Cintas (NASDAQ:CTAS) is not immune to the impacts of inflation and supply chain issues, but those issues are symptoms of an otherwise strong economy. An economy that is creating new jobs at a record pace, has employment at record levels, and is driving business for Cintas.
While the results could have been more robust in relation to the analysis estimates, we’re not reading too much into that comparison. The 50 basis points of outperformance are nothing to brag about but are versus a very high bar.
The key takeaway is that revenue and earnings are growing and fueling a healthy capital return plan. That, plus the apparent strength within the industry, should be enough to keep Cintas setting new all-time highs in 2022, just like it did in 2021.
Cintas Posts Record Quarter
Cintas had a great quarter in which revenue grew 9.4% versus last year and set a new company record. The $1.92 billion is also up 4.30% from 2019 and beat the Marketbeat.com consensus estimate by 50 basis points.
Growth was driven by a 9.3% increase in organic business coupled with a 0.1% tailwind related to prior acquisitions. On a segment basis, the core Uniform segment grew by 8.8%, while the Other category, which includes fire, first aid, and safety products, rose a more robust 11.7%.
The company experienced some margin contraction but not how you might think. The gross margin contracted by 70 basis points and the operating margin by 30 on investment in employment related to growth plans.
On an adjusted basis, accounting for the sale of an asset in the previous year, the company’s operating margin expanded by 70 basis points. Regardless, the $2.76 in GAAP earnings is up to $0.39 from last year and beat the Marketbeat.com consensus estimate by $0.14.
Better, the company is expecting both revenue and margin strength to continue into the end of the year and has raised guidance because of it.
The only catch is that the new guidance is bracketing the consensus estimate in a way that leaves the door open to underperformance in the back half of the year. The company is projecting $7.63 to $7.7 billion in consolidated revenue compared to the $7.66 billion consensus, with EPS in the range of $10.60 to $10.90.
Cintas Is A Dividend Grower
Cintas isn’t a high-yielding stock with a payout of 0.87%, but it is a very reliable and safe payout with an expectation for aggressive growth. The company has been increasing the payout annually for over ten years with a 20% CAGR, and there is room in the numbers for this to continue.
Not only are revenue and earnings growing, but the balance sheet is rock-solid, and the free cash flow is ample. In our view, investors should be ready for another increase at the end of the fiscal year.
The Technical Outlook: Cintas Pulls Back To Support
Shares of Cintas have been pulling back recently after hitting a fresh all-time high in early December. Price action is moving lower in the wake of the guidance increase and may fall even further if support doesn’t kick in at the $425 level. If price action falls below this level, it could continue down to $420 or $400 before finding strong support.
If, however, price action can hold support at $425, we see sideways to upward movement developing with the chance of new all-time highs in early 2022.