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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. 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.[1] 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.[2] 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.[3]
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 [4] and record-high oil prices pose a threat to its profitability.[5] Fewer employees means fewer uniforms, and higher fuel costs can raise operating expenses substantially. Therefore, CTAS's profits are somewhat dependent upon the general economy of the entire country.
Company Overview
Rentals
Rentals accounted for 74% of Cintas' revenues and roughly 81% of its pre-tax income.[6] 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.[7] The same basic contract structure is used for rentals of shop towels, floor mats, and all other rental products.[8] 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'revenues and 19% of its pre-tax income.[9] 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.[10]
Key Trends and Forces
Unemployment rates affect demand for uniforms
Unemployment has been rising in recent years, in part due to the 2007 Credit Crunch and 2008 Financial Crisis.[11] Becasue uniform rentals are Cintas' main source of income (81% of pre-tax income), 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.
Increased unionization of workers
In 2003, labor unions like the Teamsters and the AFL-CIO began attempts to unionize Cintas' 34,000 employees.[12] Cintas is still negotiating lawsuits with unions regarding what Cintas claims is an extortion campaign designed by unions to force Cintas' workers to unionize.[13] Enrollment in unions by Cintas employees has actually declined since unions began actively recruiting the company's workers.[14] 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.[15]
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.[16]
- 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.[17]
- 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.[18]
References
- ↑ 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, page 49
- ↑ CTAS 2007 Annual Report, pg 6
- ↑ CTAS 2007 10-K: Notes to Consolidated Financial Statements, pg 48
- ↑ CTAS 2007 10-K, page 49
- ↑ CTAS 2007 Annual Report, pg 7
- ↑ US Department of Labor Search for total unemployment rate
- ↑ 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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