Cintas: Integration Will Be Dominant Theme, Short-Term

In its fiscal third-quarter 2017 (ended February), wide moat-rated uniform rental specialist

On an organic basis, the core uniform rental business expanded 7%, which was ahead of the 6.2% posted in the first half of the firm’s fiscal year. Pressure from oil and gas end-market customers, which shed headcount over the past year-plus, is diminishing, and Cintas is firing on all cylinders in terms of adding new programmers and boosting account penetration with ancillary services, especially among services-sector customers. The “all other” segment (which includes the lumpy direct-uniform sales unit and fire-protection services) was up 2.4% organically, while the first aid business posted 5.5% underlying expansion. First aid growth accelerated from 3.3% last quarter as the division is beginning to realize benefits from its Zee Medical integration efforts over the past year.

Excluding G&K-related transaction costs, Cintas’ consolidated operating margin was roughly flat year over year, at 15.9%--a solid showing considering lost leverage from one less workday during the quarter and increased energy costs.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.