Q1 2022 Cintas Corp Earnings Call

[music].

Good day, everyone and welcome to the Sun <unk> first quarter FY 'twenty one earnings release Conference call. Today's call is being recorded at this time I would like to turn the call over to Mr. Paul Adler, Vice President and Treasurer Investor Relations. Please go ahead Sir.

Thanks Shelby.

Thank you for joining US with me is Todd Schneider, President and Chief Executive Officer, and Mike Hansen, Executive Vice President and Chief Financial Officer.

Discuss our first quarter results for fiscal 'twenty to 'twenty two.

After our commentary we will open the call to questions from analysts.

The private Securities Litigation Reform Act of 1995 provides a safe harbor from Civil litigation for forward looking statements. This conference call contains forward looking statements that reflect the company's current views as to future events and financial performance. These forward looking statements are subject to risks and uncertainties, which.

It could cause actual results to differ materially from those we may discuss I refer you to the discussion on these points contained in our most recent filings with the SEC.

I'll now turn the call over to Todd.

Paul.

We're pleased with our start to fiscal 2022.

First quarter total revenue grew eight 6% and diluted earnings per share or EPS grew 11, 9%.

Every business, whether goods producing or services provided has a need for image safety cleanliness or compliance every business has a need synthesis can fulfill to help them to help get them ready for the workday.

Our financial results are indicative of our strong value proposition and vast total addressable market.

Uniform rental and facility services operating segment revenue was $1 five $1 billion compared to $139 billion last year.

Organic revenue growth was eight 2%.

We expect solid growth over the year prior period in which the economy was in a weakened state.

But we also made solid progress on a sequential basis and in total revenue grew stronger than anticipated.

We continue to make measured investments to support our growth.

The labor market remains challenging U S still hasnt recovered $8.0 million pre pandemic jobs.

This represents an opportunity for us.

Most of our customers are open. However, most are not operating at the same capacity in employment levels as pre COVID-19.

We are seeing inflationary signs, including higher cost of free energy wages and supplies.

We continue to take actions to minimize the impacts.

These include reviewing and challenging our processes and procedures.

Produce efficiencies and reduce cost and thoughtfully implementing increases to the pricing of certain products and services in response to higher operational costs.

Our first aid and safety services operating segment revenue for first quarter was $200.0 million compared.

Compared to $209.0 million last year.

First quarter revenue was up against a very difficult comparison.

In last year's first quarter in response to the COVID-19, pandemic personal protective equipment or PPE sales resurgence.

Propelling the business to grow organic revenue over 17%.

At that time PPE comprise an outsized percentage of first aid and safety services revenue mix.

As discussed on previous earnings calls the amount of PPE has declined as Covid case counts have fallen from peak levels.

However, PPE remains a larger percentage of the revenue mix than it was pre COVID-19.

Over the same period of time, the recurring first aid cabinets service business revenue has increased.

We welcome this shift in mix because first aid cabinets service business is historically higher profit margin business and more consistent.

Our fire protection services and uniform direct sale businesses are reported in the all other segment.

All other revenue was $196.0 million.

Compared to a $154.0 million last year.

The fire business organic revenue growth rate was 17, 8%.

Form direct sale business growth rate was 68%.

Both Ben both businesses benefited in part from increased activity in a period of reduced Covid case counts.

Regarding our balance sheet and cash flow our financial position remained strong recently.

Recently on September 15th we paid shareholders $106.0 million in quarterly dividends.

The amount per share of common stock paid of 95 or 95 reps.

It represents a 26, 7% increase of the company's previous quarterly dividend.

We continue to allocate capital to improve shareholder return.

I am proud of the execution of our employees, whom we call partners.

They continue to navigate an unsettled environment by focusing on our customers.

COVID-19 pandemic continues of course fueled recently by the surge of the Delta variant.

We remain well positioned headed into the fall and winter months to provide potentially lifesaving items, such as face masks and gloves.

Hygienic clean garments, such as health care, scrubbed, and isolation gowns and conduct services, including hand, sanitizer dispensing and sanitizing spray services.

Now before turning the call over to Mike I want to highlight our recent announcement of our ambition to achieve net zero greenhouse gas emissions by 2050.

Since <unk> was founded on a sustainable business model.

Our corporate culture is based on doing what's right and challenging ourselves to improve.

We view our ambition to achieve this objective is a natural extension.

Also as part of our steadfast commitment to corporate responsibility, we will soon issue a more robust environmental social and governance report.

We are committed to protecting the environment enhancing humanity and maintaining accountability.

I will now turn the call over to Mike.

Thanks, Todd and good morning, our fiscal 2022 first quarter revenue was $10.0 billion compared to $175 billion.

In last year's first quarter, the organic revenue growth rate adjusted for acquisitions divestitures and foreign currency exchange rate fluctuations was eight 6%.

Gross margin for the first quarter of fiscal 'twenty, two was $910.0 million.

Compared to $828.0 million in last year's first quarter.

Gross margin as a percentage of revenue increased 30 basis points to 47, 6% for the first quarter of fiscal 'twenty, two compared to 47, 3% in the first quarter of fiscal 'twenty one.

Gross margin percentage by business was 48, 3% for uniform rental and facility services.

<unk> 44, 8% for first aid and safety services 46, 1% for fire protection services and 41, 5% for our uniform direct sale.

Selling and administrative expenses of $515.0 million increased six 7% compared to last year's first quarter. This increase reflects investments in our sales teams as well as slight incremental travel and meeting expenses somewhat offset by the sale of assets within our uniform.

Direct sales business.

Operating income of $395.0 million increased 12, 7%.

Operating margin increased 80 basis points to 28% in the first quarter of fiscal 'twenty, two compared to 20% in the first quarter of fiscal 'twenty one.

Our effective tax rate on continuing operations for the first quarter of fiscal 'twenty, two was 11% compared to seven 8% last year.

Tax rate can move from period to period based on discrete events, including the amount of stock compensation expense.

Net income from continuing operations for the first quarter of fiscal 'twenty, two was $333.0 million an increase of 10, 4%.

Diluted EPS was $14.0 and.

An increase of 11, 9% from last year's first quarter.

We are increasing our fiscal 'twenty two financial guidance, we are raising our annual revenue expectations from a range of $78.0 billion to $7 six three.

<unk> 3 billion.

To a range of 758 billion.

To $74.0 billion.

And diluted EPS from a range of $45.0 to $85.0

To a range of $70.0 to $100.0

Please note the following regarding our guidance.

22, our fiscal 'twenty two effective tax rate is expected to be approximately 19, 5% compared to a rate of 13, 7% for fiscal 'twenty one.

The higher effective tax rate negatively impacts fiscal 'twenty, two diluted EPS guidance by about 77 and.

And diluted EPS growth by about 760 basis points.

Guidance does not include any future share buybacks or potential tax reform.

Guidance assumes an uneven economic recovery caused by the surge in COVID-19 Delta variant. However, our guidance does not contemplate significant pandemic related setbacks, such as stay at home orders and other restrictions commonly referred to as Lockdowns.

Finally, when modeling our fiscal 'twenty two financial results by quarter. Please note. The following regarding last fiscal year's financial results in last fiscal year's second quarter certain uniform rental and facility services operating assets were sold the pretax gain on sale of eight pre.

Tax gain on sale of $18 million was recorded in selling and administrative expenses and impacted second quarter operating margin by 100 basis points to pre tax gain and the related tax benefit impacted EPS by <unk> 25.

And in last in last fiscal year's third quarter, we were able to help our customers respond to a spike in Covid 1919 cases by providing them with large supplies of personal protective equipment, we provided more personal protective equipment in that quarter than in any other.

That concludes our prepared remarks now we are happy to answer questions from the analysts. Please ask just one question and a single follow up if needed.

Thank you. Thank you I would like to ask a question. Please signal by pressing star one now on your telephone keypad, if youre using a speaker phone. Please make sure your mute function is turned off.

Your signal to reach our equipment again press star one.

To ask a question, we'll pause for just a few moments to allow everyone an opportunity to signal for questions.

We'll take our first question from Tim Moroni with William Blair.

Okay.

Yes. Good morning. Thanks for taking my question can you talk about the primary factors that led you to raise revenue guidance. This quarter was it primarily related to the better than expected result that you generated here in the first quarter or is it more related to your outlook for the remaining three quarters of this fiscal year.

Hey, Tim it's Todd Thanks for the question.

Well certainly.

Our performance in Q1 exceeded our expectations.

But we like the momentum that we see in our business.

Are we like the new business that.

As a driver of growth for us.

And we're providing more products and services to our customers. So.

Those who are opening and hopefully <unk>.

I'll be back to full strength here very shortly.

But in general yes, we like.

The momentum that we see in our businesses.

Okay. Thanks, Todd I was wondering if you could also maybe talk about growth by vertical a little bit more this quarter I know hospitality was showing strong recovery last quarter did that vertical stall out a little bit as COVID-19 cases ramped up here in August and September and are there any other end markets that you'd call.

Out here as being somewhat stronger or weaker than you had expected.

Well great question Tim.

Certainly in the hospitality business.

It is.

Well, so far down hospitality with that it's coming back and is coming back nicely.

No I wouldn't use the word stalled out by any by any stretch.

Certainly there is a bit of a tail to.

To that so.

Orders arent.

<unk> and shipped.

In real time, meaning that they make those decisions about staffing.

There's a process now they place the orders, we ship them et cetera, So there's a little bit of a tail there.

But that but we still like what we see in the.

In the hospitality business certainly they are anxious about business travel coming back convention.

Convention travel specifically.

But the.

In general the hospitality business is doing so much better.

But there would have been anxious straight about how things will be impacted.

Because of the variant but also.

When will when more business travel to come back.

As far as our other <unk>.

Areas healthcare continues to do well for us.

We've talked about those.

Those offerings that we have and they really resonate with the with those folks so whether it's.

Helping them cleaner facilities, helping with isolation gowns scrubs, <unk> et cetera. All of that is very is very attractive for folks.

And I'd, just like to take a moment to talk about.

Well, we compete with in those markets in many cases.

<unk> disposables.

And with the focus on ESG.

That value proposition of providing an item that is essentially re laundered and recycled.

Very attractive.

Separate from the economics of it.

It's very attractive for.

The health care institutions, and many institutions to say well if you could provide me a product that doesn't just go to landfill after a use.

So.

So again that the value proposition is very much resonating.

We will take our next question from Andy Wittmann with R. W. Baird.

Oh, great. Thanks.

I don't usually ask about the direct sales segment, but im going to this quarter.

The the segment margins in all other came out very strong we haven't seen them as strong and while obviously plus 68% big number but we all know that the compare was fairly easy Todd could you just talk a little bit about what drove the margin leverage was there an unusually large order that came back with somebody kind of re dressing.

Folks or maybe just a little bit of color as to what drove the great profit margins in the all other reportable segment.

Well, Andy first off thanks for the question our partners in the in that area of the business really appreciate youre, calling it out in citing that their performance is really really good you are right the comps are.

We're more than reasonable because of what happened to the hospitality.

Our business in particular last summer.

But our revenue is coming back very nicely there, hence the revenue growth but.

And.

We're getting leverage over.

The organization staffing levels that we have in place.

And.

Mike cited the desk that we had a.

Sales and assets that occurred in that area.

In total when you put it altogether.

We see.

You Shouldnt anticipate that level of.

Increase in the future, but nevertheless, we like the leverage we have there and we think we're well positioned our organization is.

As you can imagine right sized.

As a result of what occurred last summer and we think we're in a really good spot and to capture opportunities in the marketplace and gain leverage on our <unk> our investment.

And the other the other half are a part of that all other segment as the fire business, which also had a great.

First quarter.

And so we're very pleased with that business and the momentum in that business as well we saw some nice sequential improvement in the gross margin of the fire business and had organic growth of 17, 8%. We're thrilled with the performance that we've seen.

Yes.

Okay.

And then I guess just for my follow up question I wanted to just get a little bit more specific on the labor market. Both as it relates to your own business your ability to hire and compensate people as well as the impact.

On your customers I don't know if theres a way for you. If you guys could talk to us about.

The level of staffing at your.

Youre always selling new business, but at the historical customers that you've had through this whole time.

What is the what is the head count look like.

Those customers are they still.

Can you quantify how far down they are I mean, we talked about the 5 million jobs that are still missing how many of those were former Centas wearers.

Yes, Andy first of all he can't open up a newspaper without hearing about wages and pressure in the market on labor.

So we are certainly not immune from that.

For our customers.

And so we are battling in every single day and staffing at levels that we feel very good about our business and as far as our customers.

It's really difficult to say to put a number on it it varies so much based upon.

Geographies and industries.

<unk>.

The restaurant business is certainly there.

Nowhere near back to where I think they hopefully will be someday and certainly not back to where they were pre COVID-19 as an example, where warehousing and <unk>.

Distribution is.

As back very very nicely and probably.

At or above pre COVID-19 levels in total.

We're we're certainly down from pre pandemic levels and I think were representative of the five point something million jobs that we have less than in the U S versus pre COVID-19.

We're anxious for R. R.

Our customers to get back to previous levels.

And when we think about labor and we think about this functions, we always though focus more about how it impacts our customers will figure things out and how to manage it.

While not only $8.0 million jobs lost rate versus pre pandemic is still $10 million to $11 million job openings. They haven't been filled which is a great opportunity for us the latest number I saw from the Bureau of Labor statistics.

Parted out.

Earlier, this month was $19.0 million job openings.

So.

I don't know how many of those would be people that would.

Whereas cintas uniforms and.

And.

Utilize the items out of our first aid cabinets et cetera.

But.

We'd like to see them all be filled.

We'll take our next question from Manav Patnaik with Barclays capital.

Thank you good morning gents.

I had one question for you guys.

Hoping you talked about wage and media.

Can you just talk that the moving pieces on the cost side, you know we've had a lot of that.

Driver shortages and fuel costs.

Supply chain I was just hoping you guys could just give us a quick status.

What's happening with you guys.

So manav I'll start and then Mike can.

Assistant with this.

Certainly energy costs are are increasing.

We're seeing that.

Whether it's.

At the at the pump natural gas to run our facilities, but we've worked really hard on efficiencies.

In routing and in our production facilities to maximize efficiencies there.

Two to mitigate all of that and we're I think we're doing a very good job there wages, we talked a little bit about.

But we have discussed in previous earnings calls that we've been addressing this wage issue with particular focus on our frontline partners over the past.

Couple of years, so we werent flat footed when it came into this wage subject.

We're continuing to address it we've got to be very competitive in the marketplace too.

To attract the right partners and our team.

And we're doing that and.

We're going to be able to continue to navigate that successfully.

And then as you can.

Imagine we have been very diligent about managing discretionary spend there is some travel that is back but certainly not.

The levels that they were pre COVID-19.

Mike anything else no I think that.

That hits the cost side, but Manav also keep in mind, we talk a little bit about this in July but.

But we havent begun to increase prices here in the first quarter. It is a.

Our strategic local customer by customer view.

But early indications suggest a positive reception from our customer base and certainly.

That's important as we as we look at things like energy being up 40 basis points year over year.

We're not immune to two.

Some inflationary pressures, but we are as Todd said, we're managing them very very diligently we are looking for automation opportunities efficiency opportunities and if we and if we need to we can strategically increased prices and we've started to do that here in this first quarter after taking a few years off.

Got it and actually maybe thinking squeeze in one more just hoping you could give us an update.

The M&A pipeline, perhaps in Gabon uniform businesses are the same.

It should be because you guys are actively seeking.

Great question Manav.

We're active in.

<unk> been in every business we're in.

We'll say that activity has ramped up here in the back half of the year.

Probably anticipation of.

Tax changes et cetera, but nevertheless.

We like the activity we've.

We have we are in a great financial position, we love our balance sheet and.

And right after that.

<unk> in our existing facilities to help grow those organizations are number to use of capital is for M&A and so we're very acquisitive.

And.

And looking very active and looking forward to.

Closing on more deals in the near future.

We'll take our next question from Hamzah <unk> from Jefferies.

With Jefferies.

Good morning. Thank you I just wanted to follow up on pricing.

You had mentioned you hadn't taken pricing for a while I think maybe two years or 18 months or whatever and I think you just referenced you're beginning to take price now what kind of price is baked into your guidance and how are the customer conversations.

I assume customers see inflation headlines all over the place so and given you have an increased pricing for a while.

You may be talk about order of magnitude are you are you doing that pricing catch up or how should we think about.

Our pricing strategy.

Hamzah I wouldn't think of it as a catch up.

And we have not raised price in two years.

But these are Mike mentioned these are <unk>.

Strategic decisions, they're pricing is up at the local subject.

It really gets down to.

What type of.

What industry is that business and what even geography are they in.

What condition of their business and to be able to handle it.

So that.

That we're able to be fair with our customers as we as we look out meaning that there are certain organizations that are at or their business is doing a whole lot better than others.

We're conscious of that.

But as far as the conversations again that would depend upon the particular business but.

It does.

It does make the conversation easier when inflation is so much in the headlines so.

That certainly gives us a little little benefit.

But.

But these conversations are never easy right.

<unk>.

From our customer standpoint.

It's a tough subject and.

But we're.

We're focused on the long term value of those customer relationships and we handle them appropriately.

Got it and just my follow up question.

Would just be around.

Just the I know.

I know, it's been a while since the S&P implementation was completed.

But then COVID-19 hit and we were sort of caught up in that and it's still kind of going on but maybe you could just give some examples on.

How the S&P system is maybe benefiting you now as organic growth comes back.

Maybe if you wanted to talk about it qualitatively or quantitatively however, either on the cost side or revenue side any examples would be helpful.

Yes, hamzah so I'd.

Adams on SAP.

That where we are benefiting from certainly one view of the customer is significant for us and that helps us with cross sell.

And we know when we do that when.

When we are able to provide more products and services the customer sees more value and they see more value.

Hugh.

It's a better retention tool for us so that's been significant for us.

He has been and will continue to be.

Moving forward.

We get some other.

Certainly advantaged from a data analytic standpoint.

The cash cycle those types of.

Subjects.

But some other items that I think you might.

Youll see out in the marketplace is.

Routing efficiencies are a real opportunity for us.

We are <unk>.

Focus on that from a dollar efficiency from a.

Our ambition on the 2050 net zero emissions.

And we see.

We can.

Advance that subject advance that ball much further than we have in the past by bringing technology to that so that will be exciting.

Other item is.

Hello.

It allows for us to have an online experience for our customers that they haven't had in the past and.

And what we realized is that our customers want.

I'll want to communicate with us the way that they did when I started with the company 32 years ago, meaning they don't want to just have to call during working hours or they want to do business when they want to do business, whether that's to pay a bill whether that's to communicate a request.

To order something those types of items are all we want to make it easier to do business with us and on our online presence and we caught my sinter US allows for our customers to do just that.

So providing more value to a more conduits for them to communicate with us instead.

Instead of having to do it in the.

Traditional nine to five type model. So those are significant for us.

Another operational item would be our ability to speed up the process from.

When we see an order from a customer receive an order from a customer to when we can get up to that.

Having that transparency.

Our supply chain.

Is a absolute advantage.

Where we can anticipate better.

And even once we receive the order get it out the door faster than what we were historically and so.

That efficiency.

Shows up to the customer in speed to market, and then able to get them products and faster than we had in the past. So we want to leverage that system and I think we've done that quite nicely to date, but.

There will be more to come.

We'll take our next question from George Tong with Goldman Sachs.

Hi, Thanks, Good morning revenue growth in the quarter was stronger than you expected on a sequential basis.

Elaborate on the sources of upside, specifically and where you see the most promising trends over the next year.

George I'll start.

But.

I would say two significant drivers of growth for us have been new business.

It is still quite robust.

Our value proposition is resonating very much.

And many companies are still struggling with staffing.

As we cited earlier $19.0 million jobs job openings.

And when you're struggling with staffing and you can find a company like Cintas, who can you can outsource certain functions to.

It makes it very attractive so they look at it and say Wow you can take care of these items.

And and maybe they were a do it yourself in the past.

So that resonate with them. So so that's been quite nice.

Most of.

Moving on to another driver most of our customers were.

I'd say are opened and probably were open going into the first quarter.

But we are providing more products and services to them.

We are again anxious for them to get back to their pre employment levels.

And we think that'll be even better, but new business and then.

Say again adds within our current customers are two significant drivers for us that we think will continue to work to help us throughout the year.

Got it that's helpful color and then wanted to dive into pricing increases, which you touched on earlier to what extent do you think that pricing combined with efficiencies can fully offset input cost increases that you're seeing and could there be a timing lag as to when those pricing increases.

Take effect in the real time nature of the input cost increases that you're seeing though.

Yes George.

Certainly timing.

It is difficult to match up.

The timing exactly two wind costs.

Increase in when we see changes in the supply chain for example.

But we're doing our best to manage.

And.

As I mentioned, a little bit ago.

When we have those conversations today.

Message resonates that look there are there are increases in cost.

And.

These price increases when we do make them.

They are reasonable and they make sense to our to our customers.

That's been our.

Experienced so far.

The really nice thing about our if you think about our cost structure as well.

Todd Todd hit on this a little bit that our labor we've been working on that for a while and so we may not be while not immune we may not be as affected as some of our of our peers and others.

And so that's important for us the other part is that many of our material costs are amortized. So when we see spikes in supply chains in various.

Areas, whether it is labor.

Labor throughout the world or cotton or other things, we're amortizing costs and it tends to be a bit of a natural hedge for us.

And so it does slow down the impact and it requires the impact to be greater for a much longer period of time before it really starts to hit us and in those cases, we can get ahead of.

The inflationary pressure pressure pressure is a little bit with our pricing strategy. So.

Generally speaking we feel like we're while it's not perfect matching of of expense and benefit we do a pretty good job.

We get a little bit of benefit from just the way our business works.

We'll take our next question from Sal.

Robert Jones with RBC.

Thanks for taking my question and good results, Mike I, just wanted to drill down further on the cross sell opportunities that you mentioned I was wondering if you could provide any color on where you are in penetrating.

Let's say hygiene products safety as well as full speed and fire services within your existing customer base and how can you accelerate that cross some EBIT through organic or through M&A any color on those fronts.

Ashish Thanks for the comments on the question.

Bob.

We have our sales and service organization well positioned to.

To offer these various products and services.

Again, they have tools that allow them to understand where those opportunities exist.

There are certainly not perfect, but they are there are allowing them to get pointed in the right direction to help provide that value to customers and as I mentioned, the more value excuse me and more products and services, we provide the customer.

The stickier that that.

The relationship will be.

Just like most relationship trade if it's just one product.

More at risk than having two and so on and so forth. So.

Much a point of focus when you think about our relationships.

Every single customer virtually needs.

Our fire surface ramp because of the legal requirements around that subject.

But we see very nice overlap with.

Those who would who are in uniform customers who.

Would need some direct sale third uniform rental and we also see overlap with those who are uniform cutting uniform rental customers, who would need first aid and safety products training CPR.

The various items that we provide so it's a.

Our biggest issue has been in the past that our customers weren't aware of everything we provided and.

That's a nice problem to have but nevertheless, it's still very much a problem for us.

<unk>.

And we're trying to change that that positioning in the marketplace that our customers realize that not just through our sales and service organizations, but also for our mass media spend which.

They have seen this past weekend, where we had significant.

Our position on.

Golf's Ryder Cup.

Sure.

We're trying to get the message out about all of the service products and services, we provide and.

Not a complete one stop shop for our business, but but we sure do get them a long ways on that path, Mike anything else on this it was the only thing I would add is the really good news is we're in the early innings of penetration and so when you think about.

The rental customers and the opportunity to continue to penetrate with with even rental items such as our restroom products and are things that we've talked about recently in the last year like isolation gowns and hand Sanitizers. We're in the very early innings and when you couple that with the first date of safe.

And fire opportunities.

Again.

Less than 20% penetration and so we've got we've got a lot of work to do.

And the really exciting thing is.

Much opportunity remains.

That's very helpful color, that's great and maybe just a quick clarifying question I was just wondering at a very high level can you provide what are the key categories of spend and the percentage of expenses from LIBOR since fuel versus amortization of <unk>.

Equipment any color there would be helpful. Thanks.

Sure, let me start with with energy.

So energy and that would include.

Fuel for our trucks and.

The running of our of our laundry operations.

In the quarter was two 1%.

That is up.

40 basis points from a year ago.

<unk> with our fourth quarter, so while it is up.

It's still a relatively insignificant part of our overall.

Cost.

<unk> structure.

When you think ashish about our cost structure, though.

I'm going to use cost of rentals, you can think about them in three buckets.

Cost of the materials the cost of running the laundries and then the cost of the service component and while they are not exactly the same there you can think about them as a third each in each of those buckets are a little bit different I mentioned the materials.

Many of which we amortize over certain periods of time, so we get a little bit of smoothing of those costs.

And and then we also have some that are direct sale type like the restroom products that we expense immediately.

The major components of that.

Would be those rental items that were amortizing when you think about the laundries.

And then we're into the depreciation of the buildings.

And certainly the equipment that's in our wash alleys, but also the labor the labor component.

Within that as well and then the service components, you've got our drivers our trucks and the amortization of the trucks and the gas.

To run those.

When you put it all together certainly labor is a large part of our cost structure the materials the products that we sell.

Certainly a large part of our structure.

And we manage each one of those quite tightly and look for improvement opportunities.

We'll take our next question from Toni Kaplan with Morgan Stanley.

Hey, Good morning. This is actually Jeff on for Tony I know. This question was asked earlier related to revenue guidance, but I wanted to ask it slightly different as it relates to EPS the EPS.

His guidance up by about 2% for the full year, but it seems like a lot of that is maybe flowing through to buybacks and a better than expected tax rate. So is that fair and is that to say from an operating standpoint, maybe a little bit more optimistic on the revenue side, but maybe some cost headwinds keep you a little conservative here just just some more color on that would be helpful.

Yeah.

Sure.

Jeff I don't think Thats a fair.

A reflection of our guidance.

<unk>.

You think about our guidance of $70.0 to $10.90.

That's a three 5% to six 4% increase.

In annual EPS, but.

You referred to a lower tax rate our tax rate is going to.

Based on our guide today is going to go up five 8%.

<unk> to 'twenty, one now that's quite a significant impact and if you. If you think about the 760 basis points that I referred to in my opening remarks that takes EPS growth from about 11% to 14% now certainly.

The buyback that we had done in the fourth quarter and the first quarter.

<unk> did create some benefit but that still gets to pre tax.

Earnings growth.

In the range of double digits.

And so it's a pretty good year and then if you if you kind of move farther up we talked in July about our guidance of Av.

<unk> operating improvement.

At the low end zero.

Basis points to 70 at the high end, we're still right around in that neighborhood in terms of the guidance that we provided today and keep in mind. That's on the heels of a 310 basis point improvement in operating margin in the previous fiscal year.

To kind of say that our guidance is.

Is based on share buyback and taxes I think is not a great reflection of really what's going on.

The guidance on the EPS side is nice healthy margin improvement.

Pre tax increases of of right around double digits.

And then a higher tax rate that pulls that EPS down hopefully that gives you a little bit more color on that EPS guidance.

Understood that was helpful. And then I wanted to ask about first aid margins, which were pretty strong in the quarter are you able to quantify at all how much PPE still constraining margins. There just given its greater than normal mix and then I guess based on that how should we think about near term upside as that rolls off like is that.

Going to kick off in the next few quarters as that roll off.

Just kind of overall, if you could talk about the path back to pre COVID-19 level of margins in that line of business.

Sure we we certainly.

<unk> has been a major factor in that business.

And Jeff Youre, correct in pointing that out and it was a it was really important for our customers over the course of the last year and we invested.

Might have been in inventory.

To be able to serve the customers.

Even if it was at a bit of a lower gross margin for us.

But we've seen some some nice sequential improvement there are 44, 8% is still lower than our pre pandemic of call. It 48 ish percent.

And.

And so we still believe we can get back to those kinds of levels now.

PPE that we've had over the course of the last year tends to drop off a little bit more quickly than the first stage comes back because as Todd and Paul have.

I referenced we still have a lot of.

Of job openings.

Quite a bit fewer people in the workplace today than pre pandemic and so as those people come back in as those job openings get filled that creates more hands in our first aid cabinets and that that creates some nice momentum.

One of the nice things that we really have seen coming out of the last few quarters as are our customers and our new customers. So prospects turning into customers are really seeing the value of keeping their employees.

<unk> and healthy and our first aid business really allows us to provide that value to them and so our new business has been really strong in this first aid cabinet space.

But it's coming back in.

While we like the momentum we're not there yet and we do expect to see sequential improvement and I'll, maybe step that back a bit we expect to see improvement in the year every quarter can be a little bit bumpy here and there, but generally speaking we continue to look for.

Improved gross margin in that business.

We'll take our next question from Gary Bisbee with Bank of America Securities.

Hey, good morning, if I could go back to labor for a minute I think a lot of your comments have been about cost and working on wages, but are you fully staffed both from a service and a sales perspective, and if you had seen any elevated turnover relative to history or had any increased difficulty hiring to support the rebounding growth youre seeing.

Gary.

Very good question.

I guess the way I would describe it as we're happy to run at higher rpms to to get the output that we want so it's harder there is no doubt about it.

Attracting retaining and developing the talent is.

Is core to what we do as a company and.

We're working that much harder now to get to the levels that we want to be at so.

We stopped at the levels, we want to be at yeah, Yeah, we like our staffing position.

Turnover is still very manageable.

And I think it speaks to many many things.

Certainly.

The total compensation that we provide.

The attractive benefits.

But it really speaks to the culture and the investment that we've put into people because there's so many.

Partners that have.

We have grown up in the company and have.

And have advanced in the company and that's part of our culture. So.

We've always had to be really good at.

Paint a painting a picture for people about this is where do you start, but we will invest and develop new.

And.

We're having to work harder at it but it is still resonating with folks and so.

So that's where we are now.

Okay, Great and then on you've talked about the <unk> and some of the pandemic driven sales and first aid and safety, but I think you also had some of that in uniforms handle that stuff through through the facilities business is.

I'm not going to ask you when it's going to go away, because who knows but is there a meaningful chunk of revenue there that probably churns off in the future and what I'm really trying to think through how that could impact the rate of growth over over the next several quarters or whatever in the core uniforms businesses is at elevated or is that just not a big deal.

In the Grand scheme of that business.

Yes, Gary.

Mike spoke of is it's a.

A significant portion of our first aid and safety business there was certainly.

Some revenue that went through our rental business sold on route that was for PPE.

But nowhere near the amount as a percentage that would go through R. R.

Our first aid business. So is there some there today, there's a little bit but.

But it's not significant whatsoever. So.

As far as when we look out.

About demand, we're still in a good spot.

The.

The demand is there for those types of products and services, we're managing that inventory and there is still demand.

<unk>.

We sure hope.

As a country and as North America is a world that.

That that is that will be diminishing over the course of the balance of our fiscal year. So our guidance takes all that into account and.

And we're focused on building the core of our business.

But if our customers need those types of products and services. We're there for them and we will we will help them with us.

Gary I might just I might just add as you're thinking about I believe you referred to the next several quarters.

As I said in my opening remarks, we talked last third quarter about $45 million that we did not expect to repeat in our fourth quarter.

And so that's going to be as you think about the growth quarter to quarter.

So definitely keep that in mind as a third quarter growth impact now.

Again as it relates to this PPE.

Look the.

Safety and cleanliness themes that we've sold under for years, it's really resonating and we certainly believe that.

That those areas will be larger moving forward than pre COVID-19 and that and that certainly is exciting for us.

We'll take our next question from Scott Schneeberger with Oppenheimer.

Thanks, very much good morning all.

I wanted to hone in a little bit on.

The offsetting efficiencies of the environment and the automation.

Just anecdotally if you could speak to a few things youre doing I know in homes. As question, you talked about SAP and automation of our payments and customer facing just curious if you could elaborate maybe a little bit on what you're doing in this environment.

Yes, maybe at facilities or otherwise and some of the longer term goals of other automation. Thanks.

Yes, good morning, Scott.

A couple of obvious ones for US I mentioned routing that is obviously a significant one that we think is going to.

Pay dividends for us.

Scott Farmer always spoke about we don't.

We don't generate any revenue when the wheels are turning on our trucks right, we generate revenue when that we'll stop and we.

We see an opportunity to improve that that efficiency and that we're investing in technology there to do so and.

And we're excited about the impact that will have on our cost structure, but also on our emissions.

As we move forward.

In the production facilities.

We are managing very tightly.

Our our wash alley, and making sure that we.

We have.

Much better efficiencies there, meaning we're tracking.

<unk> closely.

The the number of loads that go through our facilities.

Versus.

The.

Property that went through.

Covid on the same.

Same plainfield, meaning same amount of.

Volume, that's going through and we've put some technology in place to help us with that instead.

Instead of just doing it through.

Elbow grease and as a result, we're seeing some real benefits there and again that will help us.

<unk>.

And.

Our cost structure, but also in our missions and so we're focused on.

Making sure that that we're managing that very tightly and we're seeing some benefits there.

Yes.

And one other one I might talk about I don't know that Todd mentioned, the stock rooms in our in our laundry facilities and the ability to to get those automated and that creates visibility and it creates the opportunity to share and win when we are more efficient in our stock rooms. So so let me be COO.

Our stock rooms are within our within all of our rental facilities. They are garments that havent been in a service already and so when we are efficient that means we are reusing garments that are already amortizing in our cost structure.

And so that's.

That creates revenue generation out of garments that are either already in our cost structure or maybe have been amortized fully and so we get some real nice incremental margins when we can more efficiently use those.

Or put back those garments into service.

This allowed us to get visibility and to be able to improve the use of those garments within our stockroom. So that's another example, Scott.

Something thats.

That's really benefiting us.

Excellent sounds good guys. Thanks, I appreciate that and then just as a follow up wanted to touch on.

It sounds like you're very active in M&A that came up I think particularly before calendar year end, maybe with some consideration of our taxes.

Implications, but.

You've done over $1 billion worth of stock buybacks.

In the fourth and the first quarter here back to back and that's just kind of looking back that that's as big as any year going back for a while so I.

I'm just kind of curious.

The thought process there is it sounds.

Sounds like Youre getting close on some M&A, but it is not really a lot of allocation of capital is going to make a repurchase and that something we should expect to continue.

Scott we are as I mentioned, we're active.

And it takes two to dance and.

And we're seeing.

More folks at the dance.

Anecdotally My guess is because of tax reform.

And as a result, we think.

More deals will come through now that being said we are in a great position on our balance sheet and.

<unk>.

We are ready willing enable to to activate that balance sheet as appropriate that is best for the long term value for our organization and and just as a reminder, the number one priority for our capital is.

Has been and will continue to be the investment into our current business to help grow.

The sales and profits of our organization, whether that's through additional products and services additional facilities.

Training.

Staffing levels all of those is our number one priority and then after that number two is M&A and.

And we're steadfast in that commitment.

And we will allocate appropriately and then thereafter, then we'll return it to the shareholders.

Available in the form of stock buyback and dividends and I think we've got a really good track record of.

Managing those priorities appropriately and intelligently.

For the long term value.

That concludes today's question and answer session speakers at this time I will turn the conference back over to you for any additional or closing remarks.

Thank you for joining us. This morning, we will issue our second quarter of fiscal 'twenty two financial results in the latter half of December we look forward to speaking with you again at that time.

Thank you.

Yeah.

This concludes today's call. Thank you for your participation you may now disconnect.

[music].

Sure.

Yes.

[music].

[music].

Good day, everyone and welcome to the Suntrust first quarter FY 'twenty one earnings release Conference call. Today's call is being recorded at this time I would like to turn the call over to Mr. Paul Adler, Vice President and Treasurer Investor Relations. Please go ahead Sir.

Sure.

Thanks Shelby thank.

Thank you for joining US with me is Todd Schneider, President and Chief Executive Officer, and Mike Hansen, Executive Vice President and Chief Financial Officer.

We will discuss our first quarter results for fiscal 2022. After our commentary we will open the call to questions from analysts.

The private Securities Litigation Reform Act of 1995 provides a safe harbor from Civil litigation for forward looking statements. This conference call contains forward looking statements that reflect the company's current views as to future events and financial performance. These forward looking statements are subject to risks and uncertainties, which.

Could cause actual results to differ materially from those we may discuss I refer you to the discussion on these points contained in our most recent filings with the SEC.

I'll now turn the call over to Todd.

Thank you Paul.

We're pleased with our start to fiscal 2022 first quarter total revenue grew eight 6% and diluted earnings per share or EPS grew 11, 9%.

Every business, whether goods producing or services, providing has a need for image safety cleanliness or compliance.

Every business has a lead syntax can fulfill to help up to help get them ready for the workday.

Our financial results are indicative of our strong value proposition and vast total addressable market.

Uniform rental and facility services operating segment revenue was $1 five $1 billion.

Compared to $139 billion last year.

Organic revenue growth was eight 2%.

We expect a solid growth over the year prior period in which the economy was in a weakened state.

And we also made solid progress on a sequential basis and in total revenue grew stronger than anticipated.

We continue to make measured investments to support our growth.

The labor market remains challenging U S still hasn't recovered $8.0 million pre pandemic jobs.

It represents an opportunity for us.

Most of our customers are open. However, most are not operating at the same capacity in employment levels as pre COVID-19.

We are seeing inflationary signs, including higher cost of freight energy wages and supplies.

We continue to take actions to minimize the impacts.

These include reviewing and challenging our processes and procedures.

Produce efficiencies and reduce cost and thoughtfully implementing increases to the pricing of certain products and services in response to higher operational costs.

Our first meeting safety services operating segment revenue for first quarter was $200.0 million.

Compared to $209.0 million last year.

First quarter revenue was up against a very difficult comparison.

In last year's first quarter in response to the COVID-19, pandemic personal protective equipment or PPE sales resurgence.

Propelling the business to grow organic revenue over 17%.

At that time PPE comprise an outsized percentage of first aid and safety services revenue mix.

As discussed on previous earnings calls the amount of PPE has declined as Covid case counts have fallen from peak levels.

However, PPE remains a larger percentage of the revenue mix than it was pre COVID-19.

Over the same period of time, a recurring first aid cabinets service business revenue has increased.

We welcome this shift in mix because first aid cabinets service business is historically higher profit margin business and more consistent.

Our fire protection services and uniform direct sale businesses are reported in the all other segment.

All other revenue was $196.0 million.

Compared to a $154.0 million last year.

The fire business organic revenue growth rate was 17, 8% from uniform direct sale business growth rate was 68%.

Both businesses benefited in part from increased activity in a period of reduced Covid case counts.

Regarding our balance sheet and cash flow our financial position remained strong recently.

Recently on September 15th we paid shareholders $106.0 million in quarterly dividends.

The amount per share of common stock paid of 95 or 95 reps.

It represents a 26, 7% increase of the company's previous quarterly dividend.

We continue to allocate capital to improve shareholder return.

I am proud of the execution of our employees, whom we call partners. They.

We continue to navigate an unsettled environment by focusing on our customers.

COVID-19 pandemic continues of course fueled recently by the surge of the Delta variant.

We remain well positioned headed into the fall and winter months to provide potentially life saving items, such as face masks and gloves.

<unk> hygienic clean garments, such as health care, scrubbed, and isolation gowns and conduct services, including hand, sanitizer dispensing and sanitizing spring surfaces.

Now before turning the call over to Mike I want to highlight our recent announcement of our ambition to achieve net zero greenhouse gas emissions by 2050.

Since <unk> was founded on a sustainable business model.

Our corporate culture is based on doing what's right and challenging ourselves to improve.

We view our ambition to achieve this objective is a natural extension.

Also as part of our steadfast commitment to corporate responsibility, we will soon issue a more robust environmental social and governance report.

We are committed to protecting the environment enhancing humanity and maintaining accountability.

I will now turn the call over to Mike.

Thanks, Todd and good morning, our fiscal 2022 first quarter revenue was $10.0 billion compared to $76.0 billion in last year's first quarter, the organic revenue growth rate adjusted for acquisitions divestitures and foreign currency exchange rate fluctuations was eight 6%.

Gross margin for the first quarter of fiscal 'twenty, two was $910.0 million compared to $828.0 million in last year's first quarter.

Gross margin as a percentage of revenue increased 30 basis points to 47, 6% for the first quarter of fiscal 'twenty, two compared to 47, 3% in the first quarter of fiscal 'twenty one.

Gross margin percentage by business was 48, 3% for uniform rental and facility services 44, 8% for first aid and safety services 46, 1% for fire protection services and 41, 5% for uniform dirt.

<unk> sale.

Selling and administrative expenses of $515.0 million increased six 7% compared to last year's first quarter. This increase reflects investments in our sales teams as well as slight incremental travel and meeting expenses somewhat offset by the sale of assets within our uniform.

Direct sales business.

Operating income of $395.0 million increased 12, 7%.

Operating margin increased 80 basis points to 28% in the first quarter of fiscal 'twenty, two compared to 20% in the first quarter of fiscal 'twenty one.

Our effective tax rate on continuing operations for the first quarter of fiscal 'twenty, two was 11% compared to seven 8% last year.

The tax rate can move from period to period based on discrete events, including the amount of stock compensation expense.

Net income from continuing operations for the first quarter of fiscal 'twenty, two was $333.0 million an increase of 10, 4%.

Diluted EPS was $14.0

An increase of 11, 9% from last year's first quarter.

We are increasing our fiscal 'twenty two financial guidance, we are raising our annual revenue expectations from a range of $78.0 billion to $7 six three.

$3 billion.

To a range of $83.0 billion.

To $74.0 billion.

And diluted EPS from a range of $45.0 to $85.0

To a range of $70.0 to $100.0

Please note the following regarding our guidance fiscal.

Fiscal 'twenty two our fiscal 'twenty two effective tax rate is expected to be approximately 19, 5% compared to a rate of 13, 7% for fiscal 'twenty one.

The higher effective tax rate negatively impacts fiscal 'twenty, two diluted EPS guidance by about 77.

And diluted EPS growth by about 760 basis points.

Guidance does not include any future share buybacks or potential tax reform.

Guidance assumes an uneven economic recovery caused by the surge in COVID-19 Delta variant. However, our guidance does not contemplate significant pandemic related setbacks, such as stay at home orders and other restrictions commonly referred to as Lockdowns.

Finally, when modeling our fiscal 'twenty two financial results by quarter. Please note. The following regarding last fiscal year's financial results in last fiscal year's second quarter certain uniform rental and facility services operating assets were sold the pretax gain on sale of eight pre tax.

Gain on sale of $18 million was recorded in selling and administrative expenses and impacted second quarter operating margin by 100 basis points, the pre tax gain and the related tax benefit impacted EPS by <unk> 25.

And in last in last fiscal year's third quarter, we were able to help our customers respond to a spike in Covid 1919 cases by providing them with large supplies of personal protective equipment, we provided more personal protective equipment in that quarter than in any other.

That concludes our prepared remarks.

Now we are happy to answer questions from the analysts. Please ask just one question and a single follow up if needed.

Thank you. Thank you I would like to ask a question. Please signal by pressing star one now on your telephone keypad.

You're using a speaker phone. Please make sure your mute function is turned off to allow.

Your signal to reach our equipment again press star one.

To ask a question, we'll pause for just a few moments to allow everyone an opportunity to signal for questions.

We will take our first question from Tim Moroni with William Blair.

Yes. Good morning. Thanks for taking my question can you talk about the primary factors that led you to raise revenue guidance. This quarter was it primarily related to the better than expected result that you generated here in the first quarter or is it more related to your outlook for the remaining three quarters of this fiscal.

Year.

<unk>.

Hey, Tim it's Todd Thanks for the question.

Well certainly.

Our performance in Q1 exceeded our expectations.

But we like the momentum that we see in our business.

Are we like the new business that.

As a driver of growth for us.

And we're providing more products and services to our customers. So.

Those who are opening and hopefully <unk>.

It'll be back to full strength here very shortly.

But in general, yes, we like like the momentum that we see in our businesses.

Okay. Thanks, Todd I was wondering if you could also maybe talk about growth by vertical a little bit more this quarter I know hospitality was showing a strong recovery last quarter did that vertical stall out a little bit as COVID-19 cases ramped up here in August and September and are there any other end markets that you'd call.

Here is being somewhat stronger or weaker than you had expected.

Well a great question Tim.

Certainly the hospitality business.

It is.

Well, so far down hospitality that it's coming back and is coming back nicely.

No I wouldn't use the word installed out by any by any stretch.

Certainly there is a bit of a tail to.

To that so.

Orders are risk.

We received and shipped.

In real time, meaning that they make those decisions about staffing.

There's a process now they place the orders, we ship them et cetera, So there's a little bit of a tail there.

But there, but we still like what we see in the in.

In the hospitality business certainly they are anxious about business travel coming back.

Convention travel specifically.

But the.

In general the hospitality business is doing so much better and but there would have been anxious straight about how things will be impacted.

Because of the variant but also.

<unk> on what business travel come back.

As far as our other areas of healthcare.

Healthcare continues to do well for us.

We've talked about those.

Those offerings that we have and they really resonate with that with those folks so whether it's.

Helping them clean their facilities, helping with isolation gowns scrubs et cetera, all of that and it's very it's very attractive for folks.

And I'd, just like to take a moment to talk about.

Yes.

Well, we compete with in those markets in many cases.

<unk> disposables.

And with the focus on ESG.

That value proposition of providing an item that is essentially re laundered and recycled.

Very attractive separate from the economics of it it's very attractive for the.

In the health care institutions, and many institutions to say well. If you can provide me a product that doesn't just go to landfill after a use.

So.

So again net net.

That proposition is.

Very much resonating.

We'll take our next question from Andy Wittmann with R. W. Baird.

Great. Thanks.

Yes.

I don't usually ask about the direct sales segment, but im going to this quarter.

The the segment margins in all other came out very strong we haven't seen them as strong in a while obviously plus 68% big number but we all know that the compare was fairly easy Todd could you just talk a little bit about what drove the margin leverage was there an unusually large order that came back with somebody kind of re dressing.

Folks or maybe just a little bit of color as to what drove the great profit margins in the all other reportable segment.

Well, Andy first off thanks for the question our partners in the in that area of the business really appreciate youre, calling it out in citing that there. The performance is really really good you are right the comps are.

We're more than reasonable because of what what happened to the hospitality a.

Our business in particular last summer.

Our revenue is coming back very nicely there, hence the revenue growth but.

And.

We're getting leverage over.

The organization staffing levels that we have in place.

And.

Mike cited desktop we had a.

Sales and assets that occurred in that area. So but in total you put it altogether we see.

You Shouldnt anticipate that level of increase in the future, but nevertheless, we like the leverage we have there and we think we're well position. Our organization is was as you can imagine right sized.

As a result of what occurred last summer and we think we're in a really good spot and to capture opportunities in the marketplace and gain leverage on our investment.

And the other the other half are a part of that all other segment as the fire business, which also had a great.

First quarter.

And so we're very pleased with that business and the momentum in that business as well we saw some nice sequential improvement in the gross margin of the fire business and had organic growth of 17, 8%. We're thrilled with the performance that we've seen.

Yes.

Okay.

And then I guess just for my follow up question I wanted to just get a little bit more specific on the labor market. Both as it relates to your own business your ability to hire and compensate people as well as the impact.

On your customers I don't know if theres a way for you or for you guys to talk to us about.

The level of staffing at your.

You're always finding new business, but at the historical customers that you've had through this whole time.

What is the what is the head count look like.

For those customers so they still.

Can you quantify how far down they are I mean, we talked about the 5 million jobs that are still missing how many of those were former Centas wearers.

Yes, Andy first of all you can't open up a newspaper without hearing about wages.

Pressure in the market on labor.

So.

We are certainly not immune from that.

Our customers.

And so we are battling it every single day and staffing at levels that we feel very good about our business and as far as our customers.

It's really difficult to say to put a number on it it varies so much based upon.

Geographies and industries.

Good setup.

The restaurant businesses certainly.

They are nowhere near back to where I think they hopefully will be someday and certainly not back to where they were pre COVID-19 as an example, we're warehousing and distribution.

Distribution is.

As back very very nicely and probably.

At or above pre COVID-19 levels in total.

We're we're certainly down from pre pandemic levels and I think were representative of the five point something million jobs that we have less than a year in the U S versus pre COVID-19.

We're anxious for R.

Our customers to get back to previous levels.

And when we think about labor and we think about this one says we always so focus more about how it impacts our customers will figure things out and how to manage it.

While not only $8.0 million jobs lost rate versus pre pandemic of still $10 million to $11 million job openings. They haven't been filled which is a great opportunity for us the latest number I saw from the Bureau of Labor statistics.

Parted out.

Earlier, this month was $19.0 million job openings.

So.

I don't know how many of those would be people that would.

Whereas cintas uniforms and.

And.

Utilized items out of our first aid cabinets et cetera.

But.

We'd like to see them all be filled.

We will take our next question from Manav Patnaik with Barclays capital.

Thank you good morning gents.

Had one question for you guys and I was just hoping that you talked about wage may vary a bit but can you just check that the moving pieces on the cost side, we've made a lot of that.

Driver shortages and fuel cost.

Supply chain I was just hoping you guys could just give us a quick status.

And what's happening with you guys.

So manav I'll start and then Mike can.

Assist with this.

Certainly energy costs are increasing.

We're seeing that whether it's.

At the at the pump natural gas to run our facilities, but we've worked really hard on efficiencies in routing and in our production facilities to maximize efficiencies there.

To mitigate all of that and we're I think we're doing a very good job there wages, we talked a little bit about.

But we have discussed in previous earnings calls that we've been addressing this wage issue with particular focus on our frontline partners over the past couple of years.

So we werent flat footed when it came into this wage subject.

We're continuing to address it.

Got to be very competitive in the marketplace.

To attract the right partners and our team.

And we're doing that and we.

We're going to be able to continue to navigate that successfully.

And then as.

You can imagine we've been very diligent about managing discretionary spend there is some travel that is back but certainly not.

Near the levels that they were pre COVID-19.

Mike anything else no I think that.

That hits the cost side, but Manav also keep in mind, we talk a little bit about this in July but.

But we havent begun to increase prices.

In the first quarter it is a.

Our strategic local customer by customer view.

But early indications suggest a positive reception from our customer base and certainly.

That's important as we as we look at things like energy being up 40 basis points year over year.

We're not immune to some.

Some inflationary pressures that we are as Todd said, we're managing them very very diligently we're looking for automation opportunities efficiency opportunities and if we and if we need to we can strategically increased prices.

We've started to do that here in this first quarter after taking a few years off.

Got it and actually maybe if I can squeeze in one more just hoping you could give us.

Dave.

The M&A pipeline, perhaps in Gabon uniform businesses.

Are there opportunities that you guys are actively seeking.

Great question Manav.

We're active and acquisitive in every business we're in.

We will say that activity has ramped up here in the back half of the year.

Probably anticipation of.

Tax changes et cetera, but nevertheless, so we like the activity we've.

We have we are in a great financial position, we love our balance sheet and.

And right after.

Investing in our existing facilities.

Grow those organizations are number two use of capital is for M&A and so we're very acquisitive.

And and.

And looking very active and looking forward to.

Closing on more deals in the near future.

We'll take our next question from Tom <unk>.

<unk> <unk> with Jefferies.

Good morning. Thank you I just wanted to follow up on pricing.

You had mentioned you hadn't taken pricing for a while I think maybe two years or 18 months or whatever and I think you just referenced you're beginning to take price now what kind of price is baked into your guidance and how are the customer conversations.

I assume customers see inflation headlines all over the place so and given you haven't increased pricing for a while.

Could you maybe talk about order of magnitude are you are you doing that pricing catch up or how should we think about.

Our pricing strategy.

Hamzah I wouldn't think of it as a catch up.

And we have not raised price in two years.

But these are Mike mentioned these are.

Strategic decisions, they're pricing is up it's a local subject.

It really gets down to.

What type of.

What industry is that business and what even geography are they in.

And what condition of their business and to be able to handle it.

So that.

We're able to be fair with our customers as we as we look out meaning that there are certain organizations that are that are their business is doing a whole lot better than others and.

And we're conscious of that.

But as far as the conversations again that would depend upon the particular business but.

It does.

It does make the conversation easier when inflation is so much in the headlines so.

And that certainly gives us a little little benefit.

But.

But these conversations are never easy right.

<unk>.

From our customer standpoint, it's a tough subject and so.

So we're focused on.

The long term value of those customer relationships and we handle them appropriately.

Got it got it and just my follow up question.

Would just be around.

Just I.

I know, it's been a while since the SAP implementation was completed.

But then COVID-19 hit.

We were sort of caught up in that and it's still kind of going on but maybe you could just give some examples on.

How the S&P system is maybe benefiting you now as organic growth comes back.

Maybe if you wanted to talk about it qualitatively quantitatively however, either on the cost side or revenue side any examples would be helpful.

Yes, hamzah, so a few items on SAP.

That where we are benefiting from certainly one view of the customer is significant for us and that helps us with cross sell.

And we know when we do that when.

When we are able to provide more products and services the customer sees more value and when they see more value.

Hugh.

It's a better retention tool for us so that's been significant for us.

Has been and will continue to be.

Moving forward.

We get some other.

Certainly advantaged from a data analytic standpoint.

The cash cycle those types of <unk>.

Subjects.

But some other items I think you might.

<unk>.

We able to see out in the marketplace is.

Routing efficiencies are a real opportunity for us.

We are.

<unk> focused on that from a dollar efficiency from our.

Our ambition on the 2050.

Net zero emissions.

And we see.

We can.

Advance that subject advance that ball much further than we have in the past by bringing technology to that so that will be exciting.

The item is.

Hello.

It allows for us to have an online experience for our customers that they haven't had in the past.

And what we realized is that our customers want.

They don't all want to communicate with us the way that they did when I started with the company 32 years ago, meaning they don't want to just have to call during working hours. They want to do business when they want to do business, whether that's to pay a bill whether that's to communicate a request.

To order something those types of items are all we want to make it easier to do business with us.

And on our online presence and we call it mindset to us allows for our customers to do just that.

So providing more value to a more conduits for them to communicate with us.

Stirred up having to do it in the.

Traditional nine to five type model. So those are significant for us.

Another operational item would be our ability to speed up the process from.

When we see an order from a customer receive an order from a customer to when we can get it out to them.

And having that transparency.

Our supply chain.

Is a absolute advantage.

We can anticipate better.

And even once we receive the order get it out the door faster than what we were historically and so.

That efficiency.

Shows up to the customer in speed to market and they're able to get them products and faster then that we had in the past. So we want to leverage that system and I think we've done that quite nicely to date, but.

There will be more to come.

We will take our next question from George Tong with Goldman Sachs.

Hi, Thanks, Good morning revenue growth in the quarter was stronger than you expected on a sequential basis.

Elaborate on the sources of upside, specifically and where you see the most promising trends over the next year.

George I'll start.

But.

I would say two significant drivers of growth for us have been new business.

It is still quite robust.

Our value proposition is resonating very much.

And many companies are still struggling with staffing.

As we cited earlier $19.0 million jobs job openings.

When you're struggling with staffing and you can find accompanying like Cintas, who can you can outsource certain functions to.

It makes it very attractive so they look at it and say Wow you can take care of these items.

And and maybe they were a do it yourself in the past.

So that resonate with them. So so that's been quite nice.

Most of them up and moving.

Moving on to another driver most of our customers were.

They are open and publicly we're open going into the first quarter.

But we are providing more products and services to them.

We are again anxious for them to get back to their pre employment levels.

And we think there'll be even better, but new business and then.

I'd say again adds within our current customers are two significant drivers for us that we think will continue to work to help us throughout the year.

Got it that's helpful color and then wanted to dive into pricing increases, which you touched on earlier.

What extent do you think that pricing combined with efficiencies can fully offset the input cost increases that you're seeing and could there be a timing lag as to when those pricing increases will take effect in the real time nature of the input cost increases that you're CEO.

Yes George.

Certainly timing.

It is difficult to match up.

The timing exactly two wind costs.

Increase in when we see changes in the supply chain for example.

But.

We're doing our best to manage.

And in the.

As I mentioned, a little bit ago.

When we have those conversations today.

Message resonates that look there are there are increases in cost.

And.

These price increases when we do make them.

They are reasonable and they makes sense to our to our customers.

That's been our.

Experienced so far.

They are really nice thing about our if you think about our cost structure as well.

Todd hit on this a little bit that our labor we've been working on that for a while and so we may not be while not immune we may not be as affected as some of our of our peers and others.

And so that's important for us the other part is that many of our material costs are amortized. So when we see spikes in supply chains in various.

Areas, whether it is labor.

Labor throughout the world or cotton or other things, we're amortizing costs and it tends to be a bit of a natural hedge for us.

And so it does slow down the impact and it requires the impact to be greater for a much longer period of time before it really starts to hit us and in those cases, we can get ahead of.

The inflationary pressure pressure pressure is a little bit with our pricing strategy. So.

Generally speaking we feel like we're while it's not perfect matching of of expense and benefit we do a pretty good job.

We get a little bit of benefit from just the way our business works.

We will take our next question from Debbie.

<unk> with RBC.

Thanks for taking my question and good results, Mike I, just wanted to drill down further on the cross sell opportunities that you mentioned I was wondering if you could provide any color on where you are in penetrating.

Let's say hygiene products safety as well as full speed and filer services within your existing customer base and how can you accelerate that cross sell EBIT to organic or through M&A any color on those fronts.

Ashish Thanks for the comments on the question.

We have our sales and service organization well positioned to do.

To offer these various products and services.

They have tools that allow them to understand where those opportunities exist.

There are certainly not perfect, but they are there are allowing them to get pointed in the right direction to help provide that value to customers and as I mentioned, the more value assuming more products and services, we provide the customer we know the stickier that debt.

The relationship will be.

Just like most relationship traded which is just one product, it's probably more at risk than having two and so on and so forth. So very much a point of focus when you think about our relationships.

Every single customer virtually needs.

Our fire surface ramp because of the legal requirements around that subject.

But we see very nice overlap with <unk>.

Those who would who are uniform customers who.

<unk> need some direct sale third uniform rental and we also see overlap with those who are uniform cutting uniform rental customers, who would need the first aid and safety products training CPR.

The various items that we provide so.

It's.

Our biggest issue has been in the past that our customers weren't aware of everything we provided and.

Thats, a nice problem to have but nevertheless, it's still very much a problem for us.

<unk>.

And we're trying to change that position in the marketplace that our customers realize that not just through our sales and service organizations, but also for our mass media spend which.

May have seen this past weekend, where we had significant.

Position on.

Golf's from Ryder Cup.

We're trying to get the message out about all of the service products and services, we provide and.

Not a complete one stop shop for our business, but but we sure do give them a long ways on that path, Mike anything else on this the only thing I would add is the really good news is we're in the early innings of penetration and so when you think about that.

The rental customers and the opportunity to continue to penetrate with with even rental items such as our restroom products and are things that we've talked about recently in the last year like isolation gowns and hand Sanitizers. We're in the very early innings and when you couple that with the first aid.

Safety and fire opportunities.

Again.

Less than 20% penetration and so we've got we've got a lot of work to do in a really exciting thing is.

Much opportunity remains.

That's very helpful color, that's great and maybe just a quick clarifying question I was just wondering at a very high level can you provide what are the key categories of spend and the puts and page of expenses from labor versus fuel versus amortization of <unk>.

Equipment any color there would be helpful. Thanks.

Sure, let me start with with energy.

So energy and that would include.

Fuel for our trucks and.

The running of our of our laundry operations.

In the quarter was two 1%.

That is up.

40 basis points from a year ago.

<unk> with our fourth quarter, so while it is up.

It's still a relatively insignificant part of our overall.

Cost.

Structure.

When you think ashish about our cost structure, though.

You can im going to use cost of rentals, you can think about them in three buckets.

Cost of the materials the cost of running the laundries and then the cost of the service component and while they're not exactly the same there you can think about them as a third each in each of those buckets are a little bit different I mentioned the materials.

Many of which we amortize over certain periods of time, so we get a little bit of smoothing of those costs.

And then we also have some that are direct sale type like the restroom products that we expense immediately.

The major components of that.

Would be those rental items that were amortizing when you think about the laundries.

And then we're into the depreciation of the buildings.

And certainly the equipment that's in our wash alleys, but also the labor the labor component.

Within that as well and then the service component <unk> got our drivers our trucks and the amortization of the trucks and the gaps.

To run those.

When you put it all together certainly labor is a large part of our cost structure the materials the products that we sell.

Certainly a large part of our structure.

And we manage each one of those quite tightly and look for improvement opportunities.

We'll take our next question from Toni Kaplan with Morgan Stanley.

Hey, Good morning. This is actually Jeff on for Tony I know. This question was asked earlier related to revenue guidance, but I wanted to ask it slightly different as it relates to EPS. The EPS guidance up by about 2% for the full year, but it seems like a lot of that is maybe flowing through the buybacks and a better than expected tax rate. So is that fair.

Is that to say from an operating standpoint, maybe a little bit more optimistic on the revenue side, but maybe some cost headwinds keep you a little conservative here just just some more color on that would be helpful.

Sure.

Jeff I don't think Thats a fair.

A reflection of our guidance.

You think about our guidance.

At $70.0 to $10.90.

That's a three 5% to six 4% increase.

In annual EPS, but.

You referred to a lower tax rate our tax rate is going to.

Based on our guide today is going to go up five 8%.

Compared to 21 now that's quite a significant impact and if you. If you think about the 760 basis points that I referred to in my opening remarks that takes EPS growth from about 11% to 14% now certainly.

The buyback that we had done in the fourth quarter and the first quarter.

Did create some benefit but that still gets to a pretax.

Earnings growth.

In the range of double digits.

And so it's a pretty good year and then if you if you kind of move farther up we talked in July about our guidance of Av implying operating improvement.

At the low end zero.

Basis points to 70 at the high end, we're still right around in that neighborhood in terms of the guidance that we provided today and keep in mind. That's on the heels of a 310 basis point improvement in operating margin in the previous fiscal year. So.

Say that our guidance is.

Is based on share buyback and taxes I think is not a great reflection of really what's going on.

The guidance on the EPS side is nice healthy margin improvement.

Pre tax increases of of right around double digits.

And then a higher tax rate that pulls that EPS down hopefully that gives you a little bit more color on that EPS guidance.

Understood that was helpful. And then I wanted to ask about first aid margins, which were pretty strong in the quarter are you able to quantify at all how much PPE is still constraining margins. There just given its greater than normal mix and then I guess based on that how should we think about near term upside as that rolls off I guess that.

Are they going to kick off in the next few quarters as that roll off.

Just kind of overall, if you could talk about the path back to pre COVID-19 level of margins in that line of business.

Sure we we certainly.

<unk> has been a major factor in that business.

And Jeff you are correct in pointing that out and it was it was really important for our customers over the course of the last year and we invested.

Might have been in inventory.

To be able to serve the customers.

Even if it was a bit of a lower gross margin for us.

But we've seen some some nice sequential improvement there are 44, 8% is still lower than our pre pandemic of call. It 48 ish percent and and.

And so we still believe we can get back to those kinds of levels now.

PPE that we've had over the course of the last year tends to drop off a little bit more quickly than the first stage comes back because as Todd and Paul have have referenced we still have a lot of.

Job openings.

Quite a bit fewer people in the workplace today than pre pandemic and so as those people come back in as those job openings get filled that creates more hands in our first aid cabinets and that creates some nice momentum.

One of the nice things that we really have seen coming out of the last few quarters as are our customers and our new customers. So prospects turning into customers are really seeing the value of keeping their employees safe and healthy and our first aid business really.

Allows us to provide that value to them and so our new business has been really strong in this first aid cabinet space.

But it is coming back in.

While we like the momentum we're not there yet and we do expect to see sequential improvement and I'll, maybe step that back a bit we expect to see improvement in the year every quarter can be a little bit bumpy here and there, but generally speaking we continue to look for.

Our improved gross margin in that business.

We'll take our next question from Gary Bisbee with Bank of America Securities.

Hey, good morning, if I could go back to labor for a minute I think a lot of your comments have been about cost and working on wages, but are you fully staffed both from a service and a sales perspective, and if you had seen any elevated turnover relative to history or had any increased difficulty hiring to support the rebound in growth Youre seeing.

Gary.

Very good question.

I guess the way I'd describe it as we're happy to run at higher Rpms to to get the output that we want so it's harder there is no doubt about it.

Attracting retaining and developing the talent is.

Is core to what we do as a company and.

We're working that much harder now to get to the levels that we want to be at so are.

We stopped at the levels, we want to be yet yeah, yeah, we like our staffing position.

Turnover is still very manageable.

And I think it speaks to many many things.

Certainly.

The total compensation that we provide the attractive benefits.

But it really speaks to the culture and the investment that we put into people because there's so many.

Partners that have.

We have grown up in the company and have.

And have advanced in the company and that's part of our culture.

We've always had to be really good at.

<unk> paint a painting a picture for people about this is where you start, but we will invest and develop Q.

<unk>.

We're having to work harder at it but it is still resonating with folks and.

So that's where we are now.

Okay, Great and then on you've talked about the <unk> and some of the pandemic driven sales and first aid and.

Safety, but I think you also had some of that in uniforms panel and that stuff through through the facilities business is.

I'm not going to ask you when it's going to go away, because who knows but is there a meaningful chunk of revenue there that probably churns off in the future and what I'm really trying to think through is how that could impact the rate of growth over over the next several quarters or whatever in the core uniforms businesses is at elevated or is that just not.

Deal in the Grand scheme of that business.

Yes, Gary.

Mike spoke of it.

Significant portion of our first aid and safety business there was certainly.

Some revenue that went through our rental business sold on route that was for PPE.

But nowhere near the amount as a percentage that would go through our.

Our first aid business. So is there some there today, there's a little bit but.

But it's not significant whatsoever. So.

As far as when we look out.

About demand, we're still in a good spot.

Yes.

If the demand is there for those types of products and services, we're managing that inventory and there is still demand.

We sure hope so.

As a country and as North America is a world that.

That is that will be diminishing over the course of the balance of our fiscal year. So our guidance takes all that into account and.

And we're focused on building the core of our business.

But if our customers need those types of products and services. We're there for them and we will we will help them with us.

Sorry, I might just I might just add.

As Youre thinking about I believe you referred to the next several quarters.

As I said in my opening remarks, we talked last third quarter about $45 million that we did not expect to repeat in our fourth quarter.

And so that's going to be as you think about the growth.

Quarter to quarter.

Definitely keep that in mind as a third quarter growth impact now.

Again as it relates to this PPE.

Look the.

Safety and cleanliness themes that we've sold under for years, it's really resonating and we certainly believe that.

That those areas will be larger moving forward than pre COVID-19 and that and that certainly is exciting for us.

We'll take our next question from Scott Schneeberger with Oppenheimer.

Thanks, very much good morning all.

I wanted to hone in a little bit on.

The offsetting efficiencies of the environment and the automation.

Just anecdotally if you could speak to a few things Youre doing I know on <unk> question you talked about.

Automation of of payments in any customer facing just curious if you could elaborate maybe a little bit on what you're doing in this environment.

Yes, maybe at facilities or otherwise and some of the longer term goals of other automation. Thanks.

Yes, good morning, Scott.

A couple of obvious ones for US I mentioned routing that is obviously a significant one that we think is going to.

Pay dividends for us.

Scott Farmer always spoke about we don't we don't generate any revenue when the wheels are turning on our trucks right. We generate revenue when that we'll stop and we.

We see an opportunity to improve that that efficiency and that we're investing in technology there to do so.

And we're excited about the impact that will have only on our cost structure, but also on our emissions.

As we move forward.

In the production facilities.

We are managing very tightly.

Our our wash alley, and making sure that we.

We have.

Much better efficiencies there, meaning we're tracking.

Very closely.

The number of loads that go through our facilities.

<unk>.

The quantity that went through.

On the same.

Same playing field, meaning same amount of.

Volume, that's going through and we've put some technology in place to help us with that.

Instead of just doing it through.

Elbow grease and as a result, we're seeing some real benefits there and again that will help us.

And.

Our cost structure, but also in our missions and so we're focused on.

On making sure that we're managing that very tightly and we're seeing some benefits there.

Yes.

And one other one I might talk about I don't know that Todd mentioned, the stock rooms in our in our laundry facilities and the ability to to get those automated and that creates visibility and it creates the opportunity to share and win when we are more efficient in our stock rooms. So so let me be <unk>.

Our stock rooms are within our within all of our rental facilities. They are garments that havent been in a service already and so when we are efficient that means we are reusing garments that are already amortizing in our cost structure.

And so that's.

That creates revenue generation out of garments that are either already in our cost structure or maybe have been amortized fully and so we get some real nice incremental margins when we can more efficiently use those.

Or put back those garments into service.

This allowed us to get visibility and to be able to improve the use of those garments within our stockroom. So that's another example, Scott.

Something thats.

That's really benefiting us.

Excellent sounds good guys. Thanks, I appreciate that and then just.

As a follow up wanted to touch on.

It sounds like you're very active in M&A that came up I think particularly before calendar year end, maybe with some consideration of our tax.

Implications, but.

You've done over $1 billion worth of stock buybacks in.

In the fourth and the first quarter here back to back and Thats, just kind of looking back than that.

As big as any year going back for a while so.

And just kind of curious how the thought process. There is it sounds like youre getting close on some M&A, but it's not really a lot of allocation of capital is going to be to repurchase and that something we should expect to continue.

Scott we are as I mentioned, we're active.

And it takes two to dance and.

And we're seeing.

More folks at the dance.

Anecdotally my guesses because of tax reform.

And as a result, we think.

More deals will come through now that being said we are in a great position on our balance sheet and.

<unk>.

We are ready willing enable to to activate that balance sheet as appropriate that is best for the long term value for our organization.

And.

Just as a reminder, the number one priority for our capital is has been and will continue to be the investment into our current business to help grow.

The sales and profits of our organization, whether thats through additional.

<unk> and services additional facilities.

Training.

Staffing levels all of those is our number one priority and then after that and number two is M&A.

And we're steadfast in that commitment.

And we will allocate appropriately and then thereafter, then we'll return it to the shareholders as available in the form of.

Stock buyback and dividends.

We've got a really good track record of.

Of managing news priorities appropriately and intelligently.

<unk>.

For the long term value.

That concludes today's question and answer session speakers at this time I will turn the conference back over to you for any additional or closing remarks.

Thank you for joining us. This morning, we will issue our second quarter of fiscal 'twenty two financial results in the latter half of December we look forward to speaking with you again at that time.

<unk>.

This concludes today's call. Thank you for your participation you may now disconnect.