CINCINNATI, September 27, 2016 -- Cintas Corporation (Nasdaq: CTAS) today reported results for its first quarter of fiscal year 2017 which ended August 31, 2016.
Revenue for the first quarter was $1.29 billion, an increase of 7.9% over the prior year period. Organic growth, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 5.7%.
Operating income for the first quarter of fiscal year 2017 of $207.0 million increased 11.6% from the prior year period. Operating income margin improved to 16.0% from 15.5% of revenue in last year’s first quarter. Fiscal year 2017 operating income includes $2.8 million of transaction expenses related to the recently announced agreement to acquire G&K Services, Inc. (G&K).
Net income from continuing operations for the first quarter of fiscal 2017 was $138.1 million compared to $106.2 million in the prior year period, and earnings per diluted share (EPS) from continuing operations for the first quarter of fiscal year 2017 were $1.26 compared to $0.93 for last year’s first quarter. First quarter of fiscal 2017 net income and EPS from continuing operations increased 30.0% and 35.5%, respectively, compared to the prior year period. Net income from continuing operations as a percent of revenue improved to 10.7% from 8.9% in last year’s first quarter.
During the first quarter of fiscal 2017, Accounting Standards Update 2016-09 (ASU 2016-09), Improvements to Employee Share-Based Payment Accounting, was adopted. Under ASU 2016-09, excess tax benefits and deficiencies associated with employee share-based payments are no longer recognized as additional paid-in capital on the balance sheet but instead recognized directly to income tax expense or benefit in the income statement in the reporting period in which they occur. Other financial statement items impacted include share-based compensation expense and the computation of fully diluted shares outstanding. The first quarter of fiscal 2017 net benefit to EPS from the adoption of ASU 2016-09 was $0.14, consisting of a reduction of income tax expense of $0.16 partially offset by a $0.01 negative impact from additional employee share-based compensation expense reducing operating income and a $0.01 negative impact from an increase in the number of dilutive shares outstanding.
Scott D. Farmer, Cintas’ Chief Executive Officer, stated, “In our recently ended fiscal year 2016, we achieved record revenue and EPS and increased EPS by double-digits for the sixth consecutive year. We are pleased to report a continuation of strong results into the first quarter of fiscal 2017. This solid start positions us for another year of record-breaking results.”
Mr. Farmer concluded, “As a result of our first quarter results, we are updating our annual guidance. We expect fiscal 2017 revenue to be in the range of $5.160 billion to $5.225 billion and fiscal 2017 EPS from continuing operations to be in the range of $4.55 to $4.63. This guidance does not include any potential deterioration in the U.S. economy, future share buybacks, or any future financial impact from our acquisition of G&K, including transaction expenses. It does include the impact of one less workday in fiscal 2017 compared to fiscal 2016, and it assumes a negative impact in the remaining quarters of fiscal 2017 from adoption of ASU 2016-09 such that we end fiscal 2017 with an estimated net benefit to EPS of $0.07.”
The table below provides a comparison of fiscal 2016 revenue and EPS from continuing operations to our fiscal 2017 guidance.
Cintas Corporation helps more than 900,000 businesses of all types and sizes get Ready™ to open their doors with confidence every day by providing a wide range of products and services that enhance our customers’ image and help keep their facilities and employees clean, safe and looking their best. With products and services including uniforms, floor care, restroom supplies, first aid and safety products, fire extinguishers and testing, and safety and compliance training, Cintas helps customers get Ready for the Workday™. Headquartered in Cincinnati, Cintas is a publicly held company traded over the Nasdaq Global Select Market under the symbol CTAS and is a 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 Press Release. Factors that might cause such a difference include, but are not limited to, the failure to obtain G&K stockholder approval of the proposed transaction; the possibility that the closing conditions to the contemplated transaction may not be satisfied or waived, including that a governmental entity may prohibit, delay or refuse to grant a necessary regulatory approval; delay in closing the proposed transaction or the possibility of non-consummation of the proposed transaction; the potential for regulatory authorities to require divestitures in connection with the proposed transaction; the occurrence of any event that could give rise to termination of the merger agreement; the risk that stockholder litigation in connection with the contemplated transaction may affect the timing or occurrence of the contemplated transaction or result in significant costs of defense, indemnification and liability; risks inherent in the achievement of cost synergies and the timing thereof, including whether the proposed transaction will be accretive and within the expected timeframe; risks related to the disruption of the transaction to G&K and its management; the effect of announcement of the transaction on G&K’s ability to retain and hire key personnel and maintain relationships with customers, suppliers and other third parties; our ability to promptly and effectively integrate acquisitions, including G&K and ZEE Medical; the possibility of greater than anticipated operating costs including energy and fuel costs; lower sales volumes; loss of customers due to outsourcing trends; the performance and costs of integration of acquisitions, including G&K and ZEE Medical; 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; the effect on operations of exchange rate fluctuations, tariffs and other political, economic and regulatory risks; 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; costs of our SAP system implementation; disruptions caused by the inaccessibility of computer systems data, including cybersecurity risks; 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; the amount and timing of repurchases of our common stock, if any; changes in federal and state tax and labor laws; the reactions of competitors in terms of price and service; and the finalization of our financial statements for the quarter ended August 31, 2016. 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. A further list and description of risks, uncertainties and other matters can be found in our Annual Report on Form 10-K for the year ended May 31, 2016 and in our reports on Forms 10-Q and 8-K. 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.
For additional information, contact:
J. Michael Hansen, Senior Vice President-Finance and Chief Financial Officer – 513-701-2079
Paul F. Adler, Vice President and Treasurer – 513-573-4195