CTAS - Earnings call transcript Q3 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.

And at this time, I would like to turn the call over to Mr. Mike Hansen, Executive Vice President and Chief Financial Officer. Sir, please begin.

Mike Hansen

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

We will discuss XXXX. our third quarter results for fiscal

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

out -- is of can't and doing coronavirus. can that to they by for COVID-XX the enough we challenging who business us our and a partners impacted our all of say partners we discussing Before workday. call I all go for places the want clean keep our to those This financials employees for to customer's and all time of ready safe thoughts that our

economy. results our daily. date increased We response and the to and ourselves seen of the uncertainty revenue guidance currently to we of it to A involves the our impact year-to-date on each haven't on find our relates state week ago country impact peak much and expecting were based pandemic's as at and The we fourth-quarter business outlook. EPS

of likely come. to a much However, are has in days and changes matter more changed

certainly focused the employee of quarter this providing and safety severity we're of though guidance fourth our on and the care our this duration remain the the We customers. of not Due at and to fiscal time. XXXX partners of pandemic, uncertainty for including well-being the

and will results questions. for we it providing then quarter open up third our So

operations were or increase year's billion $XXX Free integration continuing year's $X.XX expenses. over quarter for last G&K quarter. third of XX.X% million cash third diluted fiscal per share $X.XX third XXXX was XX.X%. increase increase revenue EPS flow of over Earnings was Our an an X.X% of third quarter for quarter from year's last adjusted an this

The growth and first the growth rental workdays number operating of the organic exchange third and in foreign uniform for currency aid segment was XX.X%. rate and X.X% safety the and services was the growth organic which fiscal the fluctuations 'XX. impacts differences services X.X% acquisitions, the rate of rate rate of for adjusts for operating facility segment was quarter organic for The

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

'XX income the reported of and Net continuing diluted was earnings share fiscal $XXX.X $X.XX. quarter operations from third for per were million

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

strong and In financial addition increase effectively flow to commit solid continue to the value. shareholder generate we performance, to cash to deploying cash

increase $XXX cash to XX.X% year. an was Third of quarter flow free last compared million

XX.X% per annual we In dividend paid million. share over dividend. of $X.XX dividend third The year's $XXX quarter of an 'XX last was the fiscal an annual of totaling increase

authorization our as dividend, date $XXX.X we annual stock million amount remaining to is in Cintas' fiscal under purchased the buyback to 'XX $XXX billion. $X.X March. The addition million In including in

third G&K free rate of increased integration excluding year's the X.X%. quarter third EPS X.X% finally last for XX.X%. XX%. special our last ended XX.X%. organic quarter with year increased of increased income items the to year's And fiscal an expenses and adjusted date We year-to-date revenue growth Operating cash growth flow

Our employee a this great job really have partners done year.

over With third will Paul additional details the for results. quarter for our call to that, turn I

Paul Adler

Thanks Mike.

reportable is other services included of and remainder direct all and rental The operating and in other. We safety business have protection segments, consist facility two uniform our fire business. services first All our and uniform sale of aid service.

First aid and and as presented other services the on are combined safety and income other statement. all services

the The products uniform and items the other sale servicing services' the customers our and catalogs to from operating X.X%. also rental facility uniforms, of our facility increase services. revenue and an billion on rental of route. was $X.XX and and This mats supplies services rental facility of provision and includes restroom segment segment towels includes Uniform and of

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

from segment facility compared the rental G&K. the for services' XX uniform including cost many and year's third margin an gross for of synergies improvement Gross was quarter last to of growth and of points. third XX.X% XX.X% realization revenue Our acquisition reasons in margins strengthened basis have strong quarter

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

benefited lower equipment service, difference aid and protective gross quarter due of personal revenue to organic training. the in in in mix the which gross third safety sales, last than segment strong categories. the margin revenue growth XX.X% year's first product to more quarter. margin The third was other and generally revenue margin sales compared product in XX.X% from quarter, which The The was consists have

Our uniform sale category. the fire in and reported services protection businesses direct are other all

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

XXX rate of revenue Fire down The national struggling was retail the increase a X.X%. business The an organic million was growth organic X.X%. X.X%. that holidays. $XXX.X of way loss repair was stores was of in the mild by and by sector revenue other service less resulted in productivity closing that over recently disclosed from water sales rate Christmas All revenue decline and New freezing a weather Year's growth rep account winter by the bursting fire in through sprinkler and pipes the

Uniform direct year Carhartt gross All XXX growth and and third XX.X% third XX.X% was a fiscal expense in benefited improved a the Fortune as margin additional and fiscal of quarter last 'XX. quarter other 'XX sale was in of a quarter from year. as XX.X% G&A third a business percent customer. this compared garments Selling organic rollout to percentage rate fiscal sales of branded for of quarter were XX.X% last year-over-year. the to administrative expenses XX.X% revenue of the labor of revenue from

of XX.X% Our events, move effective rate compared year. last to 'XX on compensation expense. period quarter including of tax from can was stock the rate third XX.X% The to continuing the fiscal operations discrete amount for on tax based period

Our and amount February in $XXX.X unrestricted. XX balance as of cash States that and equivalents was $XXX.X United was million. the million Of

million. third the Capital expenditures were in $XX.X quarter

inventories, rental Free aid other. flow in cash as Our flow in CapEx receivable, $XXX.X improvements strong and earnings and segment all an was in increase was cash million, in growth free working $X.X and follows increased because and of by and first services, million facility million uniform Year-to-date in of XX% other year $XX.X accounts and $XX.X compared million operating particularly prior period. rental to payable. service accounts uniforms capital, the items safety

sheet our XX strong. balance February remains of As

next EBITDA. XX debt material We've no times Our leverage the of two an to maturities years. and X.X months was no billion, $X credit in facility maturities debt the in untapped next debt

our remarks. That concludes prepared

to happy are questions. We answer your

Operator

we Capital. have with [Operator And Patnaik instructions] first Barclays Manav

Manav Patnaik

gentlemen. evening, Good

that's the forth. your help light restaurants, us all Just perhaps a of stuff in of with bit could lie terms on, more lodging exposures and so may where detail going be little in you whether

Just a a there. know at magnitude was it I help of XX-XX percentage in with or what hoping are of you risk whatever that us go is. little revenues really we color bit more those least like could could versus at

Mike Hansen

about bit to into base of I to our revenue the peak so that of from weekend service diverse providing through future, but being uncertainty. businesses, from retail, as let didn't are understanding we're different really go mentioned a we these we ways. XX% industrial, get We're trying and at very about XX% me We're all going remind customer Sure of Manav. as you, that We're healthcare, have earlier. service, affected this our week distribution we the hospitality as ago, better -- and really impact a a much of a service centers, food and in include of the revenues providing see

need our chemicals, our white, for us our healthcare If now. need need need They our protection. they they example they you really scrubs, about cleaning they need fire think microfiber

about to as are. we restaurants, are this little need They going are a learning to open closed, needs what of visit to some some still needs? safety we're only hygiene understand take works, are some them some products may week, their out what chef staying for but think it's So and carry those bit time

of collective think any keeping of XX% nice Office to because we're we very of we provided than we're digit that business there terms you than like they now so personal much and impact better the and it's three protective seeing casinos codes. our in arena in to more break the first three and if then hard and greater and about I environments are it think gosh they're digit but in those so some really understanding hotels, to so early you aid the equipment midst the details about have mix down looking to our process codes, movement gloves safety, ever that Manav business are clean in of and stay doing mind don't in revenue in just addition right

as per I keep revenue geography about talk it's mind today. also from to But in different geography quite vertical,

to the the we're about the businesses business get little -- of verticals on if there those clarity to the different middle on bit more think So country businesses of us some of kind really yet. same that coasts, time in it's and severely to are of may they be those the is in and so impacted not same than you the going collective a this for impact take just

Operator

Thank you.

with Next we Andrew Baird. question have a Wittmann from RW

Andrew Wittmann

down lot I is is and and of the by treated work ways but impact are this Cintas even gotten by different get shutting customers those question different for know that they small the what shutting that week customers Great. categories that are such know does we financials? what down, a things how there's your customers, how A and large says customers maybe how when closures to customer affect to contract end treat we've you probably market Thanks. happen.

Mike Hansen

we're said, all and that clarity I working as board business we're semester and going not at it's Andy shut manufacturing normal charging on but of good of question other right. a still garments to great down is gaining we still for over example in be may a environment a it's a shutdowns -- normal a good are of the week we the environment that. products. a may is a That rental have there, and That holiday a example means and breaks school be This

said right What are long about don't maybe versus through couple and we're they're do do from different right in what needs businesses that But closed the ago we it's them they be understand going so to small and they be of kinds and clarity. now is all so of today they our think over to closed now verticals Andy business how long think to were we're businesses quite and many how have of different from different and geographies and board know. the the be where going weeks I working a you talking will customers gain to as to large

Operator

Thank you.

come question JPMorgan Andrew Securities. from with Our Steinerman will next

Andrew Steinerman

Mike. Hi

it Let me a give try.

moderate when So that cyclical sense decade group delay looking sense a is my of did actually my you until fiscal look Cintas fiscals those on over kind your and like of you wasn't XXXX, the really year declines and and two a kind the it per have for about uniform It XXXX X% is organic was at at up. years. business rental XXXX

a the that more So described think it's like to will described now be think or delay you good that do be recession. last my question I you you’ve really is do immediate impact

Mike Hansen

have We've think going simply not, this is recession or be -- the normal schools. this not Yeah to a there's recession impact have is a closed we like right. -- that so their Andrew got be have I close to because even great so businesses to been ordered we is have XX more going and many immediate there states

XX like They municipalities. it's of restaurants. business of I closed customers of their and think them chance time had over going on to of not Many That's even unprecedented are orders out the our or reduce are kind workforce. another over states their have closing.

And so a there's a through we in impact. look and and be bit for need a provide pandemic seeing really What this -- haven't of XX that Cintas certainly We've little the of we so been immediate one reasons there it's seen more is running hard did the pandemic going going that in years of -- we're clarity. we're to things we little a of to the that never time business is tell. really be guidance to impact, not

coming a but we why impact and right to week As not did now. I we guidance to too why because that's haven't an hard it's of provide just tell said that's of much impact -- as be there ago, seen an

Operator

Thank you.

Seth Our will next Markets. come RBC Weber from question Capital with

Seth Weber

that following shock. Mike XXXX questioning, seems impact to what rather think like just be I your trying guess just read up of line I margins on the saying I mid-XX%. it guess sort in of you're could were decrement

the thanks. we from was you're about you growth that where So messaging, above what in levels of of organic kind kind think framework, margin time detrimental should down that were a last

Mike Hansen

Sure.

of think of this need we mentioned if the right we times how fixed and bit severity we around this, So through manage of the and the I've the it of will a clarity the duration? is fair really this the versus clarity a and right this more a is and what's amount and depth there what's the relates as -- last, number variable as -- little disruption and can what's will now to this how uncertainty how what's breath about business long

not severity pretty because start long, into year. of performance next aggressive want don't we but to to we don't long-term then believe the high as be we example business the If opportunities that we move the the expect the may duration very is last for we to the fiscal harm as and

time take our some into accordingly is we'll may so As longer need going variable feel then to understand a if to to we the we different we severity be and expenses down bit going to expectations those to we're go are like duration of and steps manage what best that. this, and pull of little for duration

a CapEx adding you only we are or those here tell we business we of we sit for we've would I that as at and slowed capacity growing to a generally and as and sit have can for today, been I today adding things have long mode routes here are and laundry time the least not essential. in we example

CapEx. alleys, looking that's routes words other reduce we're looking our right reduce and And -- to so capacity will now to add processing wash We're in CapEx. not not that facilities, new going add expand to open extra

flow, duration. cash to we'll are duration certainly bit help long that we differently that that -- the a we expect adding three so here than into back like longer-term people so today a is likely staff on hiring the first we're little capacity we can bit certainly going and more period isn’t we aggressive, but what the there lines feel term growth likely treat we that a this those things the to those short routes, to that new to do those to in the means to is being a then and are relates was staff it where going it for Along and can and be disruption a quarters if say to be we pull as are get -- little won't

Operator

Thank you, Sir.

George question next Tong will Our Goldman come from with Sachs.

George Tong

to and Oil prices prior expectations this manufacturing factors XXXX recent XXXX to the differently what sharply industrial could in and your what cause to have potentially are downturn downturn? weeks, energy contracted Cintas compared verticals for your perform during

Mike Hansen

was piece if think One, I vertical in last at the business today. as us time prices gas I'd lands help lower our than only of that the of of the the oil that say as George and beginning gas a at things. on not certainly downturn and will looking a will so big smaller it we this did us Well it's and an impact last of have couple were then it

as that performed And to we looking tell vertical particular so just in what's and ago think compared do on and broader several few years that just United or this well, fair how verticals, is so if we're in but certainly think that lens at hard well lens going did the of during to really the maybe be we is rest one the it's of really broader, going one this a to I we exactly than that States. we

Operator

Thank you.

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

Gary Bisbee

high level the would Hey. actions Good you at other would be you. a afternoon. it to that versus actions just could In what at if that didn’t or us the you you reduce and two. take of actually about a are this but actions cost shot longer may question the Can take you cost, of referenced do there earlier duration the thank kind variable mix take? give you just decide fixed be are headcount Is

Mike Hansen

and off with business biggest to question we to so because I'm is you're Well I there immediately, really the so throw have business. are turn total the that our immediately managing some of you me number variable can think -- give are manage I to do off and where them costs want Gary if to we the we think we're want not point dealing where you to as them the it's to you out percentage costs variable many question there for think they and business and will cut don't the it in business. the bone we responsible just our about variable The we're variable long-term turn that's a

So a soaps. the lot of When about of let me cost cost disposable though. some the give you products think got material you business, we've paper of examples like

we We variable those not selling business we're our sale have highly those are have if them, costs. like and direct catalog don't

but bit for of on have or energy capacity also the and running on. the certainly may back to that and variable gas, it also trucks, depends there's water a how of much We for water just a that, gas the fixed energy, facilities. There pull we the is our of not a component decide

Then if there you labor a different our drivers costs. there think variable cost of we lot pieces a and about into the that think about so are capacity you laundry then the including when capacity that and our route of lot are of got go

a goal that sure Our duration we there longer other remains that so strong pieces certainly long growth start see and and to we will do a business do. to if the then little expenditures of make our capital is on term pullback harder like some things what are we for even

We have we'll and to the understand make capacity want through knowing that. to attrition we sure may that through manage do some things we and utilization

that the recession. for not term want until is a back the and different duration to. don't but close we do longer impact a 'XX we little the bit potentially facilities was of long go business bit really little -- It we but that you that. we This have was was than to know a period If did a 'XX, to and deep, just

Operator

Thank you, Sir.

with Our from Mazari Hamzah next question comes Jefferies.

Hamzah Mazari

structure contracts changes. closure goes I clearly could little if on see headcount a adjust more if right if just but how do provide is customer that detail what mean quickly it's your Mike, permanent that a by your to you away, a bankrupt you and contract just

your is may Just that any the but I absences lead how be sense defensive business. to permanent. to as realize impact specifically what's your lag portfolio changes headcount don't

Mike Hansen

to we're are generally provide of a stream revenue there and some bit conversation Hamzah level time is contracts customer Our of take little in a and so different and what minimum to customer little get by contracts of to and they require today generally of through. going steady makes be about bit for five-year that time sense a a but a we that's revenue there's going

remember of a else of not of This abrupt customers different closure this is again kind a our business. kind an normal of trending something the is business. lot down but ramping This about a of is down let's

there little that many number mentioned are As a -- be products are I of bit want need lost. businesses our a and services there that and don't earlier, really I to

areas need over us even impact coasts the understand while been of municipalities customers but are and though been provider to going seeing so our our there within other do some There be particularly essential what to to collective because let's that in and an an as we to have care everything be keep course the we're a going next them. they take and on shutting impacted businesses of are going going customers in identified others need may the that of and country us, we're we're we are we we're couple mind to in can really negatively, need few down, the weeks, operating the increase

-- little So a mix we're some bit and clarity. take to to it's and it's that understand time a of going give going

Operator

Thank you, Sir.

Tim comes question Our Mulrooney William next Blair. with from

Tim Mulrooney

Mike, 'XX but to if last organic sales to out was did pricing for trying different new rates deterioration the due recession I'm figure you very back is not, example? mid-single forearm but how or retention the customer how much that broke remember through retention that out if look to go period. you I and in in of understand customer decline I 'XX digit a this that versus can't and we're

Mike Hansen

retention that be going We headcount. but that more than going actually It's little to very do -- did going our our good. of a impacted speaking was about reducing and number, And some I to business of business just have so normal businesses customers to retention contributed think is period of think The possible bit loss to there's have be a of lot that good out was to periods negatively It of to our much. higher customers disruption ourselves more really certainly retention generally business, their outside not through. was we work I attention have here. go that

it think recession. prior abrupt quite be to a careful about comparing destruction have different pandemic but will look to the little we This this see a immediate. country boy get and back I as long a last we a more to the The operations, and question in can this going XX-XX bit to that's we like is is if have we be to first. next days, normal forward through and to is getting what that how looks

Operator

a Rosenbaum Shlomo have Stifel we with Next Investments. from question Nicolaus

Shlomo Rosenbaum

because Can growth work? those go per month. contracts you are the talk safety about business, contracts has you how wise that a a wondering safety revenue, many bit first let's Can aid that just been you how charges about of are more like percentage those portion into consumption-based for your contacts kind and contracts little first very good are primarily a they of say or recurring of

Mike Hansen

-- based tell ways requests equipment. is performing very well are recurring performing there very bulk need business the you of for that for consumption-based the more you for to are imagine customer well of now business the that we're those some and year protective Generally very, right I whole is and would That's a can help. on the has a getting sanitizing is lot with it as revenue streams. personal

help quite the got products have that risen couple cleanliness those have and the perform of will we've I about areas the in today, safety of a last asked and weeks lot a needs and those businesses bit really and the services well. for the been many those and things over of aspects course expect think that you When can

Operator

McVeigh from question Kevin with Our Credit Suisse. next comes

Kevin McVeigh

so you get mix sense give was and then been out, way just just there bit bring interior, not any business the Can the Washington geographically? how just little a or week much to York, little of so revenue within way only last a just the sounds context New of the to a the on any week client that's weaker came off trends because there a like is the kind us that or California, than it to geographically about maybe any thoughts last trends more think it sense is but but and what

Mike Hansen

to the last uniform week -- been we get a start to down customers orders through impact. our Kevin there. see There lot difficult. and all coasts the the come have the didn't and much the last hard direct Unfortunately business revenue. direct as streets can start that In -- our but was signs, the we to Rochelle probably so week see through was sale incoming that disruption sale did early they're impact New example of in on to not Guard been for you so of imagine National to the patrolling some certainly with That's

to as through. wasn't that's our start I move to on that week we customers and difficult are as get well, impact. expect week the response when move next an big certainly need will the impact this what as some it we collectively see then of there that been but start of through rest Coast have and initial others There in of on West go might to we we be a clarity little be to we're the able to what's and as going that

are to all like customers those where are there. conversations different And need there through -- get increased. conversation There closed to needs who going we're though. there going others have We to be there's different to and going talking be really a about said a have I be some

Operator

Our Co. with next question Schneeberger Scott from & Oppenheimer comes

Scott Schneeberger

the trending but you to think your at million was trending I guess date, about this for year you’ve times, below you're year same my alluded last at numbers. looking to I did your it CapEx a midpoint the year few guidance as what $XX just

and care to think more would the So had already into last with I you just delve you taking it bit been or a some regard action little over months. had said I weeks be you’ve CapEx what seeing

well of would a what thanks. basis on about thinking in on delve a as be little bit go kind more you just So forward

Mike Hansen

a I mentioned some to of very reduce recent when that's decisions conversation. Sure we've type that CapEx made very,

to gotten projects We as I and the are think we've through per are about we've in the are within pretty we've and love efficient some the has routes some a deal revenue would the our efficiency facilities prudent been so mind and keep year. expanding look, we -- more we through we route to and CapEx, routes say been become growing gotten we've efficient when little going bit business and we the and the in we have necessary been -- capacity but and CapEx G&K so capacity, we've also grow expanding throughout

But been said let's million that probably at clip a forward we've going $XX and down that's half. quarterly certainly by million it $XX come having call going

very about have don't going don't I come quite bit it's to -- I a as but down we a measurement quarter. the think have Now scientific a fourth

Beyond to the back get for severity and duration the to our of fourth quarter it's expectation this. going

Operator

the queue from Our Kaplan last comes Toni Stanley. question Morgan in with

Toni Kaplan

wasn't Thank you organic going since really impact from question the ask It to you Can hadn't less take deceleration within the the it the save to seen coronavirus uniform an the a rental I last. space? road yet. growth that talk quarter. travel to about sounds related you like then best am for about the

the deceleration So just what drivers main were of rental? Thank you. guess I that within

Mike Hansen

third we We've in up last talked a bit a that choppiness over the bit that we've quarter. saw seen in quarters pick certainly the our little about industrials little and two

deceleration whether has did a that's our the early do that quarter, sure in in business finger really that China bit contributed see a this, hard to of around choppiness put the there. uncertainty not the little of or we to certainly to on, but Now some and of parts the side with

Pricing week and time that in bit appointments. bit taking the have appointments sales a in generally holidays in you talked holidays a quarter people hard that this the back off you've a think or We third about hard here mentioned period aggressive quarter. so customers was you've set in speaking the setting call of whole in on Wednesday Wednesday, our a the a two to about more a you December, of out, because are and it's quarter on and second really two-week little if got holidays quarter where remained got second many what the our really it's tough in I the and time

so also was rental a well. in and And productivity. bit some and did a mentioned impact see our that to of as Paul fire contributor rep in we sales

collectively saw things we're quarter. So we what third those in the

on aside think pace well to and set manage healthy we and and pretty the get has coming, this. disruption our Let's is while the very pandemic, business the been get really of once at to it operating execution we're we like a through we back through that the poised business

Operator

session Thank and for That to today's remarks. call back for Hansen concludes Mr. like you, Sir. question-and-answer turn the I closing to call the would

Mike Hansen

the to comments. before call, would and final you ending we like couple you Thank leave a with

of the thoughts say with the over that to quickly as the with situation strong income possible. remain someone by to very our XX performed But as and well again those works this secondly, For business course last revenue, as difficult EPS impacted has our country get COVID-XX growth. years coronavirus our through

getting fact and of of excited and we're future grown last business with profit partners our of strong the Cintas of meantime we to credit business XX although back to an entering we period our solid this forward disruption, look XX a in In opportunities flow, very well-positioned as uncapped sales a enter and remain In are the the and years balance we've and $X sheet usual. about all to a facility. billion disruption period cash

and through to manage our business. the So other a ability out we very strong feel with good come side about this

for results we in that time. at look We'll So financial again forward with July thank you our tonight. speaking and to fourth quarter us issue joining you again

Operator

Please today's ladies and you concludes day. and may This your teleconference the rest of enjoy now disconnect. you gentlemen. Thank

Cintas (CTAS) 19 Mar 202020 Q3 Earnings call transcript