Baird Survey: Sunny Industry Outlook Misses COVID-19 Clouds

Posted March 13, 2020 at 12:58 pm



TRSA recently received a copy of the first quarter (1Q20) survey of linen, uniform and facility services companies assembled by Robert W. Baird & Co. through input from TRSA members. The survey is uniformly positive on all major points, but its major drawback is that the data was gathered before the COVID-19 crisis took hold in North America.

The study authors Justin Hauke and Andrew Wittman acknowledged the COVID-19 X-factor for the U.S. economy in introductory remarks in an e-mail about the study. “We published our 1Q20 industry survey this morning,” Hauke and Wittman wrote on March 13. “Unfortunately, the survey results are backwards-looking and do not address the real-time ‘shock’ of coronavirus-led shutdowns and other recent demand shocks. Still, the data on uniform and linen rental business trends is useful and showed broad-based strength during 1Q20.”

Key uniform rental survey findings include:

 Rental Revenue Trends. 100% of respondents met/exceeded internal 1Q20 revenue expectations with 52% of respondents actually exceeding budgets.

  • Add/Stops. Employment-driven expansion at existing accounts (i.e., Add/Stop Diffusion Index) improved quarter on quarter (QOQ) to 65.2 (from 63 last quarter), reaching a nearly two-year high. This quarter also marks the 14th consecutive positive (i.e., >50) reading in this metric (since late 2016).
  • Base pricing gains are running at ~2% and improved QOQ, now at their highest level since June 2018. Most respondents see annual price increases in the 2-4% range. New business pricing remains challenging, as always.
  • No-Programmers. Our no-programmer diffusion index improved to 56.5 (54.3 last quarter), solidly positive. We note that this metric has been consistently in positive territory since briefly dipping negative in 2015-2016.
  • Growth Outlook. Respondents see 12-month organic revenue growth in the +4.6% range, down slightly QOQ but holding near the 5% range.

Key linen rental survey findings include:

  • Rental Revenue Trends. 48% of respondents cited rental revenue trends above expectations in 1Q20 with 48% of respondents meeting expectations. Only 5% reported revenue trends falling short of expectations for the quarter.
  • New Account Pricing. 27% of respondents cited more aggressive new account pricing in 1Q20 while 5% saw less aggressive pricing. The balance (68%) saw no change. As a result, our diffusion index slipped to 38.6 from 53.1 last quarter.
  • Base Account Pricing. The average price increase on existing accounts undergoing price review in 1Q20 was +1.7%, perking up from last quarter’s +1.3%. Overall, 33% of respondents cited price increases with 62% reporting no material change. Only 5% saw contraction.
  • No-Programmers. No-programmer interest showed QOQ moderation with our diffusion index hitting 52.4 (from 56.3 last quarter). Still, index remains in positive territory.
  • Growth Outlook. Forecasted 12-month growth rates moderated to +3.6% from a very strong +5.1% forecast last quarter. This is also a bit below the steady 4-5% range growth forecast of recent years. Growth expectations are also below uniform rental now.

Anyone wanting additional detail may click here to review the full survey.

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