Cintas Corporation Announces Fiscal 2016 Fourth Quarter and Full Year Results

CINCINNATI–(BUSINESS WIRE)–Cintas Corporation (Nasdaq: CTAS) today reported results for its
fourth quarter and full fiscal year ended May 31, 2016.

Revenue for the fourth quarter of fiscal year 2016 was $1.27 billion, an
increase of 11.3% over the prior year period. Organic growth, which
adjusts for the impacts of acquisitions, foreign currency exchange rate
fluctuations and workday differences, was 6.7%. Operating income for the
fourth quarter of fiscal year 2016 of $202.9 million increased 14.2%
from the prior year period. Operating income margin improved to 16.0%
from 15.6% of revenue in last year’s fourth quarter.

Net income from continuing operations for the fourth quarter of fiscal
2016 was $118.0 million compared to $100.6 million in the prior year
period, and earnings per diluted share (EPS) from continuing operations
for the fourth quarter of fiscal 2016 were $1.08 compared to $0.86 for
last year’s fourth quarter. Fourth quarter of fiscal 2016 net income and
EPS from continuing operations increased 17.3% and 25.6%, respectively,
compared to the prior year period. Net income from continuing operations
as a percent of revenue improved to 9.3% from 8.8% in last fiscal year’s
fourth quarter.

Scott D. Farmer, Cintas’ Chief Executive Officer, stated, “This year we
initiated our first national branding campaign and introduced our new
tagline, Ready for the WorkdayTM. This new
tagline communicates the value we provide our customers by addressing
their business needs with our broad range of products and services. Our
fourth quarter results are a reflection of the success of our employees,
whom we call partners, in being READYTM for our
customers. I’d like to thank our partners for delivering
industry-leading growth rates and operating income margins and a
significant increase in EPS.”

For the fiscal year ended May 31, 2016, revenue was $4.90 billion, an
increase of 9.6% over the prior fiscal year. Organic growth was 6.7%.
Operating income for fiscal year 2016 of $781.7 million increased 12.3%
from the prior fiscal year. Operating income margin improved to 15.9%
from 15.6% of revenue last fiscal year. Net income from continuing
operations was $456.9 million compared to $410.5 million in the prior
year period, and EPS from continuing operations for fiscal 2016 were
$4.09 compared to $3.46 for last fiscal year. Excluding a non-recurring
gain in the first quarter of fiscal 2015 of $13.6 million or EPS of
$0.11, fiscal 2016 net income and EPS from continuing operations
increased 15.1% and 22.1%, respectively, compared to the prior year
period. Net income from continuing operations as a percent of revenue
improved to 9.3% from 8.9% last fiscal year, excluding the prior year
non-recurring gain.

“I am proud to report that we achieved record revenue and EPS in fiscal
year 2016,” added Mr. Farmer. “We have increased EPS by double-digits in
six consecutive years. Our balance sheet and cash flow remain very
strong. In addition, I am pleased with our continued ability to deploy
cash to many priorities. In fiscal 2016, those priorities included capex
and strategic investments like our SAP project and new branding
campaign; acquisitions in our Uniform Rental and Facility Services,
First Aid and Fire businesses; a 23.5% increase in the regular dividend;
and the repurchase of shares under our buyback program at an aggregate
cost of $759.2 million.”

Mr. Farmer concluded, “We expect fiscal 2017 revenue to be in the range
of $5.150 billion to $5.225 billion and fiscal 2017 EPS from continuing
operations to be in the range of $4.35 to $4.45. This guidance does not
include any potential deterioration in the U.S. economy or share
buybacks. It does include our expectations for our continued SAP system
implementation and the impact of one less workday in fiscal 2017
compared to fiscal 2016.”

The table below provides a comparison of fiscal 2016 revenue and EPS
from continuing operations to our fiscal 2017 guidance.

 

   

 

Fiscal 2016

    Fiscal 2017

Low End

of Range

   

Growth vs.
Fiscal 2016

    Fiscal 2017

High End

of Range

   

Growth vs.
Fiscal 2016

Revenue (dollar amounts in millions)

 

$4,905.5

 

$5,150.0

 

5.0%

 

$5,225.0

 

6.5%

EPS from continuing operations $4.09 $4.35 6.4% $4.45 8.8%
 

About Cintas

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, our
ability to promptly and effectively integrate acquisitions, including
ZEE Medical; our ability to realize any synergies from acquisitions,
including 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 the acquisition of 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 year ended May 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, 2015 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.

Cintas Corporation
Consolidated Condensed Statements of Income
(In thousands except per share data)
     
 
Three Months Ended

(Unaudited)

May 31,

2016

  May 31,

2015

  % Change
 
Revenue:
Uniform rental and facility services $ 965,124 $ 891,269 8.3
Other   306,281       251,314   21.9
Total revenue 1,271,405 1,142,583 11.3
 
Costs and expenses:
Cost of uniform rental and facility services 537,543 509,861 5.4
Cost of other 180,144 146,062 23.3
Selling and administrative expenses   350,778       308,941   13.5
 
Operating income 202,940 177,719 14.2
 
Interest income (331 ) (171 ) 93.6
Interest expense   15,776       16,395   -3.8
 
Income before income taxes 187,495 161,495 16.1
Income taxes   69,484       60,911   14.1
Income from continuing operations 118,011 100,584 17.3
Income from discontinued operations, net of tax   12,887       4,631   178.3
Net income $ 130,898     $ 105,215   24.4
 
Basic earnings per share:
Continuing operations $ 1.09 $ 0.87 25.3
Discontinued operations   0.12       0.04   200.0
Basic earnings per share $ 1.21     $ 0.91   33.0
 
Diluted earnings per share:
Continuing operations $ 1.08 $ 0.86 25.6
Discontinued operations   0.12       0.04   200.0
Diluted earnings per share $ 1.20     $ 0.90   33.3
 
Weighted average number of shares outstanding 106,136 113,666
Diluted average number of shares outstanding 107,797 115,383
 
 
Twelve Months Ended
May 31,

2016

  May 31,

2015

  % Change
 
Revenue:
Uniform rental and facility services $ 3,777,801 $ 3,539,843 6.7
Other   1,127,657       937,043   20.3
Total revenue 4,905,458 4,476,886 9.6
 
Costs and expenses:
Cost of uniform rental and facility services 2,106,793 2,007,632 4.9
Cost of other 668,795 547,917 22.1
Selling and administrative expenses   1,348,122       1,224,930   10.1
 
Operating income 781,748 696,407 12.3
 
Gain on sale of stock of an equity method investment 21,739 -100.0
 
Interest income (896 ) (339 ) 164.3
Interest expense   64,522       65,161   -1.0
 
Income before income taxes 718,122 653,324 9.9
Income taxes   261,181       242,803   7.6
Income from continuing operations 456,941 410,521 11.3
Income from discontinued operations, net of tax   236,579       20,097   1077.2
Net income $ 693,520     $ 430,618   61.1
 
Basic earnings per share:
Continuing operations $ 4.15 $ 3.51 18.2
Discontinued operations   2.15       0.17   1,164.7
Basic earnings per share $ 6.30     $ 3.68   71.2
 
Diluted earnings per share:
Continuing operations $ 4.09 $ 3.46 18.2
Discontinued operations   2.12       0.17   1,147.1
Diluted earnings per share $ 6.21     $ 3.63   71.1
 
Weighted average number of shares outstanding 108,221 115,900
Diluted average number of shares outstanding 109,956 117,543
 
CINTAS CORPORATION SUPPLEMENTAL DATA
   
Three Months Ended
May 31,

2016

  May 31,

2015

Uniform rental and facility services gross margin 44.3% 42.8%
Other gross margin 41.2% 41.9%
Total gross margin 43.6% 42.6%
Net margin, continuing operations 9.3% 8.8%
 
 
Twelve Months Ended
May 31,

2016

  May 31,

2015

Uniform rental and facility services gross margin 44.2% 43.3%
Other gross margin 40.7% 41.5%
Total gross margin 43.4% 42.9%
Net margin, continuing operations 9.3% 9.2%
 
Computation of Diluted Earnings Per Share from Continuing
Operations
   
Three Months Ended
May 31,

2016

  May 31,

2015

 
Income from continuing operations $ 118,011 $ 100,584
Less: income from continuing operations allocated to participating
securities
  1,920     947
Income from continuing operations available to common shareholders $ 116,091   $ 99,637
 
Basic weighted average common shares outstanding 106,136 113,666
Effect of dilutive securities – employee stock options   1,661     1,717
Diluted weighted average common shares outstanding   107,797     115,383
 
Diluted earnings per share from continuing operations $ 1.08   $ 0.86
 
Twelve Months Ended
May 31,

2016

  May 31,

2015

 
Income from continuing operations $ 456,941 $ 410,521
Less: income from continuing operations allocated to participating
securities
  7,290     3,846
Income from continuing operations available to common shareholders $ 449,651   $ 406,675
 
Basic weighted average common shares outstanding 108,221 115,900
Effect of dilutive securities – employee stock options   1,735     1,643
Diluted weighted average common shares outstanding   109,956     117,543
 
Diluted earnings per share from continuing operations $ 4.09   $ 3.46
 
Reconciliation of Non-GAAP Financial Measures and Regulation G
Disclosure
 
The press release contains non-GAAP financial measures within the
meaning of Regulation G promulgated by the Securities and Exchange
Commission. To supplement its consolidated financial statements
presented in accordance with U.S. generally accepted accounting
principles (GAAP), the Company provides additional non-GAAP
financial measures of revenue and related growth, net income,
earnings per diluted share, and cash flow. The Company believes that
these non-GAAP financial measures are appropriate to enhance
understanding of its past performance as well as prospects for
future performance. Reconciliations of the differences between these
non-GAAP financial measures with the most directly comparable
financial measures calculated in accordance with GAAP are shown in
the tables within the narrative of the press release or below.
 
Computation of Workday Adjusted Revenue Growth
           
 
Three Months Ended Twelve Months Ended
May 31,

2016

  May 31,

2015

  Growth % May 31,

2016

  May 31,

2015

  Growth %
 
A B G I J O
Revenue $ 1,271,405 $ 1,142,583 11.3% $ 4,905,458 $ 4,476,886 9.6%
G=(A-B)/B O=(I-J)/J
C D K L
Workdays in the period 66 65 262 260
 
E F H M N P
Revenue adjusted for workday difference $ 1,252,141 $ 1,142,583 9.6% $ 4,868,012 $ 4,476,886 8.7%
H=(E-F)/F P=(M-N)/N
E=(A/C)*D F=(B/D)*D M=(I/K)*L N=(J/L)*L
 
Management believes that workday adjusted revenue growth is valuable
to investors because it reflects the revenue performance compared to
a prior period with the same number of revenue generating days.
 
Computation of Free Cash Flow
 
Management uses free cash flow to assess the financial performance
of the Company. Management believes that free cash flow is useful to
investors because it relates the operating cash flow of the Company
to the capital that is spent to continue, improve and grow business
operations.
 
  Twelve Months Ended
May 31,

2016

    May 31,

2015

   
Net Cash Provided by Operations (1) $ 465,845 $ 580,276
 
Capital Expenditures   (275,385 )       (217,720 )
 
Free Cash Flow $ 190,460       $ 362,556  
 
(1) Net cash provided by operations in fiscal 2016 was
negatively impacted by taxes paid on the gain on the sale of the
investment in the Shred-it Partnership. During fiscal 2016, Cintas
paid $229.5 million of taxes on the gain, which became due upon sale
of the investment. Proceeds from the sale of this investment are
included in investing activities. Excluding the impact of these tax
payments, which do not relate to continuing operations, cash
provided by operations and free cash flow is $695.3 million and
$420.0 million, respectively.
 
Results from Continuing Operations as Reported and as Adjusted
 
The tables below present summary results for the twelve months ended
May 31, 2016 and May 31, 2015, as reported and as adjusted. The
adjustments between results as reported and as adjusted are
explained below. We present net income from continuing operations
and EPS from continuing operations, as adjusted, because we believe
they are more representative of the ongoing performance of Cintas.
 
    As Reported            
For the twelve months ended May 31, 2016 (see Note 1)     Adjustments     As Adjusted     Increase
 
Net income, continuing operations $ 456,941 $ $ 456,941 15.1%
Net income margin, continuing operations 9.3% 9.3%
 
Diluted earnings per share, continuing operations $ 4.09 $ $ 4.09 22.1%
 
 
 
As Reported Adjustments
For the twelve months ended May 31, 2015 (see Note 1)     (see Note 2)     As Adjusted
 
Net income, continuing operations $ 410,521 $ 13,630 $ 396,891
Net income margin, continuing operations 9.2% 8.9%
 
Diluted earnings per share, continuing operations $ 3.46 $ 0.11 $ 3.35
 
Note 1 – The “As Reported” figures for both fiscal 2016 and
2015 reflect the change in classification of the Document Storage
and Imaging business and the investment in the Shred-it Partnership
to discontinued operations within the Consolidated Condensed
Statements of Income.
 
Note 2 – During the fiscal 2015 first quarter, Cintas
recognized a gain on the sale of stock in an equity method
investment in the net amount of $13.6 million, equal to EPS of $0.11.
 

SUPPLEMENTAL SEGMENT DATA

The results below reflect the segments effective June 1, 2015 as
previously disclosed. All prior fiscal year results presented below
have been restated to reflect these new segments.

 

         

Uniform Rental
and Facility
Services

 

First Aid

and Safety
Services

  All

Other

  Corporate(1)   Total
For the three months ended May 31, 2016
Revenue $ 965,124 $ 122,793 $ 183,488 $ $ 1,271,405
Gross margin $ 427,581 $ 52,631 $ 73,506 $ $ 553,718
Selling and administrative expenses $ 256,820 $ 39,197 $ 54,761 $ $ 350,778
Interest income $ $ $ $ (331 ) $ (331 )
Interest expense $ $ $ $ 15,776 $ 15,776
Income (loss) before income taxes $ 170,761 $ 13,434 $ 18,745 $ (15,445 ) $ 187,495
 
For the three months ended May 31, 2015
Revenue $ 891,269 $ 84,927 $ 166,387 $ $ 1,142,583
Gross margin $ 381,408 $ 39,704 $ 65,548 $ $ 486,660
Selling and administrative expenses $ 231,921 $ 26,813 $ 50,207 $ $ 308,941
Interest income $ $ $ $ (171 ) $ (171 )
Interest expense $ $ $ $ 16,395 $ 16,395
Income (loss) before income taxes $ 149,487 $ 12,891 $ 15,341 $ (16,224 ) $ 161,495
 
As of and for the twelve months ended May 31, 2016
Revenue $ 3,777,801 $ 461,783 $ 665,874 $ $ 4,905,458
Gross margin $ 1,671,008 $ 197,010 $ 261,852 $ $ 2,129,870
Selling and administrative expenses $ 998,069 $ 147,503 $ 202,550 $ $ 1,348,122
Interest income $ $ $ $ (896 ) $ (896 )
Interest expense $ $ $ $ 64,522 $ 64,522
Income (loss) before income taxes $ 672,939 $ 49,507 $ 59,302 $ (63,626 ) $ 718,122
Assets $ 3,114,159 $ 421,789 $ 358,683 $ 209,762 $ 4,104,393
 
As of and for the twelve months ended May 31, 2015
Revenue $ 3,539,843 $ 326,593 $ 610,450 $ $ 4,476,886
Gross margin $ 1,532,211 $ 152,339 $ 236,787 $ $ 1,921,337
Selling and administrative expenses $ 926,176 $ 107,226 $ 191,528 $ $ 1,224,930
Gain on sale of stock of an equity method investment $ $ $ $ 21,739 $ 21,739
Interest income $ $ $ $ (339 ) $ (339 )
Interest expense $ $ $ $ 65,161 $ 65,161
Income (loss) before income taxes $ 606,035 $ 45,113 $ 45,259 $ (43,083 ) $ 653,324
Assets $ 2,845,326 $ 255,202 $ 345,201 $ 746,731 $ 4,192,460
 
(1) Corporate assets include cash and marketable
securities in all periods. Corporate assets as of May 31, 2015
include the investment in the Shred-it Partnership and the Storage
assets that were classified as assets held for sale.
 

Cintas Corporation

Consolidated Balance Sheets

(In thousands except share data)

       

ASSETS

May 31,

2016

May 31,

2015

 
Current assets:
Cash and cash equivalents $ 139,357 $ 417,073
Marketable securities 70,405 16,081
Accounts receivable, net 563,178 496,130
Inventories, net 249,362 226,211
Uniforms and other rental items in service 539,956 534,005
Income taxes, current 1,712 936
Deferred tax asset
Assets held for sale 21,341
Prepaid expenses and other current assets   26,065     24,030  
Total current assets 1,590,035 1,735,807
 
Property and equipment, at cost, net 994,237 871,421
 
Investments 124,952 329,692
Goodwill 1,291,593 1,195,612
Service contracts, net 83,715 42,434
Other assets, net   19,861     17,494  
 
$ 4,104,393   $ 4,192,460  
 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 
Current liabilities:
Accounts payable $ 114,514 $ 109,607
Accrued compensation and related liabilities 101,976 88,423
Accrued liabilities 349,065 309,935
Income taxes, current
Deferred tax liability
Liabilities held for sale 704
Long-term debt due within one year   250,000      
Total current liabilities 815,555 508,669
 
Long-term liabilities:
Long-term debt due after one year 1,050,000 1,300,000
Deferred income taxes 259,475 339,327
Accrued liabilities   136,704     112,009  
Total long-term liabilities 1,446,179 1,751,336
 
Shareholders’ equity:
Preferred stock, no par value:
100,000 shares authorized, none outstanding
Common stock, no par value: 409,682 329,248
425,000,000 shares authorized
FY16: 179,598,516 issued and 104,213,479 outstanding
FY15: 178,117,334 issued and 111,702,949 outstanding
Paid-in capital 205,260 157,183
Retained earnings 4,805,867 4,227,620
Treasury stock: (3,553,276 ) (2,773,125 )
FY16: 75,385,037 shares
FY15: 66,414,385 shares
Accumulated other comprehensive loss   (24,874 )   (8,471 )
Total shareholders’ equity   1,842,659     1,932,455  
 
$ 4,104,393   $ 4,192,460  
 
Cintas Corporation
Consolidated Condensed Statements of Cash Flows
(In thousands)
         
 
Twelve Months Ended
May 31,

2016

May 31,

2015

Cash flows from operating activities:

Net income $ 693,520 $ 430,618
 

Adjustments to reconcile net income to net cash provided by
operating activities:

Depreciation 149,691 140,624
Amortization of intangible assets 15,588 14,458
Stock-based compensation 79,293 47,002
Gain on Storage Transactions (15,786 ) (38,573 )
Loss on investment in Shred-it Partnership 24,288 3,851
Gain on sale of investment in Shred-it Partnership (378,359 )
Gain on sale of stock of an equity method investment (21,739 )
Deferred income taxes (59,302 ) 20,866

Change in current assets and liabilities, net of acquisitions of
businesses:

Accounts receivable, net (52,762 ) (1,443 )
Inventories, net (17,917 ) 23,785
Uniforms and other rental items in service (6,306 ) (31,994 )
Prepaid expenses and other current assets (965 ) (3,202 )
Accounts payable (564 ) (33,445 )
Accrued compensation and related liabilities 13,512 3,234
Accrued liabilities and other 22,714 33,066
Income taxes, current   (800 )   (6,832 )
 
Net cash provided by operating activities 465,845 580,276
 

Cash flows from investing activities:

 
Capital expenditures (275,385 ) (217,720 )
Proceeds from redemption of marketable securities 434,179 161,938
Purchase of marketable securities and investments (494,146 ) (195,471 )
Proceeds from Storage Transactions, net of cash contributed 35,338 158,428
Proceeds from Shredding Transactions 580,837 3,344
Proceeds from sale of stock of an equity method investment 29,933
Dividends received on equity method investment 5,247
Dividends received on Shred-it Partnership investment 113,400
Acquisitions of businesses, net of cash acquired (156,579 ) (15,495 )
Other, net   4,137     1,383  
 
Net cash provided by investing activities 128,381 44,987
 

Cash flows from financing activities:

 
Repayment of debt (16 ) (518 )
Proceeds from exercise of stock-based compensation awards 28,226 40,230
Dividends paid (115,273 ) (201,891 )
Repurchase of common stock (780,151 ) (551,970 )
Other, net   490     1,589  
 
Net cash used in financing activities (866,724 ) (712,560 )
 
Effect of exchange rate changes on cash and cash equivalents   (5,218 )   (8,918 )
 
Net decrease in cash and cash equivalents (277,716 ) (96,215 )
 
Cash and cash equivalents at beginning of year   417,073     513,288  
 
Cash and cash equivalents at end of year $ 139,357   $ 417,073  
 

Contacts

Cintas Corporation
J. Michael Hansen, Vice President-Finance and
Chief Financial Officer, 513-701-2079
or
Paul F. Adler, Vice
President and Treasurer, 513-573-4195