Clean ’15: Baird Forecasts Future Growth
Andrew Wittmann, director and senior research analyst at Robert W. Baird & Co., Milwaukee, gave a presentation at the Clean Show in Atlanta on April 16 that detailed the current state of the economy and the textile services industry, and forecasted the potential growth of the industry. All signs are positive, according to several key economic indicators that Wittman detailed in his speech.
Baird’s review of the four national, publicly traded companies performance indicated several promising trends., including rising organic growth rates. “In the last few quarters, the quarterly organic growth, or new growth numbers, the tallest bars (on the bar graph) most recently belong to Cintas, with growth in the 7-8% range,” Wittmann said. “UniFirst is in the 5-6% range. G&K’s growth rate has certainly been improving, with recent investments in their sales force, getting up to the 6% range in more recent quarters. The long term trend over at Aramark has been slower growth. We only show 3-4 years of data, but I think if you went back farther you’d see that they haven’t grown as fast as the other large players.”
In addition to the recent performance of these companies, Wittmann took a look at the long term trends, dating back 15 years. “The long term trend at Cintas goes back to 2000,” Wittmann said. “We like to show this because it is the best data that we have over the longest time period. The point that I’d like to make here is that Cintas growth rate is in the 7-8% range. If you think about that historically, if you go back to 2005 you touched it, but you’re seeing growth rates out of Cintas that you haven’t seen since like 2001. So, when we talked about late cycle, good growth behavior, this is a pretty good illustration of that.”
In another promising development, profit margins are on the rise, with the potential to reach levels not seen before, according to Wittmann. “The profit margins have been coming down from 2000-2010, as I think the business has gotten more competitive. We have seen certainly the financial crisis really hurt margins, but you’ve seen great margin improvements as a result of the scale, as a result of taking the fixed costs and leveraging them over good growth. Certainly, more recently with growth being led increasingly by price, we’re starting to consider the potential to see peak margins at several of the companies. Cintas, I think will probably lead the way. A couple years ago, I don’t think we would have said that peak margins would ever be achieved again.”