CINCINNATI, March 22, 2018 -- Cintas Corporation(Nasdaq: CTAS) today reported results for its fiscal 2018 third quarter ended February 28, 2018.
Revenue for the third quarter was approximately $1.59 billion, an increase of 26.6% over last year’s third quarter. The organic revenue growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 7.8%. The organic revenue growth rates for the Uniform Rental and Facility Services and First Aid and Safety Services reportable operating segments were 6.5% and 10.0%, respectively.
Operating income for the third quarter of $200 million increased 4.2% from last year’s third quarter operating income of $192 million. Operating income was reduced $10 million in the third quarter of fiscal 2018 and $9 million in the third quarter of fiscal 2017 by transaction and integration expenses related to the G&K Services, Inc. (G&K) acquisition. Operating income in the third quarter of fiscal 2018 was also reduced by a one-time cash payment to Cintas employees following the enactment of The Tax Cuts and Jobs Act (“Tax Act”) which was signed into legislation by the President on December 22, 2017. The one-time cash payment to employees amounted to an expense of approximately $40 million.
Scott D. Farmer, Cintas’ Chairman and Chief Executive Officer, stated, “We are pleased to report strong third quarter financial results. Each business unit contributed substantial revenue gains. Operating income, excluding G&K transaction and integration expenses and the one-time cash payment to employees, increased 24.0% over last year’s third quarter, resulting in an operating margin of 15.7%. We also made solid progress on two significant long-term investments. The first is the acquisition of G&K. We have now closed 60, or 95%, of redundant operations and have converted 65% of G&K locations to Cintas operating systems. The second is the implementation of an enterprise resource planning system. We continue to convert more operations to the system, 79 so far, and the roll-out remains on schedule. We will be a stronger company with this new technology.”
Mr. Farmer added, “The U.S. government recently passed a new tax law that will make U.S. companies more competitive globally. This tax reform is beneficial to our company, our shareholders, and many of our customers. We are happy to have shared this benefit with our employees, whom we call partners, in the form of a one-time cash payment. Cintas has accomplished much, and our motivated and engaged partners are one of the most important ingredients of our success.”
Net income from continuing operations for the third quarter of approximately $296 million increased 152.9% from last year’s third quarter. Earnings per diluted share (EPS) from continuing operations for the third quarter were $2.66 compared to $1.06 for last year’s third quarter. Fiscal 2018 and fiscal 2017 third quarter EPS included a negative impact of $0.06 from transaction and integration expenses related to the G&K acquisition. Fiscal 2018 third quarter EPS also included a negative impact of $0.24 from the one-time cash payment to employees. However, fiscal 2018 third quarter EPS included a positive impact of $1.59 from benefits under the new Tax Act, largely due to a one-time revaluation of deferred tax assets and liabilities.
The following table provides a comparison of fiscal 2018 EPS to the comparable periods of fiscal 2017:
Mr. Farmer concluded, “The benefits of the U.S. tax reform legislation in our third fiscal quarter were significant. However, these benefits make difficult the comparability of our full fiscal year results to last year. As a result, we are providing specific guidance for the fourth quarter of fiscal 2018. We expect fourth quarter revenue to be in the range of $1.625 billion to $1.645 billion. Please keep in mind that our fourth quarter marks the anniversary of the G&K acquisition. We expect fourth quarter EPS from continuing operations to increase and be in the range of $1.64 to $1.69. This assumes a fourth quarter tax rate of 24.0%. This EPS guidance excludes future G&K transaction and integration expenses related to the acquisition. However, in the fourth quarter, we expect G&K transaction and integration expenses to be incurred as we continue to integrate this significant acquisition, and we estimate that they will total $10 million to $15 million.”
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