Cintas Earnings Call Nuggets: Share Count and Operating Margins

Cintas Corporation (NASDAQ:CTAS) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Share Count

Sara Gubins – Bank of America-Merrill Lynch: One just quick housekeeping question. Could you give us your share count at the quarter-end and maybe today, given the late nature of the repurchases?

William C. Gale – SVP and CFO: The share count at the end of the quarter was 120,778,000. For the year we’re modeling about 122.5 million shares.

Sara Gubins – Bank of America-Merrill Lynch: You saw a nice acceleration in Uniform Rental and in your prepared remarks, you mentioned seeing some improvement in national accounts. Could you give us anymore color on perhaps what type of national accounts and if you would expect that acceleration to continue?

J. Michael Hansen – VP and Treasurer: Sure. As you know, Sara, we have quite a few facilities, services, offerings and we saw some real nice penetration into our national accounts, in, particularly in our cleaning area, our floor cleaning, our emergency floor cleaning businesses, restroom cleaning. As far as, do we expect that to continue, it’s a little bit hard to say, but we certainly believe that our national account customers see the value of those products and services, but I would say it’s a little too early to tell whether we’ll see that throughout the rest of the year.

Sara Gubins – Bank of America-Merrill Lynch: Then just last question. On the fourth quarter call you mentioned that you’d be adding route capacity during fiscal ’14, although not as much in fiscal ’13. Any change to those plans?

J. Michael Hansen – VP and Treasurer: No. I would say, going forward, we’ll typically add route capacity as necessary and will generally add some certainly in a growing environment and where our new business remains strong, we’ll continue to add routes throughout the year and into the future. I would say though, it would not be at the pace that we saw beginning in the second quarter of last year. We did have a little bit of a catch-up from added capacity. So, I wouldn’t say we’d be at that same pace for the rest of the year.

Operating Margins

Joe Box – KeyBanc Capital Markets: Just a bit of a follow-up on that question more taking it from the margin angle. How do you think that we should be viewing incremental operating margins over the next couple of quarters. Obviously, they’ve been subdued as you’ve deployed more route capacity. Do you think that incremental margin should remain subdued or would it be reasonable to assume that they could potentially re-accelerate now that you’ll actually be anniversarying the capacity expansions?

William C. Gale – SVP and CFO: Joe, it will come down to where is the business coming from. As we’ve said on last several quarters, the more of our growth that comes from new accounts the less improvement we’ll see in margins because we have additional material costs, that tends to fill up the routes a little faster and therefore you just don’t get the rapid improvement in the margins. If on the other hand, and we haven’t seen this yet, but if on the other hand, we were to see a real acceleration of growth of where is an existing accounts then obviously that would have a much better impact on the margins themselves. So, I can’t really tell you that. At this point, as Mike said, we had a modest improvement in our add stops, but it wasn’t significant. So, we are still in a I would say a lackluster employment growth environment.

Joe Box – KeyBanc Capital Markets: Looks like your First Aid margins were actually the highest first quarter margins that you’ve had since the downturn. Just curious is that a function of the benefits of scale, are you getting a more favorable mix there? If you could just maybe give us any color on what’s driving it and maybe how we should think about the upside from current levels?

William C. Gale – SVP and CFO: I think it’s kind of a scale situation. We have been developing our national footprint in the First Aid and Fire business over the last several years and the more volume we have in those different markets, so some of those markets at a relatively small, the better impact that we have on our margins. I think it also is attributable to some of the initiatives, the management team put in place to make sure that that business was generating the profits that we think are appropriate and they’ve done a good job at basically providing additional products and services, offerings to their customers that have enhanced the revenue at each of the existing stops. So, I think, that’s also been a factor in.

Joe Box – KeyBanc Capital Markets: Then just one question on the buyback. Over the last few years, when you’ve been in the market buying stock, you’ve done it in a meaningful way. I realize you obviously don’t provide guidance on buybacks, but should we view this as a more one-off opportunistic quarter or would you say, you are putting more emphasis on the buyback?

William C. Gale – SVP and CFO: Well, I would say that it is – we felt confident, given our Board’s directive to proceed with the buyback that we did in this quarter, which I think was significant. As far as what we do going forward, it is all dependent on what happens with our other opportunities for uses of cash. Our confidence in the future and how the board directs us to proceed with what they feel is the best way to enhance shareholder value.