Earnings Call Transcript
CINTAS CORP (CTAS)
Earnings Call Transcript - CTAS Q2 2025
Operator, Operator
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'd like to turn the call over to Mr. Jared Mattingley, Vice President and Treasurer, Investor Relations. Please go ahead, sir.
Jared Mattingley, Vice President and Treasurer, Investor Relations
Thank you for joining us. With me are Todd Schneider, President and Chief Executive Officer; and Mike Hansen, Executive Vice President and Chief Financial Officer. We'll discuss our fiscal '25 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 will now turn the call over to Todd.
Todd Schneider, President and Chief Executive Officer
Thank you, Jared. We are pleased with our strong second quarter results, which reflect great execution by our employee partners and the comprehensive value proposition we provide to our customers in supporting their image, safety, cleanliness, and compliance needs. Second quarter total revenue grew 7.8% to $2.56 billion, an all-time high for revenue in a quarter. The organic growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 7.1%. In the second quarter, we continued to experience strong demand for our services, reflecting the complementary nature of our platform and our unmatched product and service offerings for businesses of all types and sizes. Virtually every business has a need Cintas is ready to meet, whether it's a front door that needs a mat, a bathroom to service, exit lighting, fire extinguishers, and sprinkler systems, first aid and safety needs, or an apparel solution. Cintas is continually deepening our value propositions, particularly within our four focused verticals of healthcare, hospitality, education, and state and local government, which continued to perform well. Gross margin for the second quarter grew 11.8% over the prior year to 49.8%, just below our all-time high we set in the first quarter. Operating income of 23.1% as a percent of revenue was an all-time record, an increase of 18.4% over the prior year. Diluted EPS grew robust 21.1% to $1.09. Our strong earnings growth reflects our operational excellence via sourcing and supply chain initiatives, route and energy optimization, and technology-enabled efficiency in our facilities. Cash flow this year continues to be very strong with free cash flow for the first six months increasing 34.9% over the prior year. We continue to deploy capital across each of our capital allocation priorities, starting with investing back into our businesses. This strong cash flow generation allows us to focus on making strategic investments in our customers and our employee partners, which positions us to deliver long-term value for our shareholders. Our technology investments remain a significant area of reinvestment. We continue to leverage our SAP system to standardize our processes across our operations. Combined with our focus on operational excellence, we are improving the way our employees work and getting the right products to our customers faster, all of which improves the customer experience and positively impacts our margin profile. At the same time of investing in our customers and employee partners and making strategic acquisitions, returning capital to Cintas' shareholders remains a key priority. Cintas paid a quarterly cash dividend of $0.39 per share last week. And looking ahead, we will continue our opportunistic approach with share buybacks. Before turning the call over to Mike to provide details of our second quarter results, I'll provide our updated financial expectations for our fiscal year, which reflect our strong momentum and confidence in our outlook. We are updating our annual revenue expectations from a range of $10.22 billion to $10.32 billion to a range of $10.255 billion to $10.32 billion, a total growth rate of 6.9% to 7.5%. We expect our organic growth rate to be in the range of 7.0% to 7.7%. We are also updating our annual diluted EPS expectations from a range of $4.17 to $4.25 to a range of $4.28 to $4.34, a growth rate of 12.9% to 14.5%. Cintas' differentiated culture, superior products and services, and industry best talent position us to deliver meaningful value creation in fiscal 2025 and beyond. We remain focused on delivering outstanding customer experiences and making appropriate investments in the business to sustain our growth. I thank all of Cintas' employee partners whose outstanding work and dedication to our customers remains the key to our success. With that, I'll turn it over to Mike to discuss the details of our second quarter results.
Mike Hansen, Executive Vice President and Chief Financial Officer
Thanks, Todd, and good morning. Our fiscal 2025 second quarter revenue was $2.56 billion compared to $2.38 billion last year. The organic revenue growth rate adjusted for acquisitions and foreign currency exchange rate fluctuations was 7.1%. Organic growth by business was 6.9% for Uniform Rental and Facility Services, 12.3% for First Aid and Safety Services, 10% for Fire Protection Services, and Uniform Direct Sale was down 9.2%. Gross margin for the second quarter of fiscal '25 was $1.28 billion compared to $1.14 billion last year, an increase of 11.8%. As Todd mentioned, gross margin as a percent of revenue was 49.8% for the second quarter compared to 48% last year, an increase of 180 basis points. Robust volume growth, operating leverage, and continued operational efficiencies helped to generate this strong gross margin. Gross margin percentage by business was 49.1% for Uniform Rental and Facility Services, 57.3% for First Aid and Safety Services, 49.9% for Fire Protection Services, and 41.2% for Uniform Direct Sale. Gross margin for the Uniform Rental and Facility Services segment increased 170 basis points from last year. Our progress year-over-year reflects our focus on operational excellence initiatives combined with leverage from strong revenue growth. We continue to realize benefits from our technology investments and extracting inefficiencies from the business through our Six Sigma and engineering teams. Selling and administrative expenses as a percent of revenue was 26.8%, which was relatively consistent with last year. Second quarter operating income was $591.4 million compared to $499.7 million last year. Operating income as a percent of revenue was 23.1% in the second quarter of fiscal '25 compared to 21% in last year's second quarter, an increase of 210 basis points. Our effective tax rate for the second quarter was 20.7% compared to 20.9% 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 $448.5 million compared to $374.6 million last year. This year's second quarter diluted EPS of $1.09 compared to $0.90 last year, an increase of 21.1%. As Todd mentioned earlier, we continue to generate strong cash flow. Through the first six months, our free cash flow increased 34.9% over the prior year. This great cash flow over the first six months has allowed us to deploy a total of $1.3 billion of capital across each of our capital allocation priorities of capital expenditures, M&A, dividends, and share buybacks. Todd will provide our annual financial guidance related to the guidance. Please note the following. Fiscal 2025 net interest expense is expected to be approximately $101 million compared to $95 million in fiscal '24, predominantly as a result of higher variable rate debt. Our fiscal '25 effective tax rate is expected to be 20.2%, and guidance does not include any future share buybacks or significant economic disruptions or downturns. I'll now turn it back over to Jared.
Jared Mattingley, Vice President and Treasurer, Investor Relations
Thanks, Mike. 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.
Operator, Operator
And our first question comes from Tim Mulrooney from William Blair. Please go ahead, Tim.
Tim Mulrooney, Analyst
Yes. Hi. Thanks for taking my questions. I wanted to ask about your guidance on organic growth. It looks like it came down slightly at the high-end from 8.1% to 7.7%. Just curious what the reason for that was, if second quarter sales came in below your expectations or if the outlook for the second half of the fiscal year has shifted slightly? I know it's a small number, but just curious if you had any comments there.
Todd Schneider, President and Chief Executive Officer
Good morning, Tim. Thanks for the question. First, we're pleased with our organic growth rate of 7.1%. It's very good and it's right where we'd like to be. And our second half guidance implies a continuation of that good growth, mid to high single-digits. The rental division is right in line where we like it to be. And the First Aid and Fire divisions both grew double digits. So, they continue to perform well, and the value proposition continues to resonate. So, we like where we are, and we think that our guidance reflects attractive growth for the year and the back half of the year as well.
Mike Hansen, Executive Vice President and Chief Financial Officer
Tim, I would like to share a few insights on the guidance. The adjusted revenue for Workday this year is projected to be between 7.7% and 8.4%, which is a solid range for us. Additionally, the organic revenue growth estimate of 7% to 7.7% indicates that we are on track for a strong year, showing little change. Regarding the implied growth, our latest guidance suggests an organic growth rate of 6.6% to 7.9% for the latter half of the year, which remains consistent with what we indicated in last quarter's guidance for the final three quarters. This means that the implied guidance has not really shifted. As Todd mentioned, we had a strong quarter, and the outlook for the second half of the year appears stable, indicating a very good year in total growth as well as organic growth.
Tim Mulrooney, Analyst
Okay. That's good color. It sounds like just some fine-tuning around the edges and continuation of what you've been doing. So that's very helpful context. Thank you. For my second question is, I just wanted to touch on the incremental EBITDA margins, 60%, I think, in the quarter, obviously, very impressive, well above Street expectations. Just putting my analyst head on and trying to pick this apart a little bit, curious, if there's any one-offs or discrete factors that we should be considering that were either favorable to this year or unfavorable to last year that might help explain some of the strong outperformance because 60% is obviously just really, really high? Thank you.
Todd Schneider, President and Chief Executive Officer
Well, Tim, no one-offs to speak of. We're getting good leverage from our revenue growth. So, the revenue growth is really helping us to get leverage. We've spoken in the past about, we've got programs initiatives to extract out inefficiencies in our business, and that continues to go well. Our Six Sigma Black Belt team, our global supply chain, our engineering teams are all functioning at high levels and allowing us to extract out improvements throughout our organization. So, no one-offs to speak of, and we're trying to get great leverage on the revenue and then extract out inefficiencies and that plan is working.
Operator, Operator
Thank you. And our next question comes from Andrew Steinerman from JPMorgan Securities. Please go ahead, Andrew.
Andrew Steinerman, Analyst
When talking about the organic revenue growth of 7.1% in the quarter, could you just give us a sense if price realization has kind of now returned to the long-term average increase? And then also, did ad stops change much when looking at the November quarter year-over-year versus the August quarter year-over-year?
Todd Schneider, President and Chief Executive Officer
Good morning, Andrew. Obtaining price increases is currently more difficult than it was earlier this year and in the first quarter, but we’re still achieving them. They are now at about our historical levels, which aligns with the decrease in inflation. I’m proud of our organization for being able to enhance margins while addressing inefficiencies I mentioned earlier. Our incremental margins remain strong. Regarding customer behavior, new business is very robust, and our retention rates remain attractive. There haven’t been significant changes in ad stops. Catalog spending has decreased slightly, but overall, the business is performing well, and the macroeconomic data appears stable. Our guidance for the second half indicates we expect strong performance throughout the year, not just in the first half but also in the second half.
Operator, Operator
And our next question comes from Jasper Bibb from Truist Securities. Please go ahead, Jasper.
Jasper Bibb, Analyst
Good morning, guys. I want to ask about the proposed tariffs from the new administration and potential impact on your material costs, if those proposals come through. I think you previously talked about a bit of inflation on hangar costs from tariffs on China during the last Trump administration. Is there more sourcing coming through Mexico, Canada, or China that could potentially be impacted?
Todd Schneider, President and Chief Executive Officer
Good morning, Jasper. We're closely monitoring the situation with tariffs. It's still too early to predict the outcomes, but I can assure you that we have an exceptional global supply chain that is ready to adapt as needed. Currently, we source from multiple suppliers for over 90% of our products, which also includes geographic diversity. This positions us well to handle any challenges that may arise in the future, allowing our global supply chain to perform effectively. I'm confident that we will adjust as necessary, and overall, we are prepared.
Mike Hansen, Executive Vice President and Chief Financial Officer
Jasper, I might just, as a reminder, speak to our rental material cost. So, in the rental business you might keep in mind that we amortize the costs of our garments, our mats, and other products over some period of time. And that allows us time to have our global supply chain adapt to the current situation, maybe make some changes, but also it allows us to recognize those costs over a longer period of time. In other words, we don't recognize that cost in our P&L right away, and that allows us to do other things like not just sourcing changes, but also how to think about our initiatives that we've got going on in the business and how to think of future price increases and so on. So, just as a reminder, our ability to amortize a good chunk of our materials can really be a benefit in a time when uncertainty like this related to these tariffs.
Jasper Bibb, Analyst
Thanks for that. And then maybe to follow up on Tim's earlier question, is there anything you think might make incremental operating margins moderate in the second half versus the first half? I mean, on my math, adjusting for working days, incremental operating margin was well north of 40% in the first half, and it seems like guidance implies a pretty material step down in increment for the second half. Is there anything specific driving that first half, second half split?
Todd Schneider, President and Chief Executive Officer
Nothing specific, Jasper. Certainly, running a business isn't linear. But when you look at our guidance for the year, we think we're in a really good spot to grow our operating margin, our EPS, so attractive margins for the year, and we think we're in a good spot to deliver that.
Mike Hansen, Executive Vice President and Chief Financial Officer
You might remember, Jasper, that we aim for an increment of 25% to 35%. While we have exceeded that in the first half of the year, our long-term expectation is to be within that range, which is what we have indicated for the second half of the year. We will likely be closer to that range. It is difficult to anticipate that we would reach a 40% to 50% increment in the long term. However, as Todd mentioned, we have many initiatives that are proving effective for us.
Operator, Operator
And our next question comes from Manav Patnaik from Barclays. Please go ahead, Manav.
Manav Patnaik, Analyst
Yes. Thank you. If I can just follow up on that, the top-line guide that you lowered by 40 basis points. It sounds like all you said all your expectations have kind of remained the same, but you still lowered it. So just curious, can you just help us with why you lowered it by 40 bps? Maybe the catalog sales that were down, is that what it was? Just any color there would be helpful.
Mike Hansen, Executive Vice President and Chief Financial Officer
The implied guidance is about the same today as it was for the second half of the year after the first quarter. However, we have another quarter completed. Our Q2 result of 7.1% falls right in the middle of that range. This means that while we saw a decline from 8.1% to 7.7%, the guidance for the remainder of the year remains unchanged from what we indicated after the first quarter. Does that make sense?
Manav Patnaik, Analyst
I mean, I guess, are you saying that maybe this quarter perhaps then come in better than maybe what you would have thought?
Mike Hansen, Executive Vice President and Chief Financial Officer
Well, this quarter is sort of in the middle of that organic revenue guide that we've given.
Manav Patnaik, Analyst
Okay, fine. And then if I can just follow up, sorry, go ahead if you were saying something.
Mike Hansen, Executive Vice President and Chief Financial Officer
No, go ahead.
Manav Patnaik, Analyst
I was just going to say the M&A in the quarter, just it seems like you were pretty active. So just curious in which areas and anything to call out there?
Todd Schneider, President and Chief Executive Officer
Good morning. M&A is difficult to forecast. We have been targeting businesses in all our route-based segments for a long time, and we experienced a solid quarter with M&A activity. We acquired some companies in each of our sectors, focusing on high-quality businesses that can potentially create synergies in certain situations and enhance our offerings to our customer base. We are pleased with the companies we are acquiring; they are complementary and of high quality, and we believe this will be a beneficial long-term investment for our organization.
Operator, Operator
And our next question comes from Josh Chan from UBS. Please go ahead, Josh.
Josh Chan, Analyst
Hi, good morning, Tom, Mike, Jared. I guess, on the guidance question, maybe I can ask it this way. I guess, as compared to the scenario where you would have held your top-line guidance, the top end of your top-line guidance, like what did not happen, I guess? What did you not see to allow you to kind of hold that? I guess maybe that helps to ask that question a little bit.
Todd Schneider, President and Chief Executive Officer
Well, Josh, as I mentioned earlier, obtaining price increases is more challenging than it used to be. While we are still managing to secure some price increases, it has become tougher and has returned to historical levels. Therefore, we're needing to grow beyond that. However, when you look at the second half of the year, the organic growth is implied to be between 6.6% and 7.9%, and the workday adjusted growth is projected to be between 7.3% and 8.6%. This aligns with our expectations, and we believe we are well positioned to achieve those results.
Josh Chan, Analyst
Certainly, that's still very good growth. And then maybe my follow-up on fire, obviously it grew 10% this quarter that's really strong. But I guess in prior quarters it had been above that. So, was there any abnormality in fire this quarter or do you think it's just normal fluctuation?
Todd Schneider, President and Chief Executive Officer
Yes. Josh, no abnormality, to speak of. They were coming off a pretty attractive growth rate last year. But no, we think we're really well-positioned there to continue to grow that business, at the levels, at double-digit levels. And the team has organized around that and positioned it, and that's what we certainly expect in the future.
Operator, Operator
And our next question comes from George Tong from Goldman Sachs. Please go ahead, George.
George Tong, Analyst
Hi, thanks. Good morning. You mentioned new business and retention rates were strong in the quarter. Can you talk more about what you're seeing with customer sentiment and customer purchasing behaviors and how they've evolved over the course of the quarter?
Todd Schneider, President and Chief Executive Officer
Good morning, George. Besides what I mentioned with customer behavior, not much has changed there. The sales cycle, it's not elongated. It's pretty similar to what it has been in the past. We're still selling about two-thirds of all of our new accounts are no programmers, and that's exciting to us because the pie is massive out there, because as we've talked about, we serviced a little over a million business customers, and there are 16 million businesses in North America. So, that makes it really attractive. Now, that being said, those businesses that we're selling, it's not always new money. They're wearing clothes, garments. They've got items to help keep their facilities clean and maintained. We can do it better, faster, smarter, cheaper in certain ways, certain times that allows for those customers to accomplish their objectives more in a better fashion. So, no changes there. We're still selling a significant amount of no programmers, and the future looks bright there because there's just such a massive quantity out there of no programmers.
Operator, Operator
George, do you have a follow-up question?
George Tong, Analyst
Yes, I was on mute. Regarding margins, we are seeing strong advantages from our sourcing, supply chain, and routing. Can you elaborate on your progress in unlocking additional efficiencies from your current achievements? Specifically, would you say you're still in the early stages of achieving your efficiency goals, or are you further along, potentially in the middle or later stages?
Todd Schneider, President and Chief Executive Officer
Thank you, George. Part of our culture here is a culture of positive discontent. We are constantly looking for ways to improve. And so, you're going to continue to see improvements in those areas. There's a long list of initiatives that we are constantly focused on and we're excited about, because the team has done one heck of a job in that area, whether I mentioned sourcing, engineering, Six Sigma. It's been an impressive performance, and they still have a big to-do list.
Operator, Operator
And our next question comes from Shlomo Rosenbaum from Stifel. Please go ahead, Shlomo.
Shlomo Rosenbaum, Analyst
Hi. Thank you for taking my questions. I'd like to discuss the guidance further, particularly on the top end. Also, regarding M&A, I noticed there were approximately $145 million in acquisitions this quarter. Can you share how much those acquisitions are anticipated to contribute to revenue for this fiscal year? Additionally, where are these acquisitions mainly positioned? Will they primarily impact the laundry and uniforms sectors, or is there another significant acquisition that isn't widely known? I have a follow-up after that.
Mike Hansen, Executive Vice President and Chief Financial Officer
Shlomo, we did make some nice acquisitions in the rental space. We've also made some in the Fire and First Aid and Safety space. But the rental space, we did have some nice acquisitions. We don't typically get into exactly the amount of those. They are sort of local market to maybe a little bit of regional, but really nice players in the market and we're excited about it.
Shlomo Rosenbaum, Analyst
Okay. The reason I was asking is because there's a huge focus on kind of that tweaking of the guidance on the top end. The commentary about the pricing being a little bit tougher, just to dimensionalize it would be helpful to know how much we should be expecting in terms of incremental M&A. So that's where that question is coming from. But the second question, the follow-up I have, could you give a little bit more color on the growth of the targeted verticals? Specifically in the quarter, did some do better than others? Maybe just give us a little bit more detail in terms of how much of the growth is being driven by those verticals, some of them accelerating versus decelerating, just so we get a sense, as to how the efforts are progressing there?
Todd Schneider, President and Chief Executive Officer
Shlomo, our four focused verticals are performing well. They have been and continue to perform well. They perform at above our normal operating levels of growth and we expect them to because they're focused verticals. And I think it's important to understand, it's not just a sales focus in those areas. We organize around those. We have teams of leaders and partners that are focused on understanding those businesses, understanding products and services that are important to them. And so, they're in that world, and they're delivering great results and helping customers accomplish their objectives better and we expect that to continue. But that's been baked into our business for the past few years, and we suspect that that will continue to occur.
Operator, Operator
And our next question comes from Ashish Sabadra from RBC. Please go ahead, Ashish.
David Paige, Analyst
Hi, good morning. This is David Paige on for Ashish. I was just curious if you could give us some insight into how the Uniform Direct sales performed in the quarter. Was it in line with your expectations? Additionally, how is Uniform Direct specifically contributing to your organic revenue growth guidance for 2025? Thank you.
Todd Schneider, President and Chief Executive Officer
Good morning, David. Our Uniform Direct Sale business, as we mentioned, was down in the quarter. It's a strategic business for us that sells into Fortune 1000-type customers, airlines, hotels, casinos, those types. So, that business can be quite lumpy, and it was negative in the quarter. But keep in mind, we sell many things into that customer base. It's not just direct sale. So, it's been a strategic area for us to sell, whether it's rental garments or facility services. Our Fire and our First Aid businesses all sell into those. So, it's a real strategic market for us. And again, that business can be a little lumpy, and it certainly went backwards in Q2. But we like that market, and we like the solutions that we're providing those customers.
David Paige, Analyst
Okay, great. That's helpful. And then, I know you mentioned that, your focus verticals are continuing to perform really strong, but was there any specific vertical either within the focus or outside of the focus verticals that performed I guess that stood out of the quarter or performed really well? Thank you.
Todd Schneider, President and Chief Executive Officer
David, nothing specific to call out regarding the four verticals. They're all performing well, and we've been investing to make sure that we're positioning them for the future to get the right products, the right services for those customers. And it's showing in their results, and we expect that that will continue.
Operator, Operator
And our next question comes from Andrew Wittmann from R.W. Baird. Please go ahead, Andrew.
Andrew Wittmann, Analyst
Yes, thanks. Good morning, guys. I just thought maybe, Mike, I'd give you an opportunity to talk a little bit more about the margin profile here today. Obviously, results were good. But could you just talk about any categories in particular? Obviously, you called out the energy, always call it the energy, but maybe other key categories, merchandise costs, maybe route costs in general beyond just the energy there. Other things in the plant or things in SG&A. Just help to understand some of the puts and takes on that line item with gross margins now having been consistently above people's expectations now for several quarters in a row, I thought maybe opportunity to drill into that a little bit more would be helpful.
Mike Hansen, Executive Vice President and Chief Financial Officer
Sure. In our rental operations, we categorize costs into three main areas: material costs, production costs, and service costs. The good news is that we have effective initiatives in place for each of these areas, leading to improvements over the past couple of years. For material costs, our global supply chain has performed exceptionally well, and we are actively seeking better sourcing methods. Additionally, our garment sharing strategy enhances the utilization of garments, which reduces the need to order new ones from distribution centers, resulting in lower amortization. In terms of production, we focus on operational excellence, ensuring efficient loading of washers and dryers, and we are automating our sorting process, which increases production efficiency. The implementation of SmartTruck has transformed our approach to service costs. Improved routing means we need fewer trucks and fewer routes, leading to greater efficiency. As Todd often mentions, we don't generate profit when trucks are moving, and we’ve seen a reduction in unnecessary truck movement. Moreover, SmartTruck helps us lower energy consumption by monitoring idling, resulting in more efficient energy spending. These components are not one-off changes; they represent new, more efficient ways to conduct our business.
Andrew Wittmann, Analyst
Thank you for that context. For my follow-up, I would say that over the last 18 months, it seems like there has been an increase in national account business hitting the market and changing hands. While this isn't new, the recent activity has stood out, so I wanted to hear your thoughts on the national account business today. How much is being traded compared to historical levels, and what are you observing in the pricing dynamics specifically for that segment of the marketplace?
Todd Schneider, President and Chief Executive Officer
It's always been a highly competitive market, and our business is no exception. Our team has excelled at pursuing and retaining customers. While those wins are important, our primary focus is on expanding our customer base and enhancing the overall market. We see a significant opportunity there. Our strategy revolves around catering to customers who lack programming expertise and delivering substantial value to them. Often, when we engage with customers, they are surprised by the services we offer and may feel their companies are too small to benefit from what we provide. Part of our mission is to inform them about our services, which is contributing to our growth, and we are optimistic about where this is headed.
Operator, Operator
And our next question comes from Toni Kaplan from Morgan Stanley. Please go ahead, Toni.
Toni Kaplan, Analyst
I was hoping to go back to the direct sales business, and I'm less focused on the quarter because I think the comp was fairly tough. But just when you think about how fast that line of business should grow over time. How should we be thinking about that? And could you also give us an update on what percent of your customers are buying products or services across more than one segment?
Todd Schneider, President and Chief Executive Officer
Toni, in regards to the direct sale business, we typically see our other business segments growing at a faster pace. The group of customers in that segment is growing at what I would describe as normalized levels, but the direct sale business itself is not experiencing similar growth. We don't anticipate it to grow at the same rate as our overall business. That said, many of these customers are quite interested in our products, which allows us to engage with them initially and then offer a wider range of products and services. We haven't provided specific percentages on how many customers are utilizing various products and services. However, we are still in the early stages of cross-selling within our business. Our focus remains on this strategy, as well as on acquiring new customers, whether they are local or more regional. We believe there is a tremendous opportunity to increase sales within our current customer base, and even more potential in acquiring new customers, considering we currently serve just over one million businesses in North America, where there are 60 million businesses in total. This presents a significant opportunity.
Toni Kaplan, Analyst
Yes, the first aid margins have significantly increased over the past few years. You mentioned the positive mix and sourcing benefits this quarter. Should we expect these to continue? How substantial were those benefits? Overall, the margins were very good, so how do you view the appropriate level of investment? Should you be investing more, for instance?
Todd Schneider, President and Chief Executive Officer
Great, Toni. Thank you. We love the first aid business. It's growing really attractively. As you mentioned, the margins are very good. And it's not linear. So, there's puts and takes in every quarter. But we suspect that these margins will be sustainable. And nothing specific to call out besides the fact that we're continuing to get very good efficiencies from our dedicated distribution center in first aid. The mix of business is very attractive in what we're selling. It's repeat revenue. And we are investing heavily. And I think you're seeing that in the growth rates that we've experienced and expect to continue experiencing in that business. So really good business, and we're investing to grow it at very attractive levels.
Operator, Operator
And our next question comes from Faiza Alwy from Deutsche Bank. Please go ahead, Faiza.
Faiza Alwy, Analyst
I wanted to ask for more details about your comments on pricing. Are you facing more challenges in implementing pricing changes across the board, or is it limited to specific products, categories, or national accounts? Can you provide additional insights into the slowdown in pricing that you've observed and what your expectations are moving forward?
Todd Schneider, President and Chief Executive Officer
Faiza, as I previously mentioned, we've always operated in a highly competitive environment throughout my career. Regarding price adjustments, the situation has become more challenging than it was a few quarters ago. However, there haven't been significant changes aside from the considerable decrease in inflation. As a result, it’s reasonable to expect that price increases will also decline. Despite these challenges, our team is doing an excellent job growing the business and finding efficiencies to improve margins. I'm very optimistic about the future and proud of the team's achievements.
Faiza Alwy, Analyst
Great. And then I wanted to ask about M&A. We've seen some increasing activity in M&A. And I'm curious what you're seeing in terms of valuation expectations and just the opportunities out there? What's the environment like?
Todd Schneider, President and Chief Executive Officer
Predicting mergers and acquisitions is difficult because it often hinges on specific events, such as a family member deciding to leave a business. While it's challenging to forecast, I can assure you that we are actively pursuing opportunities, particularly in the strongest companies. We aim to acquire those with excellent customer bases and satisfied employees who can integrate well into our organization. We're also focused on identifying inefficiencies that could enhance our capacity or improve our operations. Although it's hard to anticipate, we remain very proactive in this area, seeing it as a crucial long-term strategic investment.
Operator, Operator
And our next question comes from Stephanie Moore from Jefferies. Please go ahead, Stephanie.
Harold Antor, Analyst
This is Harold Antor on for Stephanie Moore. So, I just want to piggyback on one of the questions about the Company's freight costs. I know, in Costco's, you talked about some of the innovations you've done in the health care sector in terms of providing curtains and stuff. So, I just wanted to ask, what other innovations have you done in some of your other verticals across hospitality, state and local governments? And then I guess the follow-up on that would be, help us understand the incremental margins, how they've trended in these new innovative products and I guess, the increase in revenue that you have seen in those businesses from these innovations?
Todd Schneider, President and Chief Executive Officer
Thank you for the question, Harold. I'll take the first half. We structure our efforts around various verticals, and I'll focus on health care. For example, our microfiber mops are essential for our customers as they use them to keep patient rooms and common areas clean, which helps prevent health care-acquired infections. This is a crucial aspect for them. We also offer technology that improves the dispensing of garments, which benefits customers not just in health care but across all sectors. This technology enables them to manage their inventory effectively, ensuring that personnel have the necessary garments available while also minimizing losses. This has proven to be significant for our customers. In the health care sector specifically, scrubs are often treated as commodity items, which can lead to issues as they are frequently misplaced. Our solutions provide exceptional value in this area. You mentioned privacy curtains, which is another area we identified as needing improvement through direct engagement with our customers. They highlighted this as a considerable compliance challenge, which also impacts health care-acquired infections. We addressed this by developing a patented product that aids in compliance, and our customers have welcomed it. They face challenges in finding labor for these tasks, and our solution alleviates that issue. I believe this is an appealing option, and we will continue to invest in these innovations for our customers in the future.
Operator, Operator
And our next question comes from Scott Schneeberger from Oppenheimer. Please go ahead, Scott.
Scott Schneeberger, Analyst
I want to follow up on a few M&A questions. I understand there’s limited information you can share, but this was the biggest quarter for M&A since G&K's fiscal '16. You mentioned it spanned several business lines, but was there one particularly large acquisition in a specific area? Additionally, what are your current interests in M&A? What multiples are you observing? It would be great if you could discuss the prevailing multiples and what you're targeting. Are you looking to add technology or expand in vended laundry and on-premises laundry? I'm curious if there are new areas you might be exploring.
Todd Schneider, President and Chief Executive Officer
Thank you for the question. We are active in all our route-based businesses and in acquiring new businesses. Our focus is on quality companies that have a strong customer base and excellent employee partnerships. Typically, these businesses have invested in ensuring they care well for their customers and employees. That's what attracts us. We don't delve into valuations, but our priority is on acquiring quality businesses that align with our existing operations. We believe we're well-positioned for this. After an acquisition, we aim to leverage synergies, often gaining valuable capacity and a customer base that we can serve better and provide more value to. Our emphasis remains on acquiring outstanding companies with great people and customers, leading to positive outcomes.
Scott Schneeberger, Analyst
Great. And just as a follow-up, I don't think we've discussed the myCintas portal in a while. Can we get a progress report on that? I'm curious if it's contributing at all. It's been around for a few years now. Is it contributing to the impressive margins that we're seeing?
Todd Schneider, President and Chief Executive Officer
Yes. Thank you, Scott. myCintas has been essential to our business and important to our customers. It provides them the opportunity to manage their accounts at their convenience. We typically see our customers in person every week, and while they can call if they need anything, that weekly face-to-face interaction is invaluable. However, customers may not want to conduct all their business during those visits, or they may not be available. Therefore, having an online portal for them to manage their accounts and pay their bills makes it easier for them to do business with us, which is important to us. This system allows for direct bill payments without the need for cash application, meaning payments go straight to the account. There are efficiencies when customers manage their accounts online rather than calling in. This provides an additional channel that many customers appreciate, leading to greater satisfaction for them and improved efficiency and relationships for us.
Operator, Operator
And our question comes from Jason Haas from Wells Fargo. Please go ahead, Jason.
Jason Bibb, Analyst
I'm curious if you could help quantify where we are in terms of the price increases relative to history? Are we still like close to 3%, and we're sort of on a path back to 2%? Or how would you describe it? And then, are there certain verticals or industries where you find it a little bit easier to maintain those prices?
Todd Schneider, President and Chief Executive Officer
Thanks for the question, Jason. Historically, we have operated within a 0% to 2% price increase range. Currently, prices have been above that range due to inflation being significantly higher, although we are now back in that historical range. It's challenging to predict future inflation trends, and we are closely monitoring the Federal Reserve's activities. We will manage these factors appropriately as we move forward.
Jason Bibb, Analyst
Got it. That's very helpful. So, are there any sectors where it's easier to maintain those prices? Or are we reverting back to that historical 0% to 2% range? I also wanted to follow up on the incremental margins because they were really strong in the first half. I know you mentioned that the expectation is to return to more normal targeted levels in the second half. I'm just curious about what factors will contribute to that change. What shifts from the first half to the second half will lead to the decline in those incremental margins?
Todd Schneider, President and Chief Executive Officer
Jason, regarding any specific verticals, I wouldn't say we're able to achieve better price increases in any particular area. It's likely quite representative of the overall market. For the second half of the year, we did have some strong incremental results in the first half, but it's not linear. We aim for a range between 25% and 35%, which is our guidance and what we are aligning our efforts around. So, that's something to keep in mind.
Mike Hansen, Executive Vice President and Chief Financial Officer
Yes. Sometimes it's tough comps relative to last year. We had a really good second half of the year margin. And as Todd said, sometimes it's just timing of investments. It is not going to be a straight line for sure.
Operator, Operator
And at this time, there are no further questions. I'd like to turn the call back over to Jared for closing remarks.
Jared Mattingley, Vice President and Treasurer, Investor Relations
Thank you for joining us this morning. We will issue our third quarter of fiscal '25 financial results in March. We look forward to speaking with you again at that time. Thank you.
Operator, Operator
This now concludes today's conference call. Thank you for your participation. You may now disconnect.