Cintas Corporation Form 10-K Summary
Reporting period: Fiscal year ended May 31, 2022. The requested “2021 Q4” period does not match the filing; this is an annual Form 10-K covering fiscal 2022, with comparisons to fiscal 2021 and 2020. Cintas provides uniform rental, facility services, first aid and safety products, fire protection services and uniform direct sales to more than one million businesses, primarily in the United States.
Financial Performance and Position
| Metric | Fiscal 2022 | Fiscal 2021 | Change |
|---|---|---|---|
| Total revenue | $7.854 billion | $7.116 billion | 10.4% increase |
| Operating income | $1.587 billion | $1.385 billion | 14.6% increase |
| Income before taxes | $1.499 billion | $1.288 billion | 16.4% increase |
| Net income | $1.236 billion | $1.111 billion | 11.2% increase |
| Diluted EPS | $11.65 | $10.24 | 13.8% increase |
| Cash from operating activities | $1.538 billion | $1.361 billion | 13.0% increase |
| Capital expenditures | $240.7 million | $143.5 million | Increase |
| Cash and equivalents | $90.5 million | $493.6 million | Decrease |
- Revenue mix: Uniform Rental and Facility Services generated $6.227 billion, First Aid and Safety Services generated $832.5 million, and All Other generated $795.0 million.
- Organic growth: Total organic revenue growth was 10.2%; quarterly growth accelerated from 8.6% in the first quarter to 12.7% in the fourth quarter.
- Margins: Gross margin was 46.2%, compared with 46.6% in fiscal 2021. Income before taxes was 19.1% of revenue, compared with 18.1%. Selling and administrative expenses improved to 26.0% of revenue from 27.1%.
- Cash flow allocation: Fiscal 2022 operating cash flow funded capital expenditures, acquisitions, dividends and significant share repurchases. Net cash used in investing activities was $402.6 million, and net cash used in financing activities was $1.538 billion.
- Debt: Total debt carrying value was approximately $2.811 billion at May 31, 2022, compared with $2.550 billion at May 31, 2021. The company had $261.2 million of commercial paper outstanding and no revolving-credit borrowings at year-end.
- Liquidity: The revolving credit facility was increased to $2.0 billion and extended to March 2027; no borrowings were outstanding at May 31, 2022. Management stated that operating cash flow and available borrowing capacity should provide adequate liquidity.
- Shareholder returns: Fiscal 2022 dividends declared were $3.80 per share. The company repurchased approximately 3.7 million shares for $1.405 billion under board-authorized programs, plus $121.2 million of shares acquired for employee tax obligations.
Material Changes Versus Fiscal 2021
- Revenue growth benefited from increased sales volume, new business, greater penetration of existing customers, price increases and the easing of COVID-19 restrictions. Acquisitions and foreign currency effects each contributed approximately 0.1% to total revenue growth.
- Uniform Rental and Facility Services revenue increased 9.4%, while its gross margin declined to 46.7% from 47.6%, primarily because of higher energy costs and labor investments.
- First Aid and Safety Services revenue increased 6.1%, and gross margin improved to 44.7% from 42.4%, partly because personal protective equipment represented a smaller share of sales.
- Interest expense, net, declined to $88.6 million from $97.7 million, primarily because higher-rate debt maturing in fiscal 2022 was replaced or refinanced at lower rates.
- Results included a $30.2 million gain from acquiring the remaining interest in an equity-method investment and a $12.1 million gain on the sale of operating assets. These gains improved fiscal 2022 selling and administrative expense comparisons.
- Acquisition spending increased to $164.2 million of cash paid, excluding certain purchase-price allocation effects, from $10.0 million in fiscal 2021.
- Cash declined substantially because of $1.526 billion of share repurchases, dividends, acquisitions, capital expenditures and debt activity.
- The effective tax rate increased to 17.5% from 13.7%, with both periods affected by discrete tax items, including stock-based compensation and transaction-related benefits.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide specific fiscal 2023 revenue, earnings or margin guidance. Management expects operating cash flow to remain sufficient for liquidity and intends to continue evaluating acquisitions, share repurchases and dividends based on economic conditions and liquidity.
- COVID-19: Vaccination rollout and easing restrictions supported fiscal 2022 recovery, but the company stated that the pandemic’s continuing effects remain uncertain. Excess personal protective equipment inventory resulted in reserves of $28.5 million at May 31, 2022.
- Inflation: Higher labor, fuel and transportation costs materially affected operations. Management stated that pricing and efficiency initiatives mitigated the impact so that inflation did not have a material adverse effect on fiscal 2022 results.
- Operating risks: Key risks include labor shortages and wage inflation, energy and fuel costs, supply-chain disruption, competitive pricing, customer outsourcing or insourcing, acquisition integration, foreign currency movements and economic downturns.
- Financial risks: Higher interest rates, reduced access to commercial paper or debt markets, credit-rating downgrades and debt covenant breaches could increase financing costs or reduce liquidity. The company was in compliance with debt covenants at year-end.
- Legal and regulatory matters: Cintas faces ordinary-course personal injury, employment, customer contract and environmental claims. A purported ERISA class action remains pending; management stated that the related contingency was neither probable nor estimable at May 31, 2022.
- Cybersecurity and technology: The company has experienced cybersecurity incidents, but none had a material adverse effect individually or in aggregate as of the filing date. Disruptions or breaches involving company or third-party systems remain a material risk.
- ESG: Cintas has an ambition to achieve net-zero greenhouse gas emissions by 2050, but achievement depends on operational execution, suppliers and evolving regulatory and stakeholder expectations.
- Accounting and controls: The company adopted ASU 2019-12 on income taxes without a material current impact. Management and Ernst & Young concluded that internal control over financial reporting was effective; the audit opinion was unqualified.
Investor Verification Priorities
- Verify that fiscal 2022 results, rather than a fiscal 2021 fourth-quarter filing, are the intended comparison period.
- Assess the sustainability of 10.2% organic growth and the 12.7% fourth-quarter organic growth rate.
- Separate recurring operating performance from the $30.2 million equity-method investment gain and $12.1 million asset-sale gain.
- Monitor whether labor, fuel, energy and transportation inflation continues to pressure Uniform Rental and Facility Services gross margin.
- Review debt maturities, commercial paper usage, interest-rate exposure and the $2.0 billion revolving facility.
- Evaluate cash deployment, particularly the $1.526 billion of fiscal 2022 share repurchases compared with year-end cash of $90.5 million.
- Track COVID-19 effects, inventory reserves, customer collections and any additional supply-chain disruption.
- Follow the pending ERISA litigation, environmental matters, tax audits, cybersecurity disclosures and progress toward the 2050 net-zero objective.