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Cintas Second Quarter Earnings Call
Author: Rozalina Destanova
Last Update: 10:03 AM EST December 29 2007


Cintas reported revenue increase of 7% to $983.9 million, failing to meet expectation of $986 million. Strong growth in emerging business units was offset by the costs to expand those businesses. Cintas was hurt by an increase in its effective tax rate. The company purchased 5.2 million shares of its stock in open market purchases. The company expanded document management business beyond North America by acquiring a document management company in The Netherlands.

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This summary is based on the second quarter fiscal 2008 earnings call conducted by Cintas Corporation (CTAS) on December 20, 2007.


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

Key Investors Issues

- EPS were 53 cents per share compared to 51 cents per share last year.
- Net income was $82.9 million compared to $82.5 million in the year-ago quarter.
- Revenue rose 7% to $983.9 million from $923.3 million in the prior-year period.

Second Quarter Highlights

Net income was $82.9 million, up from last year’s $82.5 million.

This year’s results were negatively impacted by a higher effective tax rate of 38.3% versus last year’s 37.3%. With the adoption of the new rules on tax accounting, companies must be more precise on a quarterly basis in the recording of the tax provision versus the old rules which calculated taxes on an effective rate for the entire year.

The company purchased 5.2 million shares of its stock in open market purchases.

- Since the initiation of the buy-back program in May of 2005, Cintas has purchased 19.4 million shares, representing about 11% of the outstanding shares at the inception of the program.
- The company has $228 million remaining under the authorization from the board to purchase Cintas stock.
- Subsequent to the end of quarter, Cintas also issued $250 million in 10-year bonds. These proceeds were used to pay down commercial paper.

Total revenues were $983.9 million, a 6.6% increase over that reported in the prior year.

Internal growth was 4.8%, which is an increase from first quarter internal growth rate of 4.2%. While general economic conditions worsened as compared to last two quarters, new sales organization continued to gain strength and provided with the improved new business results.

All of businesses are growing but emerging business services continue to grow at accelerated rates.

- Transformation into a more well-rounded service provider continues.
- At the end of fiscal 2007, revenues from first aid, safety, and fire protection and document management segments represented approximately 13% of total company revenues. Through this year’s second quarter, these segments represent 14.4% of total company revenues.

- Second quarter had 65 work days, the same number of work days as the second quarter of fiscal 2007 but one less work day than first quarter of this fiscal year. The number of work days does impact quarter-to-quarter comparisons.

Rental uniforms and ancillary products is the largest operating segment, accounting for 72% of total company revenues.

- This segment reflects the rental and servicing of uniforms and other garments, mats, mops, shop towels and other related items.
- The company provides restroom and hygiene products and services within this segment.

Uniform and ancillary product revenues were $708.8 million compared to $684.5 million in the second quarter of last year, a 3.6% increase.

- Year-to-date revenues for this segment are up 3.4% over last year’s first six months.
- Factoring out acquisitions made over the last 12 months, rental organic growth rate was 3.25%, which is an improvement over the 3% internal growth in the first quarter of last year.
- The company continues to see improvement in new business results within uniform and ancillary product segment, resulting from new sales organization and.

Uniform direct sales operating segment incorporates national account sales division, which direct sells uniforms, branded promotional products, and other related products to national and large regional customers, and direct sale catalog, which direct sells uniforms and related products primarily to local customers who also rent products from the company.
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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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