Cintas Corporation Announces Fiscal 2013 Second Quarter Results

CINCINNATI--()--Cintas Corporation (Nasdaq:CTAS) today reported results for its second quarter ended November 30, 2012. Revenue for the second quarter was $1.06 billion, representing a 4.0% increase compared to last year’s second quarter. Organic growth, which adjusts for the impact of acquisitions, compared to last year’s second quarter, was 3.4%. Recycled paper prices remained lower than last year, and this negatively impacted second quarter consolidated revenue by $5.5 million, or 0.6%, compared to last year’s second quarter.

The Company’s operating income of $139.0 million was a 4.8% increase as compared to last year’s second quarter. Net income increased 4.9% to $78.0 million as compared to $74.4 million in last year’s second quarter. Earnings per diluted share (EPS) for the second quarter were $0.63, a 10.5% increase over the $0.57 earnings per diluted share in last year’s second quarter.

Scott D. Farmer, Chief Executive Officer, stated, “We continued to operate during the second quarter in a climate of much economic uncertainty. These uncertainties, largely regarding U.S. tax policies and changing healthcare regulation and costs, caused our customers to be very cautious about both spending and hiring.”

The Company’s balance sheet and cash flow remain very strong. Cash and marketable securities totaled $276.3 million at November 30, 2012. Cash flow from operations in the first half of fiscal 2013 improved to $227.3 million, a 29.2% increase over the first half of last fiscal year. As of November 30, 2012, the Company’s current ratio was 2.7 to one, and its debt to EBITDA was 1.9 to one.

During the second quarter of fiscal 2013, the Company purchased 1.9 million shares of its common stock at an aggregate cost of $81.1 million. While it had no impact on the second quarter EPS, this buyback is expected to benefit fiscal year 2013 EPS by approximately $0.01. The Cintas Board of Directors authorized a $500.0 million share buyback program in October 2011. As of November 30, 2012, the Company had $218.7 million available under the current Board authorization for future share repurchases.

Mr. Farmer added, “Last week, we paid our annual dividend to our shareholders amounting to $0.64 per share, an 18.5% increase from last year’s dividend of $0.54 per share. Our consistently strong operating results have allowed us to continue to increase our dividend while executing our stock buyback program, demonstrating our continued commitment to increase shareholder value.”

Mr. Farmer concluded, “Based on our second quarter results and the uncertain U.S. economic climate, we are updating our fiscal 2013 revenue expectations to be in the range of $4.275 billion to $4.325 billion. We are not changing our EPS guidance, which is an expectation of fiscal 2013 EPS to be in the range of $2.50 to $2.58. This guidance assumes no further deterioration in the U.S. economy and does not consider any additional share buybacks.”

About Cintas
Headquartered in Cincinnati, Cintas Corporation provides highly specialized services to businesses of all types primarily throughout North America. Cintas designs, manufactures and implements corporate identity uniform programs, and provides entrance mats, restroom supplies, promotional products, first aid, safety, fire protection products and services and document management services for over one million businesses. Cintas is a publicly held company traded over the Nasdaq Global Select Market under the symbol CTAS and is a component of the Standard & Poor’s 500 Index.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. Forward-looking statements may be identified by words such as “estimates,” “anticipates,” “predicts,” “projects,” “plans,” “expects,” “intends,” “target,” “forecast,” “believes,” “seeks,” “could,” “should,” “may” and “will” or the negative versions thereof and similar words, terms and expressions and by the context in which they are used. Such statements are based upon current expectations of Cintas and speak only as of the date made. You should not place undue reliance on any forward-looking statement. We cannot guarantee that any forward-looking statement will be realized. These statements are subject to various risks, uncertainties, potentially inaccurate assumptions and other factors that could cause actual results to differ from those set forth in or implied by this Press Release. Factors that might cause such a difference include, but are not limited to, the possibility of greater than anticipated operating costs including energy and fuel costs, lower sales volumes, loss of customers due to outsourcing trends, the performance and costs of integration of acquisitions, fluctuations in costs of materials and labor including increased medical costs, costs and possible effects of union organizing activities, failure to comply with government regulations concerning employment discrimination, employee pay and benefits and employee health and safety, uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation, the cost, results and ongoing assessment of internal controls for financial reporting required by the Sarbanes-Oxley Act of 2002, disruptions caused by the inaccessibility of computer systems data, the initiation or outcome of litigation, investigations or other proceedings, higher assumed sourcing or distribution costs of products, the disruption of operations from catastrophic or extraordinary events, the amount and timing of repurchases of our common stock, if any, changes in federal and state tax and labor laws, the reactions of competitors in terms of price and service and the finalization of our financial statements for the quarter ended November 30, 2012. Cintas undertakes no obligation to publicly release any revisions to any forward-looking statements or to otherwise update any forward-looking statements whether as a result of new information or to reflect events, circumstances or any other unanticipated developments arising after the date on which such statements are made. A further list and description of risks, uncertainties and other matters can be found in our Annual Report on Form 10-K for the year ended May 31, 2012 and in our reports on Forms 10-Q and 8-K. The risks and uncertainties described herein are not the only ones we may face. Additional risks and uncertainties presently not known to us or that we currently believe to be immaterial may also harm our business.

               
 
Cintas Corporation
Consolidated Condensed Statements of Income
(Unaudited)
(In thousands except per share data)
 
 
Three Months Ended

November 30,
2012

   

November 30,
2011

    % Chng.
Revenue:
Rental uniforms and ancillary products $ 755,839 $ 722,789 4.6
Other services   304,547         296,337   2.8
Total revenue $ 1,060,386 $ 1,019,126 4.0
 
Costs and expenses:
Cost of rental uniforms and ancillary products $ 438,902 $ 410,247 7.0
Cost of other services 189,448 179,082 5.8
Selling and administrative expenses   293,013         297,112   -1.4
 
Operating income $ 139,023 $ 132,685 4.8
 
Interest income $ (149 ) $ (403 ) -63.0
Interest expense   16,294         17,728   -8.1
 
Income before income taxes $ 122,878 $ 115,360 6.5
Income taxes   44,851         41,010   9.4
Net income $ 78,027       $ 74,350   4.9
 
Per share data:
Basic earnings per share $ 0.63       $ 0.57   10.5
Diluted earnings per share $ 0.63       $ 0.57   10.5
 
Weighted average number of shares outstanding 124,185 129,727
Diluted average number of shares outstanding 124,609 129,740
 
 
Six Months Ended

November 30,
2012

   

November 30,
2011

    % Chng.
Revenue:
Rental uniforms and ancillary products $ 1,510,682 $ 1,442,212 4.7
Other services   601,029         594,094   1.2
Total revenue $ 2,111,711 $ 2,036,306 3.7
 
Costs and expenses:
Cost of rental uniforms and ancillary products $ 867,050 $ 813,653 6.6
Cost of other services 366,750 353,816 3.7
Selling and administrative expenses   599,594         607,578   -1.3
 
Operating income $ 278,317 $ 261,259 6.5
 
Interest income $ (226 ) $ (768 ) -70.6
Interest expense   32,892         35,062   -6.2
 
Income before income taxes $ 245,651 $ 226,965 8.2
Income taxes   90,891         83,977   8.2
Net income $ 154,760       $ 142,988   8.2
 
Per share data:
Basic earnings per share $ 1.24       $ 1.09   13.8
Diluted earnings per share $ 1.23       $ 1.09   12.8
 
Weighted average number of shares outstanding 125,153 130,522
Diluted average number of shares outstanding 125,541 130,543
 
 
 
CINTAS CORPORATION SUPPLEMENTAL DATA
 
Three Months Ended

November 30,
2012

   

November 30,
2011

Rental uniforms and ancillary products gross margin 41.9 % 43.2 %
Other services gross margin 37.8 % 39.6 %
Total gross margin 40.7 % 42.2 %
Net margin 7.4 % 7.3 %

 

 
Depreciation and amortization $ 46,852 $ 48,516
Capital expenditures $ 51,624 $ 35,411
 
 
Six Months Ended

November 30,
2012

   

November 30,
2011

Rental uniforms and ancillary products gross margin 42.6 % 43.6 %
Other services gross margin 39.0 % 40.4 %
Total gross margin 41.6 % 42.7 %
Net margin 7.3 % 7.0 %
 
Depreciation and amortization $ 93,294 $ 97,026
Capital expenditures $ 99,062 $ 79,832
 
Debt / EBITDA 1.9 2.0
 
 
Reconciliation of Non-GAAP Financial Measures and Regulation G Disclosure
 
The press release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. To supplement its consolidated financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company provides additional measures of operating results, net earnings, net margin and earnings per share adjusted to exclude certain costs, expenses and gains and losses. The Company believes that these non-GAAP financial measures are appropriate to enhance understanding of its past performance as well as prospects for future performance. A reconciliation of the differences between these non-GAAP financial measures with the most directly comparable financial measures calculated in accordance with GAAP is shown below.
 
Management believes the ratio of debt to earnings before interest, taxes, depreciation and amortization (EBITDA) is valuable to investors, particularly investors of the company's debt, because it is a common metric that reflects the company's earnings and cash flow available for debt service payments.
 
                As of                

November 30,
2012

 
Long-term debt $ 1,309,490
Letters of credit   85,719
Debt $ 1,395,209
 

Rolling Twelve
Months Ended
November 30,
2012

   

Three Months
Ended
November 30,
2012

   

Three Months
Ended
August 31,
2012

   

Three Months
Ended
May 31,
2012

   

Three Months
Ended
February 29,
2012

 
Net Income $ 309,409 $ 78,027 $ 76,733 $ 78,614 $ 76,035
 
Add back:
Interest expense 68,455 16,294 16,598 18,344 17,219
Taxes 180,221 44,851 46,040 44,675 44,655
Depreciation 160,230 40,979 40,342 40,265 38,644
Amortization   30,203   5,873   6,100   8,814   9,416
EBITDA $ 748,518 $ 186,024 $ 185,813 $ 190,712 $ 185,969
 
Debt / EBITDA   1.9
 
 
As of

November 30,
2011

 
Long-term debt $ 1,285,222
Letters of credit   85,720
Debt $ 1,370,942
 

Rolling Twelve
Months Ended
November 30,
2011

   

Three Months
Ended
November 30,
2011

   

Three Months
Ended
August 31,
2011

   

Three Months
Ended
May 31,
2011

   

Three Months
Ended
February 28,
2011

 
Net Income $ 272,834 $ 74,350 $ 68,638 $ 70,776 $ 59,070
 
Add back:
Interest expense 60,331 17,728 17,334 12,749 12,520
Taxes 167,673 41,010 42,967 46,130 37,566
Depreciation 153,245 38,645 38,277 38,760 37,563
Amortization   41,503   9,871   10,233   10,415   10,984
EBITDA $ 695,586 $ 181,604 $ 177,449 $ 178,830 $ 157,703
 
Debt / EBITDA   2.0
 
               
Computation of Free Cash Flow
 
Six Months Ended

November 30,
2012

   

November 30,
2011

 
Net Cash Provided by Operations $ 227,263 $ 175,958
 
Capital Expenditures $ (99,062 )     $ (79,832 )
 
Free Cash Flow $ 128,201 $ 96,126
 

Note:

 

Management uses free cash flow to assess the financial performance of the Company. Management

believes that free cash flow is useful to investors because it relates the operating cash flow of the
Company to the capital that is spent to continue, improve and grow business operations.
 
                           
SUPPLEMENTAL SEGMENT DATA

Rental
Uniforms and
Ancillary
Products

   

Uniform Direct
Sales

   

First Aid, Safety
and Fire
Protection

   

Document
Management

    Corporate     Total
For the three months ended November 30, 2012
Revenue $ 755,839 $ 110,203 $ 111,513 $ 82,831 $ - $ 1,060,386
Gross margin $ 316,937 $ 30,206 $ 47,279 $ 37,614 $ - $ 432,036
Selling and administrative expenses $ 200,886 $ 19,802 $ 37,625 $ 34,700 $ - $ 293,013
Interest income $ - $ - $ - $ - $ (149 ) $ (149 )
Interest expense $ - $ - $ - $ - $ 16,294 $ 16,294
Income (loss) before income taxes $ 116,051 $ 10,404 $ 9,654 $ 2,914 $ (16,145 ) $ 122,878
 
For the three months ended November 30, 2011
Revenue $ 722,789 $ 111,946 $ 101,687 $ 82,704 $ - $ 1,019,126
Gross margin $ 312,542 $ 33,127 $ 43,800 $ 40,328 $ - $ 429,797
Selling and administrative expenses $ 208,065 $ 19,885 $ 34,838 $ 34,324 $ - $ 297,112
Interest income $ - $ - $ - $ - $ (403 ) $ (403 )
Interest expense $ - $ - $ - $ - $ 17,728 $ 17,728
Income (loss) before income taxes $ 104,477 $ 13,242 $ 8,962 $ 6,004 $ (17,325 ) $ 115,360
 
For the six months ended November 30, 2012
Revenue $ 1,510,682 $ 210,482 $ 222,354 $ 168,193 $ - $ 2,111,711
Gross margin $ 643,632 $ 59,684 $ 95,070 $ 79,525 $ - $ 877,911
Selling and administrative expenses $ 410,674 $ 40,539 $ 76,395 $ 71,986 $ - $ 599,594
Interest income $ - $ - $ - $ - $ (226 ) $ (226 )
Interest expense $ - $ - $ - $ - $ 32,892 $ 32,892
Income (loss) before income taxes $ 232,958 $ 19,145 $ 18,675 $ 7,539 $ (32,666 ) $ 245,651
Assets $ 2,813,707 $ 143,880 $ 393,429 $ 590,517 $ 276,349 $ 4,217,882
 
For the six months ended November 30, 2011
Revenue $ 1,442,212 $ 213,648 $ 205,430 $ 175,016 $ - $ 2,036,306
Gross margin $ 628,559 $ 62,235 $ 88,587 $ 89,456 $ - $ 868,837
Selling and administrative expenses $ 424,664 $ 40,586 $ 71,242 $ 71,086 $ - $ 607,578
Interest income $ - $ - $ - $ - $ (768 ) $ (768 )
Interest expense $ - $ - $ - $ - $ 35,062 $ 35,062
Income (loss) before income taxes $ 203,895 $ 21,649 $ 17,345 $ 18,370 $ (34,294 ) $ 226,965
Assets $ 2,803,231 $ 157,339 $ 364,461 $ 552,676 $ 337,605 $ 4,215,312
 
                   
 
Cintas Corporation
Consolidated Balance Sheets
(In thousands except share data)
 
 

ASSETS

November 30,
2012

May 31,
2012

(Unaudited)
Current assets:
Cash & cash equivalents $ 242,487 $ 339,825
Marketable securities 33,862 -
Accounts receivable, net 479,106 450,861
Inventories, net 236,195 251,205
Uniforms and other rental items in service 482,001 452,785
Income taxes, current 20,976 22,188
Prepaid expenses and other 25,035 24,704
Total current assets 1,519,662 1,541,568
 
Property and equipment, at cost, net 967,260 944,305
 
Goodwill 1,522,411 1,485,375
Service contracts, net 90,480 76,822
Other assets, net 118,069 112,836
 
$ 4,217,882 $ 4,160,906
 

LIABILITIES AND SHAREHOLDERS' EQUITY

 
Current liabilities:
Accounts payable $ 118,534 $ 94,840
Accrued compensation and related liabilities 54,480 91,214
Accrued liabilities 325,077 256,642
Deferred tax liability 56,427 2,559
Long-term debt due within one year 661 225,636
Total current liabilities 555,179 670,891
 
Long-term liabilities:
Long-term debt due after one year 1,308,829 1,059,166
Deferred income taxes 206,782 204,581
Accrued liabilities 66,448 87,133
Total long-term liabilities 1,582,059 1,350,880
 
Shareholders' equity:
Preferred stock, no par value: - -
100,000 shares authorized, none outstanding
Common stock, no par value: 173,127 148,255
425,000,000 shares authorized
FY13: 174,419,454 issued and 123,228,777 outstanding
FY12: 173,745,913 issued and 126,519,758 outstanding
Paid-in capital 98,311 107,019
Retained earnings 3,557,088 3,482,073
Treasury stock: (1,794,050) (1,634,875)
FY13: 51,190,677 shares
FY12: 47,226,155 shares
Other accumulated comprehensive income (loss):
Foreign currency translation 61,091 52,399
Unrealized loss on derivatives (15,279) (16,104)
Other 356 368
Total shareholders' equity 2,080,644 2,139,135
 
$ 4,217,882 $ 4,160,906
 
                 
 
Cintas Corporation
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
 
 
Six Months Ended

Cash flows from operating activities:

November 30,
2012

November 30,
2011

 
Net income $ 154,760 $ 142,988
 
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 81,321 76,922
Amortization of deferred charges 11,973 20,104
Stock-based compensation 11,084 9,756
Deferred income taxes 55,245 (11,767 )
Change in current assets and liabilities, net of
acquisitions of businesses:
Accounts receivable, net (24,528 ) (20,850 )
Inventories, net 15,460 (39,268 )
Uniforms and other rental items in service (28,105 ) (29,630 )
Prepaid expenses and other (202 ) (5,128 )
Accounts payable 23,019 1,843
Accrued compensation and related liabilities (36,899 ) (15,314 )
Accrued liabilities (36,464 ) 26,306
Income taxes payable   599     19,996  
 
Net cash provided by operating activities 227,263 175,958
 

Cash flows from investing activities:

 
Capital expenditures (99,062 ) (79,832 )
Proceeds from redemption of marketable securities 41,453 140,162
Purchase of marketable securities and investments (80,054 ) (193,527 )
Acquisitions of businesses, net of cash acquired (53,243 ) (14,551 )
Other, net   (673 )   5,772  
 
Net cash used in investing activities (191,579 ) (141,976 )
 

Cash flows from financing activities:

 
Proceeds from issuance of debt 250,000 -
Repayment of debt (225,312 ) (903 )
Proceeds from exercise of stock-based compensation awards 2,357 78
Repurchase of common stock (159,175 ) (262,682 )
Other, net   (2,476 )   1,454  
 
Net cash used in financing activities (134,606 ) (262,053 )
 
Effect of exchange rate changes on cash and cash equivalents 1,584 (2,263 )
 
Net decrease in cash and cash equivalents (97,338 ) (230,334 )
 
Cash and cash equivalents at beginning of period   339,825     438,106  
 
Cash and cash equivalents at end of period $ 242,487   $ 207,772  
 

Contacts

Cintas Corporation
William C. Gale, 513-573-4211
Sr. Vice President-Finance and Chief Financial Officer
or
J. Michael Hansen, 513-701-2079
Vice President and Treasurer

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Contacts

Cintas Corporation
William C. Gale, 513-573-4211
Sr. Vice President-Finance and Chief Financial Officer
or
J. Michael Hansen, 513-701-2079
Vice President and Treasurer