Cintas Cleans Up With Higher Profits

Source: Cintas.

Few investors know much about uniform specialist Cintas , but the company has done a good job over the long run in taking a niche business and making the most of the profit opportunities it has found within the industry. Coming into Wednesday afternoon's fiscal third-quarter financial report, Cintas investors were hoping to see another double-digit percentage jump in earnings, as the company has moved forward with restructuring and cost-cutting efforts aimed at focusing more on its highest-margin businesses. For its part, Cintas exceeded most of the expectations that shareholders had, with even better bottom-line numbers than those following the stock had anticipated. Let's take a closer look at Cintas and what its most recent results say about the company's future direction.

Cintas is anything but uniformCintas' results will look familiar to those who've followed the company for a while. On the sales front, Cintas had $1.11 billion in revenue, which was down very slightly from year-ago levels. As we've seen before, though, the year-ago quarter included results from the company's Document Shredding business, which it sold to Shred-it International last April. When you take out that discontinued business, organic revenue climbed 7.5%. Net income climbed an impressive 12% to $94.9 million, and after adjusting to reflect the hit to earnings from the Document Shredding business, adjusted earnings per share of $0.85 beat estimates by $0.07.

Looking more closely at its various business units, Cintas saw growth across the board. The first aid, safety, and fire protection division saw the fastest growth at 8.2%, but Cintas' rental uniform business also saw a solid 7.2% gain. Direct sales of uniforms climbed the least, but even there, 4.2% growth reversed a year-over-year drop last quarter, reflecting the improving business climate for employment.

Source: Cintas.

CEO Scott Farmer was happy about the results, again attributing much of the success of Cintas' business to the company's employees. Farmer also called out a massive buyback of $251 million over the quarter, with 3.2 million shares of stock repurchased to use up the remainder of Cintas' 2013 authorization of $500 million toward buying back stock. The CEO believes that the move was successful in "demonstrating our commitment to provide shareholder value."

What's ahead for Cintas? Cintas could easily get even more benefit from buybacks in the near future. In January, the company approved an additional $500 million toward buybacks, and Cintas has all that money in its arsenal to capitalize on repurchase opportunities.

Indeed, Cintas raised its earnings guidance for the full 2015 fiscal year, perhaps in part reflecting the expectations for further share-count declines. Cintas now expects to earn $3.55 to $3.58 per share, raising its previous range by about a nickel and representing 16% to 17% growth in earnings per share for the company in fiscal 2015. Sales guidance of $4.46 billion to $4.49 billion was fully within the previous range.

Source: Cintas.

The positive tone in the U.S. employment picture should continue to lift prospects for Cintas' core business. Several months of strong gains in job creation bode well for the prospects for uniform rentals and sales, and with the Federal Reserve seemingly prepared to let faster growth establish itself more firmly before starting to tighten monetary policy, Cintas should enjoy some tailwinds for a while.

Cintas investors saw some immediate benefit from the latest results, as the stock gained more than 1% in the first hour and a half of after-hours trading following the announcement. With its efforts to streamline its business and drive growth in its most promising segments, Cintas looks poised to capture as much as possible of the positive economic environment in 2015 and beyond.

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