Cintas : Announces Fiscal 2015 First Quarter Results

Cintas Corporation (Nasdaq: CTAS) today reported revenue for its first quarter ended August 31, 2014, of $1.10 billion, a 0.2% increase compared to last year’s first quarter. This year’s first quarter revenue does not include any Document Shredding revenue as a result of the transaction with Shred-it International Inc. (the “Shred-it Transaction”) that closed on April 30, 2014, whereas last year’s first quarter does. Organic growth, which adjusts for the impacts of acquisitions and the Shred-it Transaction, was 7.2%.

Operating income for the fiscal 2015 first quarter was $163.5 million, an increase of 17.1% compared to last fiscal year’s first quarter. Net income for the fiscal 2015 first quarter was $110.1 million, and earnings per diluted share (EPS) for the fiscal 2015 first quarter were $0.93. Fiscal 2015 first quarter EPS was positively impacted by $0.15 due to a gain from the sale of stock in an equity method investment (EPS of $0.11) and a gain from receiving additional proceeds relating to the Shred-it Transaction (EPS of $0.04). Operating income, net income and EPS are discussed in more detail in the Fiscal 2015 First Quarter Results section below.

“Our first quarter results reflect the continued good execution by our employees, who we call partners,” said Scott D. Farmer, Cintas’ Chief Executive Officer. “We have focused on selling good, profitable business over the past few years, as well as managing our cost structure and continuously improving the efficiency of our processes. This focus has resulted in improved margins and better customer retention.”

The fiscal 2015 first quarter results reflect a change in the classification of the Document Storage and Imaging business to discontinued operations. We are evaluating strategic opportunities for this business and will provide additional details in the future as appropriate.

FISCAL 2015 FIRST QUARTER RESULTS

The table below labeled “1^st Quarter Revenue Results” shows first quarter revenue for Cintas, reflecting the fiscal 2015 first quarter reporting change of the Document Storage and Imaging business to discontinued operations and presented to exclude fiscal 2014 first quarter Document Shredding revenue. Effective April 30, 2014, Cintas entered into a partnership transaction with the shareholders of Shred-it International Inc. to combine Cintas’ Document Shredding business with Shred-it’s Document Shredding business. Subsequent to the closing of the Shred-it Transaction, Cintas no longer includes Document Shredding revenue in its reported revenue. As a result, we believe that revenue excluding Document Shredding revenue is more representative of the ongoing revenue of Cintas.

The tables below show revenue, gross margin, operating income, net income and EPS for the first quarter of fiscal 2015 and fiscal 2014, as reported and as adjusted. The adjustments between results as reported and as adjusted are explained below. We present revenue, gross margin, operating income, net income and EPS figures, as adjusted, because we believe they are more representative of the ongoing performance of Cintas.

Fiscal 2015 first quarter gross margin, as adjusted, was $477.9 million, or 43.4% of first quarter revenue, compared to the fiscal 2014 first quarter gross margin, as adjusted, of $422.8 million, or 41.2% of last year’s first quarter revenue. Fiscal 2015 gross margin, as adjusted, increased 13.0% compared to last year’s first quarter. Mr. Farmer added, “The gross margin as a percentage of revenue improved in each of our businesses, reflecting the efficiency of our operations and the continued leveraging of our infrastructure.” Fiscal 2015 first quarter operating income, net income and EPS, as adjusted, increased over the fiscal 2014 first quarter by 18.9%, 20.8% and 25.8%, respectively.

FISCAL YEAR 2015 GUIDANCE

Mr. Farmer concluded, “We are encouraged by the solid start to our fiscal 2015 year. When we introduced our fiscal 2015 guidance in July, we indicated that we were still looking for more consistency in the U.S. economy. We continue to see inconsistent employment figures resulting in no real change to our customers’ hiring patterns, and we see heightened global uncertainty that may affect U.S. businesses. We are updating our fiscal 2015 guidance based on our first quarter results and the change in classification of the Document Storage and Imaging business to discontinued operations, but also based on our views of the U.S. economic situation. We now expect fiscal 2015 revenue to be in the range of $4.40 billion to $4.475 billion, and fiscal 2015 EPS to be in the range of $3.20 to $3.29. This guidance continues to assume no income contribution from the partnership with Shred-it International Inc. due to the expectation of first year integration and transition expenses.”

As mentioned earlier in this press release, subsequent to the closing of the Shred-it Transaction on April 30, 2014, we no longer include Document Shredding revenue in our reported revenue. The table below shows a comparison of fiscal 2014 revenue to our updated 2015 revenue guidance.

The table below shows a comparison of fiscal 2014 EPS to our updated 2015 EPS guidance.

The updated fiscal 2015 EPS guidance assumes no deterioration in the U.S. economy and does not assume 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, first aid, safety and fire protection products and services. 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 Shred-it partnership’s ability to promptly and effectively integrate the Cintas Document Shredding business with Shred-it’s Document Shredding business; the Shred-it partnership’s ability to realize any synergies from the combination of the Cintas Document Shredding business with Shred-it’s Document Shredding business; the ability to successfully explore strategic opportunities for the Cintas Global Document Storage and Imaging business; 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; the ultimate impact of the Affordable Care Act; and the finalization of our financial statements for the quarter ended August 31, 2014. 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, 2014 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.

* Amounts presented for the three months ended August 31, 2013 have been adjusted to reflect the results of continuing operations.

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 revenue and related growth, gross margin, operating income, net income, earnings per diluted share, and cash flow. 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. Reconciliations of the differences between these non-GAAP financial measures with the most directly comparable financial measures calculated in accordance with GAAP are shown in the tables within the narrative of the press release or below.

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.

* As a result of the Shred-it partnership transaction and the classification of the document storage and imaging business to discontinued operations, we will no longer have a Document Management Services Operating Segment. For illustrative purposes in this press release, we have shown the results of the document destruction business within the Document Management Services Operating Segment as of and for the three months ended August 31, 2013. However, this information will be combined into the Corporate Operating Segment for reporting purposes in the Form 10-Q.

** Corporate assets as of August 31, 2014 include the investment in the Shred-it partnership. Corporate assets as of August 31, 2014 and 2013 include the assets of the document storage and imaging business, which has been classified as held for sale.