EUR 850.00 For Business Accounts Only

Morningstar | Holiday Timing and Weather Temper Uniform Rental Growth, but Cintas’ Fiscal 3Q19 Otherwise Solid

In its fiscal third-quarter 2019 (ended February), uniform-rental specialist Cintas’ total revenue grew 6% organically, largely in line with our expectations. Uniform segment organic growth slowed slightly in the quarter, but that was primarily due to disruption from severe weather and unfavorable timing of the holidays this year (customer closures). Growth trends otherwise appear healthy thanks to continued strong sales execution and positive underlying U.S. macroeconomic growth. Excluding G&K integration costs and a one-time cash bonus to employees last year, adjusted operating profitability is generally tracking our expectations. Our midcycle revenue and margin forecasts remain largely intact, though we expect to increase our $124 fair value estimate by 2%-3% due to the time value of money since our previous update. Cintas’ operating performance remains impressive, but we think the shares look rich.

On an organic basis, the flagship uniform rental business expanded 6.2% year over year, versus the 6.6% posted in the fiscal second quarter. The first-aid division posted underlying growth near 8.6%, versus 10.2% last quarter. Both segments encountered headwinds from weather and the timing of the holidays, but cross-selling remains healthy and the firm continues to boost customer penetration. Excluding nonrecurring items, Cintas’ consolidated EBIT margin improved 90 basis points, to 16.6%. In terms of guidance, management expects fiscal 2019 revenue of $6.87-$6.885 billion (previously $6.87-$6.91 billion), with EPS in a range of $7.42-$7.48 excluding $16 million of expected G&K integration costs.