Earnings Call Transcript - CTAS Q1 2026

Operator, Operator

Good day, everyone, and welcome to the Cintas Corporation Announces Fiscal 2026 First 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.

Jared Mattingley, Vice President, Treasurer and Investor Relations

Thank you, Ross. 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 2026 first 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.

Todd Schneider, President and Chief Executive Officer

Thank you, Jared. We are pleased with our start to fiscal year 2026, reflecting the strength of our business model and the dedication of our employee partners. Our first quarter performance is a testament to the strength of our value proposition. First quarter total revenue grew 8.7% to $2.72 billion. The organic growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 7.8%. This is right where we like to be. Each of our three route-based businesses had strong revenue growth in the quarter. Gross margin as a percent of revenue was 50.3%, a 20 basis point increase over the prior year. Operating income grew to $617.9 million, an increase of 10.1% over the prior year. Diluted EPS of $1.20 grew 9.1% over the prior year. Our culture continues to be our greatest competitive advantage. We've shown an ability throughout the years to perform well in a variety of macroeconomic environments. Our ongoing investments continue to help drive revenue growth and expand margins. These investments include technology to make it easier for our employee partners to do their jobs, whether that is growing the business or making us more efficient. Reflecting our strong first quarter performance, we are raising our fiscal 2026 financial guidance. We expect our revenue to be in the range of $11.06 billion to $11.18 billion, a total growth rate of 7% to 8.1%. We expect diluted EPS to be in the range of $4.74 to $4.86, a growth rate of 7.7% to 10.5%. With that, I'll turn it over to Jim to discuss the details of our first quarter results.

James Rozakis, Executive Vice President and Chief Operating Officer

Thanks, Todd. I want to begin by discussing our strong revenue performance. Our employee partners continue to perform at a high level and demonstrate that our value proposition resonates with all types of customers. We are seeing great success in converting non-programmers, selling additional products and services to our existing customers as well as retaining our valued customers. Let me provide an example. Recently, there was a department of transportation located in Northwest that was a do-it-yourselfer or what we refer to as a non-programmer. The employees purchased more of their own clothing, while the highway department provided the required high visibility safety vest to be worn over their personal garments. They reached out and expressed challenges with their safety vest program, including the time and effort administering the program, budgeting difficulties and inconsistent compliance among workers. Cintas was able to offer a solution with our recently expanded line of Carhartt high-visibility safety apparel. These high visibility garments were well received by the employees and have allowed the highway department to receive the benefits of the Cintas rental program by providing an exclusive Carhartt branded rental garment for daily use, Cintas' reliable service, a reduction in administrative time and effort, more predictive budgeting, the convenience of a laundry service and improved safety compliance among their workers. This example illustrates how our value proposition continues to resonate with customers in many different verticals throughout various economic cycles and to customers of all types, including non-programmers. Now turning to our business segments. Organic growth by business was 7.3% for Uniform Rental and Facility Services, 14.1% for First Aid and Safety Services, 10.3% for Fire Protection Services and Uniform Direct Sale declined 9.2%. Gross margin percentage by business was 49.7% for Uniform Rental and Facility Services, 56.8% for First Aid and Safety Services, 48.9% for Fire Protection Services and 41.7% for Uniform Direct Sale. Gross margin for the Uniform Rental and Facility Services segment increased 40 basis points from last year. This improvement is a result of strategic sourcing by the supply chain team and process improvement initiatives from our engineering and Black Belt teams. In addition, strong revenue growth is helping to generate leverage. Gross margin for the First Aid and Safety Services segment was 56.8%. We are pleased our investments to grow this business are generating strong double-digit revenue growth while maintaining attractive gross margin. Selling and administrative expenses as a percent of revenue were 27.5%, which was a 10 basis point decrease from last year. With that, I'll turn it over to Scott to discuss our operating income, capital allocation performance and 2026 guidance assumptions.

Scott Garula, Executive Vice President and Chief Financial Officer

Thanks, Jim, and good morning, everyone. First quarter operating income was $617.9 million compared to $561 million last year. Operating income as a percentage of revenue was 22.7% in the first quarter of fiscal 2026 compared to 22.4% in last year's first quarter. This was an increase of 30 basis points. Our effective tax rate for the quarter was 17.6% compared to 15.8% 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 first quarter was $491.1 million compared to $452 million last year. This year's first quarter diluted EPS was $1.20 compared to $1.10 last year, an increase of 9.1%. Cash flow provided from operating activities was $414.5 million. Our strong cash generation allows us to have a balanced approach to capital allocation in order to create value for our shareholders. In the first quarter, we continued to invest in our businesses through capital expenditures of $102.0 million. Although not significant, we were able to make acquisitions in all three of our route-based businesses. We also returned capital to shareholders via our quarterly dividends and announced an increase of 15.4% in our quarterly cash dividend. This marks the 42nd consecutive year that we increased our dividend, meaning we have maintained that practice every year since going public in 1983. Also during the first quarter and as of September 23, we were active in the buyback program with repurchases of $347.4 million of Cintas shares. Earlier, Todd provided our updated guidance for the remainder of the year. That guidance assumes the following expectations: please note 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, the fiscal 2026 net interest expense of approximately $97.0 million, a fiscal 2026 effective tax rate of 20.0%, which is the same compared to our fiscal 2025. And finally, our guide does not include any future share buybacks or significant economic disruptions or downturns. With that, I'll turn it back to Todd for some closing remarks.

Todd Schneider, President and Chief Executive Officer

Thank you, Scott. Looking ahead to the remainder of fiscal 2026, our outlook reflects continued confidence in our strategy and in the value we provide by helping customers meet their image, safety, cleanliness and compliance needs. We remain committed to delivering exceptional customer experiences and making the investments necessary to sustain growth for fiscal 2026 and well into the future. As always, I want to express my appreciation to our employee partners for their dedication to Cintas and our customers. Our culture remains our strongest competitive advantage. I'll now turn it back over to Jared.

Jared Mattingley, Vice President, Treasurer and Investor Relations

Thanks, Todd. 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.

Operator, Operator

Our first question comes from Manav Patnaik from Barclays Capital.

Manav Patnaik, Analyst

I just had a question. The highway example, I guess, you gave in converting from non-programmer to your customer was very helpful. In the context of more budget pressures if the macro weakens, I was hoping you could give us some historical anecdotal examples, maybe if that’s a positive for you guys in terms of accelerating the pace of converting non-programmers to your clients?

Todd Schneider, President and Chief Executive Officer

I believe we have shown that we can achieve growth in various ways. In situations where customers face increased pressure, we assist them in improving their cash flow and provide them with more time for budgetary purposes. In Jim's example, where a customer was having difficulty managing their program, our support allows them to concentrate on other important areas. When clients outsource to us, they can put more focus on their own customers, which helps save time and money, while also stabilizing their budgeting and cash flow. We have proven our capability in this area, and we are confident in our ability to keep converting non-programmers or do-it-yourselfers into our customers. We have been doing this successfully for many years and will continue to pursue this approach.

Manav Patnaik, Analyst

Got it. And just as a follow-up, on the fire side, the decline in gross margins, I'm guessing, is that because the SAP implementation is in full swing now? Or just any updates on that, please?

Todd Schneider, President and Chief Executive Officer

Yes, we are actively working on SAP for our fire business, which involves additional costs. However, we are very optimistic about this business and are making investments for its future. This includes various investments in strengthening our team, operational capacity, and relevant technologies, not only SAP but other areas as well. As we grow this business, we will continue to make smart and essential investments for our success, both in the short term and for the long term.

Operator, Operator

And our next question comes from George Tong from Goldman Sachs.

Keen Fai Tong, Analyst

Can you provide an update on the overall selling environment, including client budget trends and sales cycles?

Todd Schneider, President and Chief Executive Officer

George, regarding customer behavior, there's nothing specific to highlight. I wouldn't say there have been any changes to sales cycles or anything like that. We are certainly navigating a somewhat uncertain environment right now. However, despite that uncertainty, our value proposition continues to resonate and can even strengthen during these periods. Outsourcing can enhance and stabilize the cash flow I mentioned earlier. We are still acquiring good new business, which we appreciate. Our retention rates remain very attractive, and the customer base you inquired about has been steady. If anything, I would say it improved slightly during the quarter.

Keen Fai Tong, Analyst

Got it. That's helpful. And then you increased your revenue guidance as well as your EPS guidance. Can you elaborate on parts of the business that outperformed your initial expectations to drive this increase in the outlook?

Todd Schneider, President and Chief Executive Officer

Great question, George. Thank you for that. The guide first off is right where we like to be. We're performing really well, and we like the momentum we have in the business. I'd just like to point out the implied growth in Qs 2 through 4 is higher than the opening guide at all points within the range. And we like the range that we're in, especially with this, as I mentioned, somewhat uncertain environment. But our three route-based businesses are all performing very well, and we like the momentum we have in each of those. And we're encouraged by that momentum. And again, our value proposition is continuing to resonate and has in all kinds of environments, and it's showing its strength in the current operating environment.

Operator, Operator

And our next question comes from Tim Mulrooney from William Blair.

Benjamin Luke McFadden, Analyst

This is Luke McFadden on for Tim Mulrooney. So we've seen growth in on-farm payrolls decelerate somewhat meaningfully over the last few months. I'm curious if this showed up at all in net wearer levels across your rental business during the quarter.

Todd Schneider, President and Chief Executive Officer

Yes, thank you for the question. We are looking at the same information regarding employment levels. However, our team continues to perform exceptionally well. I noted that the uncertain environment can actually create opportunities for us, and we have shown that we can grow faster than job growth and GDP. While we would prefer to have an abundance of jobs, we have proved that we can succeed in various ways. Converting non-programmers remains a key part of our growth, as does selling more products and services to our existing customers. Our retention levels are strong, and although taking business from competitors isn’t our main focus, we do that too. Mergers and acquisitions have played a significant role for us recently, and we appreciate the prospects in that area, including pricing. We have the capability to grow, and while we would welcome a dramatic increase in employment, we aren't relying on it. We will continue to manage our business and grow it effectively. It would be nice if it were easier, but we are achieving results impressively.

Benjamin Luke McFadden, Analyst

Really helpful. And if I can just build off of that, I heard the comment earlier about strength just in terms of demand actually growing through the quarter. Could you perhaps just elaborate on that a little bit and maybe talk about just demand trends through the first few weeks of the second quarter here?

Todd Schneider, President and Chief Executive Officer

Yes, I would say there hasn't been much change at the start of the quarter compared to the results we're showing. Our rental business is performing well, and while I mentioned earlier that we would like to see employment levels improve, we're still growing our business at good rates without that support. So far, there have been no significant changes in demand from the first quarter to the second. We're pleased with the momentum in all our route-based businesses. The rental sector is doing well, and overall, they're all performing positively, which is encouraging.

Operator, Operator

And our next question comes from Andrew Steinerman from JPMorgan.

Alexander EM Hess, Analyst

This is Alex Hess on behalf of Andrew. I wanted to start with a comment about the customer base being steady or possibly improving slightly. When you mention that, what exactly are you referring to? Is it based on anecdotes or specific data points? We all notice the jobs numbers and macro data, so I’m trying to understand what you're indicating to investors with that statement. Then I'll proceed with my follow-up question.

Todd Schneider, President and Chief Executive Officer

Yes. Thank you, Alex. Yes. So wearers matter to us for sure, but we have many ways to grow our business. And I think it would be probably appropriate. Jim, do you have an example to maybe share on how we go about doing that?

James Rozakis, Executive Vice President and Chief Operating Officer

Yes, sure. I think we should discuss our strategy to enhance our relationships with our existing customers. We touched on this in the last call. It doesn't really matter to us which business line we begin with for a customer. Our goal is to introduce a business line that creates an exceptional customer experience and fosters a trusted relationship. How does this unfold over time? I have an example of a long-term customer in the Southwest who has been using our uniform rental program. They are experiencing an exciting phase of expansion, opening another line and a new facility. In our daily interactions, our team has been involved in discussions with them. They inquired about setting up the rental program in the new building, and during these talks, the customer mentioned how busy they were. It's an exciting time, but they're managing a lot and needed assistance, asking what additional services we could provide. We were able to introduce facility services, First Aid and Safety Services, and Fire Protection Services to the new building. This situation illustrates us being established, maintaining a strong relationship, and becoming a trusted resource. During this busy period, they turned to us for help, and we were able to supply these resources, adding value to our relationship. Often, these are expenses they already had to incur, so they chose to redirect that spending to us due to the trust we've built.

Alexander EM Hess, Analyst

I understand and appreciate that. Considering the current concerns about peak job levels, if we are approaching low unemployment or a slowdown in non-farm payroll growth that begins to pick up again, how might that impact your future plans? Additionally, do you have any comments regarding the inventory of uniforms and service injection that we observed this quarter?

Todd Schneider, President and Chief Executive Officer

Yes, Alex, regarding employment, we are not in the business of predicting what will happen there. We would be delighted if our customers hired significantly more people, but we're not forecasting that. We are planning to grow our business considering the current environment. Our guidance reflects attractive growth, even though the employment situation isn't very favorable. We would love that potential. Now, regarding the inventory item, Scott, would you like to address that?

Scott Garula, Executive Vice President and Chief Financial Officer

Yes. Thanks, Todd. I would just answer that question that you've seen a nice steady uptick in growth in our rental business really over the last four quarters. We continue to see strong growth out of both our First Aid and Safety business as well as our Fire business. And when that happens, we've stated in the past that we're going to have a use of capital, and that would include the injection of garments for the Uniform Rental business. So I would say that's just reflective of the growth that you're seeing in all three of our route-based businesses.

Operator, Operator

And our next question comes from Joshua Chan from UBS.

Joshua Chan, Analyst

Great job growing through a choppy environment. I guess I'm wondering, as you look at the different verticals within your business, are you seeing customers behave differently in some of the more stressed verticals, recognizing that you can kind of grow through any of the environment, but just wondering if there's any subtle behavior change kind of by vertical?

Todd Schneider, President and Chief Executive Officer

We're not observing any significant change in behavior across the different verticals. We believe we've selected those verticals effectively, as they all contribute positively to our growth. It's important to note that we don't merely sell to these verticals; we also organize our efforts around them and invest a considerable amount of time assisting our customers with their operations. However, I wouldn't indicate any noteworthy change in behavior. Just to highlight, healthcare is a strong vertical for us, along with the hospitality sector, education, and state and local governments. All of these are performing well and consistently.

Joshua Chan, Analyst

Great. And I noticed that on the EPS guidance, it's a little wider at this juncture of the year than it was last year at this time. Is there any color regarding that or kind of the thought process behind that?

Todd Schneider, President and Chief Executive Officer

No, I wouldn't read too much into that. We are satisfied with our guidance and how our business is performing. We feel confident, as the guidance indicates we are in a good position and our growth prospects are appealing. We are able to grow the business well and are pleased with our current momentum. We have raised our guidance across all points in the EPS range for the second through fourth quarters, which also suggests increases in all areas. Our incremental growth aligns with our desired range of 25% to 35%, which allows for margin expansion as well. This flexibility in our range enables us to make necessary long-term investments while simultaneously improving margins, showcasing the strength of our business.

Operator, Operator

And our next question comes from Jasper Bibb from Truist Securities.

Jasper Bibb, Analyst

I joined a little bit late, so I apologize if this has already been discussed, but could you provide an update on the tariff-driven expense growth and how it compares to your initial expectations for the year?

Todd Schneider, President and Chief Executive Officer

Jasper, thank you for joining the call, and I'm glad you asked about this topic, which hasn't been discussed yet. The situation with tariffs has been quite dynamic, and we definitely feel the effects of increased costs due to tariffs. However, our global supply chain provides us with a significant competitive advantage. Our team embodies our corporate culture, characterized by positive discontent and competitive urgency, which drives our process improvements and enhances our efficiency. We do not simply accept rising product costs and pass them on to our customers; that's not how we operate. Additionally, we benefit from considerable purchasing power and geographic diversity. Over 90% of our products have multiple suppliers, giving us flexibility. While the overall increase in tariffs does impact us, our commitment to improving processes and achieving greater efficiency remains unchanged. I'd also like to note that our guidance takes the current tariff environment into account.

Jasper Bibb, Analyst

Got it. And then curious about sales cycles for non-programmers. Has there been any change there so far this year and what you're seeing in customer behavior?

Todd Schneider, President and Chief Executive Officer

No real change on the sales cycle for non-programmers or frankly, in general. I'd say the sales cycle has remained pretty consistent, and we're continuing to invest for the future that we're prepared to be successful ongoing.

Operator, Operator

And our next question comes from Andrew Wittmann from RW Baird.

Andrew J. Wittmann, Analyst

And maybe, Scott, one for you. On the First Aid segment gross margins, they were down a decent amount year-over-year. And I was wondering if you could help us understand what either happened this quarter that caused them to be down or maybe in the prior year, if there was a comp issue just so we have a better understanding about the gross margins there in First Aid.

Scott Garula, Executive Vice President and Chief Financial Officer

Yes, Andrew, thanks for the question. I'll go back to some comments that Todd mentioned. Nothing really to call out here. We continue to invest in all of our route-based businesses, specifically in both our First Aid and Fire business. I think you're seeing the benefits of those investments show up in the double-digit growth rates that we're enjoying in both our First Aid and Fire business. Jim, I don't know if you want to comment further on that First Aid business.

James Rozakis, Executive Vice President and Chief Operating Officer

I would - Andy, I appreciate the question. And so our gross margin for First Aid and Safety is actually flat sequentially. We did have a little bit of a challenging comp from Q1 of last fiscal year to this fiscal year. But we really love where that business is positioned, and we continue to make investments, specifically in areas like route capacity, leadership bench strength, technology, selling resources and managing trainees. So I would just call that more of a timing issue around the business isn't linear, and we want to make the investments for the future. We really like the outlook of that business.

Andrew J. Wittmann, Analyst

Got it. So just to build on that then, Jim, do you think that fiscal '26 is a higher investment year in some of these things like route leadership, management trainees, technology than it was in 2025? Obviously, '25 margins were a big story for the year. They were so impressive, way above the incrementals and I know that, tell me, this is kind of more like what you've talked about for the long term. But I'm just wondering, as you compare this year to last year in terms of the P&L investments that you're making, is this a higher year than last year? Is that part of the reason why we're seeing the margins be good, but not quite as good as last year in terms of the improvement year-over-year?

James Rozakis, Executive Vice President and Chief Operating Officer

Andy, I would call out a little bit of timing, meaning there's investments that are made periodically. I think you saw us begin to invest a little heavier in the fourth quarter of last fiscal year, continuing to put on those selling resources and adding the route capacity. So more of a timing issue. But yes, we are continuing to invest in that business, and we really like the outlook on it.

Operator, Operator

And our next question comes from Jason Haas from Wells Fargo.

Jun-Yi Xie, Analyst

This is Jun-Yi on for Jason Haas. Curious, are you seeing any change in the competitive environment? I know historically, most of your wins come from non-programmers, but we're seeing a lot of your peers struggle in this environment with one of your peers laying off a big portion of their sales force recently. So curious if you see a growing opportunity to win share from your competitors.

Todd Schneider, President and Chief Executive Officer

Thank you for the question. The overall market remains very competitive, but our retention rates are strong. Our new business wins primarily come from non-programmers rather than from our competition. We are enthusiastic about the large total addressable market of do-it-yourselfers or non-programmers. While we will take business from traditional competitors, that is not our main focus. We know that one of our competitors is working on strengthening their foundation, but again, that's not where we are directing our efforts. We see a significant opportunity with the 16 million to 17 million businesses in the U.S. and Canada that are do-it-yourselfers, and we serve just over 1 million of them. There is a vast opportunity, and this is where we concentrate our efforts. It has been effective for us, and this will continue to be our plan moving forward.

Jun-Yi Xie, Analyst

Great. And for my follow-up, can you talk about what's driving the softness in the operating margins for the All Other segment?

Todd Schneider, President and Chief Executive Officer

The All Other segment includes the Fire and Design Collective business. Our gross margin in this segment increased by 10 basis points sequentially but decreased by 30 basis points year-over-year. We are making the right investments in these businesses and are pleased with the returns from our three route-based businesses. We are investing for the future because we see significant opportunities ahead. As Jim mentioned, we will continue to invest in capacity, leadership, management trainees, and sales resources. We acknowledge that we have some additional costs associated with SAP in the Fire business as we continue through that process. Nevertheless, these are investments for the future, and we believe that future prospects are very promising. Therefore, we will invest accordingly.

Operator, Operator

And our next question comes from Ashish Sabadra from RBC.

Ashish Sabadra, Analyst

Maybe just a quick one on the Uniform Direct Sales. I know that can be pretty choppy quarter-to-quarter, but I was just wondering if you could talk more about some of the softness that we saw in the quarter, but also any comments on the trend going forward.

Todd Schneider, President and Chief Executive Officer

Yes. Thank you, Ashish. The Uniform Direct Sale business is a strategic business for us, not so much in the size of it because it's only 2.6% of our revenue but in the nature of those customers, meaning we sell all of our route-based businesses into those customers. An example would be if you think about a hotel, the front of the house with the front desk, the bellhop, the concierge, if you're doing business with them in the front of the house, that can lead to the back of the house opportunities which tend to be in rental, which would be housekeeping, maintenance, culinary. So this is a strategic business for us. And it allows us, again, not just sell Rental, but to sell First Aid into those customers and to sell Fire as well. So very important. Certainly, the Uniform Direct Sale business can be a bit lumpy with rollouts of large programs. But we like the business, and it's a strategic business for us.

Ashish Sabadra, Analyst

That's very helpful information. Maybe just switching gears on M&A. Wondering if you could talk about the M&A pipeline, not just for more tuck-in deals, but also larger deals. And would you consider diversifying into newer areas? Any color on that front?

Todd Schneider, President and Chief Executive Officer

Yes. Thanks for the question, Ashish. First off, M&A is important to us. We have, I think, demonstrated that we can leverage our balance sheet to buy really good companies. And when we do that, we either get a really good capacity or we get really good synergies, sometimes a combination. So M&A is important to us. We didn't have as much M&A in Q1 as what we have over the last 12 months. But the funnel looks good. We like where we are, and it will be an important component for us. That being said, it's tough to predict those items. And because when a seller wants to sell, it's up to them, and we just want to make sure we're there and have great relationships and do exactly what we say we'll do so that we can make sure that the pipeline looks attractive. As far as getting outside of our current businesses, we're always looking at those opportunities. But the great news is we don't have to. The opportunity that we have in our current business is immense. So we're primarily focused there. But we're certainly always evaluating opportunities.

Operator, Operator

And our next question comes from Faiza Alwy from Deutsche Bank.

Faiza Alwy, Analyst

Yes. I wanted to ask about the First Aid business again. And I'm curious, as you're making these investments sort of how your outlook for top line growth here has maybe changed or evolved? Because you've talked about you're seeing the opportunity. I know historically, we've thought about this business as a maybe low double-digit grower. So curious how you think about top line growth moving forward over the next 3 to 5 years?

Todd Schneider, President and Chief Executive Officer

Faiza, thanks for the question. We are making investments in that business, and we think we're doing so smartly. We do see it as a double-digit, low double-digit growth business, and it's performed really well over the last year. And we would expect that low double-digit number to be a good number for us. We are encouraged by how the business is performing, and we are going to continue to invest there because the future is quite attractive for us. So we think about investments in the manner of, well, we want to make sure we're positioned for the long term. And so we're making those investments so that we can provide great customer service and position our employee partners to be highly successful. And doing so while increasing operating margins is, again, we think a real strength of our business. But we're investing in all of them of our route-based businesses, and First Aid is performing very attractively, again, but I would think about it as a low double-digit growth business for us moving forward.

Faiza Alwy, Analyst

Understood. You mentioned the timing related to the investments, and it seems from your discussion about sequential margins being similar in the fourth quarter of last year that there's more to unpack. Can you provide additional insight on the timing? When do you anticipate completing those investments? Also, how should we consider the incremental margins in that business as we look ahead?

Todd Schneider, President and Chief Executive Officer

Yes, Faiza. From a timing perspective, we have various initiatives in each of our businesses, and First Aid is no exception. We will be rolling out certain products that may impact the mix, but we plan to grow that business in a favorable manner. The 56.8% gross margin is very appealing, and we are pleased with it. We've seen a substantial increase in that area over the past few years, and we intend to keep improving our leverage there. Overall, we think it's performing well, and the business mix has been beneficial for us. We're delivering more value to our customers and also offering additional products outside the First Aid category. Everything is functioning smoothly. I wouldn't view it as a concern regarding future margins; instead, we anticipate continued leverage and attractive growth for the business while enhancing customer value, and we are satisfied with our current position and outlook.

Operator, Operator

And our next question comes from Stephanie Moore from Jefferies.

Stephanie Benjamin Moore, Analyst

I wanted to maybe follow up a question that was asked earlier in regards to M&A and kind of compare that to some commentary you made about growing your maybe other segments, Fire and Safety, for example. Maybe just talk about your appetite as you think about other areas within your total company as you look to expand? What is your appetite to further expand your Fire and Safety business? And how do you leverage both doing so organically as well as potentially opportunistic M&A?

Todd Schneider, President and Chief Executive Officer

Yes, Stephanie, thank you for your question. We believe the future of our Fire business is very promising. We are actively engaged in mergers and acquisitions as well as organic growth in this area. While M&A can be somewhat unpredictable, we are quite active and tend to make acquisitions almost every quarter. Most of these acquisitions are smaller, but some provide us with a larger footprint, and many are tuck-ins. We appreciate both types of acquisitions. When we gain an additional footprint, it allows us to invest in sales organizations and resources, helping us serve more customers. Tuck-ins also provide us with synergies in back office operations and other areas, allowing us to improve efficiencies and enhance productivity. This approach is central to our strategy, and we are enthusiastic about this business and will continue to pursue acquisitions.

Stephanie Benjamin Moore, Analyst

And then just one follow-up question. I think it's pretty well understood that based on your investments over 10-plus years, you have a very strong tech stack and have really invested back into your technology capability. So as you think about what you have in place now and the ability to leverage AI and machine learning and the likes of everything that we're talking about now, what are the conversations like internally as you think about the opportunity? Is it pretty incremental, just given you're already at such an advanced state from a technology standpoint to really leverage AI to either improve productivity or drive incremental business?

Todd Schneider, President and Chief Executive Officer

Great question, Stephanie. Investing in technology has been a crucial aspect of our strategy for many years and we are not slowing down. Our investment in SAP has established a strong foundation for us to build on. We are concentrating our investments in specific areas, which I refer to as our technology umbrella. This includes AI, analytics, algorithms, and large language models. Our focus is twofold: first, we want to simplify the process for our customers to do business with us by improving account management, speeding up responses to their inquiries, making it easier for them to buy additional products and services, and facilitating bill payments. Secondly, we aim to enhance the success of our employees by equipping them with the necessary information to add value for the customer. We want them to spend their time productively by reducing administrative tasks and guiding them towards the right products and prospects. All of this is crucial for us and forms part of our future investment strategy, which we believe will be beneficial. You can see some of this in initiatives like SmartTruck and myCintas, which are all ongoing and not decreasing. We recognize significant opportunities to utilize our tech stack along with our engineering and Six Sigma resources. It's not merely about technology, but about how we position it to facilitate customer interactions and ensure our team’s success.

Operator, Operator

And our next question comes from Scott Schneeberger from Oppenheimer.

Scott Schneeberger, Analyst

I have two questions that I will ask together, although they are quite different. The first question relates to M&A. In the past, you considered expanding internationally by serving existing customers, particularly large multinationals that might require services outside the U.S. I'm wondering if that is still on the table, especially since things have been quiet regarding M&A. What would your approach be if that is still a consideration? My second question is about the myCintas portal. I would love to hear any updates on its progress, such as the percentage of sales running through it and the percentage of payments, as well as any other metrics you could share. You've been working on that for a while, and it seems like it could be improving productivity.

Todd Schneider, President and Chief Executive Officer

Thank you, Scott. I wouldn't describe the M&A landscape as quiet. Last year was our best year in two decades, aside from the year we acquired G&K. We've been quite active, and our pipeline remains appealing. Internationally, we have established relationships that we continually assess, but the good news is we don't need to pursue international expansion to grow our business. If the right opportunity arises, we would consider it, but we are currently content. We serve over 1 million businesses in the U.S. and Canada out of a total of 16 to 17 million, which presents a vast opportunity. We are pleased with our position geographically. However, we are nurturing our international relationships, and we will evaluate any suitable opportunities that come our way. We are equipped with the necessary resources, culture, and financial stability to pursue such opportunities if we choose to. As for the myCintas portal, it serves not only for payment processing but also for account management. We have expanded its features for partners to enhance their success and productivity in handling customer requests. While I won't delve into specific metrics for competitive reasons, it is an area where we continue to invest, and we consider it a competitive advantage that our customers and employee partners appreciate. The positive feedback encourages us to keep investing as we see ongoing opportunities to add value.

Operator, Operator

And our next question comes from Toni Kaplan from Morgan Stanley.

Toni Kaplan, Analyst

In light of all the news on visa requirements, are you expecting any impact from changes to impact your customers' hiring? I know it could be a little bit further out, but just wanted to understand how you're thinking about that.

Todd Schneider, President and Chief Executive Officer

Yes, Toni, that's a good question. We're definitely paying attention to immigration policy, but I can't say that we're seeing any significant impact at all. There could be some effect, but we're not really hearing much about it from our customers. We're not observing it in our results. Also, the H-1B topic appears to be more of a technology concern. So, we aren't seeing any real impact from visas or immigration that we can identify.

Toni Kaplan, Analyst

Okay. Great. And then just a follow-up on All Other. You mentioned continuing to invest. We saw SG&A step up there in the quarter. Should we expect a similar level of investment throughout the year that would be really helpful to understand how SG&A, in particular, should continue to progress as we proceed through this fiscal year.

Todd Schneider, President and Chief Executive Officer

Yes, we believe our SG&A investment is currently appropriate, and we don’t anticipate any significant increases or decreases from this level. We are satisfied with our current position and the levels of our bench. Overall, we achieved a 10 basis point improvement in SG&A, decreasing from 27.6% to 27.5% year-over-year. I wouldn't read too much into the "All Other" category; it's more of a timing issue. We feel confident about our SG&A investment and plan to leverage it over time.

Operator, Operator

And our next question comes from Kartik Mehta from Northcoast Research.

Kartik Mehta, Analyst

I know you've answered the question I'm going to ask in parts, but I thought maybe if I could get you to give a comprehensive answer or just maybe a summary of all the answers you gave would be a good perspective. And the economy, it seems like has changed in the last six months. And I'd be curious from your perspective, at least the key metrics you look at for each of the businesses, what you think has improved, what hasn't changed? And maybe what might have gotten a little worse?

Todd Schneider, President and Chief Executive Officer

Our business is performing really well, and we are pleased with the momentum. The Rental business continues to improve, which is encouraging. Each of our three route-based businesses is performing strongly, although the Uniform Direct Sale business presented a 30 basis point headwind for company growth in Q1. If we adjust for that, the business would have grown by 9%, which is encouraging. We are satisfied with our position and, as mentioned earlier, we are investing for the future because we see bright opportunities ahead for both our partners and customers.

Kartik Mehta, Analyst

And just a follow-up. You talked about M&A and obviously, you are very active in the M&A world. I'm wondering if you're changing any change in prices for M&A in either of the businesses and if maybe sellers are getting a little bit maybe lowering prices because of what's going on.

Todd Schneider, President and Chief Executive Officer

Good question, Kartik. I wouldn’t say there’s any significant change in prices. Predicting when someone is ready to sell their business is really difficult. Many factors come into play, such as succession planning, health, and their expectations for future business performance. So, forecasting that is challenging. What we can manage is ensuring we can leverage our relationships. We have invested over the years to be in a position to do that, and we will continue these efforts. Jim and I are very engaged in this because we have known many of these individuals for decades. We believe that our reputation puts us in a strong position for when those opportunities arise.

Operator, Operator

And our next question comes from Leo Carrington from Citigroup.

Leo Carrington, Analyst

Just one follow-up for me. If you could elaborate, please, on the points you made on tariffs. I think you probably were focusing more on the uniform's rental costs, but have you seen any effects on your cost base in terms of CapEx? Any changes to your CapEx expectations?

Todd Schneider, President and Chief Executive Officer

Thank you, Leo, for the question. We are affected by tariffs, but our supply chain organization supports our entire business, not just the Rental segment, and they are performing exceptionally well. When I refer to their excellent performance, I mean that their geographic diversity and ability to work with various providers benefits all our operations. Consequently, we are discovering ways to enhance our efficiency, and that positive culture is evident. During tough times, like those presented by tariffs, our organization has the chance to excel, and our supply chain is proving this by navigating a challenging environment effectively. Regarding capital expenditures, we aim to maintain our 4% targeted CapEx, and we anticipate that will be our approach going forward.

Operator, Operator

And at this time, there are no further questions. I would like to now turn the call back over to Jared for closing remarks.

Jared Mattingley, Vice President, Treasurer and Investor Relations

Thank you, Ross. Thank you for joining us this morning. We will issue our second quarter of fiscal 2026 financial results in December. We look forward to speaking with you again at that time. Thank you.

Operator, Operator

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