Cintas is in the uniform business, but with the outlook for jobs not offering much growth, its latest earnings report is doing little to dress up the stock.
Shares of Cintas were down $3.51, or 7.6%, to $42.42 in afternoon trading.
Cintas (CTAS) reported fiscal third quarter net income��of�$74.7 million, or�60 cents per share. That is a 3.4% increase over the 58 cents reported in the year ago quarter. But it was a penny short of analyst expectations, “led by margin pressure from fewer work days, a spike in insurance premiums, and new route capacity investment, with guidance narrowed lower,” writes Andrew Whittman, an analyst at Robert W. Baird.
Cintas lowered the outlook for annual earnings, to $2.50-2.54 per share from $2.50-2.58 per share.
Whittman at Baird has a Neutral rating on the stock, and a $47 price target.
“Organic growth rates improved and management noted positive momentum exiting the quarter, consistent with our recent channel checks. While employment momentum may offer opportunity for route leverage, supporting fiscal 2014 estimates, near-term results likely face continued margin pressure, with historical precedent suggesting a conservative bias toward initial fiscal 2014 guidance in July.”
“Positively, organic growth accelerated to +6.9% YOY (from +3.4% in F2Q13), with revenue of $1.08 billion above the $1.056 billion consensus.�Adjusted for workdays and higher insurance premiums, we see EBIT margins down slightly year over year (~20-30 basis points), with the balance driven by investment in new route capacity — a long-term positive, but likely to weigh on near-term results.”
“While management is clear to point to recent employment momentum, in contrast to last quarter’s more subdued tone, we see this as more likely to support current estimates, which we believe are fair (not conservative). With expectations relatively high, the stock may face modest pressure, though our fundamental outlook is little changed.”