Cintas Corporation (NASDAQ:CTAS) Q1 2019 Earnings Conference Call - Final Transcript

Sep 25, 2018 • 05:00 pm ET

Previous

Cintas Corporation (NASDAQ:CTAS) Q1 2019 Earnings Conference Call - Final Transcript

Share
Close

Loading Event

Loading Transcript

Presentation
Operator
Operator

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

At this time, I'd like to turn the conference over to Mr. Mike Hansen, EVP and CFO. Please go ahead, sir.

Executive
J. Michael Hansen

Good evening, and thanks for joining us. With me is Paul Adler, Cintas' VP and Treasurer. We will discuss our first quarter results for fiscal 2019. After our commentary, we will be happy to answer any questions.

(Forward-Looking Cautionary Statements)

Our revenue for the first quarter, which ended August 31 was $1,697 million, an increase of 5.4% over last year's first quarter. The organic revenue growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations was 5.2%. The organic revenue growth rate for the Uniform Rental and Facility Services segment was 4.9%, and the organic growth rate for the First Aid and Safety Services segment was 9.0%.

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 lapping of the G&K Services acquisition. We expect this organic growth rate to increase during the remainder of fiscal '19. Reported operating income for the first quarter was $265 million compared to $249 million in last year's first quarter.

Operating income for the first quarter of fiscal '19 was negatively impacted by $19 million in stock-based compensation expense related to a change in the Cintas retirement policy in which the retirement age and tenure requirements were reduced. Slightly offsetting this was a $5.7 million benefit from lower commission expense resulting from the adoption of the Accounting Standards update 2014-09 revenue from contracts with customers.

We discussed both items on our July earnings call, when we provided our initial fiscal '19 guidance. Lastly, operating income was reduced about $5 million in the first quarter of fiscal '19 and about $4 million in the first quarter of fiscal '18 by integration expenses related to the G&K acquisition. Excluding these items, our first quarter operating income grew 12% resulting in an operating margin of 16.7% compared to 15.7% last year. Interest expense was $6 million lower in the first quarter of fiscal '19 compared to last year due to debt reduction of about $300 million.

Net income from continuing operations for the first quarter of fiscal '19 of $212 million increased 31.9% from last year's first quarter net income from continuing operations of $161 million. EPS from continuing operations for the first quarter of fiscal '19 were $1.89, an increase of about 30% from the EPS from continuing operations for the first quarter of fiscal '18 of $1.45. Net income and EPS from continuing operations were positively impacted by a lower effective tax rate in this fiscal year's first quarter compared to last fiscal year's first quarter, primarily from the enactment of the Tax Cuts and Jobs Act. Net income and EPS from continuing operations were negatively impacted in the first quarter of fiscal