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Cintas Corp. Reports Operating Results (10-Q)

January 07, 2011 | About:
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10qk

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Cintas Corp. (CTAS) filed Quarterly Report for the period ended 2010-11-30.

Cintas Corp. has a market cap of $4.07 billion; its shares were traded at around $27.995 with a P/E ratio of 19.3 and P/S ratio of 1.2. The dividend yield of Cintas Corp. stocks is 1.7%. Cintas Corp. had an annual average earning growth of 3.7% over the past 10 years.CTAS is in the portfolios of Jean-Marie Eveillard of First Eagle Investment Management, LLC, Robert Olstein of Olstein Financial Alert Fund, Arnold Van Den Berg of Century Management, Arnold Van Den Berg of Century Management, Tweedy Browne of Tweedy Browne CO LLC, Chuck Royce of Royce& Associates, Paul Tudor Jones of The Tudor Group, Steven Cohen of SAC Capital Advisors, Jeremy Grantham of GMO LLC.

Highlight of Business Operations:

As discussed above, Rental Uniforms and Ancillary Products operating segment revenue increased from $643.6 million to $657.8 million, or 2.2%, and the cost of rental uniforms and ancillary products increased $13.7 million, or 3.8%. The operating segments gross margin was $280.4 million, or 42.6% of revenue. This gross margin percent of revenue of 42.6% was 90 basis points lower than the prior fiscal years second quarter of 43.5%. Maintenance costs increased $2.6 million, or approximately 30 basis points, and energy related costs, which include natural gas, electric and gas, increased $1.7 million, or approximately 20 basis points, from the prior fiscal years second quarter.

Rental Uniforms and Ancillary Products operating segment revenue increased 1.2% for the six months ended November 30, 2010, over the same period in the prior fiscal year from $1.30 billion to $1.32 billion. Other Services revenue, consisting of revenue from the reportable operating segments of Uniform Direct Sales, First Aid, Safety and Fire Protection Services and Document Management Services, increased 14.3% for the six months ended November 30, 2010, over the same period in the prior fiscal year from $476.8 million to $545.1 million. The increase primarily resulted from an organic increase of 10.4%. The remaining 3.9% represents growth derived through acquisitions in our Document Management Services operating segment and our First Aid, Safety and Fire Protection Services operating segment during the period. The organic growth rate for the quarter was primarily the result of an 18.8% increase in Document Management operating segment revenue and a 10.0% increase in Uniform Direct Sales operating segment revenue.

As discussed above, Rental Uniforms and Ancillary Products operating segment revenue increased from $1.30 billion to $1.32 billion, or 1.2%, and the cost of rental uniforms and ancillary products increased $22.3 million, or 3.1%. The operating segments gross margin was $566.4 million, or 43.1% of revenue. This gross margin percent of revenue of 43.1% was 100 basis points lower than the prior fiscal years 44.1%. Maintenance costs increased $5.4 million, or approximately 40 basis points, and energy related costs, which include natural gas, electric and gas, increased $2.9 million, or approximately 20 basis points, from the prior fiscal year period.

Net cash provided by operating activities was $109.2 million for the six months ended November 30, 2010, a decrease of $184.9 million compared to the same period last fiscal year. Last fiscal years net cash provided by operating activities benefitted from lower working capital needs associated with our decreasing sales volumes and the accrual of approximately $28 million in legal settlements. As sales volumes have increased this fiscal year, our working capital needs have increased. Accounts receivable has increased $36.1 million since May 31, 2010, and inventories, net and uniforms and other rental items in service has increased $71.3 million since May 31, 2010, both due to the higher sales volumes and an intentional increase in inventory in anticipation of and as a precaution to a planned enterprise-wide system conversion of the Cintas global supply chain division.

Net cash used in investing activities includes capital expenditures and cash paid for acquisitions of businesses. Capital expenditures were $88.1 million and $48.1 million for the six months ended November 30, 2010 and 2009, respectively. These capital expenditures primarily relate to expansion efforts in Rental Uniforms and Ancillary Products and Document Management Services operating segments and to an enterprise wide system conversion. Capital expenditures increased this year compared to last year as economic conditions in the United States and Canada stabilized in 2010, providing better revenue growth opportunities. Cash paid for acquisitions of businesses was $88.8 million and $6.6 million for the six months ended November 30, 2010 and 2009, respectively. The acquisitions this fiscal year occurred in our Document Management Services, First Aid, Safety and Fire Protection Services and Rental Uniforms and Ancillary Products operating segments. The cash used for capital expenditures and acquisitions was offset by net proceeds from the sale or redemption of marketable securities.

As of November 30, 2010, we had $775.0 million in fixed rate notes outstanding with maturities ranging from 2012 to 2036. Cintas had a commercial paper program with availability of $600.0 million that was fully supported by a backup revolving credit facility through a credit agreement with its banking group. This revolving credit facility was renewed on September 27, 2010, with availability of $300.0 million and an accordion feature that allows for a maximum borrowing capacity of $450.0 million and an expiration date of September 26, 2014. The availability was reduced from $600.0 million to $450.0 million in order to lower the overall cost of the program. We believe this program will be adequate to provide necessary funding for our cash requirements. As of November 30, 2010 and May 31, 2010, we had no commercial paper outstanding and no outstanding borrowings on our revolving credit facility. However, as a result of cash requirements related primarily to acquisition opportunities, we have issued commercial paper subsequent to November 30, 2010, for varying amounts with a maximum outstanding issuance of approximately $90.0 million.

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