No Surprises From Cintas

In its fiscal second-quarter 2018 (ended November), wide-moat uniform-rental specialist

On an organic basis, the core uniform rental business expanded 7.3% year over year, versus 8.1% last quarter, but still ahead of the 7% rise posted in fiscal 2017. Cintas' impressive operational execution persists in terms of adding new programmers and boosting account penetration with ancillary services. The firm is also getting off to a strong start integrating G&K’s sizable uniform rental operations. The “all other” segment (direct-uniform sales and fire-protection services) was up 7.8% organically (6.3% last quarter), while the first-aid business posted healthy 10.8% underlying growth (11.9% last quarter; 6% for fiscal 2017). Solid first-aid division growth stems from successful Zee Medical integration efforts, including investment in sales headcount.

Excluding transaction costs, Cintas’ total operating margin fell 40 basis points to 15.5%. The decline was due to G&K’s network, which has less route density, as well as G&K related intangibles amortization and higher depreciation linked to the recent SAP system implementation. In terms of guidance, management expects fiscal 2018 total revenue of $6.37 billion-$6.43 billion, with EPS in a range of $5.39-$5.46 (previously $5.30-$5.38). Guidance excludes future G&K integration costs and U.S. tax reform.

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