Yahoo Finance Cintas (CTAS) Displays Bright Prospects, Headwinds Remain
Cintas Corporation CTAS has been benefiting from the increased capacity of several customers' businesses. Strength across the company’s first aid cabinet service and uniform direct sale businesses are likely to drive its performance in the quarters ahead. For the fourth quarter of fiscal 2022 (ended May 2022, results awaited), it anticipates revenues of $1.96-$2.02 billion, suggesting growth of 8.2% at mid-point on a year-over-year basis. In the quarter, earnings per share are anticipated to be $2.54-$2.74, indicating growth of 6.9%.
The company’s product innovation, along with its investments in technology and existing facilities, is likely to be beneficial. Also, its focus on operational execution, cost-control measures and pricing actions might help it maintain a healthy margin performance in the quarters ahead. In third-quarter fiscal 2022 (ended February 2022), its adjusted operating margin expanded 90 basis points year over year.
CTAS remains committed to rewarding shareholders through share-repurchase programs and dividend payouts. In the first nine months of fiscal 2022, the company repurchased shares worth $1,221.8 million and paid out dividends of $276.9 million to shareholders. It hiked the quarterly dividend rate by 26.7% and approved a share buyback program worth $1.5 billion in July 2021.
However, the company has been dealing with escalating costs and expenses over time. In the fiscal third quarter, its cost of sales (comprising costs related to uniform rental and facility services as well as others) increased 9.8% year over year to $1,062.4 million. Also, its selling and administrative expenses increased 1.6% in the quarter. Rising costs and expenses, if not checked, might hurt its short-term profitability in the quarters ahead.
High tax rates will be worrisome, with CTAS predicting a 23.2% rate for the fiscal fourth quarter, suggesting an increase from 19.4% recorded in the year-ago quarter. For the fiscal fourth quarter, the high rate is expected to have lowered earnings per share by 14 cents and earnings growth by 560 basis points.
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In the past three months, this Zacks Rank #3 (Hold) stock has returned 5.8% compared with the industry’s growth of 7.3%.
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