Cintas Corp ($CTAS) Q4 2025 Earnings Call

Good day everyone and welcome to the Cintas Corporation announces fiscal 2025 fourth quarter and full year results conference call. Today's call is being recorded. At this time I would like to turn the call over to Mr. Jared Mattingley, vice president, treasurer, and investor relations. Please go ahead, sir.

Thank you, Ross. Thank you for joining us. With me are Todd Schneider, president and chief executive officer, Jim Rosakis, executive vice president and chief operating officer, and Scott Gerula, executive vice president and chief financial officer. We will discuss our fiscal 2025 fourth quarter and full year results. After our commentary, we will open the call to questions from analysts. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. This conference call contains forward-looking statements that reflect the company's current views as to future events and financial performance. These forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those we may discuss. I refer you to the discussion on these points contained in our most recent filings with the Securities and Exchange Commission. I'll now turn the call over to Todd.

Thanks, Todd, and good morning. We continue to grow at attractive rates by helping new customers meet their needs of image, safety, cleanliness, and compliance. We are seeing success in adding new products and new services to existing customers. Our retention rates are right at our all-time highs, and pricing continues to be at our historical levels. Turning to the fourth quarter organic growth by business. We grew 7.2% for uniform rental and facility services, 18.5% for first aid and safety services, 12.1% for fire protection services, and uniform direct sale was up 9%. As we've done in the past, I will share a revenue mix of the uniform rental and facility services operating segment for the fourth quarter. Keep in mind there can be small fluctuations in mix between quarters. Uniform rental was 48%. Dust was 19%. Hygiene was 16%. Shop towels were 3%. Linen, which includes microfiber, wipes, towels, and aprons, was 10%. And catalog revenue was 4%. These percentages are consistent with last year and demonstrate we continue to experience strong demand across all our products and services. Gross margin percentage by business was 49% for uniform rental and facility services, 56.8% for first aid and safety services, 49.3% for fire protection services, and 41.6% for uniform direct sale. Gross margin on the uniform rental facility services segment increased 40 basis points from last year. Our progress year-over-year reflects the positive impacts made by our excellent supply chain team as well as cost savings initiatives such as our garment sharing technology enhancements like our auto sortation systems in our plants and our proprietary smart truck solution that makes our routes more efficient. Gross margin for the first aid and safety services segment increased 140 basis points from last year, driven by strong revenue growth continuing to create leverage, a healthy revenue mix that includes growth in high margin recurring revenue products like AED rentals, eyewash stations, and water break as well as cost savings initiatives such as smart truck and improved sourcing. Before I turn over to Scott, I'd like to share an example that demonstrates how we're delivering for our customers. A customer in the southeastern part of the country has been a valued customer for over 10 years. For most of that time, we provided them exclusively with facility services, products, and services. Their maintenance department uniforms were direct purchase, what we would call a no-programmer. Our customer approached us to see if we could help them address three key pain points. One, the initial investment and ongoing costs associated with replacing uniforms due to turnover and damage made it difficult to forecast spend and manage cash flow. Two, their employees expressed a strong preference for the convenience and professionalism of a laundered uniform program over washing their uniforms at home. Three, their managers found that overseeing uniform logistics in-house took valuable time away from focusing on their core business operations. In response, we successfully introduced our uniform rental program on top of our facility services offering. But the story doesn't end there. We also earned the trust of the culinary department, onboarding those employees who had previously been with a traditional uniform competitor. The switch was driven by a premium Chef Works exclusive attire and the opportunity for vendor consolidation. This example underscores several points. First, we don't always have to lead with uniforms. In this case, we had a long successful relationship with a customer built on our facility services offering. Second, we can grow in a variety of different ways. We can convert no-programmers to a rental program. We can add new customers that are currently with another uniform rental provider by offering premium products and services. And we can grow by adding new products and services to our existing customers. This example also illustrates how Cintas is more than a service provider. We are true problem solvers committed to helping our customers succeed. And by staying attuned to their feedback, we continue to strengthen our relationships and expand our footprint across industries. And now turn over to Scott for additional details on capital allocation strategy and 2026 outlook.

Thank you, Jim. And good morning, everyone. As Todd mentioned, we closed our fiscal year with strong financial performance. Our balance sheet remains healthy and during fiscal 2025 we generated $1.6 billion of free cash flow. In the fourth quarter we were able to put our capital to work through capital expenditures of $114.6 million, acquisitions of $34.1 million, dividends of $157.8 million, and share repurchases of $256.7 million. Our effective tax rate for the fourth quarter was 22.1% compared to 21.4% last year. For fiscal 2025, the effective tax rate was 20% compared to 20.4% the prior year. During fiscal year 2025, we deployed significant capital across each of our capital allocation priorities. This capital allocation strategy has been effective for many years and has served us well. We invested $489 million in capital expenditures which helps support investments in our technology and infrastructure. Capital expenditures were 4% of revenue which is right where we like to be. We invested $232.9 million in acquisitions in fiscal 2025, representing our largest year of M&A activity in almost 20 years, excluding our 2017 acquisition of G&K. These acquisitions span across each of our three route-based segments, adding new customers, extending capacity, and delivering compelling synergies. By optimizing our existing route structure, we've been able to spend more time with customers while reducing time spent on the road. Acquisitions remain an important lever for growth, enabling us to broaden our offerings and deliver greater value to our stakeholders. Additionally, we returned over a billion and a half dollars to shareholders through dividends and share buybacks. Almost $612 million in dividend payments marks the 41st consecutive year that we've increased our dividend, which is every year since going public. We also repurchased approximately $935 million of shares during fiscal year 2025. Todd provided our fiscal 2026 outlook at the start of the call and I'd like to provide some context on a few assumptions underpinning our guidance. Please note that both fiscal 2025 and fiscal 2026 have the same number of work dates for the year and by quarter. Our guidance does not assume any future acquisitions. Our guidance assumes a constant foreign currency exchange rate. The fiscal 2026 interest net is expected to be approximately $98 million. The fiscal 2026 effective tax rate is expected to be 20% which is the same as fiscal 2025. And our guidance includes no future share buybacks or significant economic disruptions or downturn. With that, I'll turn it back over to Todd for closing remarks.

Thanks, Todd, Jim, and Scott. That concludes our prepared remarks. Now, we are happy to answer questions from the analysts. Please ask just one question and a single follow-up if needed. Thank you.

If you would like to ask a question, please press star one on your telephone keypad. Now, please be prepared to ask your question when prompted. You will also be allowed to ask one follow-up question. Once again, if you would like to ask a question, please press star one on your phone now. And our first question comes from George Tong from Goldman Sachs. Please go ahead, George.

Hi, thanks. Good morning. Starting at a high level, can you talk a little bit about what the overall selling environment looks like, including how sales cycles are performing and how client sentiment is trending?

Yeah, I think maybe Todd the only color I would add on that is that the customer behavior offers an opportunity for us to add value to our customers. I was recently at an operational visit and in a routine conversation, one of our employee partners was out at a customer site. And as you can imagine, during traditional rapport building, the customer expressed concern regarding the overall uncertainty in a macro environment. Our employee partner turned that into an opportunity to discuss further Cintas products and services. And we found out that we were able to go ahead and save this customer significant money on something as simple as disposable gloves. So there certainly is a degree as you described of a little bit of uncertainty, that uncertainty creates opportunity and the customers are looking for answers and often times we're able to provide those answers for them.

Very helpful. And then my follow-up, you're continuing to see and deliver operating margin expansion from what was 40-50% before to around 25%. Can you talk a bit about what factors may be causing this narrowing rate of margin expansion?

Got it. Very helpful. Thank you.

And our next question comes from Jasper Bib from Truist Securities. Please go ahead, Jasper.

Hey, good morning guys. I know you don't get all the way down, I was just hoping you could give a little bit more color on the cadence of your 26 outlook as I imagine you're going to have a lot more difficult comps on the incremental margin front in the first half versus second half.

Got it. And hoping maybe you could give some color on what you're seeing in add stops and how you're thinking about that trend in your fiscal 26 guidance.

Thanks for taking the question.

And our next question comes from Manav Patnik from Barclays Capital. Please go ahead, Manav.

Hi, good morning. This is Ronan Kennedy on for Manav. Thank you for taking my questions. You touched on this in response to Jasper's question, but if I may just look to go a little more granular, the 26 guide, the implied operating income margins at 25% I think are at the lower end of the midterm guide of 25 to 35 and then 23 and 27 at the low and high ends respectively. There's obviously an element of operating leverage at play and revenues, but any further insights you can shed as to the puts and takes of the drivers of those incrementals, whether it's the positive impacts of supply chain tech initiatives or the negative impacts say of the SAP implementation for fire protection. Any further insights on kind of puts and takes to those incrementals, please?

Thank you. And then for my follow-up, please, similar question but in relation to revenues, the range and the guided revenue range is I think 140 basis points which you understandably indicated is right where you want to be. I also think that range is consistent with the guided range for F-25. Can you give us any further insight as to what that contemplates from organic by department or the expected contributions from say price, new biz, etc. versus historicals. Any further insight there, please be greatly appreciated.

Thank you very much. Appreciate it.

And our next question comes from Tim Maloney from William Blair. Please go ahead, Tim.

Yeah, Todd, Jim, Scott, good morning.

Thanks for taking my question. So, just the first one on the quarter, your fourth quarter result here. You know, organic growth was 9%. That was well above consensus, I think, was also above what was implied by your own guidance range that you provided last quarter. So, I'm just curious, you know, what business lines or sectors picked up during the quarter relative to your view on expectations.

Okay, no follow-up needed. Thanks guys.

And our next question comes from Andrew Steinerman from JP Morgan. Please go ahead Andrew.

Hi. The quarter ended six weeks ago and I just wanted to get a sense of how the current quarter started, just what's already kind of behind us in June and the first couple weeks of July in terms of revenue growth momentum. Has it sort of been consistent with the way you finished the quarter? And then I'll just ask my second question also. I just saw some discussion, I was just wondering if there's any recent changes to your go-to market strategy particularly around national accounts.

Sounds right. Thanks.

And our next question comes from Josh Chan from UBS. Please go ahead Josh.

Hi. Good morning, Todd, Jim, Scott, Jared. As you look into your different cost buckets kind of going into 2026, you know, material, labor, your fleet, anything to highlight in terms of trajectory of cost changes. And maybe on the material side, could you touch on potential tariff impacts and how that could impact kind of the cost. Thank you.

Josh, if I might add to that. I think Todd did a great job describing the supply chain. He also talked about some of the work we're doing to remove inefficiencies. We have several initiatives ongoing. Some were mentioned in our prepared remarks that are all in play and again contemplated in next year's expectations. But garment sharing would be one that I think would be worth highlighting here. We continue to leverage the SAP platform to be able to share goods that we have in inventory across our entire network. That's been quite effective and we think we got some room to go on that one. Automating within our plants and deploying auto sortation technology in our plants. We have about 50% of our plants have some degree of auto sortation and we're in the middle of trying to deploy more of that. In the past it's been challenging due to our plants being all different shapes and sizes. We believe that we've developed technology to overcome that and limit the disruption. Those are in motion and we expect those to continue to deploy this year. Todd mentioned operational excellence. Operational excellence is us really maximizing the assets specifically in our rental business around the plant. That allows us to continue to defer capital expenditure. It also allows us to run those plants more efficiently, allowing us to wash fewer loads, consume less energy, less chemistry and water within our facilities. And then maybe last that I would be mentioning would be our smart truck initiative that's been ongoing now for several years. That allows us to incrementally route our fleets more efficiently, get them more time in front of the customer. But certainly route growth is significantly less than what our revenue growth is and we're going to continue that in this next fiscal.

That's great. Yeah, I appreciate the context there. That's really helpful. And then I guess for my followup, I think Scott, you highlighted the M&A spend this past year. Just wonder if you could comment on the prospect of M&A kind of going forward and how the pipeline of the bolt-ons look at the moment. Thank you.

Yeah, thanks. Todd, as I mentioned in our prepared remarks, our approach to a balanced capital allocation strategy has served us well for many years. I've been part of that in my prior roles and really don't see a change in that in the future. And continue not only to invest in M&A activity, we'll continue to reinvest back in the business via capital expenditures and continue to invest in both dividends and be opportunistic with share buybacks.

Great. Thank you for your time and congrats on a good quarter.

And our next question comes from Jason Hus from Wells Fargo. Please go ahead, Jason.

Hey, good morning and thanks for taking my questions. I'm curious if you expect the industry to pass on higher price increases in fiscal 2026 given the tariff driven inflation and if that's something that you baked into your guidance assuming you could take more price as well or if that could represent upside. Thank you.

Okay. Thank you. That's helpful. And then as a followup, I was curious in this environment if you're seeing more competitive wins particularly from some of your larger competitors that are out there since it seems like your growth rates are quite elevated versus what we've seen from others. Thank you.

Thank you. That's very helpful.

And our next question comes from Ashish Sabadra from RBC. Please go ahead Ashish.

Thanks for taking my question. I just wanted to focus on the four strategic verticals healthcare, government, education and hospitality. I was wondering if you could just provide any update on those fronts and any big initiative as we go into 2026. Thanks.

I guess I would just add that by organizing around the verticals it allows us to gain intimate knowledge and really understand the industries well. Therefore we're able to collaborate and innovate solutions that we bring to the marketplace that not only allow us to have solid growth within those verticals. But oftentimes those solutions could expand outside of those verticals. And one we've discussed in the past has been our healthcare journey and our journey with really what initiated a scrub dispensing, that scrub dispensing service now is out beyond just healthcare and we see lots of applications for that. We've gone on a recent journey in healthcare to really innovate and change how we go to market for privacy curtains and we believe that those are indicative in the types of solutions that you're able to bring to marketplace when you get that involved and invested in particular verticals and we want to continue to do that moving forward.

That's great color. And maybe just on the followup, we've seen some material acceleration in the first aid business. It seems like based on the prepared remark that it was broad-based across products, but I was just curious if there is incremental traction that you're getting for certain products or just improving penetration. Any color there will be helpful. Thanks.

That's great color. Thank you.

And our next question comes from Schlommo Rosenbomb from Stifel Nicholas. Please go ahead, Schlommo.

Hi, thank you for taking my questions. So, I want to piggyback a little on Ashish's question. In that first aid business, how much of that revenue would you say is more kind of recurring and how much of that business is usually training and other areas that might be more one-timeish?

Okay, thank you. And just for the followup, could you comment a little on the spike up in uniform sales? Is that, and you know, usually I know you expect it to grow in the low single digits and was there something that will carry forward into the next quarter or two or was it really just kind of a one quarter kind of fulfillment of something?

Thank you.

And our next question comes from Stephanie Moore from Jefferies. Please go ahead, Stephanie.

Great. Good morning. Thank you. I was hoping you could talk a little bit about some of your end market exposure. If you're seeing any kind of weakness or strength in particular end markets, you know, maybe the manufacturing sector, for example, has been kind of weak across the board here in the US, but any areas of weakness or areas of strength that you could call out? Thank you.

Got it. And then really just any kind of, I guess just one followup here. As you think about your M&A opportunity, obviously you've given some color today on kind of your continued focus on M&A, but are there any areas that you would look at expanding an M&A outside of kind of the core uniform area?

Thank you. Appreciate it.

And our next question comes from Scott Schneberger from Oppenheimer. Please go ahead, Scott.

Thanks very much. Todd, I believe you mentioned progress relating to smart truck and improved sourcing. Could you please elaborate on that? And then my followup I'll ask up front for Scott. It sounds like we should be expecting 4% of revenue capex again in fiscal 26. I'm just curious digging in from the One Big Beautiful Bill Act, anything to expect there impacting cash flow in 26 or any other aspects of the business? Thanks guys.

Yeah, thanks Todd. Thanks for the question, Scott. Regarding capex, it came in at 4% of revenue in fiscal year 25. And we expect to be in that, you know, 3.5 to 4% going forward. As we know, investments can fluctuate from quarter to quarter and year to year but we like to be in that 3.5 to 4% range as a percent of sales. I believe your second question was related to the tax bill and we are not, based on the strength of our balance sheet and financials, we're not expecting any material impact from the tax bill on our tax rate, cash flow or the business in general.

Great. Thanks guys.

And our next question comes from Tony Kaplan from Morgan Stanley. Please go ahead Tony.

Hi, good morning. This is Yehuda Silverman on the line for Tony Kaplan. So, just had a quick question about new sales. So, typically what's the main driver for a customer to switch providers? Is there a certain product or area that's more or most attractive to customers?

The only thing I would say is, the new business wins converting from a traditional competitor over to us. They happen for a variety of different reasons and we believe we have a lot of differentiators from the product line to the service to the technology offerings for the customers. But just as a maybe a level setting is that about two-thirds of our new business comes from what we call non-programmers or really that as Todd described the do-it-yourself or the folks that are purchasing from some retail or e-commerce type of solution. And that's where we focus a lot of our time and that's where we have the most success. That's been a strategy for years and will continue to be a strategy and we know that that resonates well in the market.

Great. Thank you.

And our next question comes from Kartik Ma from North Coast Research. Please go ahead Kartik.

Hey, good morning Todd. Maybe on the first aid business and I know that you're able to get pricing on the uniform side just because of the service level you're providing and I'm wondering as you look at the first aid business and that double-digit growth, what component is price and what's your ability to get price increases?

And just to follow up but different topic, just use of AI, kind of where you are in Cintas, more from, you know, is it today more of a cost or is it a benefit or is it neutral?

Thank you. I appreciate it.

Great. And we have run out of time for our question and answer session. So I will turn the call back over to Jared for closing remarks.

Thank you, Ross, and thank you for joining us this morning. We will issue our first quarter of fiscal 2026 financial results in September. We look forward to speaking with you again at that time. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.