Cintas Corporation (CTAS) reported second quarter 2010 earnings per share of 37 cents compared to the Zacks Consensus Estimate of 43 cents.

Rental revenues were $643.6 million for the quarter, a 9.5% decrease in revenues compared to the second quarter of last year but flat compared to the first quarter on an equivalent work-day basis. The improvement was due to a combination of the moderation in job loss and continued focus on further penetration into the existing customer base. While these additions have helped maintain its top line revenue, they’ve also increased selling costs.

Offsetting these positives were lower new business and a difficult pricing environment. Competitive pricing in the marketplace has become more aggressive. Pricing for both customer retention and new business has been challenging. New business was down from the first quarter as new customer prospects appear to be hesitant in adding new services in this time of economic uncertainty.

Uniform direct sale revenue accounted for 11% of total company revenue in the second quarter, up slightly from 10% in the first quarter. While uniform direct sale revenue increased 11% from the first quarter revenue levels continue to be soft. Internal growth was negative 17% in the second quarter, a moderation from the negative 25% in the first quarter.

During the quarter revenues of first aid, safety and fire protection services operating segment decreased 19% versus last year’s second quarter and were down 8% on an adjusted work-day basis from the first quarter.

Fire protection services revenue continued to suffer with revenue down almost 30% from the second quarter of last year and approximately 20% from the first quarter. The majority of this decline is due to the continued pressure on fire installation business.

Total company gross margin for the second quarter was 41.8%, a 30 basis-point decrease from the second quarter of last year.

Selling and administrative expenses were 29.3% of revenue, an increase from 28.9% for the second quarter last year but an improvement from 29.7% last quarter.

Despite the difficult economic environment, balance sheet continues to get stronger primarily due to robust cash flow. Cash and marketable securities increased $122 million from Aug 31, 2009.

Days Sales Outstanding on accounts receivable were 41 days, a slight improvement from the prior quarter.

Capital Expenditure for the first six months of this year was $48 million including $23 million in the second quarter. This is half the amount spent through six months of last year.

Cintas Corporation provides corporate identity uniforms and related business services in the United States and Canada. The company operates through four segments: Rental Uniforms and Ancillary Products; Uniform Direct Sales; First Aid, Safety, and Fire Protection Services; and Document Management Services. The company offers its products and services through local delivery routes and distribution network to manufacturing companies and corporations.

Cintas Corporation was founded in 1968 and is based in Cincinnati, Ohio. Major competitor is G&K Services Inc. (GKSR).

We currently have a Neutral recommendation on CTAS.

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