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Cintas Sees Big Results From Its Branding Campaign


Cintas shows that uniforms don't have to be boring. Image source: Cintas resort collection catalog.

Many investors think of Cintas (NASDAQ: CTAS) as a specialist in providing uniforms for workers, but it has sought to expand its influence to provide a wider range of the materials that people need in order to do their jobs effectively and efficiently. The rise in employment levels in the U.S. economy has had a positive influence on Cintas' business, and coming into Tuesday's fiscal fourth-quarter financial report, investors were expecting solid growth from the company. Cintas' actual results turned out even better than most shareholders were hoping to see, and prospects for even faster growth in the future are creating a great deal of excitement about the uniform provider. Let's look more closely at what Cintas said about its quarter and whether it can build up even more momentum in the future.

Cintas goes for the gold

Cintas' fiscal fourth-quarter results once again continued the company's long string of encouraging financials. Sales jumped more than 11% to $1.27 billion, which easily outpaced the 9% growth rate that most of those following the stock were expecting. Net income from continuing operations was up an even stronger 17% to $118 million, and that produced adjusted earnings of $1.08 per share, beating the consensus forecast by $0.08 per share.

Looking more closely at the financials that Cintas released, you can see several positive influences that added up to its impressive growth. The uniform rental and facility services division posted solid sales growth of 8%, making up more than three-quarters of Cintas' overall revenue, and cost-containment measures managed to hold the rise in the direct costs of the segment to just 5%. Cintas' Other category had much faster growth of almost 22%, although gross margin was slightly lower for the first-aid, safety, fire-protection, and direct-sales unit. Net margin climbed by half a percentage point to 9.3%, showing the payoff from efforts to rein in expenses and bolster profitability.

Cintas also maintained a healthy balance between growth from acquisitions and from internal sources. The company said that its organic growth in revenue was almost 7%, which also accounted for differences in the number of workdays in the quarter and any impacts from foreign currency exchange-rate changes.

CEO Scott Farmer was pleased with how the fiscal year ended. "We achieved record revenue and [earnings per share] in fiscal year 2016," Farmer said, and "we have increased EPS by double-digits in six consecutive years." The CEO went on to attribute the Ready for the Workday campaign as a key contributor to Cintas' success, along with the ability to deploy cash toward internal investment as well as dividend increases and buybacks of more than three-quarters of a billion dollars for the full year.

Can Cintas work even harder?

The uniform-rental and related services provider expects even better conditions to prevail in its 2017 fiscal year. The company gave initial guidance for sales of between $5.15 billion and $5.225 billion for the year, which would represent growth from final fiscal 2016 figures of 5% to 6.5%. Similarly, earnings per share guidance of $4.35 to $4.45 per share would represent year-over-year growth of between 6% and 9%. Even better, the guidance includes the negative impact from there being one less work-day in fiscal 2017 compared to the preceding leap year.

One question that some investors will have for Cintas is whether more extensive dividend increases could be coming in the future. Right now, Cintas yields just over 1%, and its dividend represents only about a quarter of what it brings in as earnings. Moreover, Cintas is one of the few companies that pays dividends annually rather than on a quarterly basis. So far, investors haven't seemed to mind the way that Cintas allocates its capital, but income investors would still prefer to see more opportunities to see Cintas return money to shareholders.

Cintas investors celebrated the company's positive report, sending the stock soaring more than 3% in after-hours trading following the announcement and breaking the $100 per share mark for the first time. As long as the employment market keeps performing well, then Cintas will have an opportunity to keep growing and share its success with its shareholders.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Cintas. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.