Cintas Corporation is Looking Sharp While Outgrowing Earnings Estimates

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Source: Cintas.

Cintas  refuses to give props to macro factors as it toots its own horn following continued great results. But that's good! It's better to have a company that is leading the pack in an industry rather than merely keeping up with it.

Dressed for success
On Sept. 29, Cintas reported its fiscal first-quarter results. Organic revenue increased 7.2% to $1.1 billion in the period ending Aug. 31. Operating income soared 17.1% to $163.5 million, with earnings per share of $0.93 (including about $0.15 of one-time gains). Revenue hit analyst expectations, but adjusted EPS of $0.78 beat the $0.75 estimate.

In the earnings press release, CEO Scott D. Farmer credited "continued good execution" by Cintas' employees, whom he referred to as "partners." Farmer continued: "We have focused on selling good, profitable business over the past few years, as well as managing our cost structure and continuously improving the efficiency of our processes. This focus has resulted in improved margins and better customer retention."

Source: Cintas

Promoting the guidance
In the earnings release, Farmer noted that profit margins improved in each of Cintas' businesses, which include manufacturing uniforms and fire protection products, the result of better efficiency and more leverage of fixed costs spread out across a higher sales base. While he gave no credit to the economy by referring to "inconsistent employment figures" and "heightened global uncertainty," Farmer increased the earnings guidance due to the company's successful efforts.

Just two months ago, Cintas guided for fiscal 2015 to show revenue of between $4.425 billion and $4.525 billion, along with EPS between $3.06 and $3.15. Now the estimate is for slightly less revenue of between $4.4 billion and $4.475 billion but EPS was raised materially to between $3.20 and $3.29. Analysts had full-year EPS pegged at $3.09.

Look for guidance to continue to climb the corporate ladder
CFO Bill Gale might have let the cat out of the bag that results will be even better than the new guidance. Discussing the new outlook during the Q&A session of the quarterly conference call, he stated: "It could be a bit conservative on our part, but there has been ongoing inconsistency in the jobs reports. We still are seeing reluctance in the part of many of our customers to expand our operations, to add employees." Gale seemingly excluded any potential benefit from gains in headcounts. He said Cintas is growing mostly from new clients rather than higher orders from current clients, and also from "a better pricing environment."

Source: Cintas.

Better pricing is code for raising prices on its customers. It's an excellent sign, though Gale cautioned, "I don't want to create a belief that we just have really skyrocketed prices we haven't, but we certainly have been able to get more of a price increase than we have since the end of the recession."

Foolish takeaway
Cintas is gaining market share by landing new customers while also seeing some pricing power. If the company is doing this well in a sluggish industry the company could improve operations if the economy improves some more. A bet on Cintas is a bet on the job market, along with some downside risk protection based on its excellent execution.