Cintas Corp Q3 2025 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: George Tong - The Goldman Sachs Group, Inc. - Analyst : Can you talk a little bit about how customer purchasing behaviors in sales cycles are changing given the currently evolving ago environment?

Question: George Tong - The Goldman Sachs Group, Inc. - Analyst : Got it. That's helpful. And just as a quick follow-up. You mentioned last quarter that you were experiencing some pricing normalization as inflation normalizes. Can you talk a little bit about how pricing trends are performing this quarter compared to past quarters?

Question: Jasper Bibb - Truist Securities - Analyst : I was hoping you could update us on what you're seeing on the COGS side related to tariffs on Mexico and China? And I guess, is there any way to frame the exposure to purchasing from those countries and what you might be able to do to offset any potential increased costs with your sourcing efforts?

Question: Jasper Bibb - Truist Securities - Analyst : And then maybe stepping back on the M&A question. Are you thinking about the opportunity to consolidate, I guess, more midsized private platforms that could be available in rental uniform or your other industry verticals? And I guess, separately, how would you characterize the pipeline of those smaller tuck-in size deals for that?

Question: John Ronan Kennedy - Barclays Bank PLC. - Analyst : This is Ronnie Kennedy on for Manav. Could I please reconfirm the primary drivers of the -- of the impressive margins, especially at the GM level? And then also the sustainability of those drivers and how that will evolve going forward in consideration as to whether the 25% to 35% incremental range is still the right way to think about it?

Question: John Ronan Kennedy - Barclays Bank PLC. - Analyst : Appreciate it. And then going, I guess, to a more granular level with that question, how should we think about the current operating and incremental for the respective segments? Uniforms and First Aid drivers and sustainability there? And I guess also for Fire Protection, I understand there is going to be some potential impact of SAP conversion next year, but just anything to be mindful of margin-wise by segment specifically?

Question: Luke McFadden - William Blair & Co. LLC - Analyst : Maybe starting off one here just on the macro picture. I fully recognize you're not providing guidance for 2026 at this time. But just curious, kind of at a high level, how should we think about the setup heading into next fiscal year, given organic growth in the business remains pretty healthy, but obviously, there's a decent amount of uncertainty out there right now?

Question: Andrew Steinerman - JPMorgan Securities - Analyst : Two questions, one small one, one math one. So what was energy and fuel cost as a percentage of revenues in the just reported third quarter? And my second question is, could you tell us what's implied, what's embedded in your full year organic revenue growth guidance. When you look on a sequential basis, at the fourth quarter that we're in now versus the third quarter? And you can imagine I'm talking about organic constant currency sequential same-day basis.

Question: Andrew Steinerman - JPMorgan Securities - Analyst : Right. So maybe let me just ask you one other way. When you look at the sequential revenue for the fourth quarter that we're in versus the third quarter we just reported, are you assuming a normal seasonal pattern?

Question: Justin Hauke - Robert W Baird - Analyst : I guess I just wanted to follow up on that tech question that was just asked because it would look like the fourth quarter organic constant currency and workday adjusted implied number with having that same FX headwind and the M&A contribution would be closer to like 6% versus the high 7's that you've done in the last two quarters. So I guess I was just curious why there would be kind of a deceleration there? And then the second one, and this is also just purely a number question. But the $15 million gain on sale, which segment was that on the SG&A line?

Question: Justin Hauke - Robert W Baird - Analyst : Okay. All right. Thank you for clarifying that. I guess we'll check the math on the workdays, but it sounds like it should be similar to what you've did.

Question: David Paige - RBC Capital Markets - Analyst : This is David Paige on for Ashish. Can you just dive a little bit deeper into Uniform Direct Sale. It looks like sequentially, it performed better but still a little down, so any color there? And then as a follow-up, just circling back to the capital allocation. Can you just give us an overview of, I guess, like the valuations and the multiples you're seeing out in the market? And absent of any large M&A, would you shift towards a buyback?

Question: Scott Schneeberger - Oppenheimer & Co. Inc. - Analyst : I just wanted to touch base on -- I think it's pronounced Huebsch, the acquisition you made a quarter or two ago. Any learnings or just a progress report there? And any evolution or opportunity to offer new Cintas products, not only stemming from perhaps that but from other acquisitions or ideas or initiatives you've come with recently? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 26, 2025 / 2:00PM, CTAS.OQ - Q3 2025 Cintas Corp Earnings Call

Question: Scott Schneeberger - Oppenheimer & Co. Inc. - Analyst : Appreciate that. And for the follow-up, just free cash flow has been very strong this year. Looks like in working capital, you've been making a lot of improvement. Just curious what has occurred structurally perhaps thinking ahead to the out years, are you going to be able to achieve a new level? And how should we think about free cash flow as a percent of revenue perhaps? And are you moving in a very positive direction? And then maybe some discussion of how that's occurred.

Question: Shlomo Rosenbaum - Stifel Financial Corp - Analyst : I just have a few questions out there. Todd, are you seeing any change at all competitively? One of your major competitors has just seen a lot of change on the top of their organization. I was just wondering, is that something that you kind of notice on the ground? Or is that not really noticed on the ground over the last kind of 1 year, 1.5 years? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 26, 2025 / 2:00PM, CTAS.OQ - Q3 2025 Cintas Corp Earnings Call

Question: Shlomo Rosenbaum - Stifel Financial Corp - Analyst : Great. Just one follow-up for Mike. Can you just give us a heads up and what the days look like for the quarters and fiscal year '26 for our modeling? Like is the year the same? Are there any nuances between the quarters?

Question: Harold Antor - Jefferies Financial Group Inc. - Analyst : This is Harold on for Stephanie Moore. So I guess just real quick on the tech investment side, you talked about SAP, SmartTruck and myCintas portal. I know you still have some -- I know you're still rolled in on. So if you could just provide us a sense of where you are, at least like which inning you're in along that journey? And I guess if you're doing any other incremental tech investments in the business that you want to materialize, that would be helpful.

Question: Harold Antor - Jefferies Financial Group Inc. - Analyst : I guess just on your verticals, health care, hospitality, food services. Anything to call out there? Are you seeing any new business wins in any particular vertical this quarter or any in the pipeline that you would like to call out? And then, I guess, also on the new business win side, it sounds like you've seen some new business wins on the larger side. So are you -- when you look at your new business wins, are they more so coming from national accounts now versus small businesses? Anything around the -- that would be helpful.

Question: Toni Kaplan - Morgan Stanley & Co LLC. - Analyst : I was hoping you could give us an update on cross-selling, how many products on average, each customer is purchasing, how that's trended. Just maybe -- what -- where are you seeing the most cross-selling or add-ons? Like is there a specific type of product or within a certain vertical? Just anything on cross-selling would be helpful.

Question: Toni Kaplan - Morgan Stanley & Co LLC. - Analyst : Great. And then just as a follow-up on outsourcing, we talked about it a couple of times how there could be an opportunity if customers want to reduce their budgets that you can provide some help to them there. Just wanted to get a sense of, historically, when you've seen sort of periods of budget tightening or uncertainty. Like do you tend to see that outsourcing accelerate. Like just -- obviously, that could be offset by other things. But do you -- have you seen that historically and just maybe an update on outsourcing and how that's been trending over the last, call it, few months?

Question: Jason Haas - Wells Fargo - Analyst : I wanted to follow up to response to an earlier question on pricing, just if you could put a finer point on it. I think you had said that we're right in the historical range, which my understanding of the historical range was that 0% to 2%. And I thought I was as of last quarter, the pricing was running more like 2%. So I wasn't sure if that implies that there's been further moderation in pricing from last quarter and now, we just think about closer to the midpoint of that range. So if you could just kind of clarify that would be helpful.

Question: Jason Haas - Wells Fargo - Analyst : Got it. Okay. That's helpful. And then just on the incremental margins on the thought that 25% to 35% is the right range. I think we're going to be definitely will be above that this year, it seems. So can you help me just understand what -- what will drive the incremental margins back down to that 25% to 30% range? I'm not sure exactly what the gain on sale, the $15 million gain on sale. So like I assume that's not a recurring. I don't know as vehicle sales or what, but I assume that's not a recurring benefit. And then I know that there's the SAP implementation for Fire but is there anything else to think about that sort of brings those incremental margins back down lower going forward?

Question: Leo Carrington - Citigroup - Analyst : On the topic of M&A away from UniFirst itself, are there any other large M&A targets in North America? And if not in Uniform Rentals, where does this leave you other route-based service targets of interest maybe outside of North America? Or are you just solely focused on the tuck-in otherwise?