February 28, 2022). The company’s adjusted earnings surpassed the consensus estimate by 11.2%, while its revenues exceeded the same by 3.2%.

Shares of Cintas gained 2.1% to close at $401.34 on Wednesday. An additional 0.4% rise in the share price was recorded in the extended trading session.

Cintas provides a wide range of products, including uniforms, mops, flame-resistant clothing, restroom supplies, and related services. It has a solid customer base in Latin America, the U.S., and Canada. The company is headquartered in Cincinnati, OH.

Financial Highlights

Cintas’ third-quarter adjusted earnings stood at $2.69 per share, above the consensus estimate of $2.42 per share. On a year-over-year basis, the bottom line increased 13.5% on the back of impressive top-line results. An increase in costs and operating expenses played spoilsports.

Revenues in the quarter were $1.96 billion, above the Street’s estimate of $1.9 billion. The top line represented a 10.3% increase from the year-ago quarter driven by growth in segmental businesses. Organic sales grew 10% in the quarter.

Uniform Rental and Facility Services segment’s revenues increased 9.6% year-over-year to $1.55 billion in the third quarter, while revenues of the First Aid and Safety Services segment rose 7.3% year-over-year to $213 million. Revenues of the All Other segment stood at $194.3 million, up 20.9% year-over-year.

The company’s cost of uniform rental and facility services increased 9.5% year-over-year to $834.1 million, while other costs were $228.3 million, up 11% from the year-ago quarter. Gross margin improved 20 basis points (bps) year-over-year to 45.8% in the quarter. Expenses related to electricity, gasoline, and natural gas increased by 45 bps in the quarter.

With an operating margin of 19.3%, the adjusted operating income was $377.5 million in the quarter.

Balance Sheet & Cash Flow

Exiting the third quarter, Cintas had cash and cash equivalents of $84.1 million, down 83% from $493.6 million at the end of Fiscal 2021 (ended May 31, 2021). The company’s long-term debt (due after one year) was $1,343.5 million, down 18.2% from the Fiscal 2021-end.

In the first nine months of Fiscal 2022, the company’s net cash flow from operating activities grew 9.1% year-over-year to $987.1 million. Capital expenditure was $165.9 million, up 65.2% from the year-ago comparable period. Free cash flow was $821.2 million, up 2.1% year-over-year.

Management’s Take

Cintas’ President and CEO, Todd M. Schneider, said, “Our financial results are indicative of our strong value proposition.”

Todd added that Cintas’ products and services are in demand from businesses that give importance to “image, cleanliness, safety and compliance.”

Projections

For the fourth quarter of Fiscal 2022, Cintas anticipates revenues to be within the $1.96-$2.02 billion range. Earnings per share are forecast to be in the range of $2.54 per share to $2.74 per share.

The effective tax rate in the quarter is expected to be 23.2%, up from 19.4% in the year-ago quarter. The company predicts that higher tax rates will adversely impact its fourth-quarter earnings by $0.14 per share.

Capital Deployment

During the first nine months of Fiscal 2022, Cintas used $150.8 million for acquiring businesses (net of cash acquired) and $250 million for debt repayments.

Also, the company rewarded shareholders with dividends of $276.9 million (down 25.5% year-over-year) and share buybacks of $1,221.8 million (up 690.9% year-over-year) in the first nine months of Fiscal 2022.

Stock Rating

Post the earnings release, George Tong, an analyst at Goldman Sachs, maintained a Buy rating on Cintas while increasing the price target to $493 (22.84% upside potential) from $460.

Tong anticipates Cintas to benefit from healthy demand in the healthcare sector. He said, “Cintas is well positioned to manage higher input costs due to pricing power and technology-enabled efficiencies.”

Cintas presently has a Moderate Buy consensus rating based on four Buys and three Holds. Cintas’ average price target is $446.43, suggesting 11.23% upside potential from current levels. Over the past year, shares of Cintas have gained 20.6%.

News Sentiment

News Sentiment for Cintas is currently Neutral based on 17 articles over the past seven days. 100% of the articles on CTAS have Bullish sentiment, compared to a sector average of 63%.

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