Cintas Corp CTAS
Q3 2013 Earnings Call Transcript

Transcript Call Date 03/19/2013

Operator: Good day, everyone, and welcome to the Cintas Quarterly Earnings Results Conference Call. Today's call is being recorded.

At this time, I would like to turn the call over to Mr. Bill Gale, Senior Vice President of Finance and Chief Financial Officer. Please go ahead, sir.

William C. Gale - SVP and CFO: Thank you for joining us this evening. With me is, Mike Hansen, Cintas' Vice President and Treasurer. After some commentary on the results, we will be happy to answer questions.

The Private Securities Litigations Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. This conference call contains forward-looking statements that reflect the Company's current views as to future events and financial performance. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those we may discuss. I refer you to the discussion on these points contained in our most recent filings with the SEC.

We are pleased to report third quarter revenue of $1.76 billion which represents record quarterly revenue for Cintas and growth of 6.3% from last year's third quarter organic growth which adjusts for the impact of acquisitions and the impact of one less workday compared to last year's third quarter was 6.9%.

As we noted in the press release, the organic growth in each of our four operating segments improved from second quarter levels. We indicated in last quarters call that we expect our Uniform Direct Sales segment to have a good second half of the fiscal year and that was certainly true in our third quarter. The execution of our global accounts and strategic markets and our global supply chain teams during the third quarter was outstanding as we rolled out several large new programs, on our way to over 15% growth in the Uniform Direct Sales operating segment.

Third quarter net income decreased by 1.7% to $75 million and there were a number of factors that contributed to this decrease. Our third quarter had 64 workdays which is one less than last year's third quarter. Keep in mind that a number of our large expenses including rental material cost, depreciation and amortization are determined on a monthly basis instead of a workday basis, and one less workday results in one less day of revenue to cover those expenses.

In addition, we have discussed on our last few calls that strong new business sales and the absence of meaningful customer hiring over the past few years have resulted in increasing rental material cost and capacity pressure on our routes. As a result, Rental segment material cost exceeded last year's third quarter material cost, just as it also did in this year's second quarter. We also continue to add route capacity during this quarter to ensure that we have the ability to continue providing excellent service to our customers.

In our selling and administrative expenses, our cost associated with employee related medical benefits increased by roughly 60 basis points compared to last year's third quarter. Keeping in mind that we are self-insured, this increase was due to new claims experience during the quarter. Medical costs have historically been in the range of 3% to 4% of revenue and this third quarter expense continued to be in that range.

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