Cintas Corporation (NASDAQ:CTAS) Q1 2024 Earnings Call Transcript

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Justin Hauke: I wanted to ask about the First Aid margins because it kind of sustainably been higher than they have been historically and really more comparable to the Uniform Rental and the Facility Services segment. And I guess the question is, I mean, for years, that was kind of a scale business where you were building it out and it had lower margins. Are you at the point now where like that business has reached a point where it has very comparable margin sustainably to the Uniform Rental business?

Todd Schneider: Yes, we really like the First Aid business. I mean it’s — that it resonates with our customer base. They — a strong value proposition is helping our revenue growth. The mix has returned closer to historical with First Aid and Safety. And Justin, just like our other businesses, we’re using various technologies to extract inefficiencies out of our business. And there’s certainly no exception to that. I mentioned that our global supply chain team has done — doing a great job in sourcing product, and we’re benefiting from sourcing there. But yes, we see — certainly, there is — running a business is not linear. But that being said, we certainly think that gross margins in excess of 50 are sustainable in that business.

Justin Hauke: Okay. Great. And then I guess the last one is kind of more procedural, I guess. But you did — it looks like on the cash flow about $56 million spending on acquisitions in the quarter, which is a little bit higher than what you guys typically do. Do you have any comments on kind of where that was, where we should see the revenue flow from it?

Todd Schneider: Well, I’ll start, and Mike can chime in. The — Justin, as you know, we love leveraging our balance sheet for M&A. And we think it’s a great use of cash, and we’re very happy with the fact that we were able to deploy some of the cash to leverage that opportunity. And we are acquisitive in all 3 of our operating segments that are route-based. And we made acquisitions in all 3, so — in Q1. So we’re pleased with that, and we think that will — is a great opportunity for us to bring those customers into the fold, those partners, those employee partners into the fold and provide more value and cross-sell to those customers that are now part of Cintas.

Operator: And our next question comes from George Tong from Goldman Sachs.

George Tong: In the past, you’ve talked about strong demand from the health care, education and government verticals in driving Uniform Rental’s growth. Can you discuss the latest trends you’re seeing in these end markets and what’s fueling the growth?

Todd Schneider: Yes, those are 3 great verticals for us. I mean, they’re 3 great segments of the North American economy. And so, yes, we’re still seeing outsized growth in those markets. And as we’ve chatted about in the past, it’s more than just a sales effort. We’ve organized around them. We’ve got products for them. We’ve got technologies for them. And that is resonating with that customer base. So we think we’ve chosen them quite well, and there’s plenty of runway in all of them. So we’re, again, quite bullish on the future of those segments.

George Tong: Got it. And then with respect to margins, your gross margins expanded 60 bps year-over-year in your Uniform segment. Most of that appears to be driven by lower energy costs. Can you discuss puts and takes around Uniform gross margins in the quarter and opportunities for additional margin expansion over the remainder of this year that comes above and beyond tailwinds you’re seeing from lower energy costs?

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