Cintas Corporation (NASDAQ:CTAS) Q3 2018 Earnings Conference Call - Final Transcript

Mar 22, 2018 • 05:00 pm ET


Cintas Corporation (NASDAQ:CTAS) Q3 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 would like to turn the call over to Mr. Mike Hansen, EVP and CFO. Sir, please go ahead.

Michael Hansen

Good evening. Thank you for joining us tonight. With me is Paul Adler, Cintas' VP and Treasurer. We will discuss our fourth quarter results for fiscal 2018. After our commentary, we will be happy to answer any questions.

(Forward-Looking Cautionary Statement)

Our revenue for the fourth quarter, which ended May 31st was $1,670 million, an increase of 9.1% over last year's fourth quarter. The organic revenue growth rate which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations was 5.1%. The organic revenue growth rate for the Uniform Rental and Facility Services segment was 5.3%, and the organic growth rate for the First Aid and Safety Services segment was 9.4%. Note that the lower rate of organic revenue growth for the Uniform Rental and Facility Services segment was expected and as we have previously communicated was due to the inclusion for the first time of the acquired G&K services business in organic as opposed to inorganic revenue.

Reported operating income for the fourth quarter was $265 million compared to $177 million in last year's fourth quarter. Operating income was reduced $15 million in the fourth quarter of fiscal '18 and $63 million in the fourth quarter of fiscal '17 by transaction and integration expenses related to the G&K acquisition. Excluding these items, our fourth quarter operating income grew 16.4% resulting in an operating margin of 16.8% compared to 15.8% last year. In March, we gave fourth quarter EPS guidance in the range of $1.64 to $1.69, that excluded G&K integration expenses and it assumed an effective tax rate of 24%. Against this guidance fourth quarter EPS was $1.77. Our tax rate was slightly better than the guided 24%, and this resulted in a benefit of $0.04. The remaining bit of guidance was primarily due to higher revenue than expected.

We are pleased with these fourth quarter results and our full year performance. Our fiscal '18 results extended our record of success. We have now grown revenue and profit 47 of the past 49 years with the only exception being the two years of the Great Recession. For the eighth consecutive year, organic growth was in the mid-to-high single-digit range. And we continue to grow revenue by multiples greater in both gross domestic product and employment.

Strong execution on the fundamentals is a hallmark of Cintas, but fiscal '18's achievement was especially noteworthy given that it occurred in a period of extreme change management. While delivering solid returns to shareholders in 2018, we also made significant progress on two important investments; G&K and SAP. The first year of the integration of the largest acquisition in the Cintas history were required the expertise of every part of the organization, including sales, production, service, global supply chain, IT, engineering, HR and