Cintas Corporation (NASDAQ:CTAS) Q2 2017 Earnings Conference Call - Final Transcript

Dec 22, 2016 • 05:00 pm ET

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Cintas Corporation (NASDAQ:CTAS) Q2 2017 Earnings Conference Call - Final Transcript

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Presentation
Operator
operator

Good day, everyone and welcome to the Cintas Quarterly Earnings Results Conference Call. Today's call is being recorded.

At this time, I would like to turn the call over to Mr. Mike Hansen, VP of Finance and CFO. Please go ahead, sir.

Executive
Mike Hansen

Good evening and thank you for joining us tonight. With me is Paul Adler, Cintas' VP and Treasurer. We will discuss our second quarter results for fiscal 2017. After our commentary, we will be happy to answer any questions.

(Forward-Looking Cautionary Statements)

We are pleased to report that the revenue for the second quarter which ended November 30 was $1.297 billion, an increase of 6.4% over last year's second quarter. The organic growth rate which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations was 5.7%. Organic growth for the Uniform Rental and Facility Services segment accelerated to a rate of 6.5% from 5.9% in our first quarter.

Second quarter gross margin improved to 44.1% from 43.3% last year. Scott Farmer, Cintas' Chairman and CEO stated in today's press release that this is our 13th consecutive quarter of year-over-year gross margin improvement.

As Scott mentioned this accomplishment plus our industry leading organic sales growth is a great reflection of the significant opportunities we have ahead of us and of the great execution of our employees whom we call partners. Gross margin of the Uniform Rental and Facility Services segment improved to 44.7%, an increase of 80 basis points compared to last year's second quarter.

The First Aid and Safety segment gross margin improved to 46.1% representing both the year-over-year and the sequential increase of 290 and 30 basis points respectively, due to the realization of synergies from the acquisition of ZEE Medical in fiscal 2016.

Operating income for the second quarter of fiscal 2017 of $203 million increased 1.3% from last year's second quarter. Operating income margin was 15.6% compared to 16.4% in last year's second quarter. Second quarter operating income included $3.3 million or 0.3% of second quarter revenue of transaction expenses related to the previously announced agreement to acquire G&K Services.

Net income from continuing operations for the second quarter was $123 million compared to $115 million in last year's second quarter. Earnings per diluted share or EPS from continuing operations for the second quarter were $1.13 which included a negative $0.02 impact from G&K transaction expenses, compared to $1.03 in last year's second quarter.

Second quarter net income and EPS from continuing operations increased 6.9% and 9.7% respectively compared to last year's second quarter. Excluding the negative impact of the G&K acquisition expenses net income and EPS from continuing operations increased 8.8% and 11.7% respectively compared to last year's second quarter, and net income margin from continuing operations improved to 9.7% compared to 9.5% in last year's second quarter.

We're updating our annual guidance, we expect fiscal 2017 revenue to be in the range of $5.180 billion to $5.225 billion, and fiscal 2017 EPS from continuing operations to be in the range