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

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Todd Schneider: Yes. George, we’re — the nature of the math around our businesses, the Rental business is obviously a large percentage of it. And we’re guiding towards margin expansion for the year. And we do not see energy being a tailwind for the balance of the year. So we expect margin expansion based upon certainly leverage on revenue growth, that’s going to be helpful. But we’re extracting those inefficiencies out of our business. And as Mike mentioned earlier, we’re proud of the fact that pricing is returning back to historical levels, but we’re still able to grow operating margin — gross margin and operating margin at very attractive levels and to levels that are all-time highs. So that’s part of our plan. And our team is actually treating at a very high level, and we expect that, that will continue.

Michael Hansen: George, I might just reiterate what I mentioned in the prepared remarks that keeping in mind that the energy benefit that we are getting is partly because we are working really hard at things like our SmartTruck initiative. So in other words, as we continue to grow really nicely with volumes, we don’t need to add as many routes and trucks as we have in the past, and that creates then better fuel efficiency, if you will, throughout our network. And so that’s a — it is a proactive initiative to get energy down. And one of those proactive ways is through that SmartTruck technology.

Todd Schneider: And Mike, I might add that when we extract those inefficiencies out, that’s better for our customers because we’re able to spend more time in front of them instead of on the road. It’s certainly better for our partners, our employee partners because it makes them that much more productive, and that’s good for them and our organization. And it’s really good for the environment. So we think — let’s say there’s a lot of boxes checked there, and we’ve worked hard on that technology over the years, and it’s showing up. And it’s benefiting not just the P&L in a more simplistic fashion, but in many ways.

Operator: Our next question comes from Tim Mulrooney from William Blair.

Samuel Kusswurm: This is Sam Kusswurm on for Tim. I guess I want to start with another health care question here. But as it relates to your health care clients, you’ve talked a lot about the opportunity here, especially as more no programmers convert. But I guess I’d like to know for those health care operators who already use a service partner, what do you think your penetration rate is? And how might that compare to some of your other customer verticals?

Todd Schneider: Sam, that’s a good question. I don’t have that in front of me. But we know this. We’re in the early innings with health care. And we’re coming up with more products and services that they find attractive. And that’s part of our culture. We will enter into a business. But then we get out from behind our desk and we go spend time with our customers. And when we find that we find the answers to what they are most interested in by speaking to them, and our customers and our employee partners. And we’re hearing from them on various areas where we can help them, and we’re taking action there. So again, a very long runway in that vertical, and that’s again part of our culture and will be part of how we go to market moving forward.

Samuel Kusswurm: Got you. Appreciate it. Maybe just another quick one on the margins. I see SG&A as a percentage of sales picked up again in the quarter compared to last year. I guess I’m wondering if there was any variable costs like your insurance expenses? Or if it was mainly some of the selling and branding investments you’ve talked about previously? Maybe you could just help break that out for us a little more.

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