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Starting out as the acme Industrial Laundry Company in 1929, the corporation now outfits America's workforce with uniforms and cleaning supplies.

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Cintas provides uniform rentals, floor care, restroom supplies, first aid and safety products, and fire extinguishers to businesses, primarily in North America.

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Cintas specializes in providing businesses with essential products and services to ensure their operations are clean, safe, and professional. Serving over 1 million customers across the U.S. and Canada, Cintas offers a comprehensive range of solutions, including uniform rental, facility services, first aid and safety products, fire protection services, and compliance training. Its products and services encompass uniforms, mats, mops, restroom supplies, workplace water services, safety products, eye-wash stations, safety training, fire extinguishers, sprinkler systems, and alarm services.

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Q2 2025

Cintas (CTAS): Company Profile, Stock Price, News, Rankings

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Cintas

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Good day, everyone, and welcome to the Cintas Corporation announces Fiscal 2025 Second Quarter Results Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Jared Mattingley, Vice President, Treasurer, and Investor Relations. Please go ahead, sir.

Thank you, Ross, and thank you for joining us. With me are Todd Schneider, President and Chief Executive Officer, Jim Rozakis, Executive Vice President and Chief Operating Officer, and Scott Garula, Executive Vice President and Chief Financial Officer. We will discuss our Fiscal 2025 Second Quarter Results. 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 Securities and Exchange Commission. I'll now turn the call over to Todd.

Thank you, Jared. We had another successful quarter reflecting the strength of our value proposition. Cintas delivered record revenues and strong operating margin performance, while we continue to invest in our business to position the company for the future. Second quarter total revenue grew a strong 9.3% to $2.8 billion. The organic growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 8.6%. Each of our three route-based businesses had strong revenue growth in the quarter. Our business continues to operate at a high level as our employee partners deliver strong execution across the board and maintain a clear focus on driving value for our customers and shareholders. Gross margin as a percent of revenue was 50.4%, a 60 basis point increase over the prior year. Operating income grew to $655.7 million, an increase of 10.9% over the prior year.

Diluted EPS of $1.21 grew 11% over the prior year. Our strong revenue growth is creating leverage, and our cost savings initiatives and investments we've made are helping to improve our employee partners' productivity and help them deliver better solutions for our customers. Our operating margin for the company was an all-time high, and the operating margins for our two largest route-based businesses were also all-time highs, reflecting the high level of execution by our employee partners. Turning to guidance, we are raising our Fiscal 2026 Financial Guidance. We expect our revenue to be in the range of $11.15-$11.22 billion, a total growth rate of 7.8%-8.5%. We expect diluted EPS to be in the range of $4.81-$4.88, a growth rate of 9.3%-10.9%. With that, I'll turn it over to Jim to discuss the details of our second quarter results.

Thanks, Todd. This quarter marked another period of stellar progress for our business. As we continue to advance the rollout of our technology initiatives and build on a strong foundation of organic growth we have established, our focus on innovation, operational excellence, and customer engagement is delivering measurable results. We are strengthening our relationships with existing customers through expanded offerings and superior service, which has led to all-time highs in retention rates while also successfully attracting new customers who see the clear benefits of partnering with us. These achievements reflect the commitment and talent of our employee partners, whose efforts are positioning us for sustained success. Turning to our business segments, organic growth by business was 7.8% for Uniform Rental and Facility Services, 14.1% for First Aid and Safety Services, 11.5% for Fire Protection Services, and 2% for Uniform Direct Sale.

Gross margin percentage by business was 49.8% for Uniform Rental and Facility Services, 57.7% for First Aid and Safety Services, 48.2% for fire protection services, and 41.9% for uniform direct sale. Gross margin for the Uniform Rental and Facility Services segment increased 70 basis points from last year. The 49.8% gross margin is the second highest gross margin ever for this segment. The strong revenue growth in this segment is helping to create leverage. In addition, our supply chain team and process improvement initiatives from our engineering and Six Sigma Black Belt teams continue to help expand our margins while navigating the current economic environment. Gross margin for the First Aid and Safety Services segment was 57.7%. This equals a previous all-time high set last year. As we mentioned previously, the mix of revenue and time to go investments can impact this business from quarter to quarter.

We are pleased our investments to grow this business are generating strong double-digit revenue growth while being able to expand our gross margin. We are growing in many ways. We're adding new business with over two-thirds being converted from no-programmers. We are cross-selling to existing customers. Our retention rates are at all-time highs, and we continue to experience success in our focus verticals of healthcare, hospitality, education, and state and local governments. Our strong culture of execution, combined with multiple growth levers, has positioned us over the years to grow in multiples of job growth and GDP. All businesses have a need for image, safety, cleanliness, and compliance. Our value proposition resonates in all economic cycles as evidenced by our growth in sales and profit in 54 out of the last 56 years.

With that, I'll turn it over to Scott to discuss our operating income, capital allocation performance, and 2026 guidance assumptions.

Thanks, Jim, and good morning, everyone. As Todd mentioned, we continue to perform at a high level as evidenced by record-level revenue and operating margins for the second quarter. Selling and administrative expenses as a percentage of revenue was 27%, which was a 20 basis point increase from last year. Second quarter operating income was $655.7 million compared to $591.4 million last year. Operating income as a percentage of revenue was 23.4% in the second quarter of Fiscal 2026 compared to 23.1% in last year's second quarter, an increase of 30 basis points and an all-time high. Our effective tax rate for the second quarter was 21.2% compared to 20.7% last year. The tax rates in both quarters were impacted by certain discrete items, primarily the tax accounting impact for stock-based compensation. Net income for the second quarter was $495.3 million compared to $448.5 million last year.

This year's second quarter diluted earnings per share was $1.21 compared to $1.09 last year, an increase of 11%. For the second quarter, our free cash flow was $425 million, an increase of 23.8% over the prior year. Our strong cash generation allows us to have a balanced approach to capital allocation in order to create value for our shareholders. In the second quarter, we continue to invest in our businesses through capital expenditures of $106.3 million. Also, in the second quarter, we were able to make strategic acquisitions totaling $85.6 million in all three of our route-based businesses. During the second quarter, we paid dividends in the amount of $182.3 million. Also, during the second quarter, and as of December 17th, we were active in the buyback program with repurchases of $622.5 million of Cintas shares. That is the third largest share repurchase we've made in a quarter.

During the first six months of Fiscal 2026, we have returned $1.24 billion in capital to our shareholders in the form of dividends and share buybacks. Earlier, Todd provided our updated guidance for the remainder of the fiscal year. As you contemplate the guidance, it is important to remember that during the third quarter of Fiscal 2025, we recognized a $15 million gain on the sale of an asset. That will not repeat and will be a headwind when comparing the third quarter results year over year. In addition, please note the following in the guidance: both Fiscal 2025 and Fiscal 2026 have the same number of workdays for the year and by quarter. Our guidance does not assume any future acquisitions.

Our guidance assumes a constant foreign currency exchange rate, Fiscal 2026 net interest expense of approximately $104 million, a Fiscal 2026 effective tax rate of 20%, which is the same compared to our Fiscal 2025, and the guidance does not include the impact of any future share buybacks or significant economic disruptions or downturns. With that, I'll turn it back to Todd for some closing remarks.

Thank you, Scott. Looking ahead to the second half of Fiscal 2026, we are right where we want to be, and our focus remains on helping customers meet and, in many cases, exceed their image, safety, cleanliness, and compliance needs. We remain committed to leveraging our investments to sustain our positive momentum and deliver exceptional customer service. I want to thank our employee partners for their incredible commitment to our customers and everything they do for Cintas. I'll now turn it back over to Jared.

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.

If you would like to ask a question, please press star one on your telephone keypad now. Please be prepared to ask your question when prompted. You will also be allowed to ask one follow-up question. Once again, if you would like to ask a question, please press star one on your phone now. Our first question comes from Tim Mulrooney from William Blair. Please go ahead, Tim.

Only 10 minutes on the prepared remarks. That's what I'm thankful for this holiday season. Thank you for that. So just one question from me. There continues to be a lot of noise in the labor market data, but I think most would agree that we've seen a softening trend in terms of hiring activity over the last several months, at least on balance. And I'd be curious to hear if you've seen any material change in employment levels across your customer base, if what we are seeing in the broader payroll numbers are playing out in your world, or if the reported job losses are more in the white-collar world where you're providing some services, but those folks don't typically wear uniforms.

I know you've emphasized your ability to grow in all types of environments, but I'd be interested in your take on more of the underlying dynamics here given the number of businesses that you service week to week. Thank you.

Thank you, Tim. We're reading the same things you are. We're watching jobs reports as we always do. And as we spoke about in our prepared remarks, as a reminder, we've shown the ability to grow in multiples of GDP and jobs growth for a long time now. And we certainly love it when our customers are adding employees and their businesses are really healthy, and that's all we love that. But we don't need it in order to grow our business the way we like to. That being said, to your point, I think you have to dig past the headlines on the jobs report. First off, we've picked our verticals really well, very strategically. And the employment picture for them is, if you look at it, it's positive. Healthcare, education, hospitality, state and local government, those are good. The services providing sector continues to show growth.

The goods producing sector isn't performing as well, but the specialty trades within them are doing well. Those are obvious uniform wearers and users of our services. There are certainly many jobs that are under pressure, hence what you see in the headlines and the markets reports. They are certainly more generally white-collar jobs, IT, financial, back office that are really not end markets for us, as you pointed out, Tim.

And our next question comes from Manav Patnaik from Barclays. Please go ahead, Manav.

Thank you. Good morning. I also just had one broader question, maybe just following up from that one. I know you've obviously shown that you guys can outperform and execute in any kind of environment, but just maybe help us appreciate what does your downturn playbook look like? If unemployment does crack, how do you still keep up these kind of high single-digit growth levels? Which levels typically make up more? Is it all of them? Just any color there would be helpful.

Yeah, good question, Manav. We certainly have a wide array of products and services that we provide, and we service a wide breadth of customers as well, so our target of mid to high single-digit organic growth is important to us, and we have so many different ways to grow that it gives us flexibility. Certainly, new business is important to us, and when you think about a business that when they have less people, that can certainly impact us, but they also have still other needs that they need to address, and in many cases, they don't have enough people to address those, and they look to us to outsource for those items, so new business is important. We are still very early in the innings of cross-selling all of our various products and services into us.

So trying to gain growth from our current customers is an important lever for us. So that's all valuable. M&A tends to get better during those periods of times as well. But we have many levers in addition to, obviously, the ones that I mentioned that I think give us real optionality. And certainly, when we look at no programmers, that's a big opportunity for us.

Hey, Manav, this is Jim. Perhaps I can give it just a little more color on how much opportunity really lies within our current customers. And as Todd mentioned in his prepared remarks, our objective is to first supply our customers with a great experience with us. And that starts at the foundational level. And then we earn the right now to be able to ask them for more opportunities and to steer more of their spend that they already have over to us. And just due to the nature of our service model, we're in their facilities so frequently that we get a really deep understanding of what their needs are and where the opportunities may come from. So I have an example here of a property management company that we service out on the West Coast.

And we've been servicing that facility for a number of years for uniform rental for all the folks who work on the property. And during our routine visits, our team uncovered that they were doing bulk orders from an e-commerce solution for all their restroom supplies. And when inquiring with the company, they realized that they were tying up cash flow. They were tying up really precious real estate space and storage space that they did not want to tie up. And they were taking a lot of their labor and manpower to go ahead and inventory all of those goods. Our folks went in and introduced the concept of outsourcing that to us and utilizing the Cintas Hygiene Program. They found out that now their spend is much steadier than it was in the past. It makes it much easier to budget. They're not tying up that space.

Maybe most importantly, their team is not involved in taking their precious time away from what they focus on, going ahead and managing hygiene inventories. They let us handle that for them. Just a small example of activities that happen across a million-plus customers every day.

And our next question comes from Andrew Steinerman from JPMorgan. Please go ahead, Andrew.

Hi. I definitely heard the pluses and minuses about the customer's employee base, but I just didn't quite get a compilation of add stops year over year. I surely heard the separate point that you continue to grow with same customers. So just a comment on add stops year over year. And then my second question is, with the acquisitions that were completed in this second quarter, how much will that add to the second half of the year revenues?

I'll take the first half. Andrew, so thank you for the question. As we mentioned and through Jim's example, we talked about all the various products and services we can provide for our customers. It's broad and growing. From that standpoint, growth from current customers, I would describe it as very stable and, if anything, slightly positive. We're in a good position. Our current customers see the value proposition that we can offer to them. That actually helps with retention as well. Scott, if you want to address the second half.

Yeah. Thanks, Todd. And hello, Andrew. We talked in the prepared remarks. The acquisition impact during the second quarter was about 70 basis points. And if you think about the rest of the year and our guide, we obviously assume no new acquisitions. You can assume that there's a normal tail when it comes to the acquisition volume. And generally, for the second half of the year, you would assume about half of the second quarter impact, so call it 30-35 basis points.

Our next question comes from Josh Chan from UBS. Please go ahead, Josh.

Hi. Good morning. Congrats on a really strong quarter. I guess my two questions. One, I think both Todd and Jim mentioned that retention rates are at record levels. Usually, you see those in stronger economic times. So maybe could you talk about how you're able to achieve strong retention rates even in these types of climate? And then I guess my second question is on the incremental margins. I think both Q1 and Q2 were within your longer-term range, but maybe towards the lower end. So any way to think about how that kind of transpires in the second half would be great. And thanks for taking my questions.

Thank you, Josh. I appreciate that. I'll take the first half regarding retention, and Jim will address the incrementals. Our retention rates are at all-time levels. And we have been for several quarters now. And it speaks to a number of things. First off, the execution by our team is impressive. They're doing a great job making sure they're taking great care of our customers. That is easy to say, really hard to do. Starts with our supply chain team, our operations organization. They're doing a great job. And that all ties back into our culture. And we have spoken over and over again about the fact that our culture is our ultimate competitive advantage. And it shines even brighter in economic environments that are a little bit more uncertain than others. And it's showing up big time for our folks.

We're also providing great value for our customers, and they're seeing it with not only the products, but the services, the technology that we're utilizing. And the technology investments that we've made help accomplish two things at a 30,000-foot level. One is it makes it easier for our employee partners to service and take care of our customers, to provide value for them. And the second one is it makes it easier for our customers to do business with us. So when you add those up, all that, you mix it in, it adds up to retention rates that we find very attractive. Jim, you.

Yep. Yeah, Josh, I'll get to the second question regarding margins. So first of all, we ran a 27% incremental margin with the second quarter, which we really like, and that's right in our stated range of that 25%-35%. That range is really important for us because that allows us to continue to invest in the future growth of the business while being able to expand margin along the way, so we really like that. That allows us to make the investments in technology, the necessary investments in capacity, bench strength, selling resources. All of those are really critically important to us, so that would be really right in the sweet spot of the range. Now, a couple of things to keep in mind with regards to incrementals this year and how it plays out for the remainder of the year.

First off, we're coming off of a comparison to last fiscal year, which is a really tough comp. Last fiscal year, we ran in the second quarter incrementals of 49.7%. That's an outperformance. That's not what we normally expect. So we're really pleased with the 27% this quarter given that comparison. In fact, if you look at the whole first half of last year, we ran an incremental of 44.3%. So really, really high in the beginning of last fiscal year, settling back into our range this fiscal year. A couple of other things maybe to keep in mind is really what the guide implies with regards to incrementals for this fiscal year. If you look at the whole year across the board, incrementals would imply somewhere between 29% and 30% when you adjust for the $15 million asset sale from last fiscal year.

So that's right in the heart of where we want to be. Perfect level of investment continuing to fuel future growth. And if you look at the back half of the year, that would imply incrementals of 30 to 33%. So moving back up towards the high side of that range. So we're really pleased with where we are. We like the outlook of the year, and we think that's a great spot for us to run the business.

Great. Thank you both, and congrats again.

Our next question comes from Jasper Bibb from Truist Securities. Please go ahead, Jasper.

Hey, morning, everyone. Why don't we get an update on your experience with sourcing costs and tariffs so far this year? I guess, how have things trended relative to your expectations when you initially set guidance for the fiscal year?

Good morning, Jasper. Thanks for the question. Yeah, with the tariffs, it is certainly a dynamic environment as it relates to that, but we continue to execute at a high level. As I mentioned earlier, our culture, when times are challenging, you might have to run at higher RPMs, but we're executing at a high level. We're not immune from impacts of higher costs from tariffs, but our supply chain has always been a competitive advantage, and when you're in this type of environment, it's that much more of an advantage. Now, keeping in mind, they have the ability to. They're flexible and adaptable, and part of how they have that optionality is because we source from all over the world, and we do have really good geographic diversity, and we have spoken in the past that 90-plus% of our products, we have two or more options.

So that optionality is incredibly important when it comes to an economic, excuse me, a sourcing environment that we're dealing with. The guide does contemplate the current environment for tariffs. So it's coming in very similar to what we expected. You recognize that we do have the ability to, we amortize most of our goods. So as a result of that, it does give us time to pivot and adapt. But it's coming in about where we expected. But we're certainly staying on our toes because the sourcing environment is dynamic, and the tariff environment is, there certainly could be changes coming as well.

Thanks for that. And then really healthy margin in the first-aid business this quarter. Can you provide a bit more detail on what the underlying mixes look like in that business this year? I know you were a bit heavier on the training side toward the end of last year. So curious if that's flipped back to more recurring revenue.

Yeah. We love the first-aid business. It is a great business for us. We're very pleased with that. And you've seen that they've had outsized performance for a period of time now. One of the things that the mantra that we have and the leadership of our organization there talks about, there's nothing more important than the health and wellness of a business's employees and customers. We completely agree with that. And you're seeing really good growth in that business. We see them as a low double-digit grower for the foreseeable future. So that's great. That being said, certainly the mix of business can have an impact on the margins in that. So we like the range we're in. But if we have a little bit of change in mix and there's a little change in margin within a range for us, we're okay with that.

We're investing for the future, providing more value to our customers. And running a business isn't linear. So we're not focused on just a pure, "Hey, we've got to get another certain amount of basis points lifting gross margin in that business." We think it's important that we are running a range that's really attractive so we can grow our operating margins. But mix of business really is impacted by that. So, and Jim, anything else that you'd like to comment on that?

No, Todd. I think you hit all the main points of what really drives this business. The only other thing I might just say is the team did a fantastic job in the quarter of execution, and we're really pleased with the results and where they stand.

[audio distortion]. Thank you for taking the questions.

Our next question comes from Andrew Whitman from RW Baird. Please go ahead, Andrew.

Great. Thanks for taking my question. I just thought I would give you guys an opportunity or like to hear a little bit about the competitive environment. Obviously, over the last couple of years, you've had some competitors that have really gone on a volume-chasing spree. You guys have obviously executed very well among all this. But I was just wondering what you're seeing out there and how that's affecting your price realization.

Good morning, Andrew. Thanks for the question. Yeah. I mean, as you know, we operate in a very competitive environment, always have, always will. My entire career, it's always been like that. We certainly do win some business from competitors. But as you know, that's not where our focus is. Our focus is on signing new customers that weren't no-programmers when we walked in. And when we walk out, they are. And as a result of that, still over two-thirds of our new customers are coming from that sector. And the white space is incredibly large there with us servicing a little over 1 million customers, but there's still 16-plus million businesses in the U.S. and Canada. So that's really attractive for us. So I mentioned our retention rates are at all-time high. That's helping us as well.

But that's really about the value proposition that we're providing for our customers, which starts with our culture and is executed through our employee partners. But we're pleased with how our folks are performing, competing in the marketplace, and really attacking that large TAM out there of that no-program market, which we think we're really excited about.

Great. Thank you. Just for my follow-up, I thought we'd just ask a little bit on the M&A side. Obviously, last fiscal year was one of your bigger years that you had for a while. Pretty big quarter here in terms of capital deployment towards M&A. Maybe, Todd, you could just talk about kind of the funnel here. Do you feel like, thinking about the amount of capital deployment last year is, again, doable this year with the progress that you made this year so far?

Andrew, great question. First off, just capital allocation in general, we're very pleased with how we're going there. We invested over $100 million in CapEx for the quarter, $85 million in M&A. All three route-based businesses we were acquisitive in. And then on top of that, $182 million in dividends paid out and over $600 million in buybacks, so we really like that capital allocation strategy. We've shown to be good fiduciaries with that, and M&A is certainly a part of that. As I mentioned, we had a really good quarter. We had a great year last year, but as you know, it's hard to predict. M&A tends to be a little unpredictable and lumpy, whether it's because there's family-owned businesses that are waiting on the next generation, whether they want to move on or not, and we do love M&A of all shapes and sizes. We love tuck-ins.

We like new geographies. And when we make M&A, we value so much of it. But the number one things that we get out of it are the people that are running the business and the customers. And we try to make sure that we can get synergies. If it's a tuck-in, and if it's not a tuck-in, then we get extra capacity. And we also then have more customers that we can cross-sell. So all that's attractive. The pipe, we are always working on that pipe. Jim and I and our corporate development team are all in that game together. We have relationships that are going back decades. And we're ready and willing for M&A to be an important component of our strategy moving forward.

Happy holiday, guys. Have a good day. Thanks a lot.

Our next question comes from George Tong from Goldman Sachs. Please go ahead, George.

Hi, thanks. Good morning. You touched on some of this, but can you provide a high-level overview on what you're seeing with sales cycles and broader customer purchasing behaviors? And if you've noticed any meaningful changes from prior quarters?

Good morning, George. Nothing specific to call out. We've certainly operated in easier environments. This economic environment is a little less certain than we like. But despite that uncertainty, the value proposition continues to resonate. As I mentioned earlier, especially in periods of uncertainty, it can do that. Outsourcing can save money, improving steady cash flow, and saving time that can be spent on running the business. That was referenced in Jim's example that we talked about earlier. I've already referred to retention rates being at very attractive levels. And I also mentioned our growth from our current customers was steady, and if anything, improved slightly. So we think we're in a good spot, and we like where we are poised.

Got it. That's helpful. And then just to follow up, you took up your full-year guide for revenue. Can you talk about how much of the increase reflects upside in the quarter versus what you were internally expecting compared to maybe a stronger outlook for the remainder of the year?

Yeah. First off, our guide for the year is really good. It looks right where we want it to be. If you look at the guide for the year, it is showing growth of 7.8% to 8.5%, midpoint of 8.2%. It's right where we want. I think it's also important to recognize that the comps do get tougher in the second half for growth. Last year's second half growth was about 90 basis points higher than the first half of last year. So we've booked a good performance, but we're going to be up against tougher comps in the second half on growth than we were in the first half. But we're pleased with where we are, and we're pleased with our guide.

We think that we will be able to get some leverage as we move forward on that guide, which will help fall to the bottom line, hence the EPS guide as well.

Our next question comes from Jason Haas from Wells Fargo. Please go ahead, Jason.

Hey, good morning, and thanks for taking my questions. I just wanted to follow up to get some more detail on the timing of the tariff costs. It sounds like those have maybe started to flow through the P&L, but there's more impact to come. Is that a fair understanding? And then how is the industry reacting? How are you reacting? Have you started to raise prices? Have your competitors begun raising prices? How should we think through that? Thank you.

Good morning, Jason. A few things. First off, as tariffs come through, I mentioned that we have optionality. So don't think of it as simple as, "Well, tariffs are a significant impact. We just haven't seen it yet." That's not the case because our culture is such that we don't just accept that. We've got to go find ways to improve. We've got to work at higher RPMs to find other additional suppliers to take costs out of our business as well. And we're doing all that. I mentioned we're not immune from it, but we're working really hard to mute that subject as very best we can. As far as pricing is concerned, we take a long-term approach on pricing. We are at what I'll call historical-type levels. But our philosophy is we care about the long-term value of a customer.

So we're focused on growing our business via volume growth, not just pricing. We're going to go out and extract out the inefficiencies of our business that'll help us allow us to grow our margins at attractive levels along with the revenue growth to help us get leverage. But we don't simply just pass along those costs to our customers because we operate in a really competitive environment. And those customers have choices. So we've got to work really diligently to mitigate the cost impacts of tariffs and other costs that are going through. And we're extracting out those inefficiencies and doing the very best we can to make sure that we're positioned for success to grow our margins.

Great. Thank you. That's very helpful. And then as a follow-up, can you just refresh us on the timing of the SAP S/4HANA implementation costs? Are you still expecting a greater headwind to margins in S/4HANA in the second half of the year as that system gets turned on and you start recognizing the amortization? Thank you.

Yeah. Jason, thanks for the question. These ERP implementations take time, and we are experiencing some additional costs now for sure, but there is more cost to come in the future. We're working really hard on this implementation. We think it'll be really valuable for our employee partners and our customers, but yeah, so we're investing for the future in that business. You see that we're growing it really attractively. We're not only growing it attractively, but we are also highly acquisitive in that business. So when you think about the Fire business, think about it this way. We are also dealing with M&A that comes to us, and as I mentioned earlier, M&A, you can't predict it exactly. And in that business, some of our M&A allows us to be tuck-ins, but others are actually geographic expansion.

And when we make M&A in that business and you get M&A expansion, it is for a period of time. That doesn't run at the margin profile that we do. We've got to make sure that we get our operating protocols in place. And as you can see, M&A accounted for 340 basis points of total growth for first aid in Q2. So that's a component of any margin pressure that we have in that business, a little bit of SAP. But we're investing for that in that business because we think the future is really, really bright. And we're quite optimistic about the coming years.

Jason, this is Scott. Just to add, as Todd mentioned, these ERP implementations take some time. We've got some experience with that in our rental business as well as first aid and safety. We are expecting the Fire rollout to carry on into next fiscal year. I would just look at the impact for fiscal year 2027 to be around that 100 basis points for the fire protection business.

Okay. Great. That's very helpful. Thank you.

Our next question comes from Faiza Alwy from Deutsche Bank. Please go ahead, Faiza.

Yes. Hi. Thank you. So I wanted to ask about your technology initiatives. I think it's well understood that you guys are at the forefront of implementing the latest and greatest in terms of technology. So just wanted to get an update on what are there any recent initiatives you'd like to talk about and maybe the return on those types of investments, whether it's AI-related or anything else you would want to highlight?

Yeah. Good morning, Faiza. Yes. We are investing in technology, have been for many years, and will be probably in perpetuity. Just it's the nature of how business works now. We spoke about in the past, we're seeing benefits, whether it's in material cost or cost of goods, production, delivery cost, all those, you're seeing that. We talked about SmartTrack helping us from a technology standpoint, garment utilization being on one system allows us to share garments and reduce our cost there. All that is important. Certainly, AI, we see an obvious opportunity there. We're in the early stages as many companies are on the AI front. I include that into our total technology investment. We're optimistic about where that will impact us in the future. We are organizing and investing appropriately to make sure we leverage those opportunities.

Our next question comes from Stephanie Moore from Jefferies. Please go ahead, Stephanie.

Great. Good morning. Thank you, everybody. I think two areas of your strategy were very clear this morning and obviously have been clear for some time now. And the first is obviously the record retention levels that you could continue to see as well as, as you called out, your investments and key verticals and just the strength that you're seeing there despite the uncertain macro. So kind of given these two factors, maybe talk about how your view on pricing can change because it would seem like retention is very strong. You're also in these verticals where you're seeing a lot of impact, but also continuing to build out your value with these customers, so i.e., I would assume being much stickier. So maybe just talk about how this can inform your pricing strategy going forward. Thanks.

Yeah. Good morning, Stephanie. Our pricing strategy hasn't changed, and as I mentioned, we're running at historical levels, and I also mentioned we think long-term about these subjects, so our strategy around pricing, thinking long-term, has helped the retention rates, so we're focused on growing our margins, but we're not going to do that just through pricing. We have to go extract out inefficiencies because we operate in a very competitive market, and we have many competitors, whether it is what you might think of as a traditional competitor, but online, e-commerce, the big box retail, we compete with all these people, and as a result, we've got to be focused on providing great value, and that applies to our key verticals as well. Each of our verticals, we operate in a very competitive environment.

And we're focused on providing the value, extracting out those inefficiencies, but because we do not operate, never have, never will operate in an environment where we can just adjust price up because it's an ultra-competitive environment.

And our next question comes from Scott Schneeberger from Oppenheimer. Please go ahead, Scott.

Thanks very much. It was asked earlier, a question on sales cycles. And you guys covered the spectrum with the answer pretty well. I'm curious just to ask that a little different way. What you're seeing behaviorally from large customers as opposed to small customers? Are you seeing any softness or strength in one or the other? Just any indications on those size category. Thanks.

Yeah. Good question, Scott. As you can imagine, we watch our customer base really closely, but we have such a wide breadth of customers and products and services, but it's that wide breadth of customers, whether it's geographic or by NAICS code, you name it, we service it, and so nothing to call out specifically there. We've got certain customers that are thriving. Certain ones have more challenges, but I wouldn't say anything specific to call out regarding the customer base. If we wanted to go to the fourth decimal type, we could get into those levels, but I don't think it's appropriate at this point because, in general, our customer base has been pretty stable, and as I mentioned earlier, if anything, we had slight improvement there.

Thanks. And as you guys mentioned a very large buyback in the quarter. And clearly, we infer from this call you're interested in being acquisitive. But it seems like we're going to see some large buybacks from you going forward based on what we've just seen. And your leverage is below one time, ticked up a little bit using a little bit of short-term borrowing to do it. What's the propensity to take the leverage higher and do that? How aggressive might we see you be with the buybacks? And where would you take the leverage? Thanks.

Good question. We view buybacks as an excellent use of cash to provide shareholder return. That being said, we have been very transparent on this. We view it as an opportunistic approach. So I wouldn't just simply model in that we are going to lever up and be highly aggressive on buybacks. We'll be opportunistic and handle that as we have in the past. And if you look at our history, even our five, 10, 20-year history, we've been pretty consistent on that, our capital allocation approach. And I wouldn't expect a change to our approach there. We'll continue to look at that opportunistically and return that back to our shareholders as appropriate.

Our next question comes from Shlomo Rosenbaum from Stifel. Please go ahead, Shlomo.

Hi. Thank you very much for taking my questions. The first question I have is just hoping to get more detail on the growth verticals versus the rest of the business. Maybe you could talk a little bit about the growth of those verticals in aggregate versus the rest of the business and maybe versus each other and what percentage of the business they are right now. And then just a deep dive a little bit more on one of the verticals. In terms of some of those scrubs business that you guys have been very successful in, how much of a differentiator is it for you in terms of being able to use your balance sheet to have those dispensers out there and really invest in effective dispensers? Thank you.

Cintas (CTAS) Q2 2026 Earnings Call Transcript

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