Cintas Corporation Announces Second Quarter Fiscal 2009 Results
CINCINNATI, December 19, 2008 — Cintas Corporation (Nasdaq: CTAS) today reported results for its second quarter of fiscal 2009, which ended on November 30, 2008. Revenue for the second quarter was $985.2 million, a slight increase over fiscal 2008 second quarter revenue of $983.9 million. Net income of $71.8 million decreased 13% from the prior year second quarter. Diluted earnings per share were $0.47, an 11% decrease as compared to the second quarter of last fiscal year.
Scott D. Farmer, Chief Executive Officer of the Company, stated, "During this challenging business environment, many of our customers have been forced to reduce employment levels and consolidate facilities. The U.S. economy has lost approximately 2 million jobs so far this year. These reductions and consolidations have negatively impacted our revenue stream. In addition, revenue in the second quarter was negatively impacted by approximately 1% due to the impact of a weaker Canadian dollar and the September Gulf Coast hurricanes. However, we continued to demonstrate the benefit of our products and services to our existing customers and new business prospects, which enabled us to maintain our revenue as compared to last year’s second quarter."
The Company’s net income during the quarter was impacted as well. First, while energy costs, most notably gasoline, have come down steadily and significantly over the last three months, they remained higher as compared to last year’s second quarter. Should they stay at this level, the Company will begin to see better quarter to quarter comparisons moving forward. In addition, increased medical costs, higher commodity costs, and the effects of the hurricanes lowered second quarter pre-tax income by $14.5 million. Based on current trends, the Company expects to gain some relief in these costs as it continues through its fiscal year.
In addition to those cost increases, the Company’s effective tax rate for the second quarter increased to 39.4% as compared to 38.3% a year ago. While the Company’s effective tax rate will fluctuate from quarter to quarter, the Company expects its effective tax rate to be approximately 37.1% for this fiscal year, which will end on May 31, 2009.
Mr. Farmer stated, "We are aggressively challenging our cost structure to meet the demands of the current economic environment. We are focused on eliminating all non-value added work throughout our organization. We define value added work as work that produces output that the customer notices and is willing to pay for. Through the application of this methodology, we expect to improve our cost structure in the future."
Cintas continues to generate strong cash flow and maintain a solid balance sheet position. Net cash provided by operations was $175 million through the second quarter and the Company’s current ratio was 3.8 to 1 as of November 30, 2008. The strong cash flow and balance sheet position allowed the Company to reduce outstanding debt by approximately $80 million during the second quarter, mainly through reducing borrowings under its commercial paper program. This reduction in outstanding debt improved the Company’s debt to total capitalization ratio to 27% as of the end of the quarter.
Mr. Farmer commented, "Our reaction to the current economic conditions goes beyond improving our cost structure. While our cash from operations remains strong, we are challenging all capital expenditures and have raised our return expectations on these investments. However, despite these economic conditions, our financial strength continues to provide us the ability to identify and make strategic acquisitions, when appropriate."
Given the significant uncertainties that are widespread throughout the marketplace, the Company has removed their revenue and earnings-per-share guidance for this fiscal year. The current marketplace is experiencing extremely volatile conditions, most of which are largely outside of the Company's control. To provide updated guidance at this time would require significant subjective assumptions on these volatile external conditions and require too wide of a guidance range for both revenue and earnings per share to be meaningful.
Mr. Farmer stated, "The challenges today are significant, but conditions will improve. Until they do, we will continue to aggressively manage our cost structure. Our strong cash flow and healthy balance sheet will be a great advantage to us under these circumstances. More importantly, we will continue to focus on providing our customers with exceptional service, ensuring that our products and services remain highly valued and appreciated by our customers.
Headquartered in Cincinnati, Cintas Corporation provides highly specialized services to businesses of all types throughout North America. Cintas designs, manufactures and implements corporate identity uniform programs, and provides entrance mats, restroom supplies, promotional products, first aid, safety, fire protection products and services and document management services for approximately 800,000 businesses. Cintas is a publicly held company traded over the Nasdaq Global Select Market under the symbol CTAS, and is a Nasdaq-100 company and component of the Standard & Poor’s 500 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 Quarterly Report. Factors that might cause such a difference include, but are not limited to, the possibility of greater than anticipated operating costs including energy costs, lower sales volumes, loss of customers due to outsourcing trends, the performance and costs of integration of acquisitions, 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, 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, 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, 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. Also note that we provide a cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our businesses in Part II, Item 1A, of this Quarterly Report and in our Annual Report on Form 10-K for the year ended May 31, 2008. We incorporate those items here and you should refer to them. These are factors that, individually or in the aggregate, we think could cause our actual results to differ materially from expected and historical results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to predict or identify all such factors. 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. Consequently, you should not consider the risk factors identified in Part II, Item 1A, in this Quarterly Report and in our Form 10-K for the year ended May 31, 2008, to be a complete discussion of all potential risks or uncertainties.
For additional information, contact:
William C. Gale
Senior Vice President-Finance and Chief Financial Officer
Michael L. Thompson
Vice President and Treasurer