Last Friday, uniform rental company Cintas (CTAS) reported an upside surprise to its second quarter of fiscal year 2015. The company operates in three segments: Uniform Rental, Uniform Sales, and First Aid, Safety and Fire Protection. Two trends have been driving the stock higher. First, two of the company’s three businesses have improved. Second, the decline in fuel costs is helping the company expand its margins. Year-to-date, the stock is up almost 37%. Cintas is one of the most shorted stocks in the S&P 500.
Cintas reported earnings of $0.86, $0.09 above the consensus forecast. Total revenue was up 7% to $1.12 billion. Gross margins jumped 160 basis points.
The First Aid, Safety and Fire Protection segment grew 12%, with operating margins increasing 200 basis points. This segment has seen strong growth the last few quarters, as the company has continued to provide innovative products to it customers. More comfortable eye protection, workplace defibrilators, and better-designed first aid cabinets have been big hits with customers. At the end of the quarter, First Aid was just 13% of revenue. The company is also seeing a strong “re-matting” business. The company rents entrance mats to businesses. Cintas cleans and replaces the doormats during periods of heavy foot traffic or during winter weather. That business is just starting to ramp.
Rental Uniforms, which makes up 77% of revenue, has improved as U.S. manufacturing has picked up. Revenue increased 8.1%, mostly driven by penetration into new accounts and expansion by existing accounts. Firming pricing has helped operating margins to expand 210 basis points.
