CTAS - Earnings call transcript Q1 2020

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Operator

Good day, everyone, and welcome to the Cintas Quarterly Earnings Results Conference Call. Today's call is being recorded.

At this time, I would like to turn the conference over to Mr. Mike Hansen, Executive Vice President and Chief Financial Officer. Sir, please go ahead.

Mike Hansen

evening. good and you, Thank Thanks for us. joining With is Paul Adler, Treasurer. and President Vice Cintas' me

our results answer first After discuss will We quarter we be our for will happy to questions. commentary, XXXX. fiscal

Reform Act litigation materially forward-looking contained cause statements events those are statements and to the civil statements. and that The Private risks the forward-looking discuss. Securities results refer we of provides with from subject current most Harbor differ I uncertainties, for contains which may a call conference These filings future actual Company's financial XXXX discussion to This reflect performance. from Safe forward-looking as Litigation could SEC. on in to you recent the to these our points views

of billion, number in record quarter foreign of last was Revenue currency rate, organic over X.X% impacts rate for an differences was of first adjusts fluctuations fiscal $X.XX the quarter. year's The acquisitions, of exchange which workdays, growth first a X.X%. 'XX the increase for the and

In organic operating Uniform growth and and the Services the Aid organic operating XX.X%. Services was growth rate 'XX, was the segment First the fiscal and Facility the rate Rental Safety for for quarter segment of first X.X%,

to million, first in fiscal 'XX. quarter compared Gross percentage margin for the the Gross fiscal 'XX increased of first of margin revenue XX.X% XX.X% of of for 'XX, quarter fiscal $XXX.X was X.X%. quarter of a as the first

points percentage operating gross Services First margin to margin the basis of segment XX.X%. a improved gross quarter Services XXX XX%. Facility from segment and improved and first points operating Safety Aid Rental year's Uniform XXX as to revenue last basis percent And

fiscal by million, margin was integration quarter of first the basis fiscal G&K to first acquisition 'XX XX.X%. to million points. of expenses XX.X% 'XX. 'XX, or compared the of negatively $X.X first Operating for income in impacted the in fiscal related quarter increased XX.X% in the 'XX income of operating was $XXX.X XX fiscal quarter Reported Operating by

earnings for share 'XX quarter the were quarter net reported first of diluted per the and 'XX million, Reported for fiscal fiscal income first $X.XX. was $XXX.X of

integration EPS increased fiscal Excluding XX.X%. the in G&K acquisition 'XX, expenses

As start pleased fiscal Farmer thank continuing Scott our in year. we our our CEO, on with Chairman was to today's press to are employee-partners our We release, well our and important initiatives. execute for quoted

an turning Before our provide fiscal to over more expectations. I'll update 'XX the for details, call Paul of

We revenue billion. in the of to expect range be $X.XX to billion $X.XX

is be $X.XX. the to in EPS expect at following $X.XX guidance. the regarding revenue We guidance of X.X% Note range the rate X.X%. range to to The growth the

reducing less EPS workday revenue However, a year. on our growth which the is about also workday day 'XX fiscal is guidance point rate a negative basis, growth X% to X.X%. on one at for the Adjusting XX EPS the One contains a 'XX. workday basis less one rate on constant impact $X.XX, has than fiscal difference, for our this it drag

the total including events based EPS growth of for impacts assumes guidance mind and a effective in an amount about fiscal points for on to period XX.X% to rate tax XX stock The rate in the of basis tax about of effective EPS from period, discrete move Keep fiscal $X.XX. compensation down 'XX can rate higher XX.X% or 'XX that up fiscal The compared 'XX. tax by expense. rate negatively

additional This any not G&K share share shares form And XXX assume of expenses. average diluted or million for shares. of any U.S. potential outstanding, count integration in EPS does a consists The computing it restricted deterioration future plus the securities participating weighted guidance economy buybacks, stock. in assumes of the any

over the turn call to now Paul. I'll

Paul Adler

Mike. you, Thank

the workday by 'XX $XX One equates has workday less fiscal day magnitude To and less total One will headwind negatively revenue of about in fiscal our growth illustrate the one fiscal workday than million. 'XX less margin 'XX's that annual one also impact revenue, basis operating 'XX. negative less note to on a Please EPS. contains fiscal using points. XX impact

margin income to due one in fiscal on points, by about be uniforms basis expenses of one negative 'XX to the occurs the like on amortization less And a to comparison will cover because reduced Fiscal XX.X less mats of The monthly on daily of revenue. will operating opposed expenses. certain and are margin entrance 'XX as impact day have basis. day a revenue to expensed basis we

stated, one about in of will $X.XX XX 'XX. on headwind EPS a XX a growth, quarter contain comparison basis about total to on Mike fiscal 'XX workdays. less of As drag and Each workday points is EPS fiscal

same to mind when one modeling comparison our the fiscal fiscal 'XX will differences have day, have have QX less days. keep day number day. will of will 'XX, Please 'XX the In in our additional one and of quarterly QX results. QX upcoming fiscal

Aid First business. remainder We Services. of Uniform included All reportable Facility The All and our segments is Rental business our Protection and have Other. Other two consist operating Sale of Direct Fire Services in and Safety and Services Uniform

All Aid on statement. presented are First and and income Services Other combined the Safety and Services as Other

other customers Facility includes and The segment the the and facility includes products sale from our rental route. and Rental towels, on and operating items servicing provision our restroom the to uniforms, of mats Services also and catalogs supplies segment Uniform of of and services.

$X.XX and Rental an Services of X.X%. revenue was Facility billion, Uniform increase

exchange foreign X.X%. workdays, the growth of the Excluding was organic currency impact rate in number rate the of and changes differences acquisitions,

basis improvement Our for quarter margin points. Uniform of year's Services to last Facility compared first gross segment the quarter, XX.X% than Rental was and XXX XX.X% first an

percentage Energy expansion of fixed by increase certain margin in driven expense the strong revenue the service gross and costs. a covering was The in department quarter. large revenue prior X.XX% year part to production compared was X.XX% as

for Safety Our segment training. rate sale this revenue growth First products, and aid segment Aid and operating the the was of segment's includes safety quarter million. products $XXX.X and The from organic first revenue servicing XX.X%. was This first for Services

compared gross first year's in last first increase Aid quarter, in margin XX.X% of to First an basis segment points. The was XXX quarter the XX.X%

First to with line - margins growth. increase continue segment Aid with a gross top stop strong

in Uniform Services Sale businesses Other Direct and Protection Our the category. are reported Fire All

business multi-million Our grow strong generally as subject are cross-sell account. business from Uniform to Uniform single is other such we rates a and business pace. are Sale for services and The to us, dollar Direct a provide Sale, low growth volatility, significant install customers business however to its continues when are each at digits, products year our a units. Fire Direct and opportunities key often and

Direct last a posting X.X%. rate the was growth first was XX.X%. organic Fire Other this The organic first business million, of revenue an rate of an was $XXX.X rate to Other Sale X.X%. too, had X.X%. organic in business gross at growth Uniform The All increase quarter growth compared of good margin XX.X% for quarter All year, quarter. XX.X% year's fiscal came for

'XX, percentage quarter increases were increase of Lower an expense. and XX.X% was percent first offset of other particularly fiscal as expenses, the expenses revenue first a the Selling administrative XX.X% of in 'XX. by medical revenue in of in quarter point and in as XX labor expense a basis

expense some We are volatility subject from in quarter-to-quarter. and self-insured medical therefore to

the rate was XX.X%. tax the tax continuing 'XX first based impacted of fiscal Our positively Stock rate. compensation for effective quarter operations on

based discrete period As to Mike including stock stated move period, the the events can from tax on earlier, of compensation amount rate expense.

liabilities adoption relate our adoption or in on XXXX-XX, assets income a the flow. on new sheet, Please Accounting The cash the about note Standards an Leases. material Update quarter our resulting to by increase balance entitled net not in have and million. three items $XXX These of in does impact line

fiscal as August balance capital. the benefited first equivalents strong quarter from earnings million. of million. and of and in in the cash expenditures Our flow was XX% 'XX, from XX growth, Operating quarter fiscal improvements operating amount flow increased of 'XX $XX.X were about cash first the in quarter of cash the working Capital first $XXX.X and in

$XX.X follows; operating million Services, CapEx and segment and Aid $X.X the All Uniform in Rental Facility Our Other. in $X.X by Safety, million in was and First million as

We million. of $XXX $XXX the to be in million range expect CapEx 'XX fiscal to

was interest slightly than the our rate debt term of and our billion. commercial billion of variable August of total debt-to-EBITDA target was in fixed debt of As XX, loan was Xx. debt, XX, form August At $X,XXX.X $XXX.X X.Xx was rate paper. lower million leverage $X,XXX.X and a

our concludes prepared remarks. That

happy questions. are answer We to your

Operator

Morgan And come will Toni question [Operator first from with our Stanley. Kaplan Instructions]

Toni Kaplan

points. The margins year? were rental there how guess Uniform anything basis strong I in pacing should or synergies gross And to Was this think one-time of really there, be XXX synergies? we this attributable expanding about the by how could about quarter much

Mike Hansen

mentioned, really energy. from points a one-time. Paul little benefit XX We of bit did we got as Nothing basis a

is So our little that we got - benefit synergies bit consistent they there. from The of expectation will be generally a quarter-to-quarter.

through that right we that $XXX we million a ago. $XXX million. that year, $XX roughly few happens, will if the that going get about around right would call to - So - us be million. million to it We're which for as talked months range, That $XXX

we little we and a The was of some say had a quarter so play. capture bit good pricing integration about more incrementally to it getting I similar through fourth rest our pretty where we at seeing seen. the And would those the to than sat synergies. nice ability is feel environment execution, the better activities of efficiencies bit for

of So not standpoint one-time items. got but from revenue bit really any little as well help that a

Toni Kaplan

Would you you more talk And this sort prefer would point? you regulatory leverage, now what ancillary of or can for that given size just acquisition? you you've reached any your would international for bit your uniform expect look lastly an And target services? a versus issues in at little domestic about

Mike Hansen

the certainly businesses perspective, in in Fire, any We have in right tuck-in involved and from that M&A a - Uniform our if be value. an from Aid currently something want pursuing there businesses to M&A in in, So great space, love to we're interest larger. M&A - certainly Anything we in would Rental our and and First at were the opportunities that - we certainly. our a

for from opportunities if and presence density allows themselves. those we standpoint, it's get synergies U.S. like And easier a a geographic have we combine to example, us and capture acquisitions with in present to markets because to here, the it in Canada certainly capacity

where would capture we can synergies. we prefer better So acquisitions

Your example. love came expect the a that issues? certainly at size large any depends acquisition assume for to acquisition, That let's in question we type and look last a the available, do but, it. of space of, regulatory we one If take workwear what of acquisition on

something And people considering, we you look that bigger so many when - would much served have may is a view than that. from business market our be And market considering not we say at others is, be the not that so I may perspective.

we of workwear the space. workwear is compete example, there for in space, in a competition lot the So

Some from of a our retail standpoint. competitors are in workwear

words, workwear. simply other in they sell So

each Walmart sell and Amazon annually billion workwear. of over $X

provide that certain competitors large competitors shipping and are programs workwear space. And they we other to So the extent. manage a They design in and have capabilities.

So through kind there And our launder for deliver, are competitors. we workwear those we manage programs. of we customers. source, provide happened to we maintain, We

are a lot many And And part programmers. so of business of of competition our who who comes no are retail there are years, after our those programmers? space. shown in it for we've But we, no is They year they of market over direct XX% are space. do people you We've sellers. is the year, that themselves. from They space, new that told kind

served let's Now point and we really market. is, much this telling our can in call business - larger than of of to kinds is My all competitors. large it lose opportunity non-traditional the you also those

opportunity understand we'd And it, which have so, want set, and have think space, competitive there - in that's have the be is that to articulate certainly we an we at would we'd to interest, large value, look, is it to we large. to have quite if would right our

Operator

Patnaik Our comes with from question Capital. next Manav Barclays

Manav Patnaik

just the first guess. be first maybe is well full question I walk year us looking your was quarterly any at? is impressive through, we you growth guidance pretty that help My obviously, cadences above ranges and if should there quarter Could

Mike Hansen

Well. Sure.

really have So first quarter. maybe first the we'll with quarter. a nice We did start

little business. you maybe performed comment those maybe - Paul well. give of businesses a more a really bit color on bit on Our those, non-rental gave can but Paul, little

Paul Adler

Manav. sure, Yes,

organic with we've about start like be let's expect We that XX% business. digits, typically growth organic to is mentioned executed single That's growth well. a business maybe So what that high at for First Aid. the talked in has XX.X%. very We

they So in stronger. a came bit little

quarter. lot of the there of a tackling in that variables a the go course, is lot blocking into Of and performance

a the like But where you're it's of some of note, we did of item A quarter. in have business counting the that in on we that kind then of in cabinet rollout quarter. new the new kind smaller out Direct that lapping get program, like a and a of Uniform item direct on trail sale putting you lot in a of - and into for a example revenue Sale going you're the cabinets, rolled revenue,

of So historically First a the product to so a have have of Aid latter that little to year, going a rollouts, is more digits because new great been. and high quarters outlook bit we in continuing the probably where but boost be single for

Fire. an a lot rate easier XX.X%. execution of Again a of service. the they great quality That to business, impressive little sales growth force with organic did that and bit Manav. comp, of pieces of But have

growth their about was think X%. rates a bit than ago X%, I little higher year so

comp. of So a the I some think was that of bit easier XX.X% little

is business, test to fire inspection, reoccurring a often. business, in Fire and extinguishers the two systems, streams. inspecting and et that that cetera. we call there It sprinkler of more types repeat really There testing tends stream revenue and more is And revenue

also alarms type a to little we things we maintenance. when break, in work, expect the larger that that to and repeat. revenue had revenue quarter repair you another don't we And we repair don't bit first account perform But stream and have and than some maintenance expected, was when national have

little So was think bit than I a the typically we expect. XX.X% higher

kind business out other the units. And then finally of rounding

had - was shrinkage fact Sale prepared A growth we might business the mentioned of rate X.X%. actually some in You'll well X.X%. it ago, in growth of a about Direct can't good note the year mean weak, I remarks had rate you the rather - have that

So typically a about X% that's benefited is we've the comp first talked think long-term. quarter. that prepared easier And more our in grower, business I that remarks that a in as Sale from previously of business Direct

Mike Hansen

Yes.

rental our So, going the a look maybe had and that really was Manav the the great when which incrementally bit, partners. execution little probably I - a expect expectations non-rental good would forward. had businesses some bit our by outperformed again a you mentioned at the had to a really rental say perspective, of don't quarter, quarter, similar was quarter. From nice little We good. I pricing performance, fourth

bit benefit year-over-year growth. there. little year first got So, the bit benefit. of a last a was Keep lowest got a organic in little quarter, Probably of our mind, that in

finding the So kind bottom. - we were our still volumes were of

benefit regard So too. in a little probably of got bit that

three see - out you - So as we lot of we don't in of be for inconsistency quarters, a at can the lot one year. look quarter over of from there next the the rest but next growth, don't terms we look of movement don't happen the shouldn't a from the to but know things quarter-to-quarter,

Manav Patnaik

on, But I revenue - of don't if color think needle I terms the starting mover in are ask you just anecdotal any of then in to your G&K know, that And I terms see quantify anything. could looking results? if to you're synergies. the

Mike Hansen

first year. and saw benefit quarter nice last throughout saw the in fiscal execution started we a last about of some of little Well, We bit. talking this signs year,

some we quarter. in a benefits saw of that did the throughout last year see first And little and so bit

I those expect it's continue that go. move any talking we those I and relationships certainly forward in is wouldn't it's do, quarter. we what a us. lapping As them that any particular we're I significant expect amounts don't that from sometimes for educating but we're is as something benefit And cultivate going constantly, time. we're a week to perspective, these But - would we're every we're to take anything nice on we one that significant, them, with customers, visit we know

Operator

Suisse. next with from McVeigh Credit will come Our question Kevin

Kevin McVeigh

to we’re given the interviewing to say point, kind is relative you this not But is and up or just of G&K? at to is average to gross continue point, G&K fair it this relative G&K. margins, Cintas At know to would expect corporate I the to that where narrow

Mike Hansen

you as referred really it's to to, hard Well, say.

Cintas locations. So lot of in legacy a for G&K volume resides example, that

volume, kinds a it that think capacity bit create locations, more has in density little so you us more and is when create there helped So about benefit. utilization, of certainly certainly those

legacy them making have Cintas progress. they're locations, alone of some From many nice inherited rest volumes, of Cintas see legacy to the we not they're but quite stand the would where locations, but

hope see we continue as to So forward. improvements move we to

Kevin McVeigh

with been just expense that any on the side? you was year energy, i.e., or was benefit those there headwind, have organic from would then have a there and been And benefit all would last - surcharges growth don't have maybe it the from surcharges,

Mike Hansen

to we revenue bit our not it's see move and the we a part our little see towards softening the end headwind quarter would eyes a little keeping Keep energy quarter perspective. the as mind, in from though, big We're in no to of started the second I revenue it but softness, bit base, of quarter beyond. of a a We started say the of on space. first in into

Kevin McVeigh

was I I of more sorry, thinking in guess, I'm terms fuel.

get the line. was wondered costs. sounded surcharges. revenue You on it a energy I from some fuel I relief that you headwind saw like if just know don't the

Mike Hansen

sorry, Yes, I'm we have surcharge. a fuel don't

the come So energy, don't the pump was gas, we've here the referring was when that come mining in or pump. in customers, down, our generally, of based surcharges I the in price the see flex we hurts prices at past, prices gas of U.S. down on that our the really you it I'm seen the areas the oil, when prices, the business sorry, to of kind those what gas pricing the

it of rental. as business that said points saw - softening the the from a also a price in we pump we saw XX bit in little of so perspective. basis benefit some in And side customer of we But the

we're surcharge. eyes what don't fuel But our a that's we on. so keeping And have

that. relative to impact no So

Operator

America Bank Merrill from Our next comes Gary Bisbee Lynch. question of with

Gary Bisbee

in this sort revenue ago. about much places but organic the some commentary you in alluded a on earlier the year Rentals margins where to strength guess both of this quarter, and you you easier comp saw business the of had the in clearly I

so business sort that relative fair? improvement portion spring? and were it this And think guess I a may momentum Is seeing more is that ask, just sequential what is you to in significant right to rentals I to past of improvement that of the any be wanted than

Mike Hansen

of Gary, some that, there So I did as on, - we words, think you a I some was yes. think get mentioned other Yeah, your as ago. in minute probably alluded year-over-year you benefit? and comment I

growth still bit the in terms in volumes of and a organic bottom our little certainly there finding there. year-over-year was Our rental is so benefit of

And think - your that's is so think commentary I I reasonable.

Gary Bisbee

And the then anything hearing of is just GDP of bit, activities the any steady Canada moderated though But sequentially are the last thinking in Some months. clients over the macro growth the good. moderating, or in it different forecasts in U.S. few some you to continues she we've backdrop? for goes? as from as Are change industrial and U.S. your dialog really moved around the be a employment

Mike Hansen

Yes.

the of haven't picture economic think noises tariffs. change When of interest around customers continued a about calendar from think quarter our as and - of the would noises do 'XX. about and last we into much around the though our quarters the We - rates, going two results first mid trade kind noises are that. year fiscal show move our heard in we We the

with election so today. noise, be bit from I on maybe much of entering a going our than more there's look earlier summer. change we yet, just eyes customers in where to we while there a in be we're because an say, keeping environment lot haven't much is and little today the cautiousness the it noise And seen our to going We're year would

Gary Bisbee

it of single-digit All the is, versus and And because have a much low then be uniforms this could assumption? the fairly think be Uniform us more Fire lastly, Is growing is really Fire always understanding should give I moderately? quarter-to-quarter, that give in given digit if mix And people quickly And of can would sense, Other that's mid-single Uniform us that, just sounds ask like that reason a I possible, you. lot always was how segment sales? all Thank is just in bigger, volatility grower, Fire you you but a is plugged growth fair growing. Is keeps great? a it type really the that

Paul Adler

Paul. Gary, it's

even more adoption that - break of we that our to FASB have to think provide in caused I I the XX-K, recognition us actually detail. think revenue

the a at and can of business. see last at of my Fire XX-K that is in the XX% mix then recollection like kind the about you'll you this doing time, So XX% and take it. last - sale math point look is Direct the But is time the

the Fire then Direct X%. margins. improved single had the good your business And high add It and digits, that some margins is typically that tried to organic, whereas point, Fire improved business business gross to quarter. around we've is XX% a Fire very color operating sale -

gross more to But that's improved quarter out, we point, the to points But call was. to - Fire and shrink shifts bit I and businesses that actually direct we particular it basis two the and it because mix X.X% of the their you your think the those that that for Other, together grew lump if All in I blends and said. But those sale this that of margins mix that XX fact could parse it by business guidance, move. fact to business cause the shift a the accounting margin a if due the as little

Operator

Weber Our RBC Capital next with comes question Seth Markets. from

Seth Weber

capital, talk just back Thanks. XXXX? you about Do how flip you this for to for you nicely working flip X.XX par last can down it or the working Or all you came it so think think Wanted negative? the about I X.XX capital can XXXX. year? that thinking to year. quarter to or you're ask first think can of Do way was you relative kind to

Mike Hansen

going - are we are growing, our working to capital thoughts on we're use capital. some Yes, when we when working

customers. in-service grow. to new way to because are grow, grow the grow. Inventories is new inventory we we receivable is are want customers and if So injecting into inventory going growing for penetrated to example, to going we're going Accounts

capital. So to expect generally growth environment, working a speaking, we we in use expect

first Now of was larger use than last first year, quarter, the it was our in year quite this quarter. in the working capital

So we we about integration environment. receivable of had disruption lot G&K and of system some in feel the a We we of integration in good where are activity, today. accounts really activity, midst were lot a so the

And so inventory seen a inventory you've usage bit year. a little a an of last perspective and from in-service there, less year an last of

When are more we make inventory like points into inventory. at in because through we of Cintas quickly time going are there which an G&K acquisition we're G&K, of inventory bit legacy a little out types transitioning

didn't in once it pace. Now first a year, today certainly at the that last happen continues all up. at lesser picked but It quarter certainly but

- that's steady so year disruption continued continue a we more grow. first quarter, state the quarter, a expect long first year in was little the a can but bit little to of we bit would this last And as there in use as

Seth Weber

Is a something year like - balance So of it? way balance the of that year XQ through then. the the look about probably fair the last of balance think to

Mike Hansen

Seth, I disruptive areas. have me, in of in - right nature anything - year but yes. We generally of would expect front of the a I last balance don't those wouldn't any speaking,

Seth Weber

quarter. follow for calling just extra appreciate there SG&A, there the then I out up And were the on some you expenses

recur don't those to expect, rest the So would then you assuming be of year? year-over-year the down for Yeah. SG&A

Mike Hansen

we'll pop of expense results one From we've continue it self-insurance insurance, medical claims in quarters expectation. a certainly standpoint, That than higher a where and up certainly time a is had past to Those in - our little is see that bit may our normal. the happen. yeah

labor from generally we bit a leverage that that. things. and mentioned with G&A are of we pleased But little G&A was see speaking, Paul in nice particularly expect down SG&A, side very some to labor, the

have speaking, disruptions do we'll no So doubt. from we quarter-to-quarter. leverage, Generally expect

Seth Weber

kind And then one spread evenly XQ rate Paul, for is of balance XQ? to the one here for last just, the year just of consistent sorry, tax

Paul Adler

stock Seth, reasonable, so of such it's that's that exercises. because option QX an the just that - outlier Yes, is but

for for remainder good modeling the that's year. think I of the So

Operator

Our with Goldman next question comes from Tong Sachs. George

George Tong

back you penetration or trends revenue trends. with stops say the programmer due no would of competitive adds, the versus easing market traction Going in to How to acceleration the organic of seeing? is much you're that improving quarter

Mike Hansen

good Yes, that of a a to not business continues from reps really was of new from normal standpoint lot our George, no a strong, business, quarter programmer performance. the new set be within productivity good. difference from And was

new growth From lead adds, continues to effort. to really. stops out the nothing call So business

mentioned But, in we in what the fourth did quarter. as I the earlier, pricing to quarter saw help similar

well. little certainly bit, a So that in year-over-year regard help as

So real from little execution help, partners. pricing nice sales bit real of nice our productivity,

George Tong

segments. of negotiations to are continuing latest costs gross margins thoughts elaborate around your you improve your Your are how your business? on and across impact what Can evolving on input are the the trade

Mike Hansen

Yes.

at this but creating material tariff we a conversation costing of impact So for from seen point, I and much haven't a impact. lot trade the conversation is it's of and But customers our certain still seen and more now. haven't standpoint, a than extent. noise a to of uncertainty change right lot It seems us like an

whether a or period it's really our a from garment over the us quarter. different helps. a cost over or that seen talked this no in say call kind of Labor, course it and a we've anything mat, the that pressure amortization I a year, costs didn't of material from new and time, material last mind we've would see in regard. pockets, the most Keep costs of in some some smooth It's of of out get helps that out. amortized bit life of to But those period life natural perspective, of hedging the

Operator

RW with comes Andrew from Baird. next Our question Wittmann

Andrew Wittmann

couple a I questions clarifying of maybe just had here.

rate tax you - the obviously on I guys just First the guidance, think low. was

I guidance element that of the We to rate out just tease think be your expected total low. how rates it of of don't was just or much raise expected incremental to quite part the here it to you wondering be the tax expectation? this low. I'm versus guys prior

Mike Hansen

you've impact Yes, - look, the we that an of about impact. year, for it - say out is of in control. piece probably equity role talk in a here. heard out the that first and the what played Well that of $X.XX the was impact, kind would the about us of so kind $X.XX about I of that's And played quarter quarter of speak the our much that

Andrew Wittmann

rolled we just us talked or the of past thoroughly end stand just about out of the either how at in you that then on Mike? update is. where the rolled as where we well to kind quarter today, how And SAP, or out Can were you've

Mike Hansen

way complete we're - about now. It's Andrew. of the XX% Yes,

the And year. so implementation we're end fiscal still of the on finish track by that to

Andrew Wittmann

then just for And here. other detail

did bought amount total of the the quarter. pretty the how in give authorization and have in some on number buyback you remaining shares you good that you of that is place? much You in Can currently

Mike Hansen

Yes.

have During bought well, We the we under shares done Keep $XXX left on July call. the of that $XXX XXX,XXX prior to was - just our authorization. for million in million. mind that all quarter, we purchasing

on the So gave it not guidance was you that with impact an - it did have we today.

Andrew Wittmann

I then just question the other around had specific And guess I labor. was only

plant-level is well. there any labor I you've that is if with be you're how there the to guys as of an labor today, SG&A plant, the it competitors, You but by little that been was this that's area something in talked a cited your you bit your for seen of more been the have savings, but with? kind wondering gross marketplace changes in dealt if margin talked some in about and about just has dealing maybe

Mike Hansen

Well, as partner thing to you're change. is environment. our we pressures bit possible. - particularly got pretty in low can competitive we've didn't that. turnover turnover and And talked It and I as best is, at plant say, We've there production a our that in we would of And do a pockets see successful environment much little remains right. the do about here been and we keep a -

not change quarter know, course this I compared the So much of a over last the we've of what seen in to first year.

Operator

Nicolaus. Rosenbaum from comes question next Our with Shlomo Stifel,

Shlomo Rosenbaum

lot entertain, force of company that is that M&A for ever be something there Or a synergy you? is had a the talking non-starter that is in potential? labor a you Have You're you would about that that guys would purchased call. earlier if still and something unionized

Mike Hansen

Well, a make creates of challenging. kind union acquired things about certainly different Shlomo, culture, to more to capture different G&K them. union and of XX% can A environment, bit environment a a environment when had operating it synergy type workforce tend we little those

of would with the the You synergy - look hard heavy and But than does capture it there we know And opportunity. a consideration. more it, good value that's we'd value at And something end at component? day, consideration that's take of complicate so a to evaluate is else. the union a part around because have the conversation a anything

Shlomo Rosenbaum

right you not any stock hear did call? I did you buyback the last more that then, earnings after And

Mike Hansen

Correct.

Shlomo Rosenbaum

- - potential companies And the that a is then - that could there something buyback is a something leverage just to that that assumption be target to usually is and intermediate their out unfair level you usually consider that term? there, below stock in there the for make usually the don't is when might is an level near us

Mike Hansen

an that's business. go We kind different business, as executed back look performance of buyback and of at the looked the of by that we've over consistent needs quarter-to-quarter years, at are course Well, Shlomo, not last as the And bunch a design. you at investment the look the we've of the We if opportunistic we XX from things. of program. always

and We a consistent that at than like not look not have consistent way opportunities M&A execute We we program. And that. horizon. in more being of history I on we that I'm buyback at look anything sure on the look things the upcoming into dividends

Shlomo Rosenbaum

really you're at you of kind whole out expansion the like building margin leverage in business. lot investment if terms look on a Safety then that of growth, First just going there not of had Is anything routes there. of or margins that The a more not was lot and And here? good Aid the seeing

Mike Hansen

Well, margin being up we real gross points. had gross margin a quarter XXX basis with nice the

the in space. And right we did But in from are with we and so that invest investment you're invest standpoint, SG&A continue continuing in routes growth, we're capacity. to Shlomo, to really an

we SG&A We really are bit to do mind, XX And so do by also an last continuing a see the they medical. was right, year. like in invest And point headwind. But it. that to elevated in basis that compared about we Keep you're number business. are affected little an of

Shlomo Rosenbaum

So get And do quarter going for days you mind quarters. we the that year-over-year? over in each just the straight three next

Mike Hansen

fiscal let's in And to year. then, compared Shlomo, of each this quarter see, Yes 'XX. XX it's

QX, XX had QX. QX in XX and then QX, So we XX in in year, last XX in

Operator

will come Our next very much. question Thanks from Scott with Schneeberger Oppenheimer.

Scott Schneeberger

third Is still just quarter. you Thanks. nice And I that affect just which markets fourth changed on bit pricing, you've if want end quarter seeing of competitive you're Could in across you the please. the a markets, where end the dynamic solid, that? mentioned or speak improvement. little to delve little improvement also there from to to hone I any at when from in too, specify improved has segments more a least that's pricing a could bit

Mike Hansen

market market out So to of from an call market by - a perspective, any significance. from end and nothing

are the to when it the us on. environment so to pricing capacity readableness in pricing they see that going do bit bit and When years. of rental You've heard they we businesses and a a tends well, have little generally more the add performing little talk over business limited of a about environment, little the growing bit are

why at pricing We to good pretty our think times a be also of articulating appropriate. job do can I customers,

pretty so And think well. good been that as I execution has

think a So marketplace, combination articulate the environment. of of nice to health our ability the to I has combined that

Scott Schneeberger

how great. would out what from any be you new cross-sell services. that and and share could deploying want great? if that cabinet the like be a effect to and would Q&A, on you were in response have benefit following up are bit. was, you G&K and the just into opportunities you I that about was doing And with that you doing if if Thanks. just But in the there, item rolling curious, a servicing And lumpy item new how question new with tapers are seeing how could that - in early a talking offerings Manav's because you're that to follow-on tie on,

Mike Hansen

are We and investing out that have speaking for course always that call can last like do and say generally seeing we'd but item, And, the benefits year. customers. over value for we opportunities specific some generally I we looking our ancillary not add rather the and we're - products but some would we ways cross-sell speaking, of

was this nice in case, it a benefit. so And

didn't where our roll-outs Sometimes create businesses. year, those happen to like ancillary and terms a particular happen our are they when last terms the those we but in ability quarter of in occur, can products in be within of lumpy we

safety, we've the many had nice ideas G&K umbrellas Cintas we've and as success. some - customers, to as our and image last when and come some able course That's of been talked what like and legacy into had we about cleanliness we're unique we've up of legacy for broadly compliance - times that with think customers. sometimes, year, that pretty go the some customers the over success We've nice and well would with

Operator

with question next comes Securities. Our Andrew JPMorgan from Steinerman

Andrew Steinerman

amortization feel margins? a It's Andrew. merchandise quick wins, do you it And drag a comment the tailwind in strong was give headwind new amortization, quarter? Could forward will more first like to or the you on a merchandise of a going be given

Mike Hansen

the right. to quarter. during nothing was call Yes, regard there that out No, in

it into a mentioning we've create ago as move new an are and say. year some but I in less a product amount Andrew, legacy see injected as customers, where to rippling earlier would we bit forward, that going today interesting G&K decent can Cintas that time little of I was we're a of than We and of

a to call we hopefully to business, good we'll would continue of inject at pretty nothing going say new As again, we're and move rates. I to so out. sell, continue to But lot forward,

the are the and managing in-service managers well. Our pretty inventory

Andrew Steinerman

customer the there? me, there quality I a that is G&K uniforms as do upgrade you Can into notice base, ask - the inject, excuse Cintas inject do they

Mike Hansen

would when like understand the are and inventory, functions think features we functionality mean, our point those We they in to at the our that so, Andrew, features the look And to inventory of have. garments the people out and I certainly trained the we to customers.

doing as those that the certainly are So prominent and features customers I'm we and as our garments and long introducing those expecting of functions introducing them, job notice.

Operator

the you. thank at right, are time questions queue. And in there All no this further

Mike Hansen

tonight. us you for joining Well. Thank

results issue with speaking will in quarter we our you We financial Good speaking again look time. forward you and night. - that second December at to

Operator

concludes Thank gentlemen. ladies you, This today's teleconference. and

You may the of rest day. enjoy disconnect. now your Please,

Cintas (CTAS) 25 Sep 192020 Q1 Earnings call transcript