Cintas Corporation Announces Fiscal 2023 Second Quarter Results

By: Cintas Corporation via Business Wire

December 21, 2022 at 08:30 AM EST

Cintas Corporation (Nasdaq: CTAS) today reported results for its fiscal 2023 second quarter ended November 30, 2022. Revenue for the second quarter of fiscal 2023 was $2.17 billion compared to $1.92 billion in last year’s second quarter, an increase of 13.1%. The organic revenue growth rate for the second quarter of fiscal 2023, which adjusts for the impacts of acquisitions, divestitures and foreign currency exchange rate fluctuations, was 12.8%.

Gross margin for the second quarter of fiscal 2023 was $1,022.4 million compared to $885.1 million in last year’s second quarter, an increase of 15.5%. Gross margin as a percentage of revenue was 47.0% for the second quarter of fiscal 2023 compared to 46.0% in last year's second quarter, an increase of 100 basis points. Energy expenses comprised of gasoline, natural gas and electricity were 10 basis points higher during the second quarter of fiscal 2023 compared to last year's second quarter.

Operating income for the second quarter of fiscal 2023 was $444.9 million compared to $381.2 million in last year's second quarter, an increase of 16.7%. Operating income as a percentage of revenue was 20.5% in the second quarter of fiscal 2023 compared to 19.8% in last year's second quarter, an increase of 70 basis points.

Net income was $324.3 million for the second quarter of fiscal 2023 compared to $294.7 million in last year's second quarter, an increase of 10.1%. Second quarter of fiscal 2023 diluted earnings per share (EPS) was $3.12 compared to $2.76 in last year's second quarter, an increase of 13.0%.

On September 15, 2022, Cintas paid an aggregate quarterly cash dividend of $117.3 million to shareholders.

Todd M. Schneider, Cintas' President and Chief Executive Officer, stated, "Our financial performance is the result of the exceptional execution of our employee-partners in providing businesses with the image, safety, cleanliness and compliance they need to get Ready for the Workday^®. Each of our operating segments again grew revenue at a double-digit rate. Strong volume growth from new customers and the penetration of existing customers with more products and services generated operating leverage. This contributed to the achievement of double-digit increases in operating income and diluted EPS despite high inflation."

Mr. Schneider concluded, "We are increasing our full fiscal year financial guidance. We are raising our annual revenue expectations from a range of $8.58 billion to $8.67 billion to a range of $8.67 billion to $8.75 billion and diluted EPS from a range of $12.30 to $12.65 to a range of $12.50 to $12.80."

The following table provides a comparison of fiscal 2022 revenue and diluted EPS to our updated fiscal 2023 guidance.

									Fiscal 2023				Fiscal 2023
Revenue Guidance ($s in millions)	Fiscal 2022								Low End of Range		Growth vs. Fiscal 2022		High End of Range		Growth vs. Fiscal 2022


Total revenue	$	7,854.5							$	8,670.0	10.4	%	$	8,750.0	11.4	%


	Fiscal 2022								Fiscal 2023				Fiscal 2023
Earnings Per Share Guidance ($s in millions, except EPS)	Operating Income			Tax Rate		EPS			Low End of Range		Growth vs. Fiscal 2022		High End of Range		Growth vs. Fiscal 2022

Reported	$	1,587.4		17.5	%	$	11.65
Q1 gain on sale of operating assets		(12.1	)	0.1	%		(0.09	)
Q3 gain on an equity method investment		(30.2	)	0.3	%		(0.28	)
After above items	$	1,545.1		17.9	%	$	11.28		$	12.50	10.8	%	$	12.80	13.5	%

Fiscal year 2023 operating income is expected to be in the range of $1.75 billion to $1.79 billion compared to $1.55 billion in fiscal year 2022, adjusted to exclude the gains in the table above.

Fiscal year 2023 interest expense is expected to be approximately $113.0 million compared to $88.8 million in fiscal year 2022, due in part to higher interest rates.

Fiscal year 2023 effective tax rate is expected to be 20.7% compared to a rate of 17.9% in fiscal year 2022, after excluding the gains in the table above and their related tax impacts from the reported rate of 17.5%.

Our diluted EPS guidance includes no future share buybacks.

We remain in a dynamic environment that can continue to change. Our guidance assumes a stable economy and excludes COVID-19 pandemic-related setbacks or economic downturns.

Cintas

Cintas Corporation helps more than one million businesses of all types and sizes get Ready^™ to open their doors with confidence every day by providing products and services that help keep their customers’ facilities and employees clean, safe and looking their best. With offerings including uniforms, mats, mops, restroom supplies, first aid and safety products, fire extinguishers and testing, and safety training, Cintas helps customers get Ready for the Workday^®. Headquartered in Cincinnati, Cintas is a publicly held Fortune 500 company traded over the Nasdaq Global Select Market under the symbol CTAS and is a component of both the Standard & Poor’s 500 Index and Nasdaq-100 Index.

Cintas will host a live webcast to review the fiscal 2023 second quarter results today at 10:00 a.m., Eastern Time. The webcast will be available to the public on Cintas' website at www.Cintas.com. A replay of the webcast will be available approximately two hours after the completion of the live call and will remain available for two weeks.

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 Quarterly Report. Factors that might cause such a difference include, but are not limited to, 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; inflationary pressures and fluctuations in costs of materials and labor, including increased medical costs; interest rate volatility; 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; the effect on operations of exchange rate fluctuations, tariffs and other political, economic and regulatory risks; uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation; our ability to meet our goals relating to environmental, social and governance (ESG) opportunities, improvements and efficiencies; the cost, results and ongoing assessment of internal controls for financial reporting; the effect of new accounting pronouncements; disruptions caused by the inaccessibility of computer systems data, including cybersecurity risks; 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 including global health pandemics such as the COVID-19 coronavirus; the amount and timing of repurchases of our common stock, if any; changes in federal and state tax and labor laws; and the reactions of competitors in terms of price and service. 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, 2022 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.

Cintas Corporation Consolidated Condensed Statements of Income (Unaudited) (In thousands except per share data)

	Three Months Ended
	November 30, 2022			November 30, 2021			% Change
Revenue:
Uniform rental and facility services	$	1,709,987		$	1,535,271		11.4	%
Other		464,871			387,010		20.1	%
Total revenue		2,174,858			1,922,281		13.1	%

Costs and expenses:
Cost of uniform rental and facility services		906,727			817,261		10.9	%
Cost of other		245,684			219,879		11.7	%
Selling and administrative expenses		577,513			503,913		14.6	%

Operating income		444,934			381,228		16.7	%

Interest income		(344	)		(56	)	514.3	%
Interest expense		28,920			21,902		32.0	%

Income before income taxes		416,358			359,382		15.9	%
Income taxes		92,065			64,713		42.3	%
Net income	$	324,293		$	294,669		10.1	%

Basic earnings per share	$	3.18		$	2.83		12.4	%

Diluted earnings per share	$	3.12		$	2.76		13.0	%

Basic weighted average common shares outstanding		101,637			103,646
Diluted weighted average common shares outstanding		103,356			106,122

Cintas Corporation Consolidated Condensed Statements of Income (Unaudited) (In thousands except per share data)

	Six Months Ended
	November 30, 2022			November 30, 2021			% Change
Revenue:
Uniform rental and facility services	$	3,407,759		$	3,043,447		12.0	%
Other		933,553			775,784		20.3	%
Total revenue		4,341,312			3,819,231		13.7	%

Costs and expenses:
Cost of uniform rental and facility services		1,797,493			1,596,562		12.6	%
Cost of other		493,260			434,772		13.5	%
Selling and administrative expenses		1,165,505			1,012,568		15.1	%

Operating income		885,054			775,329		14.2	%

Interest income		(499	)		(112	)	345.5	%
Interest expense		56,640			43,756		29.4	%

Income before income taxes		828,913			731,685		13.3	%
Income taxes		152,931			105,837		44.5	%
Net income	$	675,982		$	625,848		8.0	%

Basic earnings per share	$	6.63		$	6.02		10.1	%

Diluted earnings per share	$	6.51		$	5.87		10.9	%

Basic weighted average common shares outstanding		101,530			103,463
Diluted weighted average common shares outstanding		103,343			106,026

CINTAS CORPORATION SUPPLEMENTAL DATA Gross Margin and Net Income Margin Results

	Three Months Ended		Six Months Ended
	November 30, 2022	November 30, 2021	November 30, 2022	November 30, 2021

Uniform rental and facility services gross margin	47.0%	46.8%	47.3%	47.5%
Other gross margin	47.2%	43.2%	47.2%	44.0%
Total gross margin	47.0%	46.0%	47.2%	46.8%
Net income margin	14.9%	15.3%	15.6%	16.4%

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 condensed financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company provides the additional non-GAAP financial measures of operating 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. A reconciliation of the differences between these non-GAAP financial measures with the most directly comparable financial measure calculated in accordance with GAAP are shown in the tables below.

Operating Income Results

	Six Months Ended
	November 30, 2022		% of Revenue		November 30, 2021			% of Revenue		Growth vs. Fiscal 2022
Operating income	$	885,054	20.4	%	$	775,329		20.3	%	14.2	%
Gain on sale of operating assets						(12,129	)
Operating income excluding above item	$	885,054	20.4	%	$	763,200		20.0	%	16.0	%

Earnings Per Share Results

	Six Months Ended
	November 30, 2022		November 30, 2021			Growth vs. Fiscal 2022
Diluted EPS	$	6.51	$	5.87		10.9	%
Pre-tax gain and the related tax benefit on sale of certain operating assets				(0.09	)
Diluted EPS excluding above item	$	6.51	$	5.78		12.6	%

Computation of Free Cash Flow

	Six Months Ended
(In thousands)	November 30, 2022			November 30, 2021

Net cash provided by operations	$	619,149		$	593,782
Capital expenditures		(146,404	)		(108,629	)
Free cash flow	$	472,745		$	485,153

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.

SUPPLEMENTAL SEGMENT DATA

(In thousands)	Uniform Rental and Facility Services		First Aid and Safety Services		All Other		Corporate			Total
For the three months ended November 30, 2022
Revenue	$	1,709,987	$	235,974	$	228,897	$	—		$	2,174,858
Gross margin	$	803,260	$	119,153	$	100,034	$	—		$	1,022,447
Selling and administrative expenses	$	434,165	$	73,658	$	69,690	$	—		$	577,513
Interest income	$	—	$	—	$	—	$	(344	)	$	(344	)
Interest expense	$	—	$	—	$	—	$	28,920		$	28,920
Income (loss) before income taxes	$	369,095	$	45,495	$	30,344	$	(28,576	)	$	416,358

For the three months ended November 30, 2021
Revenue	$	1,535,271	$	202,160	$	184,850	$	—		$	1,922,281
Gross margin	$	718,010	$	88,034	$	79,097	$	—		$	885,141
Selling and administrative expenses	$	380,395	$	65,957	$	57,561	$	—		$	503,913
Interest income	$	—	$	—	$	—	$	(56	)	$	(56	)
Interest expense	$	—	$	—	$	—	$	21,902		$	21,902
Income (loss) before income taxes	$	337,615	$	22,077	$	21,536	$	(21,846	)	$	359,382

For the six months ended November 30, 2022
Revenue	$	3,407,759	$	470,135	$	463,418	$	—		$	4,341,312
Gross margin	$	1,610,266	$	235,290	$	205,003	$	—		$	2,050,559
Selling and administrative expenses	$	876,400	$	148,949	$	140,156	$	—		$	1,165,505
Interest income	$	—	$	—	$	—	$	(499	)	$	(499	)
Interest expense	$	—	$	—	$	—	$	56,640		$	56,640
Income (loss) before income taxes	$	733,866	$	86,341	$	64,847	$	(56,141	)	$	828,913

For the six months ended November 30, 2021
Revenue	$	3,043,447	$	401,276	$	374,508	$	—		$	3,819,231
Gross margin	$	1,446,885	$	177,309	$	163,703	$	—		$	1,787,897
Selling and administrative expenses	$	779,888	$	129,504	$	103,176	$	—		$	1,012,568
Interest income	$	—	$	—	$	—	$	(112	)	$	(112	)
Interest expense	$	—	$	—	$	—	$	43,756		$	43,756
Income (loss) before income taxes	$	666,997	$	47,805	$	60,527	$	(43,644	)	$	731,685

Cintas Corporation Consolidated Condensed Balance Sheets (In thousands except per share data)

	November 30, 2022			May 31, 2022
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	89,799		$	90,471
Accounts receivable, net		1,135,833			1,006,220
Inventories, net		514,839			472,150
Uniforms and other rental items in service		986,505			916,706
Income taxes, current		13,657			21,708
Prepaid expenses and other current assets		152,537			124,728
Total current assets		2,893,170			2,631,983

Property and equipment, net		1,340,658			1,323,673

Investments		243,574			242,873
Goodwill		3,037,506			3,042,976
Service contracts, net		367,612			391,638
Operating lease right-of-use assets, net		176,276			170,003
Other assets, net		368,211			344,110
	$	8,427,007		$	8,147,256

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	310,986		$	251,504
Accrued compensation and related liabilities		208,342			236,992
Accrued liabilities		556,211			588,948
Operating lease liabilities, current		42,792			43,872
Debt due within one year		435,406			311,574
Total current liabilities		1,553,737			1,432,890

Long-term liabilities:
Debt due after one year		2,485,277			2,483,932
Deferred income taxes		493,379			473,777
Operating lease liabilities		136,520			129,064
Accrued liabilities		327,556			319,397
Total long-term liabilities		3,442,732			3,406,170

Shareholders’ equity:
Preferred stock, no par value:		—			—
100,000 shares authorized, none outstanding
Common stock, no par value, and paid-in capital:		1,933,145			1,771,917
425,000,000 shares authorized
FY 2023: 191,857,155 issued and 101,601,032 outstanding
FY 2022: 190,837,921 issued and 101,711,215 outstanding
Retained earnings		9,160,346			8,719,163
Treasury stock:		(7,747,049	)		(7,290,801	)
FY 2023: 90,256,123 shares
FY 2022: 89,126,706 shares
Accumulated other comprehensive income		84,096			107,917
Total shareholders’ equity		3,430,538			3,308,196
	$	8,427,007		$	8,147,256

Cintas Corporation Consolidated Condensed Statements of Cash Flows (Unaudited) (In thousands)

	Six Months Ended
	November 30, 2022			November 30, 2021
Cash flows from operating activities:
Net income	$	675,982		$	625,848

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		126,561			122,274
Amortization of intangible assets and capitalized contract costs		74,693			74,365
Stock-based compensation		51,537			60,893
Gain on sale of operating assets		—			(12,129	)
Deferred income taxes		18,565			29,941
Change in current assets and liabilities, net of acquisitions of businesses:
Accounts receivable, net		(133,897	)		(77,343	)
Inventories, net		(43,266	)		13,406
Uniforms and other rental items in service		(73,475	)		(69,513	)
Prepaid expenses and other current assets and capitalized contract costs		(85,532	)		(47,978	)
Accounts payable		61,421			11,400
Accrued compensation and related liabilities		(28,212	)		(59,988	)
Accrued liabilities and other		(33,352	)		(10,519	)
Income taxes, current		8,124			(66,875	)
Net cash provided by operating activities		619,149			593,782

Cash flows from investing activities:
Capital expenditures		(146,404	)		(108,629	)
Purchases of investments		(5,182	)		(5,967	)
Proceeds from sale of operating assets, net of cash disposed		—			15,347
Acquisitions of businesses, net of cash acquired		(15,457	)		(45,670	)
Other, net		(4,381	)		(6,676	)
Net cash used in investing activities		(171,424	)		(151,595	)

Cash flows from financing activities:
Issuance of commercial paper, net		124,046			167,000
Repayment of debt		—			(250,000	)
Proceeds from exercise of stock-based compensation awards		2,125			109,198
Dividends paid		(215,017	)		(177,949	)
Repurchase of common stock		(348,682	)		(664,726	)
Other, net		(8,840	)		(3,399	)
Net cash used in financing activities		(446,368	)		(819,876	)

Effect of exchange rate changes on cash and cash equivalents		(2,029	)		(2,781	)

Net decrease in cash and cash equivalents		(672	)		(380,470	)
Cash and cash equivalents at beginning of period		90,471			493,640
Cash and cash equivalents at end of period	$	89,799		$	113,170

View source version on businesswire.com: https://www.businesswire.com/news/home/20221221005033/en/

Contacts

J. Michael Hansen, Executive Vice President and Chief Financial Officer - 513-972-2079

Paul F. Adler, Vice President - Treasurer & Investor Relations - 513-972-4195