A month has gone by since the last earnings report for Cintas (CTAS). Shares have lost about 12.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Cintas due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Cintas Beats Q2 Earnings & Sales Estimates, Raises View
Cintas delivered better-than-expected results for the second quarter of fiscal 2022 (ended Nov 30, 2021). Its earnings surpassed the Zacks Consensus Estimate by 5.34%.
The company's earnings in the reported quarter were $2.76 per share, surpassing the Zacks Consensus Estimate of $2.62. On a year-over-year basis, the bottom line increased 5.3% from the year-ago figure of $2.62. The impacts of the sales increase were partially offset by higher costs and expenses.
Excluding the impacts of 25 cents per share of pre-tax gain recorded in second-quarter fiscal 2021, the company's reported quarter's earnings reflect a year-over-year increase of 16.5%.
Revenue Details
In the quarter under review, Cintas' net sales were $1,922.3 million, reflecting growth of 9.4% from the year-ago quarter. Organic sales in the reported quarter were up 9.3% year over year. The top line surpassed the Zacks Consensus Estimate by 0.86%.
The company has two reportable segments — Uniform Rental and Facility Services, and First Aid and Safety Services. Other businesses like Uniform Direct Sale and Fire Protection Services are included in All Other. Quarterly sales data is briefly discussed below.
Revenues from the Uniform Rental and Facility Services segment (representing 79.9% of the reported quarter's net sales) were $1,535.3 million, increasing 8.8% year over year.
Revenues from the First Aid and Safety Services segment (representing 10.5% of the reported quarter's net sales) totaled $202.2 million, increasing 4% year over year.
Revenues from the All Other business (representing 9.6% of the reported quarter's net sales) were $184.9 million, increasing 21.5% year over year.
Margin Profile
In the quarter under review, Cintas' cost of sales (comprising costs related to uniform rental and facility services as well as others) increased 10.7% year over year to $1,037.1 million. It represented 54% of net sales. Gross profit in the reported quarter increased 8% year over year to $885.1 million. The gross margin was 46%, down from 46.7% in the year-ago quarter. High labor and energy expenses played spoilsports in the quarter.
Selling and administrative expenses totaled $503.9 million, reflecting a 7.9% increase from the year-ago figure. It represented 26.2% of net sales. The operating margin (adjusted) in the reported quarter increased 70 bps year over year to 19.8%. Interest expenses decreased 10.8% to $21.9 million.
Balance Sheet and Cash Flow
Exiting the fiscal second quarter, Cintas had cash and cash equivalents of $113.2 million, up 42% from $79.7 million at the end of the previous quarter. Long-term debt was $1,343.4 million, reflecting no change from the previous quarter.
In the first half of fiscal 2022, the company repaid debts of $250 million.
In the first half of fiscal 2021, it generated net cash of $593.8 million from operating activities, increasing 3.6% from the year-ago period. Capital expenditure totaled $108.6 million, reflecting a year-over-year increase of 88.4%. Free cash flow decreased 5.9% year over year to $485.2 million.
In the six months of the fiscal year, the company repurchased shares worth $664.7 million, up from $71.4 million used in the year-ago period. Dividend payments totaled $177.9 million in the first half of this fiscal year.
Outlook
For fiscal 2022 (ending May 2022), Cintas anticipates revenues of $7.63-$7.70 billion, higher than $7.58-$7.67 billion stated earlier. The company expects earnings per share of $10.70-$10.95 compared with $10.60-$10.90 mentioned earlier.
The tax rate for the fiscal year is expected to be 19%, indicating an increase from 13.7% recorded in fiscal 2021. High taxes are likely to lower earnings by 72 cents per share and affect year-over-year earnings growth by 700 bps.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, Cintas has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cintas has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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