Cintas Corp

NASDAQ:CTAS

Earnings Call Transcript 2019-Q1

[Operator]

Good day, everyone, and welcome to the Cintas Quarterly Earnings Results Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Mike Hansen, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

[Michael Hansen, EVP and CFO]

Good evening. Thank you for joining us. With me is Paul Adler, Cintas Vice President and Treasurer. We will discuss our first quarter results for fiscal 2019. After our commentary, we'll be happy to answer any questions.

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.

Our revenue for the first quarter, which ended August 31, was $1,697,000,000, an increase of 5.4% over last year's first quarter. The organic revenue growth rate which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations was 5.2%.

The organic revenue growth rate for the Uniform Rental and Facility Services segment was 4.9%, and the organic growth rate of the First Aid and Safety Services segment was 9.0%. Note that the lower organic revenue growth rate for the Uniform Rental and Facility Services segment was expected and as we have previously communicated, was due to the lapping of the G&K Services acquisition. We expect this organic growth rate to increase during the remainder of fiscal 2019.

Reported operating income for the first quarter was $265 million compared to $249 million in last year's first quarter. Operating income for the first quarter of fiscal 2019 was negatively impacted by $19 million in stock-based compensation expense related to a change in the Cintas retirement policy, in which the retirement agent tenure requirements were reduced. Slightly offsetting this was a $5.7 million benefit from lower commission expense, resulting from the adoption of the Accounting Standard Update 2014-09, revenue from contracts with customers. We discussed both items on our July earnings call, when we provided our initial fiscal 2019 guidance.

Lastly, operating income was reduced about $5 million in the first quarter of fiscal 2019, and about $4 million in the first quarter of fiscal 2018 by integration expenses related to the G&K acquisition. Excluding these items, our first quarter operating income grew 12%, resulting in an operating margin of 16.7% compared to 15.7% last year.

Interest expense was $6 million lower in the first quarter of fiscal 2019, compared to last year due to debt reduction of about $300 million. Net income from continuing operations for the first quarter of fiscal 2019 of $212 million, increased 31.9% from last year’s first quarter net income from continuing operations of $161 million.

EPS from continuing operations for the first quarter of fiscal 2019 were $1.89, an increase of about 30% from the EPS from continuing operations for the first quarter of fiscal 2018 of $1.45. Net income and EPS from continuing operations were positively impacted by a lower effective tax rate in this fiscal year’s first quarter, compared to last fiscal year’s first quarter, primarily from the enactment of the Tax Cuts and Jobs Act.

Net income and EPS from continuing operations were negatively impacted in the first quarter of fiscal 2019 and 2018 by $0.04 and $0.03 respectively from integration expenses related to the G&K acquisition.

As a result of our first quarter results and forecast for the remainder of the fiscal year, we are increasing our annual guidance. We are raising our revenue guidance from a range of $6.75 billion to $6.82 billion to a range of $6.8 billion to $6.855 billion. And EPS from continuing operations, from a range of $7 to $7.15 to a range of $7.19 to $7.29.

Note the following regarding EPS guidance; it assumes an effective tax rate for the full fiscal year of 21.7%, which is the same rate we provided in July for our initial fiscal 2019 guidance. Keep in mind that this tax rate can move up or down from quarter-to-quarter, based on discrete events including the amount of stock compensation benefits.

The guidance assumes that diluted share count for computing EPS of 113.5 million shares, it does not assume any G&K integration expenses. However we do expect to incur these in the range of $15 million to $20 million for the full fiscal year.

As our Chairman of the Board and CEO, Scott Farmer was quoted in our earnings release, we are pleased with the start to the fiscal year. Our employees and we call partners continue to execute at a very high level, while also making significant progress on the integration of the G&K acquisition and the implementation of our enterprise resource planning system.

I'll now turn the call over to Paul.

[Paul Adler, VP and Treasurer]

Thank you, Mike. First, please note that our fiscal first quarter contain the same number of workdays as the prior year first quarter. Additionally, there’ll be no workday differences the remainder of the fiscal year, as each quarter of fiscal 2019 contains the same number of workdays as the comparable quarter of fiscal 2018.

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 consists 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 routes.

Uniform Rental and Facility Services revenue was $1.37 billion, an increase of 4.8% compared to last year's first quarter. Excluding the impact of acquisitions and foreign currency exchange rate changes, the organic growth rate was 4.9%.

As Mike previously stated, the organic growth rate was negatively impacted by the lapping of the acquired G&K business. However, we believe that the organic growth rate has reached the bottom. We expect the organic growth rate to increase during the remainder of the fiscal 2019.

Our Uniform Rental and Facility Services segment gross margin was 45.7% for the first quarter compared to 46.1% in last year's first quarter. We were starting to see cost pressures in a few areas. Energy expense was a headwind of about 20 basis points. We are experiencing wage inflation in certain areas and we’ve seen some cost pressures on our hangers, which largely are sourced from China. Keep in mind, that all of these are considered in our updated guidance.

In addition as previously disclosed, we continue to experience the inefficiencies that are customary with an acquisition integration and an ERP system implementation and these activities weigh on margins in the short-term. With all that being said though, we were pleased with the gross margin expansion on a sequential basis of 70 basis points.

Our First Aid and Safety Services operating segment includes revenue from the sale and servicing of first aid products, safety products and training. This segment's revenue for the first quarter was $153 million, which was 9.1% higher than last year's first quarter. On an organic basis, the growth rate for the segment was 9.0%, which was a noteworthy accomplishment against the difficult comparison of prior year first quarter organic growth of almost 12%. This segment's gross margin was 47.9% in the first quarter compared to 47.5% in last year's first quarter, an increase of 40 basis points.

Organic growth continue to be very strong and was benefited by penetration of existing customers and national account new business. The combination of the solid revenue growth plus expanding gross margins are confirmation of the value that businesses in all sectors of the economy place on having Cintas manage their first aid, safety and training programs to help keep their employees healthy, safe and productive.

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 rate 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 $169 million, an increase of 6.6% compared to last year’s first quarter. The organic growth rate was 4.0% and was driven by 8.9% organic growth in the fire business. All Other gross margin was 42.9% for the first quarter of this fiscal year compared to 42.5% for last year's first quarter, an increase of 40 basis points. Both Fire and Uniform Direct Sale realized expansion of gross margins.

Selling and administrative expenses as a percentage of revenue were 29.7% in the first quarter compared to 30.2% in last year's first quarter. A 110 basis point increase in stock-based compensation expense was more than offset by lower labor, workers compensation, medical and other expenses. We are getting leverage from increased revenue covering fixed costs.

Our effective tax rate on continuing operations for the first quarter of 12.0% benefited from the new U.S. tax legislation. In addition, it was positively impacted by stock-based compensation. Our EPS guidance for fiscal 2019 as soon as an effective tax rate of 21.7%. Note that the effective tax rate will fluctuate from quarter-to-quarter based on tax reserve build and releases relating to discrete items, including the amount of stock compensation benefits in each period.

Our cash and equivalents balance as of August 31st was $118 million. Cash flow remained strong and we expect fiscal 2019 operating cash flow to exceed fiscal 2018. Capital expenditures in the first quarter were $64 million. Our CapEx by operating segment was as follows: $51 million in Uniform Rental and Facility Services, $9 million in First Aid and Safety and $4 million in All Other. We expect fiscal 2019 CapEx to be in the range of $275 million to $300 million.

As of August 31st, total debt was $2,535,000,000 and consist entirely of fixed interest rate debt. At August 31st, our leverage was 2.0 times debt to EBITDA.

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

[Operator]

Thank you. [Operator Instructions] Our first question comes from Toni Kaplan with Morgan Stanley.

[Toni Kaplan, Morgan Stanley]

Good morning or good afternoon, I should say.

[Paul Adler, VP and Treasurer]

Hi, Toni.

[Toni Kaplan, Morgan Stanley]

Free cash flow was a little bit lighter than what we were expecting driven by working capital. Could you just give us some color on some of the drivers that were impacting working capital this quarter?

[Paul Adler, VP and Treasurer]

Yes, Toni, this is Paul. I think from a cash flow perspective, we did have some timing issues in this quarter, but as we just mentioned in our prepared remarks and looking at our forecast for the remainder of the year, we believe that our operating cash flow will be strong and even exceed prior year.

So there are some timing things and accounts payable, et cetera. But the one thing to note that I can tell you about from the balance sheet is inventory we’ve had an increase in new goods inventory, we have a new distribution center. It’s a facility services distribution center that we just started up very recently due to the need to support that strong Facility Services growth.

And so typical with a start-up of a new distribution center, we’ve had a build of inventory. And once that DC continues to run as expected, it’ll burn that inventory off and that’ll come down. So again, nothing structural in terms of the organization that has us concerned about cash flow, just some timing effects, and we believe it will be strong at the end of the year.

[Toni Kaplan, Morgan Stanley]

Okay, great. And you mentioned the wage inflation and costs pressures from the energy and from hangers in China. And I know you mentioned that in the guidance. But could you give us a sense of, if you’re expecting these to continue through the whole year, if you’re expecting them to get worse or better. And if you can give any color of how much is in the guidance that would be helpful too? Thank you.

[Paul Adler, VP and Treasurer]

If you put all of those together Toni, it's probably somewhere in the 50 to 60 basis points in the quarter. And we generally expect that to continue through the rest of the year.

[Toni Kaplan, Morgan Stanley]

Thank you.

[Operator]

And our next question is Scott Schneeberger with Oppenheimer.

[Unidentified Analyst]

Hi, it's Daniel on for Scott. Could you guys speak to the synergy progress and help us think about the narrative for a scenario where you could exceed the synergy target for the full year?

[Paul Adler, VP and Treasurer]

The integration efforts continues and we're very pleased with it. We are continuing to -- well, we're really getting into the route optimization process. So that'll take -- we're working on that most of the year. We've closed all of the redundant plants. But still some inefficiency about getting all of the plants that accepted new volume still working through inefficiencies and getting them back to kind of a normal operating environment.

And so we continue and we’re very pleased with where we are and we talked about in July, getting an additional something in the way of $32 million to $37 million of synergies on top of the $58 million that we got last fiscal year and we’re very confident that we will see those.

What can get us above the synergy target in total of $130 million to $140 million, I think more than anything that would come from the sourcing opportunity, I think that’s the biggest opportunity for outperformance.

So in other words, can we take the volume from G&K and incorporate that into our supply chain and translate that into larger sourcing savings than we have modeled. I am not ready to say that we can do that, but I think in answering your question, if we were to outperform that’s likely where it would come from.

But generally the integration continues, just as we expected and we’re very pleased with it.

[Unidentified Analyst]

Got it, thank you. On capital allocation, could you just provide us an update on how you think about that on a go forward basis. I mean, you had a decent quarter in buybacks, so if you can discuss capital allocation on a go forward basis, please?

[Michael Hansen, EVP and CFO]

Yes, I would say the capital allocation is similar to pre-G&K acquisition philosophy and that is we want to grow organically and we’re going to invest in the business in the way that, that we need to in order to continue to grow, that means CapEx will be important for us both in adding plant capacity, adding route capacity and other system investments. So that’s important to us.

We love tuck-in acquisitions and acquisitions that are in our current businesses. And so we’ll continue to look for those kinds of opportunities in our Rental business, in our First Aid and Safety business and in our Fire business. And so we’re -- I would expect that we will return to being aggressive after taking for the most part fiscal 2017 and 2018 off, because of the G&K deal.

We have raised our dividend for every year since we went public. I would expect that we’ll evaluate that and that’s very important to us. And then if we have additional cash and we have an opportunity to be opportunistic with that cash, we will execute on the buyback program. We did a little bit of that in the first quarter and I would say that if we feel like there are opportunities to use that program, we’ll continue to do that into the future.

[Unidentified Analyst]

Great, thank you very much.

[Operator]

Our next question comes from John Healy with North Coast Research. We’ll take our next question from Hamzah Mazari with Macquarie Capital.

[Hamzah Mazari, Macquarie Capital]

Good afternoon, thank you. My first question is just, how do you think about just underlying operating leverage in the business post G&K. I know you highlighted some costs pressures, some ERP distraction or disruption, maybe that’s natural when you have that sort of thing. And then obviously some of the integration around G&K. But, how do you think about sort of natural operating leverage in the business post G&K relative to sort of legacy Cintas?

[Michael Hansen, EVP and CFO]

Well I’m going to speak to the whole company -- to the whole business now including G&K. Now we’re going to continue to work on the synergies, but our goal has generally been incremental operating margins in the 20% to 30% range and that will continue going forward. We believe that as we continue to grow, we’ve got very large investment in capacity and route structure and we have leveraged that in the past very well and we expect to continue to do that into the future, especially as we continue to sell to existing customers and to get more revenue per stop.

So, there really isn’t a change in the way we view that opportunity going forward, but in this current fiscal 2019 year just as in fiscal 2018, we do have the integration efforts going on and we have the SAP efforts going on. And that will create a little bit more of a let's called it a bumpy ride in terms of that incremental margin, but our philosophy and our belief in that incremental margin and leveraging going forward has not changed.

[Hamzah Mazari, Macquarie Capital]

Okay, great. And just any updated view on the China Tariffs? I know there is not a lot of direct exposure. I know you mentioned hangers, but anything you're hearing from your customer base or how you think this plays out in terms of your portfolio on an indirect basis?

[Michael Hansen, EVP and CFO]

Hamzah I think it's too early to tell. We haven't seen much direct impact yet, other than we called out hangers in a -- it's not a significant amount, but it is something that’s starting to creep in. Aside from that, we haven't seen much direct or indirect impact yet. I think we just need to see more play out.

[Hamzah Mazari, Macquarie Capital]

Okay. And just a follow-up, I'll turn it over. On the ERP, did you sort of mention how to think about benefits of that system once it's in place longer term?

[Michael Hansen, EVP and CFO]

We talked a little bit about the power of the information that we'll get from that system. There will certainly be some costs that can be eliminated particularly the implementation costs. But really we look at that system from the power of the information and how that can make us more efficient, our sales people more productive more targeted in the way that we sell both prospecting, but even more to existing customers. And so we think the power is in the efficiency of the selling process, the productivity and kind of that revenue opportunity as we move into the future.

[Hamzah Mazari, Macquarie Capital]

Great, thank you.

[Operator]

And we now have a question from John Healy with Northcoast Research.

[John Healy, Northcoast Research]

Thank you. Wanted to ask just a little bit about the cadence of organic growth and the expectation there. I know you guys have said that this would mark the bottom the 4.9%. But when I kind of look at the guidance for the year, it assumes probably the number approaching 6% towards the end of the year. And we just kind of curious to know how quickly you think that steps up from here?

[Michael Hansen, EVP and CFO]

Yes, John I think the first quarter we're very pleased with that quarter. As you can tell from maybe the -- what we did with the revenue guidance, we beat our internal plan by a little bit. We have some real nice execution, we saw a nice uptick in our sales rep productivity. And we also saw some nice performance in the first quarter of selling Cintas Facility Services products into our acquired G&K customers.

So we liked what we saw in the first quarter and what you're seeing in our guidance raise is a little reflection that we continue to feel good and be encouraged by the rev productivity, as well as seeing some benefit from the penetration opportunities in our G&K customers.

With that being said, we expect an uptick in the second quarter. And as I mentioned in our July call, that second half of the year we expect -- I mentioned in July, we expected that to be in the 5.5% to 6% range and certainly by our guidance increase, we still feel very comfortable about that. So I would expect the second half of the year to be fairly good performance.

[John Healy, Northcoast Research]

Great. And then just one question on SG&A, if I kind of back out the $19 million or so with the stock comp kind of the one-time hit there, very good SG&A kind of management. And I was just curious if there were kind of any onetime items that maybe helped the cause there a little bit or maybe kind of what was going on in the SG&A line that really allowed you guys to outperform that?

[Michael Hansen, EVP and CFO]

Well, we are in some really nice leverage as Paul mentioned and the synergy opportunities there are certainly taking effect. And so we've seen some lower -- we've seen a lower labor number and along with that then comes a little bit of a lower medical workers comp kind of number. And so we feel really good about the structural piece of G&A. And I would say that there aren't any significant one time call outs. It's just I would say it's more than anything pretty good performance and cost control.

[John Healy, Northcoast Research]

Great. And just one final question for me. Any updates on kind of the ERP implementation any bright spots or any thoughts on timing there?

[Paul Adler, VP and Treasurer]

John, the SAP implementation continues to go very well. And it continues to go as scheduled. Last quarter, back in July, we had I don't know maybe 34% of our operations have been converted to the SAP system. That's now up to about 42% or a little bit more at this point in time. So, it's going very well, it'll still extend into fiscal 2020. Just to give you the some color on this implementation and the scope of it, we've had 3,000 routes impacted and converted by SAP, 235,000 customers. So it's a big undertaking, but everything is going very well. Nothing significant to update you on.

[John Healy, Northcoast Research]

Great, congrats on a great quarter, guys.

[Michael Hansen, EVP and CFO]

Thank you.

[Operator]

Our next question is from Manav Patnaik with Barclays Capital.

[Greg Bardi, Barclays Capital]

Hi, this is actually Greg calling in. Just wanted to hit on the tight labor market a little bit more both in terms of what you're doing to attract talent given the low unemployment rate. And then maybe from a customer perspective, if you're seeing any benefit in terms of net new sales from hires?

[Michael Hansen, EVP and CFO]

So from a labor standpoint, the pressure that we see the most is in our plants. And so the number one thing that we are doing is working on partner retention and we want to make sure that we are very competitive in the wages, in the benefits that we provide a great working environment and our retention is very good. When we grow however, we do need to go and find additional labor and finding additional labor has been a little bit more challenging and we’re recruiting certainly aggressively from the standpoint of looking at trade schools and recruiting fairs and other types of things. But it really begins with partner retention. That’s the most important thing for us.

From the standpoint of the new business, I believe your question was the productivity from new hires our sales people. We, as I mentioned a few minutes ago, we’ve seen a nice uptick in our sales rep productivity and we really like where we’re headed. We are not back to pre-G&K levels yet. But we really like where we’re headed and the performance has been good and that gives us some confidence to raise our revenue guidance, like I mentioned.

[Greg Bardi, Barclays Capital]

Okay. And then on the rule 2014-09. I think last quarter, you talked about a $16 million to $19 million benefit for the full year. Is that still the expectation?

[Michael Hansen, EVP and CFO]

It was about $5.7 million in the first quarter and I would say it’s probably going to be a little bit on the higher end of that range and we’ll update you as we go through the year.

[Greg Bardi, Barclays Capital]

Okay, thank you.

[Operator]

And our next question comes from George Tong with Piper Jaffray.

[George Tong, Goldman Sachs]

With Goldman Sachs. So I guess, first question around cross-selling, can you talk about the extent to which your structural organic growth will change as your cross-selling and penetration opportunities increase with the G&K deal? And then secondly, how does the SAP timelines impact your ability to achieve those cost penetration synergies?

[Michael Hansen, EVP and CFO]

Well, the impact on organic growth, I would say is going to be fairly subtle. In other words, just like with our own business penetration takes some time and it’s not something that we rush into with any of our customers. So it's going to be a bit of a subtle improvement but it's certainly is something as I mentioned a few minutes ago that gives us confidence to raise our guidance a little bit this year. And I would expect that that will continue into the future.

It does certainly the system conversion certainly does have an impact on that conversion. Now all legacy G&K locations are on Cintas operating systems. And so that allows us to really get into and start that process, which we have started in this certainly more in earnest in the first quarter. I think as we move forward, the system conversion will just like it is with all of our business. There is going to be some disruption market-by-market, but the good news is we're not converting the entire company at one time. It is a market-by-market conversion. And so that disruption is not going to be significant from quarter-to-quarter.

But I don't think that's going to have much impact on our ability to penetrate. It is going to have a little bit -- that system conversion is going to have a little bit more impact on the timing of route optimization, but that's a little bit of a different topic.

[George Tong, Goldman Sachs]

Got it, very helpful. And then on the topic of margins, can you discuss your thoughts around reinvesting your cost synergies, whether the expectation is to flow through 100% of the cost synergies you've outlined from the G&K acquisition, or are you going to be reinvesting a portion of the synergies back into the business to drive growth.

[Michael Hansen, EVP and CFO]

Well, we're going to invest the way we need to invest in order to make our locations as efficient as possible. Now our intention is that that will not require a significant amount of that 130 to 140 in cost synergies to be reinvested. But there certainly will be investments from quarter-to-quarter to make sure that we are maintaining our equipment that we are staffed properly, et cetera. So I don't -- we don't have an expected number that we are going to reinvest, it's going to be part of our CapEx and part of our operating margin going forward. But certainly there is investment that will happen.

[George Tong, Goldman Sachs]

Very helpful. Thank you.

[Operator]

Our next question comes from Andrew Wittmann with R.W. Baird.

[Andrew Wittmann, R.W. Baird]

Great, thanks. Mike, just digging into the guidance to be helpful for everyone. Maybe if you could just talk about the guidance raise that you put out there. How much of it was just passing through what you got in 1Q? I mean, clearly there is you've talked about the revenue and that's very clear. But was tax here in 1Q a little bit better than you expected is that the pass through or has your balance of the year forecast changed? You gave us a lot of the inputs there the one question I think specifically for the balance of the year, that would be helpful to get your view on the margins given some of the headwinds that you called out.

[Michael Hansen, EVP and CFO]

Yes, the first quarter tax rate was just a little bit lower than we expected. But as we mentioned in our guidance comments, our full fiscal year tax rate of guidance of 21.7% is the same that we gave you in July. So from a tax perspective, the guidance really didn't have -- really wasn't affected by that. It's the same tax rate in July as we gave you tonight.

We feel good about the first quarter. The performance was pretty strong. And we feel good that with the growth coming in Q2 through Q4, we certainly do see some real nice opportunities to increase operating margins certainly year-over-year as we move through the last three quarters. So I would not attribute any of it to taxes, it's really more about can we continue to gain synergies and can we continue to leverage the business and get the real nice growth margin that we expect? That help?

[Andrew Wittmann, R.W. Baird]

Yes, it sounds like -- yes it does help. It sounds like there, that it's operating maybe you got the revenue guidance upside here and then it looks like that’s going to flow through to the margins. So it looks like -- it sounds like there is a core operating lift here to the numbers, the share count didn’t change substantially, tax didn’t change substantially, revenue is up and that flow through the EPS. Is that kind of another way to summarize it?

[Michael Hansen, EVP and CFO]

Yes, if you think about the operating margins for Q2 through Q4 last year, the average was right about 16% with this guidance for the remaining three quarters, we expect that we’re going to beat that 16% and be into the high 16% range. So we expect some nice operating margin improvement as we move through the year.

[Andrew Wittmann, R.W. Baird]

Okay, that’s super helpful. So then just talking on a couple other things maybe for peoples models here, with the new stock compensation accounting that you’re doing here, it was running in the kind of just sub $30 million range per quarter now $46.2 million, is that a good run rate and same thing with the intangible amortization associated primarily as presumably with the sales commissions now being capitalized and amortized. Is this rate of around $33.5 million, a pretty good run rate for the balance of the year on those two items?

[Michael Hansen, EVP and CFO]

Yes, great question Andy. From an amortization standpoint, yes. With the accounting change, that commission expense does run through the amortization now. So, you -- that’s a pretty good run rate, keep in mind that’s going to be offset down in working capital and the prepaid expenses line, you’ll see a big increase there and that offset will continue through the rest of the year as well. So, net-net the operating cash flows aren’t really impacted much by this change in accounting. So that’s the rev rec change.

From a stock-based compensation, that $46 million that you see in the first quarter is loaded with that $19 million impact that we mentioned earlier. And so that is not a good run rate, you would take out a fairly good chunk of that, probably most of the $19 million to get to a better run rate for the rest of the year. That $19 million is kind of a change where we expense -- we accelerate the expense of certain stock options and restricted shares related to Cintas partners who have attained retirement agent tenure. And that’s going to generally occur in the first quarter, when we do -- when we provide our grants.

[Andrew Wittmann, R.W. Baird]

Yes, got it, because if you exclude the full 2019, then you’re almost back to the historical level that you’re running at. So it really does seem like it’s pretty heavy in this quarter then pretty de minimis for the balance of the year, right?

[Michael Hansen, EVP and CFO]

Yes, that’s correct.

[Andrew Wittmann, R.W. Baird]

Okay. And then just one other thing to clarify, can you talk about the number of shares that were repurchased in first quarter and maybe the total amount of the average price that was paid for them?

[Michael Hansen, EVP and CFO]

Under the buyback program, we repurchased about 400,000 shares at an average price of $201.20 and that totaled about just over $80 million. We have right about $330 million left on our authorization.

[Andrew Wittmann, R.W. Baird]

Thank you very much.

[Operator]

And our next question comes from Dan Dolev with Nomura Securities International.

[Dan Dolev, Nomura Securities]

Hey guys, can you hear me?

[Michael Hansen, EVP and CFO]

Hi, Dan. Yes.

[Dan Dolev, Nomura Securities]

Hey guys. Nice job on the quarter. I’ve got two quick questions, organic revenue in the rental business was strong, it was a ted weaker than what we were modeling. I know you were about 5.2 versus 4.9, I know you’re not giving the breakdown anymore, but could you maybe give us like a sense of what the GK part was. And I am sorry if you mentioned it already and we missed it, you were down mid-single-digit, I think in the last two quarters. So what was the -- I am trying to figure out where the weakness was in our model, versus your results?

[Michael Hansen, EVP and CFO]

Yes, Dan, we did not provide a G&K number, because as we mentioned back in July, it is now so comingled with the Cintas business that it’s just too hard, it’s really too many assumptions to try to build into that number. So I am not going to be providing that.

This is -- this 4.9 is right where we internally expected, maybe a little bit better than what we expected. And we feel real good about that performance both of the let's call it standalone G&K locations, as well as standalone Cintas locations. And the sales reps that are selling around those. But just simply because it's so comingled for all of the locations that we've closed and we've merged accounts and into various Cintas locations, it gets really difficult to report on the entire block of business.

[Dan Dolev, Nomura Securities]

No, I understand that’s fair. And then my follow-up is on the energy you called out the 20 basis points energy headwind. I know in prior years you were also talking about whenever there is a headwind to cost there's also a tailwind to revenue. Can you maybe specify if there is a -- if that was also accompanied by a tailwind to organic revenue and rental? Thank you.

[Michael Hansen, EVP and CFO]

Yes, those things don't happen necessarily at the exact same time. I -- this is -- we are seeing a fairly healthy energy sector. It's not back to where it was from a few years ago. But it is a healthy sector, it I wouldn't say that it's outperforming the rest of the business at this point.

[Dan Dolev, Nomura Securities]

Got it, thank you very much. Nice results.

[Michael Hansen, EVP and CFO]

Thank you.

[Operator]

[Operator Instructions].

[Michael Hansen, EVP and CFO]

If there are no other questions, thank you for joining us tonight. We will issue our second quarter fiscal 2019 earnings in December. Thanks for joining us, and we look forward to speaking with you again at that time.

[Operator]

Thank you, ladies and gentlemen. This concludes today’s teleconference. You may now disconnect.