CTAS Cintas Corporation

Cintas Corporation (CTAS) recently reported its fiscal 2011 earnings results, delivering an EPS of 49 cents versus 36 cents during the year-earlier quarter, representing a substantial increase of 36.0% and outshining the Zacks Consensus Estimates of 44 cents.

For fiscal year the company reported an EPS of $1.68 versus $1.40 during the prior-year, representing an increase of 20.0%.

Total revenue in the quarter increased 11.3% to $1,012.2 billion from $909.4 million in the year-ago quarter, striding ahead of the Zacks Consensus Estimate of $988.0 million. For fiscal 2011, the company reported total revenue of $3.81 billion versus $3.55 billion in the prior-year. The improvement in the revenue is mainly attributable to the increase in volumes and continued momentum in all the company’s segments.

Costs and Margins

Cintas reported cost of sales of $579.0 million during the quarter versus $523.9 million in the year-ago quarter. Gross margin during the quarter increased 40 basis points year over year to 42.8%.  Selling general and administrative expenses increased 6.0% on a year-over-year basis to $304.2 million.

Operating income during the quarter increased $26.9% substantially to $128.9 million. Net income of the company increased 27.6% on a year-over-year basis to $70.8 million in the quarter. Consequently, net margins also increased 90 basis points year over year to 7.0%.

Cintas reported cost of sales of $2.20 billion during the fiscal 2011 versus $2.05 billion in the prior-year. However, gross margin remained flat at 42.2% from the prior-year levels.  Selling, general and administrative expenses increased 7.6% on a year-over-year basis to $1.17 billion.

Operating income during the fiscal 2011 increased 12.7% substantially to $440.3 million. Net income of the company increased 14.5% on a year-over-year basis to $247.0 million in the quarter. Consequently, net margins also increased 40 basis points year over year to 6.5%.

Segmental Analysis

Rental uniform and ancillary products: The segment reported revenue of $711.9 million in the quarter compared with $647.7 million in the year-ago quarter.

For full year the segment reported total revenue of $2.69 billion versus $2.57 billion during the prior-year.

Uniform Direct Sales: Total revenue during the quarter amounted to $109.0 million versus $103.2 million in the year-ago quarter.

For fiscal 2011, the segment earned total revenue of $419.2 million compared with $386.4 million during fiscal 2010.

First Aid, Safety and Fire Protection: Total revenue in the quarter amounted to $99.6 million versus $87.9 million during the year-earlier quarter.

For the full year, the segment reported total revenue of $377.7 million versus $21.5 million in the fiscal 2010.

Document Management: The segment reported total revenue of $91.5 million versus $70.7 million in the year-earlier quarter.

For the full year the segment earned total revenue of $321.2 million versus $253.0 million in the prior-year.

Financial Position

As of May 31, 2011 cash and cash equivalent amounted to $438.1 million versus $411.3 million as of May 31, 2010.

Cash flow at the end of fiscal 2011 was $340.9 million versus $565.6 million at the end of fiscal 2010. Capital expenditure increased to $182.6 million at the end of fiscal 2011 from $111.1 million at the end of fiscal 2010. Free cash flow during the same period was $158.3 million compared with $454.6 million during the prior-year same period.

As of May 31, 2011, the debt-to-capitalization ratio declined to 35.8% from 23.7% as of May 31, 2010.

During the fourth quarter, the company purchased 15.8 million shares of its common stock for $500 million, at an average price of $31.65 per share. However, during the fiscal 2011, the company purchased a total of 23.4 million shares for $702.0 million at an average price of $30.00 per share.

Outlook

Share repurchase along with easy debt financing is likely to create future opportunities and enhance the company’s value in the long term. The company now guides higher revenue for fiscal 2012 in the range of $4.0 billion to $4.1 billion; while the full year earnings are projected in the range of $1.97-$2.05 per share. The guidance is based on the assumption of  an improving economy and employment levels in the coming year.

Cincinnati, Ohio-based Cintas Corporation designs, manufactures and implements corporate identity uniform programs, and provides entrance mats, restroom supplies, promotional products, and first aid and safety products for approximately 800,000 businesses. Cintas competes with G&K Services Inc. (GKSR) and privately-held Alsco Inc. and ARAMARK Corporation. Cintas currently retains a Zacks #4 Rank (short-term Sell rating).

 
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