Cintas and UniFirst may show the U.S. labor market is extending its two-year rebound when they release quarterly results in the next five weeks.
Investors such as Lawrence Creatura at Federated Investors watch uniform-rental companies to gauge hiring trends for employees in manufacturing, automotive, hospitality and similar work.
The jobs account for only about 10 percent of employment, but optimism in this industry can be really symptomatic of the health of a wide swath of American businesses they serve, said Creatura, who helps to oversee $370 billion as a fund manager in Rochester, N.Y.
Hiring among workers who wear uniforms grew 64,000 in October, the most since Januarys 88,000, according to an index created by Robert W. Baird & Co. Job gains at these businesses rose 2.2 percent from a year earlier to 31 million, outpacing the 1.5 percent increase for all nonfarm payrolls, Baird and Labor Department data show. November jobs numbers will be released Dec. 7.
Cincinnati-based Cintas will announce fiscal second-quarter earnings Dec. 20, followed by UniFirst, in Wilmington, Mass., with fiscal first-quarter results on Jan. 4. Revenue for G&K Services, the industrys third publicly traded player, rose 6.1 percent to $222.4 million in the three months ended Sept. 29, driven by growth in rental operations and direct sales.
The uniform-rental companies are growing healthily, largely because of new customers and selling additional services to existing ones, though they still await a significant pick-up in client payrolls, said Andrew Steinerman, an analyst in New York at JPMorgan Chase
These companies have done a great job, Steinerman said. You have to respect that these guys are growing about 5 percent, mostly because of new sales.
Still, Cintas, UniFirst and G&K Services are showing only modest growth in their current customer bases, reflected by the slightly under 2 percent annual growth in JPMorgans uniform-services labor index, he said.
UniFirst and Cintas have outperformed the Standard & Poors 500 Index since Dec. 30, 2011, with UniFirst rising 24 percent and Cintas up 17 percent compared with the S&P 500s 12 percent gain.
Their shares are trading pretty close to historical average valuations on a price-to-earnings basis, said Andrew Wittmann, an analyst at Baird in Milwaukee, Wis. These stocks have all done pretty well so far this year, maybe better than expected.
While these uniform suppliers are comfortable that current trends are enough to grow their businesses, Wittmann maintains neutral recommendations on these stocks. Hiring has been good but not great this year, he said. Still, its not changing fast enough to improve the operating environment.
None of the three companies is predicting a material change during 2013 in the so-called add-stop metric: a ratio that measures net change in customer payrolls, he said.
An improvement probably would provide a big boost to revenue and margins, Steinerman said, adding that merchandise amortization – the related costs when new uniforms are put into service – gradually is waning, though its still a drag on profitability.
The presidential election removed a primary source of uncertainty for business owners, and the labor market is posting modest growth even with the looming fiscal cliff, Wittmann said.