Cintas Corporation Announces Fiscal 2024 Second Quarter Results

Rhea-AI Summary

Cintas Corporation (Nasdaq: CTAS) reported a 9.3% increase in revenue for the second quarter of fiscal 2024, reaching $2.38 billion. Gross margin also increased by 11.6% to $1.14 billion, and net income rose to $374.6 million. The effective tax rate for the second quarter was 20.9%, and diluted EPS grew by 15.7% to $3.61. Cintas increased its quarterly cash dividend by 17.1% and repurchased shares totaling $320.3 million. The company raised its annual revenue expectations and diluted EPS guidance for fiscal 2024.

Positive

• 9.3% revenue increase for the second quarter of fiscal 2024
• 11.6% increase in gross margin to $1.14 billion
• Net income rose to $374.6 million
• Effective tax rate for the second quarter was 20.9%
• Diluted EPS grew by 15.7% to $3.61
• Quarterly cash dividend increased by 17.1%
• Shares totaling $320.3 million were repurchased
• Raised annual revenue expectations and diluted EPS guidance for fiscal 2024

Negative

• None.

Insights

Financial Analyst

The reported financial results by Cintas Corporation for the fiscal 2024 second quarter highlight significant growth in key financial metrics, suggesting a robust performance in this period. The reported 9.3% increase in revenue and a 11.6% increase in gross margin indicate strong sales and operational efficiency. Additionally, the reduction in energy expenses and the increase in operating income by 12.3% reflect cost management and scalability of the business.

The effective tax rate reduction from 22.1% to 20.9% and the 15.7% increase in diluted EPS are particularly noteworthy for shareholders, as they directly affect the net income and shareholder value. The company's strategy of investing in selling resources and technology, as evidenced by the rise in selling and administrative expenses, appears to be yielding positive results, supporting future revenue growth.

From an investment standpoint, the increase in quarterly cash dividend by 17.1% and the share buyback program signal the company's confidence in its financial health and commitment to delivering shareholder value. However, the forecasted higher effective tax rate for fiscal year 2024 could dampen EPS growth, which is an essential factor for investors to consider.

Industry Analyst

Cintas Corporation operates in the business services sector, providing essential products and services that maintain business operations across North America. The company's diverse offerings, including uniforms, safety products and facility services, position it as a critical supplier for various industries. The reported growth and operational performance are indicative of the increasing demand for workplace safety and cleanliness, which has become even more pronounced in the post-pandemic era.

The strategic investments in technology and training programs are likely to enhance the company's competitive edge and innovation capacity, which is crucial for maintaining long-term growth in this sector. The company's ability to execute at a high level across its operating segments suggests a strong market position and operational excellence.

However, it's essential to monitor how Cintas manages the balance between investing in growth and returning value to shareholders, especially in the context of potential economic fluctuations that could impact their customer base.

Economist

The financial outcomes reported by Cintas Corporation provide a microcosmic view of the broader economic trends. The company's performance, with significant revenue and EPS growth, reflects a healthy corporate spending environment, as businesses invest in products and services that promote a safe and professional work atmosphere.

The reduction in energy expenses, despite the backdrop of fluctuating energy prices, suggests effective cost management strategies that could serve as a buffer against inflationary pressures. Moreover, the anticipated reduction in interest expense due to lower variable rate debt is a prudent financial move in an environment where interest rates have been rising.

Looking forward, the company's increased fiscal year guidance indicates optimism about continued economic growth and corporate spending. However, the potential headwinds from a higher effective tax rate may require strategic financial planning to mitigate impacts on net earnings.

CINCINNATI--(BUSINESS WIRE)-- Cintas Corporation (Nasdaq: CTAS) today reported results for its fiscal 2024 second quarter ended November 30, 2023. Revenue for the second quarter of fiscal 2024 was $2.38 billion compared to $2.17 billion in last year’s second quarter, an increase of 9.3%. The organic revenue growth rate for the second quarter of fiscal 2024, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 9.0%.

Gross margin for the second quarter of fiscal 2024 was $1.14 billion compared to $1.02 billion in last year’s second quarter, an increase of 11.6%. Gross margin as a percentage of revenue was 48.0% for the second quarter of fiscal 2024 compared to 47.0% in last year's second quarter, an increase of 100 basis points. Energy expenses comprised of gasoline, natural gas and electricity were 40 basis points lower for the second quarter of fiscal 2024 compared to last year's second quarter.

Selling and administrative expenses increased $64.4 million, or 11.1%, in the second quarter of fiscal 2024 compared to the same period of the prior fiscal year. The increase reflects investments in selling resources, technology and our management trainee program.

Operating income for the second quarter of fiscal 2024 increased 12.3% to $499.7 million compared to $444.9 million in last year's second quarter. Operating income as a percentage of revenue was 21.0% in the second quarter of fiscal 2024 compared to 20.5% in last year's second quarter.

Net income was $374.6 million for the second quarter of fiscal 2024 compared to $324.3 million in last year's second quarter. The second quarter of fiscal 2024 effective tax rate was 20.9% compared to 22.1% in last year's second quarter. The tax rates in both quarters were impacted by certain discrete items, primarily the tax accounting impact for stock-based compensation. Second quarter of fiscal 2024 diluted earnings per share (EPS) was $3.61 compared to $3.12 in last year's second quarter, an increase of 15.7%.

On December 15, 2023, Cintas paid an aggregate quarterly cash dividend of $137.5 million to shareholders, an increase of 17.1% from the amount paid last December. In addition, we continue to be opportunistic with our share buyback program. During the second quarter, Cintas purchased 658,202 shares of Cintas common stock at an average price of $486.58 per share, for a total purchase price of $320.3 million.

Todd M. Schneider, Cintas' President and Chief Executive Officer, stated, "We are pleased with our second quarter fiscal 2024 financial results. Each of our operating segments continue to execute at a high level, leading to robust revenue growth of 9.3%, high operating margin of 21.0% and diluted EPS growth of 15.7%. This strong execution is the result of the exceptional dedication of our employee-partners. Whether it's image, safety, cleanliness or compliance, we have innovative products and services to help businesses across North America stay focused on the work that matters most."

Mr. Schneider concluded, "We are increasing our full fiscal year financial guidance. We are raising our annual revenue expectations from a range of $9.40 billion to $9.52 billion to a range of $9.48 billion to $9.56 billion and our diluted EPS from a range of $14.00 to $14.45 to a range of $14.35 to $14.65." Please note the following regarding guidance:

• Fiscal year 2024 interest expense is expected to be approximately $100.0 million compared to $109.5 million in fiscal year 2023, predominately as a result of less variable rate debt. This may change as a result of future share buybacks or acquisition activity.
• Fiscal year 2024 effective tax rate is expected to be 21.3% compared to a rate of 20.4% in fiscal year 2023. The higher effective tax rate negatively impacts fiscal 2024 diluted EPS guidance by approximately $0.16 and diluted EPS growth by approximately 120 basis points.
• Our diluted EPS guidance includes no future share buybacks.
• Guidance includes the impact of having one more workday in fiscal year 2024 compared to fiscal year 2023.

Cintas

Cintas Corporation helps more than one million businesses of all types and sizes get Ready^™ to open their doors with confidence every day by providing products and services that help keep their customers’ facilities and employees clean, safe and looking their best. With offerings including uniforms, mats, mops, restroom supplies, first aid and safety products, fire extinguishers and testing, and safety training, Cintas helps customers get Ready for the Workday^®. Headquartered in Cincinnati, Cintas is a publicly held Fortune 500 company traded over the Nasdaq Global Select Market under the symbol CTAS and is a component of both the Standard & Poor’s 500 Index and Nasdaq-100 Index.

Cintas will host a live webcast to review the fiscal 2024 second quarter results today at 10:00 a.m., Eastern Time. The webcast will be available to the public on Cintas' website at www.Cintas.com. A replay of the webcast will be available approximately two hours after the completion of the live call and will remain available for two weeks.

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; inflationary pressures and fluctuations in costs of materials and labor, including increased medical costs; interest rate volatility; 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; the effect on operations of exchange rate fluctuations, tariffs and other political, economic and regulatory risks; uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation; our ability to meet our goals relating to environmental, social and governance (ESG) opportunities, improvements and efficiencies; the cost, results and ongoing assessment of internal controls for financial reporting; the effect of new accounting pronouncements; disruptions caused by the inaccessibility of computer systems data, including cybersecurity risks; 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 including global health pandemics such as the COVID-19 coronavirus; the amount and timing of repurchases of our common stock, if any; changes in federal and state tax and labor laws; and the reactions of competitors in terms of price and service. 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, except otherwise as required by law. 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, 2023 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, 2023				November 30, 2022				% Change
Revenue:
Uniform rental and facility services	$	1,850,542			$	1,709,987			8.2%
Other		526,635				464,871			13.3%
Total revenue		2,377,177				2,174,858			9.3%
Costs and expenses:
Cost of uniform rental and facility services		974,231				906,727			7.4%
Cost of other		261,398				245,684			6.4%
Selling and administrative expenses		641,865				577,513			11.1%
Operating income		499,683				444,934			12.3%
Interest income		(769	)			(344	)		123.5%
Interest expense		26,590				28,920			(8.1)%
Income before income taxes		473,862				416,358			13.8%
Income taxes		99,249				92,065			7.8%
Net income	$	374,613			$	324,293			15.5%
Basic earnings per share	$	3.67			$	3.18			15.4%
Diluted earnings per share	$	3.61			$	3.12			15.7%
Basic weighted average common shares outstanding		101,667				101,637
Diluted weighted average common shares outstanding		103,266				103,356

Cintas Corporation
Consolidated Condensed Statements of Income
(Unaudited)
(In thousands except per share data)
	Six Months Ended
	November 30, 2023				November 30, 2022				% Change
Revenue:
Uniform rental and facility services	$	3,677,367			$	3,407,759			7.9%
Other		1,042,140				933,553			11.6%
Total revenue		4,719,507				4,341,312			8.7%
Costs and expenses:
Cost of uniform rental and facility services		1,921,814				1,797,493			6.9%
Cost of other		514,574				493,260			4.3%
Selling and administrative expenses		1,282,880				1,165,505			10.1%
Operating income		1,000,239				885,054			13.0%
Interest income		(1,191	)			(499	)		138.7%
Interest expense		51,134				56,640			(9.7)%
Income before income taxes		950,296				828,913			14.6%
Income taxes		190,598				152,931			24.6%
Net income	$	759,698			$	675,982			12.4%
Basic earnings per share	$	7.43			$	6.63			12.1%
Diluted earnings per share	$	7.32			$	6.51			12.4%
Basic weighted average common shares outstanding		101,781				101,530
Diluted weighted average common shares outstanding		103,418				103,343

CINTAS CORPORATION SUPPLEMENTAL DATA

Gross Margin and Net Income Margin Results
	Three Months Ended				Six Months Ended
	November 30, 2023		November 30, 2022		November 30, 2023		November 30, 2022
Uniform rental and facility services gross margin	47.4%		47.0%		47.7%		47.3%
Other gross margin	50.4%		47.2%		50.6%		47.2%
Total gross margin	48.0%		47.0%		48.4%		47.2%
Net income margin	15.8%		14.9%		16.1%		15.6%

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 condensed financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company provides the additional non-GAAP financial measure of cash flow. The Company believes that this non-GAAP financial measure is appropriate to enhance understanding of its past performance as well as prospects for future performance. A reconciliation of the difference between this non-GAAP financial measure with the most directly comparable financial measure calculated in accordance with GAAP is shown in the table below.

Computation of Free Cash Flow
	Six Months Ended
(In thousands)	November 30, 2023				November 30, 2022
Net cash provided by operations	$	729,631			$	619,149
Capital expenditures		(200,527	)			(146,404	)
Free cash flow	$	529,104			$	472,745

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

(In thousands)	Uniform Rental and Facility Services			First Aid and Safety Services			All Other			Corporate				Total
For the three months ended November 30, 2023
Revenue	$	1,850,542		$	266,401		$	260,234		$	—			$	2,377,177
Gross margin	$	876,311		$	145,316		$	119,921		$	—			$	1,141,548
Selling and administrative expenses	$	476,700		$	86,785		$	78,380		$	—			$	641,865
Interest income	$	—		$	—		$	—		$	(769	)		$	(769	)
Interest expense	$	—		$	—		$	—		$	26,590			$	26,590
Income (loss) before income taxes	$	399,611		$	58,531		$	41,541		$	(25,821	)		$	473,862
For the three months ended November 30, 2022
Revenue	$	1,709,987		$	235,974		$	228,897		$	—			$	2,174,858
Gross margin	$	803,260		$	119,153		$	100,034		$	—			$	1,022,447
Selling and administrative expenses	$	434,165		$	73,658		$	69,690		$	—			$	577,513
Interest income	$	—		$	—		$	—		$	(344	)		$	(344	)
Interest expense	$	—		$	—		$	—		$	28,920			$	28,920
Income (loss) before income taxes	$	369,095		$	45,495		$	30,344		$	(28,576	)		$	416,358
For the six months ended November 30, 2023
Revenue	$	3,677,367		$	527,094		$	515,046		$	—			$	4,719,507
Gross margin	$	1,755,553		$	291,092		$	236,474		$	—			$	2,283,119
Selling and administrative expenses	$	949,414		$	172,980		$	160,486		$	—			$	1,282,880
Interest income	$	—		$	—		$	—		$	(1,191	)		$	(1,191	)
Interest expense	$	—		$	—		$	—		$	51,134			$	51,134
Income (loss) before income taxes	$	806,139		$	118,112		$	75,988		$	(49,943	)		$	950,296
For the six months ended November 30, 2022
Revenue	$	3,407,759		$	470,135		$	463,418		$	—			$	4,341,312
Gross margin	$	1,610,266		$	235,290		$	205,003		$	—			$	2,050,559
Selling and administrative expenses	$	876,400		$	148,949		$	140,156		$	—			$	1,165,505
Interest income	$	—		$	—		$	—		$	(499	)		$	(499	)
Interest expense	$	—		$	—		$	—		$	56,640			$	56,640
Income (loss) before income taxes	$	733,866		$	86,341		$	64,847		$	(56,141	)		$	828,913

Cintas Corporation
Consolidated Condensed Balance Sheets
(In thousands except per share data)
	November 30, 2023				May 31, 2023
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	85,556			$	124,149
Accounts receivable, net		1,273,974				1,152,993
Inventories, net		474,840				506,604
Uniforms and other rental items in service		1,035,717				1,011,918
Prepaid expenses and other current assets		166,652				142,795
Total current assets		3,036,739				2,938,459
Property and equipment, net		1,463,826				1,396,476
Investments		270,006				247,191
Goodwill		3,120,506				3,056,201
Service contracts, net		329,511				346,574
Operating lease right-of-use assets, net		179,154				178,464
Other assets, net		414,127				382,991
	$	8,813,869			$	8,546,356
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	316,697			$	302,292
Accrued compensation and related liabilities		154,452				239,086
Accrued liabilities		619,288				632,504
Income taxes, current		13,102				12,470
Operating lease liabilities, current		44,063				43,710
Debt due within one year		210,000				—
Total current liabilities		1,357,602				1,230,062
Long-term liabilities:
Debt due after one year		2,474,287				2,486,405
Deferred income taxes		497,198				498,356
Operating lease liabilities		138,936				138,278
Accrued liabilities		351,365				329,269
Total long-term liabilities		3,461,786				3,452,308
Shareholders’ equity:
Preferred stock, no par value: 100,000 shares authorized, none outstanding		—				—
Common stock, no par value, and paid-in capital: 425,000,000 shares authorized FY 2024: 192,861,307 issued and 101,347,603 outstanding FY 2023: 192,198,938 issued and 101,732,148 outstanding		2,179,951				2,031,542
Retained earnings		10,081,267				9,597,315
Treasury stock: FY 2024: 91,513,704 shares FY 2023: 90,466,790 shares		(8,360,076	)			(7,842,649	)
Accumulated other comprehensive income		93,339				77,778
Total shareholders’ equity		3,994,481				3,863,986
	$	8,813,869			$	8,546,356

Cintas Corporation
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
	Six Months Ended
	November 30, 2023				November 30, 2022
Cash flows from operating activities:
Net income	$	759,698			$	675,982
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		136,803				126,561
Amortization of intangible assets and capitalized contract costs		79,235				74,693
Stock-based compensation		53,182				51,537
Deferred income taxes		(7,105	)			18,565
Change in current assets and liabilities, net of acquisitions of businesses:
Accounts receivable, net		(120,881	)			(133,897	)
Inventories, net		32,093				(43,266	)
Uniforms and other rental items in service		(21,649	)			(73,475	)
Prepaid expenses and other current assets and capitalized contract costs		(80,056	)			(85,532	)
Accounts payable		14,981				61,421
Accrued compensation and related liabilities		(86,725	)			(28,212	)
Accrued liabilities and other		(30,453	)			(33,352	)
Income taxes, current		508				8,124
Net cash provided by operating activities		729,631				619,149
Cash flows from investing activities:
Capital expenditures		(200,527	)			(146,404	)
Purchases of investments		(7,475	)			(5,182	)
Acquisitions of businesses, net of cash acquired		(73,997	)			(15,457	)
Other, net		(196	)			(4,381	)
Net cash used in investing activities		(282,195	)			(171,424	)
Cash flows from financing activities:
Issuance of commercial paper, net		210,000				124,046
Repayment of debt		(13,450	)			—
Proceeds from exercise of stock-based compensation awards		929				2,125
Dividends paid		(255,839	)			(215,017	)
Repurchase of common stock		(423,128	)			(348,682	)
Other, net		(4,322	)			(8,840	)
Net cash used in financing activities		(485,810	)			(446,368	)
Effect of exchange rate changes on cash and cash equivalents		(219	)			(2,029	)
Net decrease in cash and cash equivalents		(38,593	)			(672	)
Cash and cash equivalents at beginning of period		124,149				90,471
Cash and cash equivalents at end of period	$	85,556			$	89,799

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20231221596115/en/

J. Michael Hansen, Executive Vice President & Chief Financial Officer - 513-972-2079

Jared S. Mattingley, Vice President, Treasurer & Investor Relations - 513-972-4195

Source: Cintas Corporation

FAQ

What is the revenue increase reported by Cintas Corporation (Nasdaq: CTAS) for the second quarter of fiscal 2024?

Cintas Corporation reported a 9.3% increase in revenue for the second quarter of fiscal 2024, reaching $2.38 billion.

What is the gross margin increase for Cintas Corporation (Nasdaq: CTAS) in the second quarter of fiscal 2024?

The gross margin for the second quarter of fiscal 2024 increased by 11.6% to $1.14 billion.

What is the net income reported by Cintas Corporation (Nasdaq: CTAS) for the second quarter of fiscal 2024?

Cintas Corporation reported a net income of $374.6 million for the second quarter of fiscal 2024.

What is the effective tax rate for Cintas Corporation (Nasdaq: CTAS) in the second quarter of fiscal 2024?

The effective tax rate for the second quarter was 20.9%.

What is the diluted EPS growth for Cintas Corporation (Nasdaq: CTAS) in the second quarter of fiscal 2024?

The diluted EPS grew by 15.7% to $3.61 for the second quarter of fiscal 2024.

What is the increase in the quarterly cash dividend for Cintas Corporation (Nasdaq: CTAS)?

Cintas Corporation increased its quarterly cash dividend by 17.1%.

What is the value of shares repurchased by Cintas Corporation (Nasdaq: CTAS) in the second quarter of fiscal 2024?

Cintas Corporation repurchased shares totaling $320.3 million.

Did Cintas Corporation (Nasdaq: CTAS) raise its annual revenue expectations for fiscal 2024?

Yes, Cintas Corporation raised its annual revenue expectations for fiscal 2024.

Did Cintas Corporation (Nasdaq: CTAS) raise its diluted EPS guidance for fiscal 2024?

Yes, Cintas Corporation raised its diluted EPS guidance for fiscal 2024.