Jared Mattingley introduced the call, mentioning that Todd Schneider, the President and CEO, and Mike Hansen, the Executive VP and CFO, would discuss Cintas's fiscal year 2025 first quarter results. He noted that the call contains forward-looking statements subject to risks and uncertainties, referencing their latest SEC filings for more details. Todd Schneider then expressed satisfaction with the company's start to fiscal 2025, highlighting an all-time high first quarter revenue of $2.5 billion, a 6.8% growth. Adjusting for one less workday and other variables, the organic growth rate was 8.0%, with all business divisions contributing to the quarter's success.

In the first quarter, Cintas experienced significant growth in its rental division, first aid and safety, and fire protection businesses, all of which saw double-digit year-over-year increases. The company emphasizes its potential to serve 16 million North American businesses and notes strong demand from both existing and new customers, particularly in healthcare, hospitality, education, and state and local government sectors. Financially, Cintas achieved record highs in gross margin and operating income, with diluted EPS growing 18.3% to $1.10. The company's earnings growth is attributed to a focus on operational excellence, strategic sourcing, supply chain initiatives, route and energy optimization, and efficient use of SAP systems. Strong cash flow enabled significant capital deployment according to strategic priorities, aiming to deliver long-term shareholder value.

In the first quarter, we invested $92.9 million in capital expenditures and made acquisitions across our three route-based segments, focusing heavily on technology to streamline processes and enhance customer flexibility. Collaborations with Verizon, Google, and SAP have improved efficiency and customer service. Alongside business investments, returning capital to shareholders through dividends and share repurchase is a priority. We increased the quarterly dividend by 15.6%, resulting in a $157.9 million payout, and repurchased $473.6 million worth of stock. Based on strong first-quarter results, we have raised our revenue guidance for fiscal 2025 to a range of $10.22 billion to $10.32 billion, up from the initial $10.16 billion to $10.31 billion estimate, reflecting 6.5% to 7.5% growth.

The company anticipates an organic growth rate of 7.0% to 8.1% and has increased its annual diluted EPS expectations to a range of $4.17 to $4.25, reflecting a growth rate of 10.0% to 12.1%. In the first quarter of fiscal 2025, revenue reached $2.5 billion, up from $2.34 billion the previous year, with an adjusted organic revenue growth rate of 8%. However, total growth was negatively affected by 160 basis points due to one fewer workday. Notably, each quarter in fiscal 2025 has 65 workdays, with two fewer workdays impacting the fiscal year overall. Organic growth varied among business segments, with uniform rental and facility services at 7%, first aid and safety services at 14%, fire protection services at 13.8%, and a decline of 1.8% in uniform direct sales. Gross margin for Q1 fiscal 2025 was $1.25 billion, representing a 9.7% increase and reaching 50.1% of revenue, driven by strong operating leverage, supply chain efficiency, technology investments, and operational efficiencies. Gross margin percentages across business segments were also highlighted, with uniform rental and facility services at 49.3%, first aid and safety services at 57.7%, fire protection services at 50.2%, and uniform direct sale at 40.6%.

The paragraph highlights the company's improved financial performance, particularly in the uniform rental and facility services, and first aid and safety services segments. Gross margins increased by 120 and 180 basis points respectively, driven by strong revenue growth, supply chain efficiencies, and technology investments. Selling administrative expenses rose slightly as a percentage of revenue due to ongoing strategic investments. Operating income grew to $561 million, with a percentage increase of 100 basis points compared to the prior year. The effective tax rate dropped to 15.8%, and net income for the first quarter rose to $452 million, resulting in a diluted EPS increase of 18.3% to $1.10.

In the paragraph, Cintas highlights their strong cash flow and significant first-quarter capital expenditures of $92.9 million. Investments were made in technology for growth, automation for efficiency, and additional processing capacity. Capital expenditures for the year are expected to be between 3.5% and 4% of revenue. Fiscal '25 financial guidance indicates a net interest expense of $101 million and an effective tax rate of 20.4%, consistent with fiscal '24. The guidance excludes future share buybacks or major economic disruptions. Additionally, Todd Schneider emphasizes the value of Cintas's culture and employee ownership in the company, noting a recent 4-for-1 stock split approved to enhance accessibility for investors and employee partners.

The paragraph outlines the company's outlook for fiscal '25, emphasizing their continued confidence in their strategy to help customers with their image, safety, cleanliness, and compliance needs. They remain focused on delivering excellent customer experiences and making necessary investments for sustained growth beyond fiscal '25. The speaker, Jared Mattingley, then hands the call over for questions from analysts, with the first question from George Tong of Goldman Sachs about the overall selling environment and customer purchasing behaviors in light of macroeconomic conditions. Todd Schneider responds, indicating no significant change in customer behavior or demand, citing continued strong demand from their customers across various sectors.

The paragraph discusses how Cintas successfully chooses and invests in verticals by focusing holistically on customer needs, driven by a culture of continuous improvement and innovation. By engaging directly with customers, particularly in the healthcare sector, Cintas identified issues such as lack of accountability in scrub inventory, which led to garment hoarding and reliance on substandard products. They addressed this with garment dispensing technology, achieving success in various clinical areas. Another opportunity identified is helping healthcare customers manage privacy curtains.

The paragraph discusses a significant compliance issue related to the frequent cleaning of privacy curtains in various healthcare settings, such as patient rooms, recovery areas, and emergency rooms. The company addressed this challenge by developing patented products and technology that track compliance, thereby creating a safer, more compliant, and efficient environment. This new solution alleviates the burden on environmental services staff. The narrative emphasizes the company's culture of listening to customer needs and providing tailored solutions. Following this, there is a transition to a Q&A session where Todd Schneider responds to a question, explaining that historically two-thirds of their new customers are from markets that did not previously have a traditional competitor.

In this discussion, Todd Schneider explains that their business caters to a wide range of customers across various industries and business sizes in North America, highlighting the significant growth potential. Luke McFadden and Todd Schneider express optimism about future opportunities given the untapped market. Andrew Steinerman from JPMorgan inquires about merchandise amortization's impact on the quarter and fiscal year trends. Mike Hansen responds, indicating material cost in the rental business has been a strong area for them.

The paragraph discusses the progress and benefits of SmartTruck and the partnership with Google. Todd Schneider explains that SmartTruck, a proprietary technology, enhances business efficiency by allowing more time to be spent with customers rather than driving. This increased customer interaction enables the company to better understand and address customer needs, especially in specific areas such as healthcare.

The paragraph discusses the company's strategic focus on its fire business, highlighting its significant growth potential and attractive margin profile. The business benefits from both organic and M&A opportunities, and is unique because every business is legally required to have fire-related services like sprinklers, alarms, extinguishers, and emergency lights. The company values its relationships with Google and SAP, as these partnerships help optimize infrastructure and employee placement. Investments in SAP systems aim to unify route-based systems for better customer insights. Overall, the company is optimistic about the future growth and profitability of its fire business.

The paragraph discusses financial performance and the impact of the SAP implementation on margins in a fire business. Mike Hansen highlights that the gross margin for the fire business has been consistently at 50% for the past two quarters, reflecting good management. He notes there will be pressure on fire margins in fiscal '25 due to the SAP implementation, which affects SG&A (Selling, General, and Administrative expenses). Despite pressure, there are anticipated long-term benefits once the system is fully operational. This is incorporated into their overall financial guidance. Following this, Ronan Kennedy from Barclays asks about the sustainability of margin expansion and whether any of the growth factors are one-time occurrences. Todd Schneider acknowledges the question.

The paragraph features a discussion about the company's focus on removing inefficiencies in their business and maintaining a flexible approach to their aspirations. Ronan Kennedy inquires about the current competitive dynamics and the impact of recent industry activities on capital allocation, particularly regarding mergers and acquisitions (M&A). Todd Schneider responds by emphasizing the importance of M&A in their business strategy, their strong competitive position, and their ongoing investments to stay competitive. The paragraph concludes with another question from Josh Chan asking about the rental business and wearer levels.

In response to a question about Cintas' playbook for sustaining growth, Todd Schneider and Mike Hansen highlight that while adding jobs is beneficial, Cintas has shown it can grow regardless of employment trends or economic cycles. They emphasize their commitment to investing in their employees and future growth to maintain their business success. Additionally, Hansen notes that Q1 growth was strong and aligned with expectations, enabling them to raise the low end of their full-year growth guidance. They project a year-over-year same-workday growth rate of 7.3% to 8.4%, with similar growth expected for the remaining quarters.

In this paragraph, Andy Wittmann asks Todd Schneider about the company's rollout of RFID technology and automation, including auto-sortation, in its plants. Andy inquires about the current status, future direction, and potential technological advancements or limitations in these areas. Todd Schneider acknowledges the questions and emphasizes the company's culture of continuous innovation, which they refer to as a "spirit of positive discontent."

The paragraph discusses the company's ongoing commitment to innovation, particularly in making business operations more efficient for both partners and customers. It highlights the use of RFID technology and auto-sortation in their facilities to improve inventory control and reduce inefficiencies. The company is continuously testing and investing in proprietary technologies to enhance these processes. The conversation then shifts to exploring new end markets beyond their established sectors like healthcare, government, and education, indicating a focus on growth and diversification.

In the paragraph, Todd Schneider clarifies that while the company always seeks new growth opportunities, residential home services are not a current focus for investment due to its differences from their main business areas. Shlomo Rosenbaum then inquires about standout growth in specific client verticals. Schneider responds that the company is performing well overall, with notable investments in healthcare, hospitality, education, and state and local governments. These sectors are expected to continue growing strongly, aligned with positive job reports and demographic trends in North America.

In the discussed paragraph, Shlomo Rosenbaum inquires about the discrepancy between the reported stock repurchase figures in the press release and the cash flow statement. Mike Hansen clarifies that the difference arises because the press release figure only reflects the board-approved buyback, while the cash flow statement includes additional effects from employee stock options exercises and tax withholdings for restricted shares. Following this, Ashish Sabadra asks about the company's impressive margin expansion in the recent quarter, inquiring how it aligns with the company's midterm guidance. Hansen responds by stating that while their target margin expansion range is 25% to 35%, actual margins can fluctuate due to varying investment periods.

The paragraph discusses the company's expectations for the current year's workdays and their impact on performance, with an overall positive outlook on margin improvement. Ashish Sabadra then inquires about the company's merger and acquisition (M&A) strategy. Todd Schneider responds by affirming the importance of M&A to their business strategy and their openness to deals of various sizes. He notes challenges with specific acquisitions, like the under-invested asset of Vestas, but emphasizes the general attractiveness of M&A and the difficulty in predicting when sellers are ready to engage in transactions.

In the paragraph, Faiza Alwy from Deutsche Bank asks about the drivers behind the organic revenue growth in the first aid business and the sustainability of such growth. Todd Schneider responds by highlighting that the first aid and safety business has seen strong demand, partly boosted by changes in health and wellness perceptions due to the pandemic. He explains that a significant number of North American businesses are suitable candidates for their products and services. The pandemic shifted the focus from personal protective equipment (PPE) to a broader range of health and safety products like first aid cabinets, AEDs, eyewash stations, and potable water solutions. The company has responded by investing in technology, sales personnel, and service partners to cater to this demand effectively.

The paragraph discusses the synergy between the compliance training business and the uniform business. Faiza Alwy inquires about the overlap of customers between these businesses. Todd Schneider does not have specific metrics but explains that while the two businesses operate with separate trucks, they benefit from shared customer data and cross-selling opportunities. He highlights that employee interactions with customers often lead to identifying additional needs. Depending on the initial service provided—whether it's first aid, fire safety, or rentals, which is their primary and longest-standing business—there is significant potential for further business integration and growth.

The paragraph discusses a Q&A session where Stephanie Moore from Jefferies inquires about the competitive dynamics in the vendor market, specifically regarding aggressive tactics and pricing challenges. Todd Schneider acknowledges the competitive nature of the market, which has been consistent since he joined the company in 1989. He emphasizes the company's strategy of leveraging vast market opportunities and investing in their business to deliver superior customer solutions. Despite the competitive environment, there hasn't been a significant change in behavior. Stephanie then touches on potential industry consolidation, as previously mentioned in the session.

The paragraph discusses how industry consolidation might impact the company and its competitive landscape. Todd Schneider and Mike Hansen express that while they closely monitor competition and acknowledge the strength of their competitors, they do not believe consolidation would significantly impact their business. They emphasize focusing on investing in their business to better serve customers and compete against both traditional and non-traditional competitors like Amazon and Walmart. Stephanie Moore adds that the environment has always been competitive and inquires if greater consolidation, including potential new entrants to North America, would make it more or less competitive.

In the paragraph, Todd Schneider expresses that despite the intense current competition in their industry, the entry of an international competitor wouldn't significantly alter the competitive dynamics. Their focus will continue to be on delivering value to customers. Stephanie Moore feels she's asked enough questions and stops. Scott Schneeberger from Oppenheimer then asks about the persistence of organic declines in uniform direct sales over the past five quarters and the projection for the rest of the year, as well as the reasons behind the strong free cash flow in the first quarter. Todd Schneider attributes the sales decline to the inherently inconsistent nature of the direct sales business and emphasizes their continued strong position. Mike Hansen mentions that the strong cash flow is partly due to timing, such as changes in accrued compensation liabilities.

The company's accounts payable efforts have positively impacted cash flow, with expectations for free cash flow conversion of net income to stay in the typical 90% to 100% range for the year. Jason Haas from Wells Fargo inquires about price increases and their reception by customers, to which Todd Schneider responds that price adjustments are a minor growth component and have lowered since peak inflation, but the discussions remain challenging. Schneider emphasizes the importance of providing value and training employees well. Haas then asks about the hiring market, and Schneider describes it as consistently challenging to find great people.

The paragraph discusses the easing of the hiring market post-pandemic while noting that it remains challenging. The speakers emphasize their ongoing investment in future opportunities. The conversation ends with thanks from Todd Schneider, a sign-off from the operator, and an announcement from Jared Mattingley that the next financial results will be released in December. The call concludes with an invitation to join the next update.

This summary was generated with AI and may contain some inaccuracies.