Cintas Corp Q4 2024 Earnings Call Transcript

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

Question: Joshua Chan - UBS Equities - Analyst : Hi. Good morning, Todd, Mike, and Jared. Congrats on a strong quarter. I was wondering, I guess the comment on your retention rate. I know that you said it's generally stable. Have you seen any slight uptick in industry churn or downtick in retention, I guess? Or how are you seeing your customers behave in this environment?

Question: Joshua Chan - UBS Equities - Analyst : Great to hear. And then up for my follow-up. Could you just talk about your reasoning behind choosing that 6.4% to 8.0% organic growth for next year? I guess in the context of just doing 7.5% in Q4, what are the scenarios that would lead you to the bottom and the top end of the growth range? And thank you so much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 18, 2024 / 2:00PM, CTAS.OQ - Q4 2024 Cintas Corp Earnings Call

Question: Heather Balsky - BofA Global Research - Analyst : Can you just update us on how you're thinking about incremental margin and how you're thinking about the margin story for 2025? And what are the bigger tailwinds? What are you most excited about? And anything going on in the cost environment as well? Thank you.

Question: Heather Balsky - BofA Global Research - Analyst : That's really helpful. Thank you very much.

Question: Andy Wittmann - Robert W. Baird & Co., Inc. - Analyst : Todd, I thought I would start with the competitive environment. Both of your largest competitors have noted increased competition out there and I know that your product and service offering is a little bit broader. But I thought just given those competitor comments, I would take your temperature and have you comment if you could please, on what you're seeing out there in the competitive environment?

Question: Andy Wittmann - Robert W. Baird & Co., Inc. - Analyst : Appreciate that. And then I guess maybe, Mike, I guess I wanted to ask some of the margin questions a little bit different way. First as I was just doing the math between the EPS and the revenue, I was getting somewhere around 20 or 30 basis points of implied operating margin expansion for the year. So maybe you could just give clarify that. But that's a pretty decent deceleration from the amount of margin expansion certainly saw in the quarter or even over the course of the past fiscal year. So I was just wondering if you could comment and if there's anything, any categories inside the P&L that we should be aware of that are inflating more materially or if there's other areas maybe energy costs. I don't know that we should be aware of that could be weighing on continued margin expansion like we've seen here in recent quarters. Thanks.

Question: George Tong - Goldman Sachs - Analyst : Can you talk a bit about the progress you're making with penetrating your high growth focus verticals, including health care, hospitality, education, and government. Where you're seeing particularly good traction?

Question: George Tong - Goldman Sachs - Analyst : Got it. Very helpful. Thank you.

Question: Tim Mulrooney - William Blair & Company - Analyst : Just one from me and I hopped on late, so apologies if this has got addressed, but a few of your competitors have recently cited more pricing pushback and an increasing number of customers putting their contracts out to bid. I'm wondering on this pricing idea, if you're seeing a similar REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 18, 2024 / 2:00PM, CTAS.OQ - Q4 2024 Cintas Corp Earnings Call dynamic where customers are becoming more price sensitive in this environment? Or do you think that this is less of an issue for the industry overall and could perhaps be more specific to these individual companies or markets?

Question: Tim Mulrooney - William Blair & Company - Analyst : Okay. So not really seeing pushback on pricing. And Todd, would you say it's certainly not lost on us, but you had strong incrementals this quarter as pricing moderated. Would you say now pricing has fully normalized that there is no more headwinds as we head into 2025 from moderating pricing or is that are you still in that process?

Question: Andrew Steinerman - JPMorgan - Analyst : Hey, if you believe it, I'm just going to ask you to clarify something you just said. So you talked about moderating pricing. When I hear the words moderating pricing, I hear price decreases. I assume what you mean is you're moderating to a more normal type of modest price increase. And then when talking about fiscal '25, are you talking about modest price increases or really flat pricing year over year for existing customer? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 18, 2024 / 2:00PM, CTAS.OQ - Q4 2024 Cintas Corp Earnings Call

Question: Andrew Steinerman - JPMorgan - Analyst : That's true for the fiscal '25 [ right]?

Question: Andrew Steinerman - JPMorgan - Analyst : Okay. Thank you very much. Good clarification.

Question: Jasper Bibb Bibb - Truist Securities, Inc. - Analyst : I was hoping if you could give a bit more color on what you're seeing as far as net headcount at customers or their hiring posture and any expectations there embedded in your fiscal '25 organic growth guidance?

Question: Jasper Bibb Bibb - Truist Securities, Inc. - Analyst : Got it. Last one for me. Maybe asking an earlier question a little bit differently. With this whole dynamic of peers talking about increased churn, including at some of their larger national accounts. If you're not seeing a pricing or retention hit, are you potentially taking away some of this competitor business at a higher rate given these market dynamics?

Question: Manav Patnaik - Barclays Capital Inc. - Analyst : I just had one question. Earlier you talked about how you have been the most active in M&A for many years now. So I'm just curious if you could just talk a little bit more about why now and perhaps what the pipeline in each of your segments looks like for future M&A.

Question: Manav Patnaik - Barclays Capital Inc. - Analyst : Okay. Fair enough. Thank you, guys.

Question: Scott Schneeberger - Oppenheimer & Co., Inc. - Analyst : I have two. The first one is you've been seeing over the course of the year about investing in your selling capabilities, technology, management, training. Just an update there. And also you've been alluding to [a lot to my] Cintas portal. Any quantification you can put on that about penetration or anything else about how that's progressing? Thanks.

Question: Scott Schneeberger - Oppenheimer & Co., Inc. - Analyst : Thanks. And a follow-up is for your fiscal year and all-time high in the fourth quarter on the operating margin. So a conceptual longer term question. You guys have done great in simplifying the -- implementing the ERP and reaping benefits from it. What can you get to for peak margins? I mean you've talked about incremental margins 25%, 35% range. Can you get to 25% properly? Can you get to 30% longer term. Just some consideration on what aspirational targets would be reasonable? Thanks.

Question: Scott Schneeberger - Oppenheimer & Co., Inc. - Analyst : Thanks. Great job.

Question: Ashish Sabadra - RBC Capital Markets - Analyst : Maybe just a question on the guidance philosophy because when you think about organic growth and the quarter still continues to be pretty robust compared to the industry growth profile at 7.5% but it has moderated over the last eight quarters. The higher end of the guidance implies the 8% organic growth implies an inflection in growth and historically, base that your guide where you have beaten and raised our guidance throughout the year. So as we think about where do we really see the inflection and in terms of guidance philosophy, would you say, is it equally conservative as we've seen in the prior year? Thanks.

Question: Ashish Sabadra - RBC Capital Markets - Analyst : Yeah. That's very helpful color. Thank you.

Question: Faiza Alwy - Deutsche Bank - Analyst : So you mentioned earlier in the call about the white space opportunity and just the traction you're getting with non-programmers. I think relative to historical levels, the contribution from non-programmers to growth has been higher. So I'm curious if you can talk about what you're doing differently or you maybe using technology, has the [PIT] changed a little bit? Is there something about the underlying environment? So just curious on what's driving incremental contribution from non-programmers.

Question: Faiza Alwy - Deutsche Bank - Analyst : That's very helpful. Thank you so much. And then just a quick follow-up on CapEx. You mentioned that at the outset as a priority, I know we saw an increase in CapEx in 2024. And apologies if I missed it. I don't know if you gave a specific number, but just talk a bit more about some of the CapEx investments and how we should think about that going forward.

Question: Stephanie Moore - Jefferies - Analyst : I wanted to follow-up actually on just the last question there and just one quick question. Are you finding potentially some increased activity from new customers that are viewing maybe a value proposition differently? So taking -- maybe taking [them away] but higher inflationary environment, maybe not looking to do it in-house and have that initial capital outlay your value proposition that's coming in. Is that -- has that been a contributing driver to the growth? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 18, 2024 / 2:00PM, CTAS.OQ - Q4 2024 Cintas Corp Earnings Call

Question: Stephanie Moore - Jefferies - Analyst : Great. Got it. No, that's excellent color. Just last question for me. You talked about M&A as being a bit more aggressive in the past year. I'm curious what your appetite would be to maybe more aggressively expand in Fire & Safety or Fire & Security space It's been a good vertical for you. I think is an area of market with a pretty considerable whitespace. So just curious your appetite within that vertical specifically. Thank you.

Question: Stephanie Moore - Jefferies - Analyst : Great. Thank you so much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 18, 2024 / 2:00PM, CTAS.OQ - Q4 2024 Cintas Corp Earnings Call