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Cintas Corporation Earnings Call, Third Quarter 2009
Author: Staff
Last Update: 10:05 AM ET March 20 2009


The specialist services firm reported revenue for the third quarter of $909 million, a 7% decrease from fiscal 2008 third quarter revenue of $976 million. This is mainly attributable to the firms'' customers reducing head count and closing facilities, which has negatively impacted sales.

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This is a summary of the third quarter fiscal 2009 earnings call as presented by Cintas Corporation (CTAS) on March 19, 2009.


- Chief Financial Officer, Senior Vice President: William C. Gale
- Vice President, Treasurer: Michael L. Thompson

Key Investors Issues:

- Earnings per share were 47 cents versus 53 cents a year ago.
- Cintas Corporation paid an annual dividend of 47 cents per share.
- Cintas expanded its presence in the document management business in Europe by purchasing Aktenmühle.

Third Quarter Highlights

Total revenue was $909 million, a 7% decrease from the third quarter revenue of $976 million reported for the same quarter 2008.

- Earnings per share were 47 cents versus 53 cents a year ago.
- From an employment standpoint, fewer jobs means fewer uniforms both rented and purchased, less usage of first aid and restroom supplies, and less opportunity for ancillary catalog sales such as shoes and jackets.
- Facility closures impact volume of entrance mats, shop towels and linens, restroom cleaning and other facility needs such as fire protection services and even document destruction.

Cintas Corporation reduced its outstanding debt by approximately $85 million reducing its outstanding commercial paper balance to zero at the end of the period.

- The ratio of debt to capitalization improved to 25% down from over 30% a year ago.
- Cintas Corporation paid an annual dividend of 47 cents per share continuing its practice of raising the dividend every year since going public in 1983.
- Cintas expanded its presence in the document management business in Europe by purchasing Aktenmühle. Headquartered in Munich, Germany, Aktenmühle provides document shredding service to most of the major cities in Germany.
- The firm now has the ability to offer Document Management Services outside of North America in both The Netherlands and Germany.

Total company internal growth was -7.4%.

- Year-to-date internal growth was -1.4%.
- In addition to the current economic environment, revenue was negatively impacted by 1% due to a weaker Canadian dollar.

Rental revenues were $675 million for the quarter compared to $704 million in the third quarter of last year, a 4% decrease.

- Internal growth for the segment was also -4%. The difficult business conditions significantly impacted the rental results.
- The U.S. seasonally adjusted unemployment rate increased from 4.8% a year ago to 8.1% at the end of February 2009.
- The swift reduction in jobs with 2.6 million jobs lost in the last four months alone has been too fast and widespread to offset on a short-term basis.

Approximately two-thirds of the rental negative internal growth rate is attributable to the decrease experienced in the add stop ratio.

- Given the significant job loss it is not surprising that this ratio is running negative.
- The issue is that the adds are down significantly, in effect turnover to customers is remaining at historical levels.
- But once turnover occurs either through involuntary terminations or voluntary, the customer is not replacing these positions.
- Rental revenue is also impacted by the reduced amount of churn at customers, lowering revenue from loss replacement, makeup and other charges.

The percentage of new business growth while below historical levels remains in double-digits and the close rate is being maintained.

- The average size of the new accounts has declined reflecting reduced customer headcount as well as new customers being cautious on the extent of these new programs. - Lost business ratio has increased over last year, but that decrease has largely been offset by price increases.
- In addition, the weakening of the Canadian dollar impacted rental revenues by approximately 1%.

Other services revenue which includes Uniform Direct Sales, First Aid Safety and Fire Protection and Document Management declined 14%.

- Internal growth was -16%.
- While Cintas Corporation''s Uniform Direct Sale business is directly impacted by headcount, it is also impacted by more discretionary spending.
- The impact of the downturn especially over the last six months has caused the Uniform Direct Sales segment revenues to decline significantly.
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Sources: Data collected by and from company press releases, filings and corporate websites.
Market data: BATS Exchange. Inc.

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