Cintas Pricing Spineometer: 1 of 5 Vertebrae
Cintas, a uniform rental, facility services, first aid and safety services and products company, had a positive Q1 2024. Revenue rose 8.1% to $8.8 billion and earnings before interest and taxes rose 13% to $1.8 billion over the same period last year.
A review of Cintas’ September 26th earnings call and financial report provided insight regarding the importance of pricing on performance.
Todd M. Schneider; CEO, focused his prepared remarks on his progress towards three major initiatives underway at Cintas: branding, ESG, and technology. Pricing is not one of these foci, nor need it be at all times.
Yet neither he nor Cintas would be let off the hook that easily from the investor community. When probed about pricing, Todd Schneider shifted the focus to cost management and implied that price increases would be tamer in the near future.
“Our pricing has been certainly above historical during fiscal ’23. And it needed to be because of the cost inputs. When we think about what that will look like moving forward in our ’24 guide, we expect that pricing will return closer to historical and our cost inputs are in a similar spot. … We are seeing inflation coming down.
“I think our team has done a pretty amazing job of managing input costs, both our operational team but our supply chain team which has really benefited us. … We do not rely upon pricing as the only lever to gain leverage to expand margin.”
Fair enough. If it is not an initiative today, is pricing something Cintas has well under control, or should it be an initiative for tomorrow?
- Based on revenue, industry standard metrics would suggest Cintas to have 18 to 80 pricing professionals on staff.
- Given operations across the United States, we would expect Cintas to manage prices at the local and national level for varying client profiles.
- Given its offering diversity, we would expect pricing practices for services (laundry and uniforms) to be distinct from those for goods (first aid cabinets and fire safety equipment).
- Given the nature of sales to other businesses, we would expect Cintas to have a robust discount and rebate analytics and management capability.
Research into the investment by Cintas in pricing yielded grossly underwhelming results. While every sales manager listed pricing as a key skill, it was difficult to find anyone whose job title implied pricing itself. Outside of sales, supply managers and logistics managers listed pricing as a skill. Unfortunately, pricing is a distinct profession requiring a distinct skill set than supply chain management or selling. I wouldn’t be surprised to learn that list prices are set as a markup to costs and salespeople have a fun time giving discounts.
Hence, I would suggest pricing should be an initiative of Cintas in the near future. (They might start with doing a price-volume-mix analysis to tell investors and themselves the driver to revenue growth.)
Given the importance and capability of pricing at Cintas as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of November 2023.
Cintas Pricing Spineometer: 1 out of 5 Vertebrae.
CTAS (Cintas Corp.) fell from 505 the day prior to their earnings call to 481 one week later. FY 2023 revenue of $8.8 billion with a 20% operating margin and P/E ratio near 38.
For FY 2023, a 1% improvement in price would yield 5% improvement in operating profits holding all else constant at Cintas.