Tags: Cintas | uniform | profits | CTAS

Cintas Cranking Out Uniform Profits

By    |   Monday, 13 February 2012 08:09 AM

Cintas (CTAS), the nation’s largest supplier of work uniforms, has been the power player of the industry, serving more than 900,000 businesses and cranking out uniform profits.

The company’s return on invested capital (ROIC) never has dropped below its weighted average cost of capital during the past decade, even during the 2007 to 2009 recession that hammered so many companies, according to Morningstar.

To give an idea how well Cintas is doing in its industry, Morningstar calculates the company’s ROIC at an annual average of 14.5 percent over the past 10 years, almost double the 7.7 percent rate achieved by rival G&K (GKSR).

It’s no wonder that Cintas shares have produced an annualized total return of 20.6 percent over the past three years, beating the Standard & Poor’s 500 Index by almost a percentage point. The company has raised its dividend every year since going public in 1983.

Cintas’ competitive advantage lies in its stellar route-based distribution network. That network gives the company superior scale and route density.

Advantages galore

Those two characteristics allow Cintas to withstand cost increases for essentials such as fuel, labor, and apparel fiber. Its size puts the company in a strong position when negotiating prices with suppliers. Cintas also can spread costs over its route base more easily than competitors.

Those advantages have helped Cintas withstand the weak labor market of the past four years. The economy’s continuing shift toward services and away from manufacturing should benefit Cintas, as many workers in the service sectors don uniforms each day.

Standard & Poor’s analyst Kevin Kirkeby has a four-star buy rating on Cintas shares. “We believe CTAS is set to achieve faster revenue growth and a widening in margins as the economy improves and employment levels rise,” he writes.

In the quarter ended Nov. 30, Cintas reported net income of $74.4 million, jumping 33 percent from a year earlier. Revenue gained 9 percent to $1 billion.

Cintas next reports earnings March 20.

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Monday, 13 February 2012 08:09 AM
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