EUR 850.00 For Business Accounts Only

Morningstar | Holiday Timing Tempers Uniform Rental Growth Slightly, but Cintas’ Execution Otherwise Solid

Cintas is by far the largest provider in the route-based uniform solutions industry, with a market share of about 35%, and its immense distribution network bestows industry-leading efficiency and top-tier operating margins. Cintas' performance is cyclical because its operations are tied to U.S. employment trends. That said, the firm successfully navigated the 2009 downturn by curbing excess labor and inefficient routes. Since then, it has capitalized on decent U.S. economic growth, including strength in services verticals.Organic growth in the core uniform rental and facility services segment (78% of sales) has averaged an impressive 7% over the past five years. The firm's net add-stop metric (changes in uniform wearers at individual customer locations) has been flattish in recent years, in part because employment growth has been greater in verticals like the temp industry, fast food, and education, where Cintas has less exposure. However, the firm has secured growth through highly successful salesforce execution targeting the conversion of nonprogrammers--small and midsize businesses without an existing uniform program. Increased penetration of existing accounts has also been a factor via cross-selling ancillary services such as hygiene products to hotels. Roughly a decade ago, Cintas expanded beyond its core uniform business into the document shredding and first aid, safety, and fire protection markets via acquisitions. The document management unit didn’t perform as expected over time, in part because of pressure from low recycled paper prices. As a result, the firm sold its document management businesses in 2014 and 2015. The first aid and safety supplies unit, on the other hand, has proved quite successful, with help from increasing scale and favorable acquisitions, including Zee Medical. Cintas acquired uniform rental competitor G&K Services in March 2017. Thus far, the company has enjoyed marked success integrating and optimizing G&K's operations, and we see plentiful opportunities for Cintas to secure revenue synergies from cross-selling efforts.