Cintas (CTAS, Financial) is trading modestly higher after reporting robust Q1 (Aug) results. The company has maintained a perfect EPS record over the past five years, and Q1 was no exception. Revenue increased by 6.8% year-over-year to a record $2.50 billion, slightly surpassing expectations. Importantly, CTAS raised its full-year EPS guidance to $4.17-4.25 from $4.06-4.19 and increased the low end of FY25 revenue guidance. Notably, Cintas anticipates its first $10+ billion revenue year in FY25.
- Cintas recently completed a 4-for-1 stock split in early September, adjusting prior EPS guidance accordingly. Cintas is not just the largest supplier of work uniforms in the US; it also generates over half of its revenue from facility services, including cleaning supplies, mops, first aid cabinets, fire extinguishers, and alarms.
- The Uniform Rental and Facility Services segment is the larger of the two, with segment revenue rising 5.9% year-over-year to $1.93 billion. Q1 was negatively impacted by one less workday year-over-year. On a same workday basis, Q1 revenue growth was 8.4%. Other revenue, primarily from its First Aid segment, rose 10.1% year-over-year to $567.7 million.
- During its call, Cintas reported continued strong demand for its services in Q1, both from existing customers and new business pipelines. Its four focused verticals—healthcare, hospitality, education, and state and local government—continue to perform well.
- Margins were a highlight in Q1, with gross margin improving to a record 50.1% from 48.7% a year ago, as energy expenses (gasoline, natural gas, and electricity) were 20 basis points lower year-over-year. The higher gross margin led to a significant increase in Q1 operating margin to 22.4% from 21.4% a year ago.
Overall, this was a typical quarter for Cintas, with strong EPS and generally in-line revenue. A minor disappointment was the FY25 guidance, where the high end of the range wasn't increased as much as the lower end. However, we believe Cintas is likely being conservative, given that it's early in the fiscal year. The bigger picture shows healthy demand and nicely expanded margins. Cintas's business remains consistent and predictable, with a strong recurring revenue component. Additionally, Cintas benefits from the trend of businesses outsourcing functions to focus on their core operations.
