Cintas Corporation (NASDAQ:CTAS) Q2 2018 Earnings Conference Call - Final Transcript

Dec 21, 2017 • 05:00 pm ET


Cintas Corporation (NASDAQ:CTAS) Q2 2018 Earnings Conference Call - Final Transcript


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Good day, everyone, and welcome to the Cintas Quarterly Earnings Results Conference Call. Today's call is being recorded. At this time, I'd like to turn the call over to Mr. Mike Hansen, Senior VP of Finance and CFO. Please go ahead, sir.

Michael Hansen

Good evening, and thank you for joining us tonight. With me is Paul Adler, Cintas' VP and Treasurer. I am battling a little bit of a cough tonight, so I'm going to turn it over to Paul to get us through our prepared remarks.

Paul Adler

Thank you, Mike. (Forward-Looking Cautionary Statements).

We are pleased to report that revenue for the second quarter, which ended November 30th, was $1.61 billion, an increase of 26.4% over last year's second quarter. The organic revenue growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations was 7.7%.

The organic revenue growth rate for the Uniform Rental and Facility Services segment was 7.3%, and the organic growth rate of the First Aid and Safety Services segment was 10.8%. Operating income for the second quarter was $235 million compared to $200 million in last year's second quarter. Fiscal 2018 second quarter operating income was negatively impacted by $13 million of transaction and integration expenses related to the G&K Services acquisition compared to about $3 million of such expenses in the second quarter of last year.

Excluding G&K transaction and integration expenses, operating income increased 21.8%. Operating income margin, excluding G&K transaction and integration expenses, was 15.5% versus 16% last year. Current year second quarter operating margin was negatively impacted 75 basis points by intangible asset amortization expense resulting from the purchase price accounting of the G&K acquisition.

In addition, current year operating margin was negatively impacted by 25 basis points due to depreciation and implementation costs of our enterprise resource planning system, SAP. Net income and earnings per diluted share, or EPS, from continuing operations for the second quarter of fiscal 2018 were $137 million and $1.24, respectively. EPS was negatively impacted by transaction and integration expenses related to the G&K acquisition of $0.07 and $0.02 in the second quarters of fiscal 2018 and 2017, respectively. Excluding these expenses, EPS was $1.31 versus $1.14 last year, a 14.9% increase.

As our Chairman and CEO, Scott Farmer was quoted in today's earnings press release, the integration of G&K continues to proceed as planned. Our pace of closing duplicate operations increased in the second quarter. We have now closed 50 operations. Also, 47% of G&K locations have been converted to the Cintas operating system. This activity enabled us in the second quarter to realize about $14 million in synergies, almost twice the amount of synergies achieved in the first quarter, which is right in line with our expectations.

In addition, significant progress was made in our implementation of SAP, which remains on schedule. A total of 55 operations have been converted from the old operating system to the new SAP system. Our second quarter was one of solid progress on two important investments: