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WIKI ANALYSIS
Cintas Corporation (Nasdaq: CTAS) is the largest corporate uniform and services company in the U.S. with over 800,000 customers and over $3.7 billion in 2007 sales.[1] In addition to its bread-and-butter uniform sales and rentals, Cintas offers its customers other products and services such as shop towel rentals, first aid products, and document shredding. The company sells its products directly to customers through a network of regional offices and delivery routes.[2] Cintas reaches out to costumers by offering specialized products such as the distinctive long jackets worn by the bellmen at the Drake Hotel in Chicago.[3] The company's focus on providing customers with specialized choices, combined with its expansive distribution network, has allowed it to capture over 30% of the $7 billion market for uniform rentals in the U.S.[4]
Cintas competes with G&K Services (GKSR), Unifirst (UNF), and Aramark (a private company), the three of which constitute another 40% of the market for uniform rentals. Despite Cintas's strong position, rising unemployment (5.2% as of May 2008)[5] and record-high oil prices pose a threat to its profitability.[6] Fewer employees means fewer uniforms, and higher fuel costs can raise operating expenses substantially.
Business Segments
Rentals
Rentals accounted for 74% of Cintas' 2007 revenues and roughly 81% of its pre-tax income.[8] The Rentals segment consists of rentals of uniforms, shop towels, floor mats, restroom, and hygiene products to customers. In a uniform rental contract, costumers pay Cintas a rental fee and Cintas provides the costumer with clean uniforms every week. In between deliveries, Cintas launders the uniforms and makes any necessary repairs.[9] The same basic contract structure is used for rentals of shop towels, floor mats, and all other rental products.[10] Cintas is the largest corporate uniform and services company in the US followed by G&K Services (GKSR), Unifirst (UNF), and Aramark.
Other Services
Other Services contributed 26% of Cintas' 2007 revenues and 19% of its pre-tax income.[11] Other Services includes direct sales of uniforms as well as first-aid, safety and fire protection, document shredding, and branded promotional products and services. Cintas' first-aid activities involve van delivered first-aid supplies and other safety items. They are the nations second largest supplier of fire protection services such as fire extinguisher supply, maintenance, and inspection.[12]
Business Financials
Cintas Revenues and Operating Income[13] (USD in millions)
| Segment | 2007 | 2006 | 2005 |
| Rentals | $2,735 | $2,569 | $2,363 |
| Other Services | $972 | $835 | $704 |
| Total | $3,707 | $3,404 | $3,067 |
| Operating Income | $534 | $518 | $469 |
| Net Income | $335 | $323 | $293 |
Key Trends and Forces
Unemployment rates affect demand for uniforms
Between May 2007 and May 2008, unemployment rose from 4.3% to 5.2%.[14] Becasue uniform rentals are Cintas' main source of income (81% of pre-tax income in 2007), the increase in the unemployment rate has the potential to impact Cintas' total revenues. As the unemployment rate rises, employers will need less uniforms to clothe their employees and will rent and buy less uniforms. When costumers discontinue rentals or hold off on purchases, Cintas' revenues decrease. On the other hand, when unemployment is low, employers will have more employees to clothe and Cintas' uniform rentals and sales will increase.
Increasing energy costs compress Cintas' margins
Between 2006 and 2007, the average yearly price of oil rose from $58.30 to $64.20 a barrel.[15] Because Cintas picks up dirty uniforms and returns clean uniforms using their own fleet of trucks, changes in oil prices affect the company's operating costs. Additionally, Cintas uses natural gas to run its laundry facilities. Between 2006 and 2007, the average yearly price of industrial natural gas fell from $8.56 to $7.86 per thousand cubic feet.[16] Because the decrease in the price of natural gas helped to offset the increase in the price of oil and Cintas began to institute more energy efficient programs, Cintas' energy costs actually decreased slightly from 3.4% of total revenues in 2006 to 3.3% of total revenues in 2007.[17] However, minimizing energy costs will become increasingly important in light of March 2008 oil prices of over $110 dollars a barrel and an increase in the price of industrial natural gas to $9.64 per thousand cubic feet.[18][19]
Increased unionization of workers
In 2003, labor unions like the Teamsters and the AFL-CIO began attempts to unionize Cintas' 34,000 employees.[20] As of 2008, Cintas is still negotiating lawsuits with unions regarding what Cintas claims is an extortion campaign designed by unions to force Cintas' workers to unionize.[21] Enrollment in unions by Cintas employees has actually declined since unions began actively recruiting the company's workers.[22] However, if Cintas is unable to prevent future unionization of workers, they will see their labor costs increase drastically as the average union worker makes 33% more than their non-union counterparts.[23]
Key Competitors
G&K Services (GKSR), Unifirst (UNF), and Aramark--Cintas' three main competitors in the uniform rentals market--together hold 40% of the market share for uniforms rentals.
- Aramark-Aramark is a privately held company that provides uniforms and protective apparel as well as other services to business. It is tied for the second largest uniform supply company with over 200,000 customers. The company also rents shop towels, floor mats, and mops. In addition to rentals, Aramark offers facilities management services, food service and refreshments services, lodging services, and clinical technology services.[24]
- Unifirst (UNF)-Unifirst is tied for the second largest uniforms services company with 200,000 customers. The company also rents industrial towels, floor mats, and restroom supplies. In addition to their rental operations, Unifirst sells first aid supplies.[25]
- G&K Services (GKSR)- G&K Services is the fourth largest uniforms services company with 160,000 customers. In addition to renting uniforms, the company rents shop towels, floor mats, mops, restroom supplies and linen items. G&K also sells its uniforms via direct sale.[26]
Cintas and Key Competitors 2007 ($ in millions)
| Company | Revenues | Operating Income | Operating Margins | Customers |
| Cintas (CTAS) | 3,707 | 577 | 14.39% | 800,000 |
| Aramark | Pvt. | Pvt. | Pvt. | 200,000 |
| Unifirst (UNF) | 902 | 84 | 9.34% | 200,000 |
| G&K Services (GKSR) | 930 | 79 | 8.54% | 160,000 |
References
- ↑ CTAS 2007 Annual Report, pg 4
- ↑ CTAS 2007 10-K: Business, pg 4
- ↑ Cintas Customer Spotlight: The Drake Hotel
- ↑ According to Morning Star, CTAS has 30% and GKSR, UNF, and Aramark have a combined 40% of the $7bn U.S. uniform rentals market by sales
- ↑ US Department of Labor
- ↑ CTAS 2007 10-K: Risk Factors, pg 6
- ↑ CTAS 2007 10-K: Consolidated Financial Statements: pg 32
- ↑ CTAS 2007 10-K, page 49 - Calculated by finding each segment's share of total pre-tax income (excluding interest expense from the corporate segment).
- ↑ CTAS 2007 Annual Report, pg 6
- ↑ CTAS 2007 10-K: Notes to Consolidated Financial Statements, pg 48
- ↑ CTAS 2007 10-K, page 49 - Calculated by finding each segment's share of total pre-tax income (excluding interest expense from the corporate segment).
- ↑ CTAS 2007 Annual Report, pg 7
- ↑ CTAS 2007 10-K: Consolidated Financial Statements: pg 32
- ↑ US Department of Labor Search for total unemployment rate
- ↑ Historical Crude Oil Prices
- ↑ US Energy Information Administration Natural Gas Navigator
- ↑ CTAS 2007 10-K: Selected Financial Information, pg 23
- ↑ Historical Crude Oil Prices
- ↑ US Energy Information Administration Natural Gas Navigator
- ↑ Cintas vs. Unions
- ↑ Unite Here union calls Cintas lawsuit 'rehash'
- ↑ Cintas: Union Campaign Tactics
- ↑ Union and Non-Union Wages and Benefits
- ↑ Aramark: Uniforms and Work Apparel
- ↑ UniFirst: Investor Relations
- ↑ Hoovers: G&K Services
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