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Cintas (CTAS) Beats on Q1 Earnings, Raises FY23 Guidance

Cintas Corporation CTAS reported first-quarter fiscal 2023 (ended Aug 31, 2022) earnings of $3.39 per share, beating the Zacks Consensus Estimate of $3.15. The bottom line increased 9% year over year despite high costs.

Total revenues of $2,166.5 million also outperformed the Zacks Consensus Estimate of $2,078.2 million. The top line climbed 14.2% year over year due to higher segmental revenues. Organic sales were up 13.9% year over year.

Segmental Results

The company has two reportable segments Uniform Rental and Facility Services; and First Aid and Safety Services. Other businesses like Uniform Direct Sale and Fire Protection Services are included in All Other. Quarterly sales data is briefly discussed below.

Revenues from the Uniform Rental and Facility Services segment (representing 78.4% of the reported quarter’s net sales) were $1,697.77 million, increasing 12.6% year over year.

Revenues from the First Aid and Safety Services segment (representing 10.8% of the reported quarter’s net sales) totaled $234.16 million, increasing 17.6% year over year.

Revenues from the All Other business (representing 10.8% of the reported quarter’s net sales) were $226.25 million, increasing 23.7% year over year.

Cintas Corporation Price, Consensus and EPS Surprise

Cintas Corporation Price, Consensus and EPS Surprise
Cintas Corporation Price, Consensus and EPS Surprise

Cintas Corporation price-consensus-eps-surprise-chart | Cintas Corporation Quote

Margin Profile

In the quarter under review, Cintas’ cost of sales (comprising costs related to uniform rental and facility services and others) increased 14.5% year over year to $1,138.34 million. It represented 52.5% of net sales. Gross profit increased 13.9% to $1,028.1 million. The gross margin was 47.5%, down from 47.6% in the year-ago quarter. High energy costs played spoilsports in the quarter.

Selling and administrative expenses totaled $587.99 million, reflecting a 15.6% increase from the year-ago figure. It represented 27.1% of net sales. The operating margin (adjusted) in the reported quarter increased 20 basis points to 20.3%. Interest expenses increased 26.8% to $27.72 million.

Balance Sheet and Cash Flow

Exiting the fiscal first quarter, Cintas had cash and cash equivalents of $74.56 million, down 17.6% sequentially. Long-term debt was $2,484.60 million, flat sequentially.

In the fiscal first quarter, CTAS generated net cash of $298.16 million from operating activities, increasing 13.7% from the year-ago period. Capital expenditure totaled $70 million, reflecting a year-over-year increase of 43.6%. Free cash flow increased 6.9% to $228.14 million in the reported quarter.

In first-quarter fiscal 2023, the company repurchased shares worth $320.33 million, down from $659.23 million in the year-ago period. Dividend payments totaled $97.66 million in the fiscal first quarter.

Fiscal 2023 Outlook Improved

Following a strong first-quarter fiscal 2023 performance, Cintas improved its fiscal 2023 outlook. The company now expects revenues of $8.58-$8.67 billion in fiscal 2023 compared with $8.47-$8.58 billion anticipated earlier. The Zacks Consensus Estimate for the same stands at $8.52 billion. Earnings are estimated in the range of $12.30-$12.65 per share compared with $11.90-$12.30 expected earlier. The Zacks Consensus Estimate for the same stands at $12.15.

For fiscal 2023, Cintas expects adjusted operating income between $1.72 billion and $1.76 billion ($1.55 billion reported in fiscal 2022). Adjusted effective tax rate in the period is expected to be approximately 20% compared with 17.9% in fiscal year 2022. The company expects this higher tax rate to impact earnings by around 32 cents. Due to higher interest rates, interest expenses are expected to increase to approximately $110 million in fiscal 2023 from $88.8 million in fiscal 2022.

Zacks Rank & Key Picks

Cintas currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks within the broader Industrial Products sector are as follows:

Applied Industrial Technologies, Inc. AIT presently sports a Zacks Rank #1 (Strong Buy). The company pulled off a trailing four-quarter earnings surprise of 22.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks.

Applied Industrial has an estimated earnings growth rate of 10.9% for the current year. Shares of the company have gained 3.6% in the past three months.

Eaton Corporation plc ETN currently carries a Zacks Rank of 2 (Buy). The company delivered a trailing four-quarter earnings surprise of 1.4%, on average.

Eaton has an estimated earnings growth rate of 14.1% for the current year. The stock has rallied 3.7% in the past three months.

IDEX Corporation IEX presently carries a Zacks Rank #2. The company delivered a trailing four-quarter earnings surprise of 4.6%, on average.

IDEX has an estimated earnings growth rate of 26% for the current year. The stock has rallied 10.3% in the past three months.


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