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| 8-K - 8-K - CINTAS CORP | ctasform8-k9x17.htm |
Exhibit 99
FOR IMMEDIATE RELEASE
September 26, 2017
Cintas Corporation Announces
Fiscal 2018 First Quarter Results
CINCINNATI, September 26, 2017 -- Cintas Corporation (Nasdaq: CTAS) today reported results for its fiscal 2018 first quarter ended August 31, 2017.
Revenue for the first quarter was $1.61 billion, an increase of 27.2% over last year’s first quarter. The organic growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 8.3%. The organic growth rates for the Uniform Rental and Facility Services and First Aid and Safety Services reportable operating segments were 8.1% and 11.9%, respectively.
Operating income for the first quarter of $249.1 million increased 22.1% from last year’s first quarter operating income of $203.9 million. Operating income was negatively impacted by transaction and integration expenses related to the G&K Services, Inc. (G&K) acquisition by $4.0 million in the first quarter of fiscal 2018 and $2.8 million in the first quarter of fiscal 2017.
Net income from continuing operations for the first quarter of $161.1 million increased 18.3% from last year’s first quarter. Earnings per diluted share (EPS) from continuing operations for the first quarter were $1.45 compared to $1.24 for last year’s first quarter, an increase of 16.9%. Fiscal 2018 and fiscal 2017 first quarter EPS included a negative impact of $0.03 and $0.02, respectively, from transaction and integration expenses related to the G&K acquisition. The following table provides a comparison of fiscal 2018 first quarter EPS to fiscal 2017 first quarter EPS:
Earnings Per Share Results | Three Months Ended | |||||||||
August 31, 2017 | August 31, 2016 | Growth vs. FY 2017 | ||||||||
EPS - continuing operations | $ | 1.45 | $ | 1.24 | ||||||
G&K transaction and integration expenses | 0.03 | 0.02 | ||||||||
EPS after above items | $ | 1.48 | $ | 1.26 | 17.5 | % | ||||
Scott D. Farmer, Cintas’ Chairman and Chief Executive Officer, stated, “Our revenue growth rate of 27.2% was driven largely by our acquisition of G&K Services. The integration of G&K continues to proceed as expected, and we remain on track to meet the acquisition’s financial and non-financial objectives. In addition, we remain focused on our vision of increasing the number of businesses we help get Ready for the WorkdayTM and of adding greater value to our existing customers by providing them with more of our industry-leading products and services. Our high organic growth rates are evidence of this focus. I thank our employees, whom we call partners, for their continued solid execution.”
Mr. Farmer concluded, “As a result of our first quarter results, we are increasing our annual guidance for fiscal 2018. We expect revenue to be in the range of $6.325 billion to $6.400 billion and EPS from continuing operations to be in the range of $5.30 to $5.38. Fiscal 2018 guidance excludes any future transaction and integration expenses related to the acquired G&K business. The guidance does, however, include our preliminary estimates of the negative impact from the major hurricanes affecting Texas, Florida, Puerto Rico and surrounding areas. Based on an early assessment, we estimate fiscal 2018 revenue to be reduced by approximately $10 million to $15 million and EPS to be reduced by approximately $0.05 to $0.08. These estimates are subject to change as more information becomes available.”
The table below provides a comparison of fiscal 2017 revenue and EPS to our fiscal 2018 guidance.
Fiscal 2017 | Fiscal 2018 Low end of Range | Growth vs. 2017 | Fiscal 2018 High end of Range | Growth vs. 2017 | |||||||||||
Revenue Guidance | |||||||||||||||
($s in millions) | |||||||||||||||
Total Revenue | $ | 5,323.4 | $ | 6,325.0 | 18.8% | $ | 6,400.0 | 20.2% | |||||||
Earnings Per Share Guidance | |||||||||||||||
EPS - continuing operations | $ | 4.17 | $ | 5.27 | $ | 5.35 | |||||||||
G&K transaction and integration expenses | 0.60 | 0.03 | 0.03 | ||||||||||||
EPS after above items | $ | 4.77 | $ | 5.30 | 11.1% | $ | 5.38 | 12.8% | |||||||
Fiscal 2018 EPS guidance does not include any future G&K transaction and integration expenses. However, we expect that these expenses will be incurred in the remainder of fiscal 2018 as we continue to integrate this significant acquisition. We estimate that these expenses will range from $50 million to $65 million for the full fiscal year.
About 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 a wide range of products and services that enhance our customers’ image and help keep their facilities and employees clean, safe and looking their best. With products and services including uniforms, floor care, restroom supplies, first aid and safety products, fire extinguishers and testing, and safety and compliance training, Cintas helps customers get Ready for the Workday™. Headquartered in Cincinnati, Cintas is a publicly held 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 the Nasdaq-100 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, risks inherent with the G&K transaction in the achievement of cost synergies and the timing thereof, including whether the transaction will be accretive and within the expected timeframe and the actual amounts of future transaction and integration expenses; 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, including G&K; 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; 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; the cost, results and ongoing assessment of internal controls for financial reporting required by the Sarbanes-Oxley Act of 2002; costs of our SAP system implementation; 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 the negative impacts from hurricanes Harvey and Irma; 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, 2017 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.
For additional information, contact:
J. Michael Hansen, Sr. VP-Finance and Chief Financial Officer - 513-701-2079
Paul F. Adler, Vice President and Treasurer - 513-573-4195
Cintas Corporation
Consolidated Condensed Statements of Income
(Unaudited)
(In thousands except per share data)
Three Months Ended | ||||||||||
August 31, 2017 | August 31, 2016 | % Change | ||||||||
Revenue: | ||||||||||
Uniform rental and facility services | $ | 1,311,784 | $ | 994,282 | 31.9% | |||||
Other | 299,719 | 272,368 | 10.0% | |||||||
Total revenue | 1,611,503 | 1,266,650 | 27.2% | |||||||
Costs and expenses: | ||||||||||
Cost of uniform rental and facility services | 706,863 | 537,097 | 31.6% | |||||||
Cost of other | 165,287 | 153,126 | 7.9% | |||||||
Selling and administrative expenses | 486,283 | 369,703 | 31.5% | |||||||
G&K Services, Inc. transaction and integration expenses | 3,971 | 2,787 | 42.5% | |||||||
Operating income | 249,099 | 203,937 | 22.1% | |||||||
Interest income | (297 | ) | (65 | ) | 356.9% | |||||
Interest expense | 30,317 | 14,172 | 113.9% | |||||||
Income before income taxes | 219,079 | 189,830 | 15.4% | |||||||
Income taxes | 57,971 | 53,622 | 8.1% | |||||||
Income from continuing operations | 161,108 | 136,208 | 18.3% | |||||||
Income from discontinued operations, net of tax | 56,103 | 1,883 | 2,879.4% | |||||||
Net income | $ | 217,211 | $ | 138,091 | 57.3% | |||||
Basic earnings per share: | ||||||||||
Continuing operations | $ | 1.50 | $ | 1.27 | 18.1% | |||||
Discontinued operations | 0.52 | 0.02 | 2,500.0% | |||||||
Basic earnings per share | $ | 2.02 | $ | 1.29 | 56.6% | |||||
Diluted earnings per share: | ||||||||||
Continuing operations | $ | 1.45 | $ | 1.24 | 16.9% | |||||
Discontinued operations | 0.51 | 0.02 | 2,450.0% | |||||||
Diluted earnings per share | $ | 1.96 | $ | 1.26 | 55.6% | |||||
Weighted average number of shares outstanding | 105,740 | 104,483 | ||||||||
Diluted average number of shares outstanding | 108,537 | 107,114 | ||||||||
CINTAS CORPORATION SUPPLEMENTAL DATA
Three Months Ended | ||||||
August 31, 2017 | August 31, 2016 | |||||
Uniform rental and facility services gross margin | 46.1 | % | 46.0 | % | ||
Other gross margin | 44.9 | % | 43.8 | % | ||
Total gross margin | 45.9 | % | 45.5 | % | ||
Net income margin, continuing operations | 10.0 | % | 10.8 | % | ||
Computation of Diluted Earnings Per Share from Continuing Operations
Three Months Ended | ||||||||
August 31, 2017 | August 31, 2016 | |||||||
Income from continuing operations | $ | 161,108 | $ | 136,208 | ||||
Less: income from continuing operations allocated to participating securities | 3,187 | 2,852 | ||||||
Income from continuing operations available to common shareholders | $ | 157,921 | $ | 133,356 | ||||
Basic weighted average common shares outstanding | 105,740 | 104,483 | ||||||
Effect of dilutive securities - employee stock options | 2,797 | 2,631 | ||||||
Diluted weighted average common shares outstanding | 108,537 | 107,114 | ||||||
Diluted earnings per share from continuing operations | $ | 1.45 | $ | 1.24 | ||||
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 non-GAAP financial measures of 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.
Earnings Per Share Results
Three Months Ended | ||||||||||
August 31, 2017 | August 31, 2016 | Growth vs. FY 2017 | ||||||||
EPS - continuing operations | $ | 1.45 | $ | 1.24 | ||||||
G&K transaction and integration expenses | 0.03 | 0.02 | ||||||||
EPS after above items | $ | 1.48 | $ | 1.26 | 17.5 | % | ||||
Computation of Free Cash Flow
Twelve Months Ended | ||||||||
August 31, 2017 | August 31, 2016 | |||||||
Net cash provided by operations | $ | 254,366 | $ | 157,588 | ||||
Capital expenditures | (62,517 | ) | (78,580 | ) | ||||
Free cash flow | $ | 191,849 | $ | 79,008 | ||||
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
Uniform Rental and Facility Services | First Aid and Safety Services | All Other | Corporate | Total | ||||||||||||||||
For the three months ended August 31, 2017 | ||||||||||||||||||||
Revenue | $ | 1,311,784 | $ | 140,582 | $ | 159,137 | $ | — | $ | 1,611,503 | ||||||||||
Gross margin | $ | 604,921 | $ | 66,775 | $ | 67,657 | $ | — | $ | 739,353 | ||||||||||
Selling and administrative expenses | $ | 382,040 | $ | 47,364 | $ | 56,879 | $ | — | $ | 486,283 | ||||||||||
G&K Services, Inc. transaction and integration expenses | $ | 3,971 | $ | — | $ | — | $ | — | $ | 3,971 | ||||||||||
Interest income | $ | — | $ | — | $ | — | $ | (297 | ) | $ | (297 | ) | ||||||||
Interest expense | $ | — | $ | — | $ | — | $ | 30,317 | $ | 30,317 | ||||||||||
Income (loss) before income taxes | $ | 218,910 | $ | 19,411 | $ | 10,778 | $ | (30,020 | ) | $ | 219,079 | |||||||||
For the three months ended August 31, 2016 | ||||||||||||||||||||
Revenue | $ | 994,282 | $ | 124,839 | $ | 147,529 | $ | — | $ | 1,266,650 | ||||||||||
Gross margin | $ | 457,185 | $ | 57,126 | $ | 62,116 | $ | — | $ | 576,427 | ||||||||||
Selling and administrative expenses | $ | 269,610 | $ | 45,615 | $ | 54,478 | $ | — | $ | 369,703 | ||||||||||
G&K Services, Inc. transaction and integration expenses | $ | 2,787 | $ | — | $ | — | $ | — | $ | 2,787 | ||||||||||
Interest income | $ | — | $ | — | $ | — | $ | (65 | ) | $ | (65 | ) | ||||||||
Interest expense | $ | — | $ | — | $ | — | $ | 14,172 | $ | 14,172 | ||||||||||
Income (loss) before income taxes | $ | 184,788 | $ | 11,511 | $ | 7,638 | $ | (14,107 | ) | $ | 189,830 | |||||||||
Cintas Corporation
Consolidated Condensed Balance Sheets
(In thousands except share data)
August 31, 2017 | May 31, 2017 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 191,414 | $ | 169,266 | ||||
Marketable securities | 21,626 | 22,219 | ||||||
Accounts receivable, net | 731,577 | 736,008 | ||||||
Inventories, net | 283,197 | 278,218 | ||||||
Uniforms and other rental items in service | 654,249 | 635,702 | ||||||
Income taxes, current | — | 44,320 | ||||||
Prepaid expenses and other current assets | 42,490 | 30,132 | ||||||
Assets held for sale | — | 38,613 | ||||||
Total current assets | 1,924,553 | 1,954,478 | ||||||
Property and equipment, at cost, net | 1,340,660 | 1,323,501 | ||||||
Investments | 163,631 | 164,788 | ||||||
Goodwill | 2,810,504 | 2,782,335 | ||||||
Service contracts, net | 581,631 | 586,988 | ||||||
Other assets, net | 30,627 | 31,967 | ||||||
$ | 6,851,606 | $ | 6,844,057 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 189,571 | $ | 177,051 | ||||
Accrued compensation and related liabilities | 119,252 | 149,635 | ||||||
Accrued liabilities | 402,970 | 429,809 | ||||||
Income taxes, current | 25,552 | — | ||||||
Debt due within one year | 307,450 | 362,900 | ||||||
Liabilities held for sale | — | 11,457 | ||||||
Total current liabilities | 1,044,795 | 1,130,852 | ||||||
Long-term liabilities: | ||||||||
Debt due after one year | 2,533,672 | 2,770,624 | ||||||
Deferred income taxes | 521,774 | 469,328 | ||||||
Accrued liabilities | 185,484 | 170,460 | ||||||
Total long-term liabilities | 3,240,930 | 3,410,412 | ||||||
Shareholders’ equity: | ||||||||
Preferred stock, no par value: 100,000 shares authorized, none outstanding | — | — | ||||||
Common stock, no par value: 425,000,000 shares authorized FY18: 182,043,803 issued and 106,179,574 outstanding FY17: 180,992,605 issued and 105,400,629 outstanding | 586,364 | 485,068 | ||||||
Paid-in capital | 168,514 | 223,924 | ||||||
Retained earnings | 5,388,040 | 5,170,830 | ||||||
Treasury stock: FY18: 75,864,229 shares FY17: 75,591,976 shares | (3,609,040 | ) | (3,574,000 | ) | ||||
Accumulated other comprehensive loss | 32,003 | (3,029 | ) | |||||
Total shareholders’ equity | 2,565,881 | 2,302,793 | ||||||
$ | 6,851,606 | $ | 6,844,057 | |||||
Cintas Corporation
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended | ||||||||
August 31, 2017 | August 31, 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 217,211 | $ | 138,091 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | 53,568 | 39,679 | ||||||
Amortization of intangible assets | 14,941 | 3,489 | ||||||
Stock-based compensation | 28,630 | 20,779 | ||||||
Gain on sale of business | (100,269 | ) | — | |||||
Deferred income taxes | 24,938 | 1,970 | ||||||
Change in current assets and liabilities, net of acquisitions of businesses: | ||||||||
Accounts receivable, net | 8,955 | (22,946 | ) | |||||
Inventories, net | (5,827 | ) | (13,017 | ) | ||||
Uniforms and other rental items in service | (13,058 | ) | (1,872 | ) | ||||
Prepaid expenses and other current assets | (16,011 | ) | (5,655 | ) | ||||
Accounts payable | 17,684 | 17,480 | ||||||
Accrued compensation and related liabilities | (30,306 | ) | (37,276 | ) | ||||
Accrued liabilities and other | (16,218 | ) | (23,676 | ) | ||||
Income taxes, current | 70,128 | 40,542 | ||||||
Net cash provided by operating activities | 254,366 | 157,588 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (62,517 | ) | (78,580 | ) | ||||
Proceeds from redemption of marketable securities and investments | 65,256 | 109,612 | ||||||
Purchase of marketable securities and investments | (58,022 | ) | (119,729 | ) | ||||
Proceeds from sale of business | 128,511 | — | ||||||
Acquisitions of businesses, net of cash acquired | (302 | ) | (10,991 | ) | ||||
Other, net | (304 | ) | (918 | ) | ||||
Net cash provided by (used in) investing activities | 72,622 | (100,606 | ) | |||||
Cash flows from financing activities: | ||||||||
(Payments) issuance of commercial paper, net | (43,000 | ) | 163,800 | |||||
Repayment of debt | (250,000 | ) | (250,000 | ) | ||||
Prepaid short-term debt financing fees | — | (8,625 | ) | |||||
Proceeds from exercise of stock-based compensation awards | 17,256 | 16,282 | ||||||
Repurchase of common stock | (35,040 | ) | (18,870 | ) | ||||
Other, net | (649 | ) | 385 | |||||
Net cash used in financing activities | (311,433 | ) | (97,028 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 6,593 | (102 | ) | |||||
Net increase (decrease) in cash and cash equivalents | 22,148 | (40,148 | ) | |||||
Cash and cash equivalents at beginning of year | 169,266 | 139,357 | ||||||
Cash and cash equivalents at end of year | $ | 191,414 | $ | 99,209 | ||||