Cintas 2027 Q1 Earnings Call

Please go ahead, sir. Thank you, Ross, and thank you for joining us.

With me are Todd Schneider, Chief Executive Officer, Jim Rozakis, President and Chief Operating Officer, and Scott Garula, Executive Vice President and Chief Financial Officer. We will discuss our fiscal 2027 first quarter results. After our commentary, we will open the call to questions from analysts. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. This conference call contains forward-looking statements that reflect the company's current views as to future events and financial performance. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those we may discuss. I refer you to the discussion on these points contained in our most recent filings with the Securities and Exchange Commission. I'll now turn the call over to Todd.

Thank you, Jared. We are pleased with our start to fiscal 2027. Our first quarter results reflect the strength of our business model, the execution of our employee partners, and the value proposition we provide by helping customers meet their image, safety, cleanliness, and compliance needs. First quarter total revenue grew 10.9% to $3.01 billion. This marks the first time we have reached $3 billion of revenue in a quarter. The organic growth rate to adjust for the impacts of acquisitions, foreign currency exchange rate fluctuations, and workday differences was 8.9%. We remain encouraged by the consistency of demand we are seeing as businesses continue to see the value of outsourcing to a service provider like Cintas. Our first quarter performance demonstrates that Cintas is well-positioned to help businesses of all sizes improve productivity, reduce complexity, and operate more efficiently.

Whether through our Uniform Rental and Facility Services business, First Aid and Safety solutions, Fire Protection Services, or our Uniform Direct Sale business, our value proposition continues to resonate. Diluted EPS for the quarter was $1.36, an increase of 13.3% from the prior year. Adjusting for the UniFirst transaction-related expenses, adjusted diluted EPS was $1.39, an increase of 15.8% from the prior year. Drawing on the strength of our performance, we continued to allocate capital in a balanced manner in the first quarter. Our capital expenditures were within our targeted range at 3.6% of sales. We were active in M&A and increased our dividend 15.6% for the shareholders of record as of August 14, 2026. We are pleased to have increased our dividend every year since going public 43 years ago. In addition, we were optimistic with our share buybacks, purchasing $545 million through today's date.

Our culture remains our greatest competitive advantage. The combination of our strong culture, operational excellence, effective supply chain management, technology investments, and focus on customer experience continues to differentiate Cintas in a highly competitive market. Reflecting our strong first quarter performance and confidence in the remainder of the year, we are updating our fiscal 2027 guidance. We are raising fiscal 2027 revenue guidance from a range of $12.10 billion to $12.25 billion, to a range of $12.15 billion to $12.27 billion, a total growth rate of 7.9% to 8.9%. We are also raising our fiscal 2027 adjusted diluted EPS from a range of $5.36 to $5.50, to a range of $5.45 to $5.54, a growth rate of 10.3% to 12.1%. Before I turn the call over to Jim, I'd like to provide a brief update on our acquisition of UniFirst.

First, we remain confident for the substantial long-term value creation for our combined customers, partners, and shareholders. We mentioned on our last call that the merger was subject to regulatory clearances in both the U.S. and Canada. That process is ongoing as we continue to work toward obtaining regulatory clearance and completing other closing conditions. We remain optimistic that the deal will close by the end of calendar 2026. In order to avoid creating speculation, we will not be providing any additional commentary on this process. We will update the market going forward as appropriate. With that, I'll turn it over to Jim to discuss our operating performance in greater detail.

Thank you, Todd. Our employee partners continue to execute at a high level and demonstrate how well our value proposition resonates with customers of all sizes. Our strong top line growth is due to a number of factors, largely concentrated around our ability to deliver more value for customers. We are succeeding in tapping into the massive total addressable market as we convert non-programmers to a managed solution. In addition, we continue to expand our relationships with existing customers by adding new products and services. We are maintaining strong customer retention while pricing remains consistent with prior years. Let me provide an example in our rental business of converting a non-programmer to a managed rental solution. An owner of a small fitness studio in Florida recently shared on social media why she chose to partner with Cintas.

Her story highlights why our value proposition resonates so strongly with small businesses. As her company expanded, she found herself spending more and more time managing restroom supplies, floor mats, air fresheners, and other facility needs that were essential to maintaining the experience her members expected. She recognized those responsibilities were taking time away from serving her customers, supporting her employees, and growing her business. By outsourcing to Cintas, she gained the convenience of a trusted partner. The breadth of our product line addressed her facility needs while enhancing the image, cleanliness, and consistency of her studios. Most importantly, it gave her valuable time back to focus on the core aspects of her operation and what matters most. That's why our value proposition continues to resonate with small businesses and why they represent such an important part of our addressable market.

Business owners like her are already managing these responsibilities on their own and recognize that partnering with Cintas helps them operate more efficiently, elevate the customer experience, and focus on growing their business. That value proposition continues to drive strong customer demand across our businesses and was reflected in our performance this quarter. As Todd mentioned, we had strong organic revenue growth for the company. Organic growth by business was 8% for Uniform Rental and Facility Services, 14.2% for First Aid and Safety Services, 9.2% for Fire Protection Services, and 9.6% for Uniform Direct Sale. Gross margin as a percentage of revenue was 51.5%, an all-time high. Gross margin percentage by business was 50.8% for Uniform Rental and Facility Services, 57.6% for First Aid and Safety Services, 52.8% for Fire Protection Services, and 38.9% for Uniform Direct Sale.

Gross margin for the Uniform Rental and Facility Services segment increased 110 basis points from last year to achieve an all-time high gross margin of 50.8%. This business continues to benefit from strong revenue growth, which creates leverage. In addition, we continue to see margin expansion as a result of the investments we are making in technology. These technology investments also serve to make it easier for our employee partners to do their job while creating a better customer experience. Our First Aid and Safety Services segment gross margin increased 80 basis points from last year. We continue to grow at attractive rates, which is also creating leverage. Businesses throughout the U.S. and Canada continue to place an emphasis on workplace safety, training, compliance, and health and wellness solutions. Our Fire Protection Services segment had really strong margins for the quarter.

Keep in mind that margins can fluctuate from quarter to quarter based on the timing of certain investments and sales mix. Some of those investments include increasing growth capacity by hiring technicians needed to perform specialized tasks, as well as building out a national footprint. Selling and administrative expenses as a percent of revenue was 27.4%, which was a 10 basis point improvement from last year. With that, I'll turn it over to Scott.

Thanks, Jim, and good morning, everyone. First quarter operating income was $711.9 million compared to $617.9 million last year, an increase of 15.2%. Excluding the UniFirst transaction related expenses, operating income increased 17.6% over the prior year. Operating income as a percentage of revenue was at an all-time high at 23.6% in the first quarter of fiscal 2027 compared to 22.7% in last year's first quarter. Keep in mind that there was an extra workday in the first quarter. The impact of the extra workday on operating margin was a benefit of 50 basis points, which was offset by 50 basis points of UniFirst transaction related expenses. Comparing to the prior year operating margin of 22.7%, the adjusted operating margin for the first quarter was 23.6%, a 90 basis point improvement. Our effective tax rate for the first quarter was 20.0% compared to 17.6% last year.

The tax rates in both quarters were impacted by certain discrete items, primarily the tax accounting impact for stock-based compensation. Net income for the first quarter was $551.7 million compared to $491.1 million last year. This year's first quarter diluted earnings per share was $1.36 compared to $1.20 last year, an increase of 13.3%. Excluding the UniFirst transaction related expenses, adjusted diluted earnings per share was $1.39 compared to $1.20 last year, an increase of 15.8%. Cash flow generation was strong during the quarter and continues to support a balanced approach to capital allocation. We invested $107.5 million in capital expenditures during the quarter, primarily focused on technology, automation, capacity expansion, and infrastructure investments that support future growth. We also continue to evaluate strategic acquisition opportunities across our route-based businesses. Returning capital to shareholders remains an important priority.