Why Cintas Corporation (NASDAQ: CTAS) stock is falling

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Cintas Corporation (NASDAQ: CTAS) stock lost over 5.3% on 22nd March, 2019 (as of 10:39 am GMT-4; Source: Google finance) after the company posted mixed results for the third quarter of FY 19. The company posted the net income from continuing operations of $200.9 million for the third quarter of fiscal 2019, compared to $295.8 million in the third quarter of fiscal 2018.

CTAS in the third quarter of FY 19 has reported the adjusted earnings per share of $1.84, beating the analysts’ estimates for the adjusted earnings per share of $1.71, as per Zacks Investment Research. The company had reported the adjusted revenue growth of 5.9 percent to $1.68 billion in the third quarter of FY 19, missing the analysts’ estimates for revenue of $1.69 billion. The organic growth rate, which adjusts for the impacts of acquisitions, and foreign currency exchange rate fluctuations was 6%. In the third quarter of fiscal 2019, the organic growth rate for the Uniform Rental and Facility Services operating segment was 6.2% and the organic growth rate for the First Aid and Safety Services operating segment was 8.6%.

The organic growth rates of both segments were negatively impacted by a greater number of customers being closed for business in this year’s third quarter, compared to last year’s third quarter due to severe winter weather and the timing of the holidays Christmas Eve and New Year’s Eve fell on a Monday this year compared to on a Sunday in the prior year.

Moreover, gross margin for the third quarter of fiscal 2019 of $755.2 million increased by 7.8%. Gross margin as a percentage of revenue was 44.9% for the third quarter of fiscal 2019, compared to 44.1% in the third quarter of fiscal 2018. Uniform Rental and Facility Services operating segment gross margin as a percentage of revenue improved 80 basis points from last year’s third quarter to 44.9% and the First Aid and Safety Services operating segment gross margin percentage improved 130 basis points to 48.2%.

For full-year 2019, CTAS expects the revenues to be between $6.87 billion and $6.89 billion. Revenues are seen growing in the 6-7% range in the fourth quarter of 2019, and operating income margin in the range of 17% to 17.5%. Full-year earnings from continuing operations are currently forecast in the range of $7.80 per share to $7.86 per share.

During the quarter, Cintas repurchased around $100 million shares and paid a total of $221 million as the dividend. The $2.05-per share dividend was higher by 26.5% compared to last year’s amount.

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