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Cintas Corp  (NASDAQ: CTAS) Q3 2020 Earnings Call Transcript

Final Transcript

Cintas Corp  (NASDAQ: CTAS) Q3 2020 Earnings Conference Call

Corporate Participants:

J. Michael Hansen — Executive Vice President and Chief Financial Officer

Paul F. Adler — Vice President & Treasurer

Analysts:

Manav Shiv Patnaik — Barclays Bank — Analyst

Andrew John Wittmann — Robert W. Baird & Co. — Analyst

Andrew Charles Steinerman — JP Morgan Chase & Co. — Analyst

Seth Robert Weber — RBC Capital Markets — Analyst

Keen Fai Tong — Goldman Sachs Group — Analyst

Gary Elftman Bisbee — Bank of America Merrill Lynch — Analyst

Hamzah Mazari — Jefferies — Analyst

Tim Mulrooney — William Blair — Analyst

Shlomo H. Rosenbaum — Stifel, Nicolaus & Company — Analyst

Kevin Damien McVeigh — Credit Suisse AG — Analyst

Scott Andrew Schneeberger — Oppenheimer & Co. — Analyst

Toni Michele Kaplan — Morgan Stanley — Analyst

Presentation:

Operator

Good day, everyone, and welcome to the Cintas Quarterly Earnings Results Conference Call. [Operator Instructions]

At this time, I would like to turn the call over to Mr. Mike Hansen, Executive Vice President and Chief Financial Officer. Sir, please begin.

J. Michael Hansen — Executive Vice President and Chief Financial Officer

Thank you and good evening. And thanks for joining us tonight.

With me is Paul Adler, Cintas’ Vice President and Treasurer. We will discuss our third quarter results for fiscal 2020.

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.

Before discussing the financials, I want to say that our thoughts go out to all of those impacted by the COVID – 19 coronavirus. This is a challenging time for all of us, and we can’t thank enough our employees whom we call partners for doing all that they can to keep our customers’ places of business clean, safe and ready for the workday. We currently find ourselves at the peak of uncertainty as it relates to the pandemic’s impact on the economy. The response of our country in each state evolves daily.

A week ago, we hadn’t seen much impact to our business and we were expecting today to increase revenue and EPS guidance based on our year-to-date results and fourth quarter outlook. However, much has changed in a matter of days, and more changes are likely to come. Due to this uncertainty, including the severity and duration of the pandemic, we are not providing guidance for the fourth quarter of fiscal 2020 at this time. We certainly remain focused, though, on the safety and well-being of our employee partners and the care of our customers.

So let’s move to providing our third quarter results and then we will open it up for questions. Our fiscal 2020 third quarter revenue was $1.81 billion, an increase of 7.6% over last year’s third quarter. Earnings per diluted share or EPS from continuing operations were $2.16, an increase of 17.4% over last year’s third quarter, adjusted for G&K integration expenses. Free cash flow for this year’s third quarter was $300 million, an increase of 17.2%.

The organic growth rate which adjusts for the impacts of acquisitions, foreign currency exchange rate fluctuations and differences in the number of workdays was 5.7% for the third quarter of fiscal ’20. The organic growth rate for the Uniform Rental and Facility Services operating segment was 4.8%, and the organic growth rate for the First Aid and Safety Services operating segment was 12.5%.

Gross margin for the third quarter of fiscal ’20 of $824.4 million increased 9.2%. Gross margin as a percentage of revenue was 45.5% for the third quarter of fiscal ’20 compared to 44.9% in the third quarter of fiscal ’19.

Operating income for the third quarter of fiscal ’20 of $314.7 million increased 13.1%. Operating margin was 17.4% in the third quarter of fiscal ’20 compared to 16.5% in fiscal ’19.

Net income from continuing operations for the third quarter of fiscal ’20 was $234.5 million, and reported earnings per diluted share were $2.16. Excluding the G&K acquisition integration expenses in fiscal ’19, EPS increased 17.4%.

In addition to the solid financial performance, we continue to generate strong cash flow and commit to effectively deploying cash to increase shareholder value. Third quarter free cash flow was $300 million, an increase of 17.2% compared to last year. In the third quarter of fiscal ’20, we paid an annual dividend totaling $268 million. The dividend of $2.55 per share was an increase of 24.4% over last year’s annual dividend. In addition to the annual dividend, we purchased $393.1 million of Cintas stock in fiscal ’20 to date, including $200 million in March. The amount remaining under our buyback authorization is $1.1 billion.

We ended our third quarter with fiscal year-to-date revenue growth of 7.2% and an organic growth rate of 7.1%. Operating income, excluding last year’s G&K integration expenses, increased 14.7%. EPS, adjusted for last year’s special items, increased 22.2%. And finally, free cash flow for the third quarter year-to-date increased 61%. Our employee partners have really done a great job this year.

With that, I will turn the call over to Paul for additional details for our third quarter results.

Paul F. Adler — Vice President & Treasurer

Thanks, Mike.

We have two reportable operating segments: Uniform Rental and Facility Services and First Aid and Safety Services. The remainder of our business is included in All Other. All Other consist of Fire Protection Services and our Uniform Direct Sale business. First Aid and Safety Services and All Other are combined and presented as Other Services on the income statement.

The Uniform Rental and Facility Services operating segment includes the rental and servicing of uniforms, mats and towels, and the provision of restroom supplies and other facility products and services. The segment also includes the sale of items from our catalogs to our customers on route. Uniform Rental and Facility Services revenue was $1.45 billion, an increase of 6.6%. Excluding the impact of acquisitions, foreign currency exchange rate changes and the difference in number of workdays, the organic growth rate was 4.8%. Our Uniform Rental and Facility Services segment gross margin was 45.8% for the third quarter compared to 44.9% in last year’s third quarter, an improvement of 90 basis points. Gross margins have strengthened for many reasons, including strong revenue growth and realization of cost synergies from the acquisition of G&K.

Our First Aid and Safety Services operating segment includes revenue from the sale and servicing first aid products, safety products and training. This segment’s revenue for the third quarter was $170.5 million. The organic growth rate for this segment was 12.5%. The First Aid segment gross margin was 48.0% in the third quarter compared to 48.2% in last year’s third quarter. The difference in gross margin was due to revenue mix in the quarter, which consists of service, product sales and training. The strong organic revenue growth benefited from more safety and personal protective equipment product sales, which generally have lower margins than the other revenue categories.

Our Fire Protection Services and Uniform Direct Sale businesses are reported in the All Other category. Our fire business continues to grow each year at a strong pace. The Uniform Direct Sale business growth rates are generally low single digits and are subject to volatility such as when we install a multi-million-dollar account. Uniform Direct Sale, however, is a key business for us and its customers are often significant opportunities to cross-sell and provide products and services from our other business units.

All Other revenue was $192.1 million, an increase of 9.9%. The organic growth rate was 7.1%. The fire business organic growth rate was 4.1%. Fire revenue was weighed down by the loss of a struggling national account in the retail sector that recently disclosed a closing of over 100 stores, by mild winter weather that resulted in less sprinkler repair service revenue from freezing and bursting water pipes and by a decline in sales rep productivity through the Christmas and New Year’s holidays.

Uniform direct sale business organic growth rate was 11.1%, and benefited from additional sales from the rollout last quarter of Carhartt branded garments to a Fortune 100 customer. All Other gross margin was 41.3% for the third quarter of this fiscal year compared to 42.3% last year.

Selling and administrative expenses as a percentage of revenue were 28.2% in the third quarter of fiscal ’20 and 28.3% in the third quarter of fiscal ’19. G&A labor expense as a percent of revenue improved year-over-year.

Our effective tax rate on continuing operations for the third quarter of fiscal ’20 was 18.9% compared to 20.1% last year. The tax rate can move from period to period based on discrete events, including the amount of stock compensation expense.

Our cash and equivalents balance as of February 29 was $234.4 million. Of that amount, $144.7 million was in the United States and unrestricted. Capital expenditures in the third quarter were $63.2 million. Our capex by operating segment was as follows: $50.2 million in Uniform Rental and Facility Services; $10.1 million in First Aid and Safety; and $2.9 million in All Other.

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Year-to-date free cash flow was $745.2 million, an increase of 61% compared to the prior year period. Free cash flow increased because of strong earnings growth and improvements in working capital, particularly accounts receivable, inventories, uniforms and other rental items and service and accounts payable.

As of February 29, our balance sheet remains strong. Our leverage was 1.7 times debt to EBITDA. We have an untapped credit facility of $1 billion, no debt maturities in the next 12 months and no material debt maturities in the next two years.

That concludes our prepared remarks. We are happy to answer your questions.

Questions and Answers:

Operator

[Operator Instructions] And first, we have Manav Patnaik with Barclays Capital.

Manav Shiv Patnaik — Barclays Bank — Analyst

Good evening, gentlemen. Just maybe in light of all the stuff going on, perhaps you could help us with a little bit more detail in terms of where your exposures lie, whether that’s restaurants, lodging and so forth. Just we at least know magnitude of what percentage of revenues are really at risk versus those that could go — like 50-50 or whatever it is. I was hoping you could help us with a little bit more color there.

J. Michael Hansen — Executive Vice President and Chief Financial Officer

Sure, Manav. As I mentioned a bit earlier, we’re really at the peak of uncertainty. As of a week ago, we didn’t really see much impact to our revenue. And so we’re going about trying to get a better understanding of that as we go through this week and into the future. But let me remind you. We have a very diverse customer base. About 30% of our revenues from industrials, 70% from service providing businesses. That includes healthcare, retail distribution centers, foodservice, hospitality. And all of these are being affected in different ways.

If you think about healthcare, for example, they really need us now. They need our scrubs, they need our microfiber wipes, they need our cleaning chemicals, they need our fire protection. If you think about restaurants, some are closed, some are opened only carry out. And we’re learning as we visit them this week what are their needs. They may still need some chef works, some hygiene products, first aid and safety. But it’s going to take a little bit of time to understand what those needs are. Office environments, they’re looking to stay clean more than ever, and so we’re seeing some nice movement there in terms of our first aid and safety, our personal protective equipment like gloves. And then you think about hotels, casinos, arenas. They aren’t doing very much business right now.

And so we are in the midst of better understanding the collective impact to the business, Manav. And I guess we’re so early in that process that it’s really hard to break it down. Because, in addition to the details that I just provided, and keeping in mind if you think about three-digit mix codes [Phonetic], we don’t have revenue of greater than 10% in any of those three-digit mix codes. But also keep in mind, as I talked about revenue per vertical, it’s quite different from geography to geography today. So if you think about some of those different businesses that are on the coasts, they may be impacted more severely than those same kind of businesses in the same verticals in the middle of the country. And so it’s going to take a little bit of time for us to really get clarity on the collective impact to the business, and we’re just not there yet.

Operator

Thank you. Next, we have a question from Andrew Wittmann with RW Baird.

Andrew John Wittmann — Robert W. Baird & Co. — Analyst

Great. Thanks. A question that we’ve gotten a lot this week is how customer closures work and how they affect you and what the contract says when such things happen. I know there’s probably different ways to treat different categories of customers; small customers, large customers, maybe even by end market. But for those customers that are shutting down and we know are shutting down, how does that get treated by Cintas and what is the impact to your financials?

J. Michael Hansen — Executive Vice President and Chief Financial Officer

Yeah. It’s a great question, Andy. And as I said, we’re still working on gaining clarity there. But it’s going to be all over the board, right. This is not a normal environment. In a normal environment, we may have a business shut down for a week and we still may be charging the rental of garments and other products. Holiday and manufacturing shutdowns are a good example of that. Semester breaks at school is a good example of that. What we’re talking about right now is quite different.

And so we have to understand from our customers how long do they think they will be closed, and many of them right now don’t know — about how long do we think they’re going to be closed and what are the needs of the business today versus maybe where they were a couple of weeks ago. And so it’s going to be all over the board, Andy, from small businesses to large businesses and different kinds of verticals in different geographies. And as I said, we’re working through that to gain clarity.

Operator

Thank you. Our next question will come from Andrew Steinerman with JPMorgan Securities.

Andrew Charles Steinerman — JP Morgan Chase & Co. — Analyst

Hi, Mike, let me give it a try. So my sense — I’ve been at this for over a decade, looking at Cintas and the group, and my sense is that the Uniform Rental business really is kind of cyclical on a delay. Like when you look at your fiscal 2008, it was actually up. It wasn’t until 2009 and 2010 fiscals did you have kind of moderate declines about 5% organic per year for those two years. So my question really is, do you think that the impact that you experience now will be more immediate or do you think it’s going to be a delay like I described last recession?

J. Michael Hansen — Executive Vice President and Chief Financial Officer

Yeah, Andrew, this is not a normal recession or even like the Great Recession. And so I think there is going to be a more immediate impact simply because we have so many businesses that have been ordered to close, right. We’ve got 40 states have closed their schools. I think another over 20 states have closed their restaurants. I mean, that’s unprecedented. And it’s not like our customers are going out of business over time or even had the chance to reduce their workforce. They’re kind of closing, many of them on orders of municipalities. And so there is going to be a little — there is going to be certainly a more immediate impact. What is that impact?

Look, one of the reasons that we did not provide guidance is, it’s really hard to tell. We’ve never been through a pandemic. And in this pandemic, we’re seeing things that we really haven’t seen in the 90 years of Cintas, of running the business. And so we need a little bit of time for clarity. As I said, we hadn’t seen much of an impact as of a week ago. But there is going to be an impact coming. And that’s why we did not provide guidance because it’s just too hard to tell right now.

Operator

Thank you. Our next question will come from Seth Weber with RBC Capital Markets.

Seth Robert Weber — RBC Capital Markets — Analyst

Hey, good evening, guys. I guess maybe just following up on that line of questioning. I think in 2010, your decremental margins were sort of mid 30%. I guess, Mike, just kind of trying to read between what you’re saying here, it seems like the impact could be sort of more of a shock here near-term. So from a decremental margin framework, should we think about levels above kind of where you were in the last sort of time that organic growth was down? Is that kind of what your messaging? Thanks. Or can you [Speech Overlap]?

J. Michael Hansen — Executive Vice President and Chief Financial Officer

Sure, sure. So if you think about the fixed versus variable and how will we manage the business right through this disruption, and right now there is a fair amount of uncertainty as I’ve mentioned a number of times. And we need a little bit more clarity, and the clarity as it relates to this is really around what’s the depth of this, what’s the breadth of this, how long will this last, what’s the severity and duration. If we start to believe that, for example, the severity is pretty high, so we don’t expect the duration to last very long, then we may not be as aggressive because we don’t want to harm the long-term opportunities and the performance of the business as we move into next fiscal year, as we go into this.

If we feel like the duration is going to be longer, then we may take different steps to pull down some of those variable expenses. And so we’re going to need a little bit of time to understand what our best expectations are for severity and duration and we’ll manage accordingly to that. I can tell you, as we sit here today, we are generally — and we have been for a long time — in a mode of growing the business and adding routes and adding laundry capacity. And as we sit here today, we have not, or at least we’ve slowed capex, for example, to only those things that are essential.

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And so, in other words, we’re not looking to add routes right now. That will reduce capex. We’re not looking to expand capacities in our wash alleys, open new processing facilities. That’s going to reduce capex. Along those lines, that means we likely won’t be hiring people to staff those new routes, to staff the added capacity. And so there are certainly things that we can do today to say we expect to get into a period where the growth isn’t going to be what it was in the first three quarters, and so we can pull back on that a little bit. And that certainly is going to help the cash flow. But as it relates to then being more aggressive, we are here for the long term. And if we feel like this is a short duration disruption, we’ll likely treat that a little bit differently than a longer-term duration.

Operator

Thank you, sir. Our next question will come from George Tong with Goldman Sachs.

Keen Fai Tong — Goldman Sachs Group — Analyst

Hi, thanks. Good afternoon. Oil prices have contracted sharply in recent weeks. What are your expectations for your industrial and manufacturing verticals? And what factors could potentially cause Cintas to perform differently during this energy downturn compared to the prior 2014 to 2016 downturn?

J. Michael Hansen — Executive Vice President and Chief Financial Officer

Well, I think, George, if we were looking at this only in the lens of the oil and gas vertical, then I’d say a couple of things. One, it’s a smaller piece of our business than it was at the beginning of that last downturn. And so that will not have as big of an impact on us as it did last time, and the lower gas prices will certainly help us today. And so, if we’re just looking in the lens of that particular or maybe a few verticals, I think we fared really well during that. And we did several years ago as well. But this is broader. This is certainly broader than just that one lens. And so, it’s going to be really hard to tell exactly how do we think we performed in that one vertical compared to what’s going on in the rest of the United States.

Operator

Thank you. Our next question comes from Gary Bisbee with Bank of America Merrill Lynch.

Gary Elftman Bisbee — Bank of America Merrill Lynch — Analyst

Hey guys, good afternoon. In the earlier question about cost actions, you referenced variable versus fixed. But actually you didn’t, unless I missed it, give us the mix of the two. Can you take a shot at that? And maybe, just at a high level, if you do decide that this could be longer duration, what are the kind of actions you would take? Is it just headcount or are there other actions you would take to reduce costs? Thank you.

J. Michael Hansen — Executive Vice President and Chief Financial Officer

Well, so, Gary, if you think about our business, there are many variable costs in the business. The question is, are they variable to the point where we can turn them off immediately, and do we want to turn them off immediately. That’s the biggest question that we’re dealing with. And it’s really — I think it’d be irresponsible of me to give you a percentage of just total variable costs because we have to manage the business, and we’re managing it for the long term. And so I don’t want to throw out some variable number where you think we will cut to the bone our business. So let me give you some examples, though.

When you think about the material cost of the business, we’ve got a lot of cost of disposable products like paper, soaps. We have direct sale like our catalog business. Those are highly variable. And if we’re not selling them, we don’t have those costs. We also have the gas, water and energy, the gas for our trucks, the water and energy for running the facilities. There certainly is a variable component of that. But there is also a bit of a fixed. And it just depends on how much of that capacity we may decide or not to pull back on. Then, if you think about the laundry capacity, there are a lot of different pieces that go into that, including labor. And then when you think about our route capacity, we’ve got the cost of our drivers. And there are a lot of variable costs.

Our goal is to make sure that our business remains strong for the long term. And so, if we start to see a longer duration, then there are certainly some things that we will do like pull back even a little harder on capital expenditures and other growth pieces of what we do. We may do some things through attrition, and we’ll have to make sure we understand the capacity utilization and knowing that we want to manage to that.

If you go back to ’09 and ’10, we did close facilities. But that was a little bit different in that it was a longer period of a recession. This is potentially deep. But we just don’t know the duration and we do not want to impact the business for the long term until we really have to.

Operator

Thank you, sir. Our next question comes from Hamzah Mazari with Jefferies.

Hamzah Mazari — Jefferies — Analyst

Good evening. Thank you. Mike, if you could just provide just a little more detail on your contract structure. And what I mean by that is, if a customer goes bankrupt, clearly you see that right away if it’s a closure. But how quickly do your contracts adjust to permanent headcount changes? Just any sense as to how defensive your portfolio is? But specifically, what’s the lead lag to headcount changes that may be permanent? I realize absences don’t impact your business.

J. Michael Hansen — Executive Vice President and Chief Financial Officer

Yeah. I mean, our contracts are generally five year contracts and they provide for a steady stream of revenue. And generally, there is some minimum level of revenue that we require. But Hamzah, we’re in a little bit of a different time today. And so there is going to be a customer by customer conversation about what makes sense, and that’s going to take a little bit of time to get through. Again, this is not a normal kind of ramping down, a trending down of the business. This is kind of an abrupt closure of a lot of different customers.

But let’s remember something else about our business. As I mentioned a little bit earlier, there are a number of — there are many businesses that really need our products and services. And I don’t want that to be lost. There has been a couple municipalities and areas within the country, particularly on the coasts, and we have been identified as an essential provider. And so even though other businesses may be shutting down, we are operating, because our customers need us. And over the course of the next few weeks, we’re going to understand the collective impact. But let’s keep in mind that while some of our customers are going to be impacted negatively, there are others that really need us. We are seeing an increase in what they need, and we’re going to do everything we can to take care of them. So it’s a mix. And we’re going to — it’s going to take a little bit of time to understand that and get some clarity.

Operator

Thank you, sir. Our next question comes from Tim Mulrooney with William Blair.

Tim Mulrooney — William Blair — Analyst

Yeah. Good afternoon. I understand this slowdown is very different, Mike. But if you go back to the last recession — and I can’t remember if you broke this out or not. But how did customer retention look through that period? I’m trying to figure out how much of that mid single digit organic decline in ’09 and ’10 was due to a deterioration in retention rates versus new customer sales or pricing, for example.

J. Michael Hansen — Executive Vice President and Chief Financial Officer

Yeah. The retention was not negatively impacted that much. It was more about customers reducing their headcount. We certainly did have more customers than normal periods go out of business. And so that contributed to a little bit of a higher lost business number. But generally speaking, our retention was really good then. And I think our retention outside of possible businesses that actually have to go out of business, I think our retention is going to be very good here. There is going to be some period of disruption that we have to work ourselves through.

I think we have to be careful about comparing this to a prior recession. This is a pandemic that’s quite different and the disruption is going to be a little bit more abrupt and immediate. The question is how long will it last. And boy, if we can get through this as a country in the next 60, 90 days, we look forward to getting back to normal operations. But we’ve got to see what that looks like first.

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Operator

Thank you, sir. Next, we have a question from Shlomo Rosenbaum with Stifel Nicolaus Investment.

Shlomo H. Rosenbaum — Stifel, Nicolaus & Company — Analyst

Hi. Thanks for taking the questions. Can you talk about how many of your contracts, let’s say, percentage-wise, like first aid and safety? Are those primarily consumption based contracts? Or are they contracts that are [Indecipherable] a recurring revenue [Indecipherable] per month? Can you go into that a little bit more because — and first aid and safety has been a very good growth portion of the business. Now just wondering how those contracts work [Phonetic].

J. Michael Hansen — Executive Vice President and Chief Financial Officer

Yeah. Generally those are based on — there are some recurring revenue streams. I would tell you the bulk of that is consumption based, and it’s a business that’s performing very, very well right now as you can imagine with the need for sanitizing personal protective equipments. That’s a business that is performing very well. It has for the whole year. And we’re getting a lot of customer requests for more ways to help. When you think about the needs of many businesses today, the cleanliness and the safety aspects have really risen, and we’ve got a lot of products and services that can help in those areas. And those have been asked for quite a bit over the course of the last couple of weeks. And I expect that those kind of things will perform well.

Operator

Thank you, sir. Our next question comes from Kevin McVeigh with Credit Suisse. Kevin, make sure you’re unmated.

Kevin Damien McVeigh — Credit Suisse AG — Analyst

Yeah. Great. Thank you so much. Hey, can you give us a sense of, not only the client mix, but what was the revenue trends in the last week or so? Just to get a sense of how much the business came off. And then, just, if you think [Indecipherable] think about it geographically, because it sounds like California, New York, Washington, maybe that’s been a little bit weaker than the interior. But just any thoughts on kind of trends the last week or so? And then is there any way to kind of just frame it out within a little more context geographically?

J. Michael Hansen — Executive Vice President and Chief Financial Officer

Yeah. Unfortunately, Kevin, through last week, we didn’t see much disruption to the revenue. In our uniform direct sale business, we did start to see the incoming orders start to come down. And so that was probably the early signs. But through last week, not a lot of impact. There has been certainly some impact on the coasts. And so for example, all of our customers in New Rochelle, they are hard to get to, as you can imagine, with the National Guard patrolling the streets there. That’s been difficult. There are others that have been difficult on the West Coast as well. But collectively, it wasn’t that big of an impact.

I expect that we will start to see some impact as we go through the rest of this week and certainly then in next week, and that’s when we’re going to start to be able to get a little clarity on what’s the initial response of our customers and what might their needs be as we move through. And like I said, there are going to be some customers where their needs have really increased. There are going to be others who have closed, and we’re going to be talking about a different — there is a different conversation there. We need to get through all those conversations, though.

Operator

Thank you, sir. Our next question comes from Scott Schneeberger with Oppenheimer & Co.

Scott Andrew Schneeberger — Oppenheimer & Co. — Analyst

Thanks. Good afternoon, guys, and thanks for taking the questions. I guess you’ve alluded to capex a few times. Just looking at it year-to-date, you’re trending — I think your guidance at the midpoint this year was the same as what you did last year. But you’re trending about $17 million below per my numbers. So I’m just curious when we delve into capex a little bit more, and I think you had said you’d already taken some actions with regard to what you’ve been seeing over the last weeks or months. So just kind of delve in a little bit more on what you would be thinking about on a go forward basis as well. Thanks.

J. Michael Hansen — Executive Vice President and Chief Financial Officer

Sure. When I mentioned that we’ve made some decisions to reduce capex, that’s a very, very recent type of conversation. Look, when we think about capex, we love to grow the business and we have been expanding the routes as necessary and expanding capacity. But also keep in mind, we’ve gotten some capacity through the G&K deal, and we’ve gotten some efficiency through projects within the facilities. And our routes — the revenue per route has been growing. And so we’ve become a little bit more efficient. And so we’ve been pretty efficient and I’d say prudent in capex throughout the year.

But having said that, going forward, we’ve been at a, let’s call it, a $60 million to $65 million quarterly clip, and certainly that’s going to come down probably by half. Now, I don’t have a very — I don’t have a — that’s a scientific measurement. But it’s going to come down quite a bit as we think about the fourth quarter. Beyond the fourth quarter, it’s going to get back to our expectation for the severity and duration of this.

Operator

Thank you. Our last question in the queue comes from Toni Kaplan with Morgan Stanley.

Toni Michele Kaplan — Morgan Stanley — Analyst

Thank you. Saves the best for the last.

J. Michael Hansen — Executive Vice President and Chief Financial Officer

That’s right.

Toni Michele Kaplan — Morgan Stanley — Analyst

I’m going to take the road less traveled and ask a question about the quarter. Could you talk about the organic growth deceleration within the uniform rental space? It sounds like it wasn’t related to coronavirus since you hadn’t really seen an impact from that yet. So I guess just what were the main drivers of the deceleration within rental? Thank you.

J. Michael Hansen — Executive Vice President and Chief Financial Officer

Yeah. We’ve talked a little bit over the last two quarters about the choppiness that we had seen in industrials. And we certainly saw that pick up a little bit in our third quarter. Now, whether that has to do with China in the early parts of the quarter, not sure — or the uncertainty around this. That’s really hard to put our finger on. But we certainly did see some choppiness in that side of the business, and that contributed to a little bit of a deceleration there.

Pricing was a bit more aggressive in the quarter. We talked a little bit about that in our second quarter, and that remained here in the third quarter. And the holidays — I mentioned this in the second quarter call back in December. The holidays are tough when you’ve got two holidays on a Wednesday. Generally speaking, our sales people have a really hard time of setting appointments. And so if you think about a two-week period of time where you’ve got many customers, because it’s on a Wednesday, taking the whole week off or in and out, it’s really hard to set appointments. And so we did see some impact to our sales rep productivity, Paul mentioned, in fire and also in rental. And that was a bit of a contributor as well. So collectively those things were what we saw in the third quarter.

Let’s set aside the pandemic. The business has been operating at a very healthy pace, and we really like the execution of it. And while the disruption is coming, we think we’re poised pretty well to manage through that and get back on to our business once we get through this.

Operator

Great. Thank you, sir. And that concludes the question-and-answer session for today’s call, and I would like to turn the call back over to Mr. Hansen for closing remarks.

J. Michael Hansen — Executive Vice President and Chief Financial Officer

Thank you. And before ending the call, we’d like to leave you with a couple of final comments. First, I want to say again that our thoughts remain with those impacted by the COVID – 19 coronavirus as our country works to get through this difficult situation as quickly as possible.

But secondly, our business has performed very well over the course of the last 10 years, with strong revenue, income and EPS growth. In fact, we’ve grown our sales and profits in 48 of the last 50 years. And although we’re entering a period of disruption, we and all Cintas partners remain excited about the future opportunities of our business and look forward to getting back to business as usual. In the meantime, we are well positioned to enter this period of disruption with a strong cash flow, a very solid balance sheet and an untapped $1 billion credit facility.

So we feel good about our ability to manage through this and come out the other side with a very strong business. So thank you, again, for joining us tonight. We will issue our fourth quarter financial results in July, and we look forward to speaking with you again at that time.

Operator

[Operator Closing Remarks]

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