CINCINNATI, July 15, 2014 — Cintas Corporation (Nasdaq:CTAS) today reported results for its fourth quarter and full fiscal year ended May 31, 2014. Revenue for the fourth quarter and for the fiscal year was $1.16 billion and $4.55 billion, respectively. The fiscal year revenue of $4.55 billion is a record level for Cintas. Net income for the fourth quarter and for the fiscal year was $127.2 million and $374.4 million, respectively. Earnings per diluted share (EPS) for the fourth quarter and the fiscal year were $1.03 and $3.05, respectively. Fourth quarter net income and EPS figures included a positive impact of $32.9 million and $0.27, net of tax, respectively, related to the closing of the previously announced partnership transaction with Shred-it International Inc. (the “Shred-it Transaction”), which closed on April 30, 2014. The impact of the Shred-it Transaction will be further explained in the Operating Income and Net Income Results section below.
Fourth quarter revenue of $1.16 billion grew 2.5% compared to last year’s fourth quarter revenue of $1.13 billion. However, this revenue growth rate was negatively affected by the impact of the Shred-it Transaction. The table below labeled 4th Quarter Revenue Results shows fourth quarter revenue for Cintas, separately presented for revenue unaffected by the Shred-it Transaction and for Document Shredding. With the closing of the Shred-it Transaction effective April 30, 2014, Cintas will no longer include Document Shredding revenue in its reported revenue. As a result, we believe that revenue unaffected by the Shred-it Transaction is more representative of the ongoing revenue stream of Cintas.
For the businesses unaffected by the Shred-it Transaction, fourth quarter revenue grew 4.7% over last year’s fourth quarter. When adjusting for one fewer workday in this year’s fourth quarter compared to last year’s fourth quarter, revenue for the businesses unaffected by the Shred-it Transaction grew 6.3%. Organic growth for those businesses, which adjusts for both the impact of acquisitions and the difference in workdays, was 6.1%. Scott D. Farmer, Chief Executive Officer, stated, “After very challenging weather in our third quarter, we are pleased to see our revenue growth rate rebound in the fourth quarter. Our Rental operating segment organic growth rate, in particular, improved from a third quarter rate of 5.4% to 6.7% in the fourth quarter.”
OPERATING INCOME AND NET INCOME RESULTS
Fourth quarter operating income was $123.8 million, but was negatively affected by the impact of the Shred-it Transaction. The table below labeled 4th Quarter Operating Income Results shows fourth quarter operating income for Cintas, separately presented for operating income unaffected by the Shred-it Transaction and for Document Shredding related items. With the closing of the Shred-it Transaction effective April 30, 2014, we recognized an asset impairment charge and transaction costs associated with the Shred-it Transaction. As a result, we believe that operating income unaffected by the Shred-it Transaction is more representative of our fourth quarter operating performance.
For the businesses unaffected by the Shred-it Transaction, fourth quarter operating income was $165.4 million and grew 10.3% over last year’s fourth quarter. Fourth quarter operating income as a percent of revenue for these businesses was 15.0%, which was an improvement from the 14.2% in last year’s fourth quarter. Mr. Farmer added, “We continue to see good leveraging of our infrastructure as our revenue grows, and the route capacity added last fiscal year continues to improve in efficiency and allows our service teams to add more products and services for our customers.”
The asset impairment charge primarily related to the write-off of certain Document Shredding information technology assets used specifically in the Document Shredding business. The shredding transaction costs primarily related to legal and professional fees and the early vesting of restricted stock grants and stock options associated with the employees who transferred employment from Cintas to Shred-it. The table below shows the total impact of the Shred-it Transaction on the fourth quarter results and the fiscal year 2014 results.
Upon the closing of the Shred-it Transaction, Cintas contributed its Document Shredding business to a partnership with Shred-it International Inc. As a result, Cintas will no longer reflect the assets or liabilities associated with that business in its balance sheet after April 30, 2014. Instead, we will report the investment in the partnership with Shred-it International Inc. in the line item on our balance sheet entitled “Investments.” U.S. generally accepted accounting principles require us to initially record this investment at fair market value, which has resulted in a gain of $106.4 million. Somewhat offsetting this gain are the $16.1 million asset impairment charge and the $28.5 million shredding transaction costs described above. The combined net income and EPS impact of the Shred-it Transaction on the fiscal 2014 results was $31.5 million and $0.26, net of tax, respectively.
Net income was $127.2 million and $374.4 million for the fourth quarter and fiscal 2014, respectively. However, these figures were positively impacted by the Shred-it Transaction as noted above. Net income, adjusted for the Shred-it Transaction, which is more representative of the operating performance of Cintas, was $94.3 million and $342.9 million for the fourth quarter and fiscal 2014, respectively. Net income growth over last fiscal year, adjusted for the Shred-it Transaction, for the fourth quarter and fiscal 2014 was 9.7% and 8.7%, respectively. EPS, adjusted for the Shred-it Transaction, was $0.76 and $2.79 for the fourth quarter and fiscal 2014, respectively. EPS growth over last fiscal year, adjusted for the Shred-it Transaction, for the fourth quarter and fiscal 2014 was 10.1% and 10.7%, respectively.
During the fourth quarter and into June 2014, Cintas purchased 4.1 million shares of common stock at a cost of $250.0 million. This share buyback had an impact of less than $0.01 on fourth quarter EPS since it occurred so late in the quarter. However, it is expected to benefit fiscal year 2015 EPS by approximately $0.09. As of July 15, 2014, the Company has $254.4 million available under the current Board stock repurchase authorization. The total share purchases included acquiring 3.4 million shares at an aggregate cost of approximately $204.2 million during the fourth quarter, and the remaining 0.7 million shares were purchased during June 2014 at an aggregate cost of approximately $45.8 million.
FISCAL YEAR 2015 GUIDANCE
Mr. Farmer concluded, “As we enter fiscal 2015, we remain encouraged by the performance of our businesses and the execution of our strategies by our employees, who we call partners, but we continue to look for more consistency from the U.S. economy. While the U.S. employment performance has improved during the past few months, we still see narrowness in that performance and are uncertain that the improved performance can continue. We have developed our guidance for fiscal 2015 with the assumption that generally inconsistent U.S. economic performance will continue. We expect fiscal 2015 revenue to be in the range of $4.425 billion to $4.525 billion, and fiscal 2015 EPS to be in the range of $3.06 to $3.15. This guidance assumes no income contribution from the partnership with Shred-it International Inc. due to the expectation of first year integration and transition expenses.”
As mentioned earlier in this press release, upon the closing of the Shred-it Transaction on April 30, 2014, we will no longer include Document Shredding revenue in our reported revenue. The table below shows a comparison of fiscal 2014 revenue to 2015 revenue guidance.
The table below shows a comparison of fiscal 2014 EPS to 2015 EPS guidance.
The fiscal 2015 EPS guidance incorporates the impact of the share buybacks that occurred in May and June 2014. It does not assume any additional share buybacks.
Headquartered in Cincinnati, Cintas Corporation provides highly specialized services to businesses of all types primarily throughout North America. Cintas designs, manufactures and implements corporate identity uniform programs, and provides entrance mats, restroom supplies, first aid, safety, fire protection products and services and document management services for over one million businesses. Cintas is a publicly held company traded over the Nasdaq Global Select Market under the symbol CTAS and is a component of the Standard & Poor’s 500 Index.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. Forward-looking statements may be identified by words such as “estimates,” “anticipates,” “predicts,” “projects,” “plans,” “expects,” “intends,” “target,” “forecast,” “believes,” “seeks,” “could,” “should,” “may” and “will” or the negative versions thereof and similar words, terms and expressions and by the context in which they are used. Such statements are based upon current expectations of Cintas and speak only as of the date made. You should not place undue reliance on any forward-looking statement. We cannot guarantee that any forward-looking statement will be realized. These statements are subject to various risks, uncertainties, potentially inaccurate assumptions and other factors that could cause actual results to differ from those set forth in or implied by this Press Release. Factors that might cause such a difference include, but are not limited to, the Shred-it partnership’s ability to promptly and effectively integrate the Cintas Document Shredding business with Shred-it’s Document Shredding business; the Shred-it partnership’s ability to realize any synergies from the combination of the Cintas Document Shredding business with Shred-it’s Document Shredding business; the ability to successfully explore strategic opportunities for the Cintas Global Document Storage and Imaging business; the possibility of greater than anticipated operating costs including energy and fuel costs; lower sales volumes; loss of customers due to outsourcing trends; the performance and costs of integration of acquisitions; fluctuations in costs of materials and labor including increased medical costs; costs and possible effects of union organizing activities; failure to comply with government regulations concerning employment discrimination, employee pay and benefits and employee health and safety; uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation; the cost, results and ongoing assessment of internal controls for financial reporting required by the Sarbanes-Oxley Act of 2002; disruptions caused by the inaccessibility of computer systems data; the initiation or outcome of litigation, investigations or other proceedings; higher assumed sourcing or distribution costs of products; the disruption of operations from catastrophic or extraordinary events; the amount and timing of repurchases of our common stock, if any; changes in federal and state tax and labor laws; the reactions of competitors in terms of price and service; the ultimate impact of the Affordable Care Act; and the finalization of our financial statements for the year ended May 31, 2014. Cintas undertakes no obligation to publicly release any revisions to any forward-looking statements or to otherwise update any forward-looking statements whether as a result of new information or to reflect events, circumstances or any other unanticipated developments arising after the date on which such statements are made. A further list and description of risks, uncertainties and other matters can be found in our Annual Report on Form 10-K for the year ended May 31, 2013 and in our reports on Forms 10-Q and 8-K. The risks and uncertainties described herein are not the only ones we may face. Additional risks and uncertainties presently not known to us or that we currently believe to be immaterial may also harm our business.