RW Baird Workwear Industry Perspective July 2011

897 views
829 views

Published on

RW Baird is the leading financial analyst of the workwear sector. Download their July outlook on the industry which remains very positive!

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
897
On SlideShare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
23
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

RW Baird Workwear Industry Perspective July 2011

  1. 1. July 8, 2011 Baird Equity Research Business ServicesFacility ServicesPositive Cyclical Uniform Thesis Intact Despite Continued BLS HeadlinesJune BLS employment failed to re-accelerate despite an encouraging ADP report earlier INDUSTRY UPDATEthis week but YOY growth in uniform employment continues to accelerate. Easy Prices as of 7/7/11comparisons coupled with excess capacity at uniform rental facilities (driving strong Mkt Capincremental margins) are the key reasons why we remain constructive on the sector, Ticker Price Rating Risk (mil)with UNFs earnings report last week suggesting potential for positive earnings surprises CTAS $34.12 $4958 O Afrom peers. We believe cyclical momentum should continue through 2Q11 earnings GKSR $36.23 $ 667 O Aseason (and possibly longer), providing opportunity for additional outperformance. UNF $60.49 $1183 N A Baird covered companiess June employment fails to re-accelerate; disappoints. Total nonfarm payrolls increased by 18,000, well below recently upwardly revised expectations with May figures revised lower. - The unemployment rate rose to 9.2% despite a decline in the labor force (a negative), with the number of underemployed workers increasing at the fastest pace since September 2010.s Bairds Add/Stop Employment Index for uniform wearer posted modest growth (+22,000), similar to May but below recent trends. - Importantly, YOY job growth related to uniform wearers continues to increase (indeed, accelerating) at more than twice the rate of the headline number and is now at its highest level since 2006, underpinning our positive view on the stocks.s Macroeconomy still constructive for uniform rental stocks; cyclical tailwind should continue through summer. Our checks suggest moderating price competition in uniform rental (some markets are even increasing), and recent commentary suggests uniform companies are seeing high-margin positive add/stops in their business. We believe easier comparisons should continue through 2Q11 earnings season (possibly longer). In addition, continued declines in commodity costs (especially cotton) should provide additional support beyond fixed cost leverage.s G&K (Outperform): We believe Street estimates, broadly, underappreciate GKSRs underlying earnings growth potential from even modest top-line growth. Combined with solid progress on the turn-around strategy, solid cash flow, and a likely increase in return of capital to shareholders, we still see upside to the stock.s Cintas (Outperform): Top-line momentum has accelerated, driving margin and earnings leverage as previous investments in sales staff are paying off. In addition, we believe Mays $500M bond offering could provide meaningful accretion if deployed and we are encouraged by recent efforts to expand the company’s higher-growth hygiene/chemicals business through strategic partnerships with established industry suppliers (e.g., Diversey).s UniFirst (Neutral): UniFirst continues to execute above peer levels, suggesting share [ ] gains. However, rising merchandise costs are slightly holding back cyclical earnings Please refer to Appendix growth. Shares appear fully valued but may provide longer-term opportunities beyond - Important Disclosures cyclical dynamics. and Analyst CertificationAndrew J. Wittmann, CFA Justin P Hauke .awittmann@rwbaird.com jhauke@rwbaird.com414.298.1898 312.609.5485
  2. 2. July 8, 2011 | Facility ServicesDetails Cyclical Uniform Thesis Continues Despite Continued Headline Employment Weakness BLS employment failed to re-accelerate in June despite an encouraging ADP report earlier this week but YOY growth in uniform employment continues to accelerate. We believe favorable comparisons coupled with excess capacity at many uniform rental facilities (driving strong incremental margins) are the key reasons why we remain constructive on the sector, with UNFs earnings report last week suggesting potential for continued positive earnings surprises. We believe cyclical momentum should continue through 2Q11 earnings season (and possibly longer) providing opportunity for additional sector outperformance. Indeed, job growth in uniform-related wearers continues to increase (indeed, accelerating sequentially) at more than twice the rate of the economy as a whole and remains at its highest level since 2006, a crucial point underpinning our positive view on uniform stocks. The figure below demonstrates this dynamic, a point that we continue to stress is not reflected in a cursory view of the data. This point was also highlighted by UNFs much better-than-expected earnings results last week, with organic uniform rental growth increasing at its fastest pace in 5 years. Total Non-Farm Employment vs. Baird Add/Stop Employment Indicator (YOY Change) 3.00% 2.00% BLS Total Non-Farm Employment 1.00% Baird Add/Stop Employment Indicator 0.00% -1.00% -2.00% -3.00% -4.00% -5.00% Growth in Baird Add/Stop -6.00% Index employment is outpacing total NFP -7.00% employment - first time since early 2007 -8.00% Source: Bureau of Labor Statistics and Baird Research Thus we continue to see upside in uniform rental stocks as incremental wearers at existing rental accounts boost utilization rates, generating highly profitable incremental margins, with recent commodity price declines providing additional support for earnings. Indeed, cotton prices have declined 42% since their March peak (25% in the past month alone), a statistic which we believe is unlikely reflected in most Street estimates. We also continue to believe significant excess capacity remains at the public uniform companies (despite recent revenue growth stabilization) which should provide opportunity to improve fixed asset utilization rates as employment further improves (even modestly).Robert W. Baird & Co. 2
  3. 3. July 8, 2011 | Facility Services U.S. Cotton Prices, spot ($/lb) $2.50 160% U.S. Cotton (spot), $/lb 140% U.S. Cotton (Spot), YOY (right) $2.00 120% 100% $1.50 80% 60% $1.00 40% 20% $0.50 0% -20% $0.00 -40% 2006 2007 2008 2009 2010 2011 Source: FactSet Research Systems Historically, the uniform sector has been an effective way to invest in early cycle stocks (the stocks historically bottom 12 months before an employment inflection) or to play an expanding economy (stocks also tend to outperform mid to late cycle when the rate of job growth is higher). Indeed, until earlier this year, stock performance at the uniform rental companies had lagged the broader market significantly as the economy moved into more advanced stages of the recovery. However, since February the market has generally been positively surprised with the monthly jobs numbers (with the exception of May and Junes disappointing release) and the earnings reports at the publicly-traded uniform companies in particular (including last weeks report at UNF). This phenomenon has historically allowed for uniform stock outperformance for a period of roughly 13-24 months, well-demonstrated by the current cycle as well (see figure below). Uniform Stock Performance One-Month Percentage Price Change YTD Percentage Price Change S & P 500 S & P 500 C intas U niFirst U n iform In d e x U niform In dex G & K S erv ic es G & K S erv ices U n iFirs t C intas 0% 5% 1 0% 15 % 20% 25% 0% 5% 10 % 15% 20% 25% Three-Month Percentage Price Change Trailing 12 Months Percentage Price Change S & P 500 S & P 500 G & K S e rv ic e s U niFirs t C inta s C intas U n ifo rm Index U niform Index U n iFirs t G & K S e rvic es 0% 2% 4% 6% 8% 10 % 12% 14% 16% 0% 10% 20% 30 % 40% 50% 60% 70% 80 % Source: FactSet Research SystemsRobert W. Baird & Co. 3
  4. 4. July 8, 2011 | Facility Services Despite the strong gains, however, we believe the sector can continue to generate alpha over the next several months (through 2Q11 earnings season at least) as we believe Street estimates have room to continue to migrate higher, supporting valuation. That said, we may consider taking profits on further outsized gains, particularly as operating leverage likely begins to slow as we move into 2012 and absolute employment gains (demonstrated by the May and June BLS reports) suggest slowing overall momentum. We will continue to source Bairds Add/Stop uniform employment index as well as our quarterly survey of private uniform companies as key determinants of our outlook for the stocks. We note that valuation multiples for the group appear reasonable, but not overly inexpensive, particularly as employment is now posting modest expansion. We also believe uniform rental stocks (group avg. EV/EBITDA = 7.6x; P/E = 17.4x) are comparably attractive versus other facility services stocks (group avg. EV/EBITDA = 11.2x; P/E = 21.4x) which face comparable macroeconomic drivers (e.g., employment) and exhibit similar recurring revenue-based business models, strong cash flow, and (in the case of SWSH, ROL, and ECL) a degree of route-based product and service distribution. Uniform Industry Valuation Price Rating EV/EBITDA, ftm P/E Company Ticker FTM AVG FTM AVG Cintas CTAS $33.72 O 8.3x 9.0x 18.5x 18.7x G&K Services GKSR $36.01 O 8.1x 8.2x 18.5x 17.1x UniFirst UNF $59.86 N 6.4x 5.8x 15.1x 13.7x Average: 7.6x 7.7x 17.4x 16.5x Other Facility Services Companies Price Rating EV/EBITDA, ftm P/E Company Ticker FTM AVG FTM AVG Swisher Hygiene SWSH $5.42 O NM NM NM NM Rollins Inc. ROL $21.31 NR 16.2x 11.7x 30.9x 23.8x Ecolab ECL $56.22 O 11.5x 10.5x 21.4x 22.3x Iron Mountain IRM $35.10 N 10.2x 10.6x 26.4x 33.6x ABM Industries ABM $23.49 N 9.2x 9.5x 14.3x 19.0x Standard Parking STAN $16.57 NR 8.8x 9.6x 13.8x 17.5x Average: 11.2x 10.4x 21.4x 23.2x As of 07/08/2011 Source: FactSet Research Systems and Baird estimatesRobert W. Baird & Co. 4
  5. 5. July 8, 2011 | Facility Services June Employment Report Fails to Recover; Contrasts with ADP Private Payrolls Data Total nonfarm payrolls increased by just 18,000 in June, disappointing expectations that were revised higher earlier this week following a string of better-than-expected economic releases. Furthermore, May job gains were cut in half, from +54,000 to just +25,000, suggesting the employment market continues to remain sluggish following a brief acceleration earlier this year . Private sector payrolls also retreated, posting a +57,000 gain, below the +73,000 gain in May and well below gains in excess of 200,000 seen earlier this year. For perspective, monthly job gains of at least 150,000 are necessary to keep unemployment levels constant. Forward-looking employment indicators were also disappointing with total average weekly hours worked declining by 0.1 hours to 34.3 hours in June (but has been essentially constant since February). The private employment diffusion index also declined to 53.5 (from a revised 54.1 in May). Note, however, that a reading above 50 indicates sequential improvement in the data. Thus, while the lower sequential reading indicates that employment acceleration has slowed, overall growth rates remain positive, which is consistent with the slower employment gains of the past two months. Baird Add/Stop Index Growth Continues to Outpace Broader Market with Rate of Growth Still Accelerating Absolute employment gains within Bairds Add/Stop Employment Index specific to uniform rental-related employment also slowed, but the rate of YOY improvement continues to increase (indeed, accelerating), consistent with the results of our recent uniform industry survey and UNFs much better-than-expected earnings report last week. Total Add/Stop employment increased by +22,000, generally consistent with last months revised figure (+24,000, little changed), but below the +50,000-80,000 gains posted earlier this year. However, the YOY growth in Add/Stop employment increased to +1.73% (versus +1.58% YOY last month), its highest growth rate since December 2006 (note the solid black line in the figure below). Baird Add/Stop Index 4% 200 Average = 65k Average = 54k 2% 100 0% 0 -2% (100) Cycle Average = 36k -4% (200) 2011 Average = 55k -6% (300) Baird Add/Stop Indicator Monthly Job Gains/Losses (000), right Baird Add/Stop Indicator YOY Growth Rate, left -8% (400) 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 Source: Bureau of Labor Statistics and Baird Research In addition, we note that the YOY growth rate in Add/Stop employment categories continues to outpace the broader economy for the first time since late 2006/early 2007 (and is now more than double the rate of the economy-wide growth rate). As we have highlighted, this remains a critical element of the data as uniform employment has lagged broader employment categories throughoutRobert W. Baird & Co. 5
  6. 6. July 8, 2011 | Facility Services the recovery until February. The accelerating improvement in YOY Add/Stop employment growth is consistent with our survey data as well as UNFs earnings report last week in which organic rental growth increased at its fasted pace since 2006. Favorable YOY comparisons coupled with excess capacity at uniform rental facilities (driving strong incremental margins) are the key reasons why we remain constructive on the uniform stocks. We believe these trends should continue through 2Q11 earnings season (and possibly longer) before comparisons become more difficult. We also highlight that employment gains within several key verticals posted solid improvement in June. Total factory payrolls increased 6,000 following last months first setback in seven months. Food services industries also posted strong gains, a consistent theme over the last several months. We also believe that gains in Food Services and Drinking Places should benefit many of the uniform rental companies ancillary offerings, such as chemicals, hygiene products, shop towels and linens. For perspective, ancillary offerings at the uniform rental companies encompass roughly 50% of total rental revenue and are meaningful parts of the overall business, though garment rental is still the largest individual category. The figure below shows the absolute job gains/losses within several of the primary uniform-wearing industries comprising our Index over the last month. Baird Add/Stop Index Component Industries: 1-Month Employment Change (000s) Specialty Trade Contractors (8) Machinery (5) W holesale Trade - Nondurable Goods (1) Fabricated Metal Products (1) W holesale Trade - Durable Goods 0 Gasoline Stations 1 Truck Transportation 2 Repair and Maintenance 3 Motor Vehicle and Parts Dealers 4 Chemicals 4 Food and Beverage Stores 6 Food Manufacturing 8 Food Services and Drinking Places 9 1-month Employment Change (000s) Source: Bureau of Labor Statistics and Baird Research Recent Derivative Employment Data Still Mixed but ADP Report May Provide Better Gauge of Reacceleration Derivate employment data over the past few weeks has been mixed, with still-elevated new jobless claims balanced by what appears to be a strong recovery in June private payrolls. In particular, this week’s ADP employment report indicated net job growth of 157,000 in June, more than double the 70,000 consensus and a recovery from just 36,000 net job gains in May and more consistent with monthly job growth figures since late 2010. Indeed, ADP noted in their release that the June figures "suggest that the economic recovery, which slipped in the spring, might have found new traction in early summer." Recall that the ADP report tracks employment gains/losses in the U.S. private sector only. Furthermore, we note that the ADP report is based on actual payroll receipts, as opposed to the survey/model-driven BLS report, which may suggest that ADP provides a better gauge of actual employment conditions.Robert W. Baird & Co. 6
  7. 7. July 8, 2011 | Facility Services Total Nonfarm Private Payrolls, by Firm Size 400 117,000 200 115,000 - 113,000 (200) 111,000 (400) Large (499+) Medium (50-499) 109,000 (600) Small (1-49) Total Employment, millions (right) 107,000 (800) (1,000) 105,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: ADP Employment Report Goods-producing sectors and manufacturing specifically (greater uniform customer exposure) also recovered, with gross-producing employment increasing by 27,000 in June versus a 10,000 decline in May. We believe a weaker dollar has contributed in part to recent manufacturing strength as US-produced goods have become comparatively more attractive. Job gains in June also continue to be concentrated among small (1-49 employees) and medium (50-499 employees) firms with large firms largely flat. In contrast, however, jobless claims remain elevated, with the 4-week moving average in initial jobless claims still above the key 400,000 level this month (jobless claims below 400,000 are typically associated an improving unemployment rate). Furthermore, claims have generally overshot expectations, which is concerning given recent negative revisions to forecasts. Still, initial jobless claims are 36% below their prior cycle peak of 658,750 in March 2009 (see figure below). Initial Jobless Claims 700,000 Initial Jobless Claims (4-wk MA) 650,000 600,000 550,000 500,000 450,000 400,000 350,000 300,000 250,000 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Note: The solid red line indicates the level of jobless claims historically associated with net employment growth Source: U.S. Department of Labor, Bureau of Labor Statistics Continuing jobless claims declined modestly in June with the 4-week moving average increasing falling from 3.724 million at the end of May to 3.705 million currently. This week’s continuing claims decreased by 43,000, suggesting only moderate declines continue with current claims still above peak levels of the previous two recessions.Robert W. Baird & Co. 7
  8. 8. July 8, 2011 | Facility Services Continuing Jobless Claims 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 Jan-67 Jan-72 Jan-77 Jan-82 Jan-87 Jan-92 Jan-97 Jan-02 Jan-07 Source: U.S. Department of Labor, Bureau of Labor Statistics The unemployment rate (which is based on a separate survey) increased 10 bps sequentially to 9.2% in June (expectations were for no change). Negatively, the labor market declined for the first time since January (-272,000), potentially signaling fewer job prospects as people exit the labor force (stop looking for work). The unemployment rate would have thus been nominally higher, had the labor market held constant. The U-6 unemployment rate (which includes involuntary part-time employment and discouraged workers – i.e., unemployed workers who have ceased looking for employment) also increased by 40 bps in June to 16.2%, its highest level since December 2010 and the largest monthly increase since September 2010. The unemployment rate remains well above the previous cyclical peaks of 6.3% in June 2003 and 7.8% in June 1992. Civilian Unemployment Rate (persons 16 years of age and older) 12 10 8 6 4 2 0 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 Note: The solid grey bars indicate recessions, as determined by the National Bureau of Economic Research Source: U.S. Department of Labor, Bureau of Labor Statistics Uniform Stock Investment Perspectives s We rate G&K Services (GKSR-$35.48; $40 price target) at Outperform. We believe Street estimates, broadly, GKSRs underlying earnings growth potential from even modest top-lineRobert W. Baird & Co. 8
  9. 9. July 8, 2011 | Facility Services growth. Furthermore, G&K reported better-than-expected F3Q11 earnings in May, driven by strong top-line results (above our estimate) and much better-than-expected margin expansion. Investors are gaining confidence in managements targeted “10/10” plan to achieve 10% operating margins and ROIC by F2014, which should unlock material value creation over the next several years. Combined with solid cash flow, and a likely increase in return of capital to shareholders (likely through a dividend increase later this summer), we see relative upside to the stock. - Against this backdrop, we continue to believe investors are best served by taking a multi-year look at GKSR’s ability to create value by bridging the profitability gap versus peers over time. In addition, we believe outsized earnings growth potential at GKSR relative to peers continues to justify a growth multiple for the stock. Our $40 price target is supported by our DCF analysis which incorporates management’s long-term profitability targets and by the application of an 8.0x forward EV/EBITDA (in line with the stock’s historical average multiple of 8.2x and a slight premium to peers and consistent with what we see as above-average earnings growth potential). Our price target also implies a 17.9x NTM P/E. Risks to our price target include a highly competitive industry, employment trends, energy price fluctuations and acquisition integration. s We rate Cintas (CTAS-$33.64; $35 price target) at Outperform. Top-line momentum has accelerated, driving margin and earnings leverage as previous investments in sales staff have begun to pay off. Although rising commodity costs remain a source of caution (though have recently declined), with broad-based top-line improvement, increasing capital allocation towards M&A, and moderating pricing pressure, we see opportunity for further upside. In addition, we believe a $500M bond offering in May could also provide meaningful accretion (we estimate up to $0.12 in F2012, not in current estimates) from share repurchases or other capital deployments and we are encouraged by recent efforts to expand the company’s higher-growth hygiene/chemicals business through strategic partnerships with established industry suppliers (e.g., Diversey). - Our $35 price target assumes a 7.7x FTM EBITDA, below the company’s historical average of 9.2x and at a discount to current levels, suggesting upside to the extent CTAS can maintain its current multiple. Furthermore, we believe downside is supported by the company’s $500M share repurchase authorization. We also see upside to our price target to the extent CTAS can deploy its balance sheet toward additional accretive opportunities. Risks to our price target include a highly competitive market, employment trends, energy and scrap paper price fluctuations. s We rate UniFirst (UNF-$59.36; $61 price target) at Neutral. UniFirst continues to execute above peers, suggesting share gains. However, with rising merchandise costs holding back cyclical earnings growth, shares appear fully valued. That said, as the cycle matures and inventory pressures anniversary, we believe UNF may offer opportunity versus peers given industry-leading execution, strong FCF generation, and an attractive valuation relative to peers. Wed be better buyers in the low $50s. - Our $61 price target assumes an essentially constant multiple of 5.9x FTM EBITDA (14.4x FTM earnings), consistent with the stocks historical levels but at a discount to peers (which collectively trade at ~7.5x EBITDA), given UNFs largely company-specific inventory cycle, which dampens the companys near-term earnings growth potential versus peers. In addition, we note that UNFs dual-class share structure has historically driven a ~1-2 point discount versus GKSR, which has historically traded around 8x EBITDA on average. Risks to our price target include a highly competitive market, employment trends, energy price fluctuations and a 10:1 super-voting dual-class insider share structure.Robert W. Baird & Co. 9
  10. 10. July 8, 2011 | Facility ServicesAppendix - Important Disclosures and Analyst CertificationCovered Companies MentionedAll stock prices below are the July 7, 2011 closing price.Cintas Corporation (CTAS - $34.12 - Outperform)G&K Services, Inc. (GKSR - $36.23 - Outperform)UniFirst Corporation (UNF - $60.49 - Neutral)(See recent research reports for more information) Rating and Price Target History for: Cintas Corporation (CTAS) as of 07-07-2011 07/16/08 09/19/08 12/18/08 12/22/08 06/01/09 09/23/09 12/23/09 02/17/10 07/21/10 09/22/10 12/22/10 O:$36 O:$37 O:$35 O:$31 N:$27 U:$28 U:$26 U:$22 N:$28 N:$30 N:$32 35 30 25 20 15 10 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 2009 2010 2011 03/14/11 03/23/11 O:$34 O:$35 Created by BlueMatrix Rating and Price Target History for: G&K Services, Inc. (GKSR) as of 07-07-2011 08/13/08 10/07/08 10/29/08 12/18/08 04/29/09 06/01/09 08/07/09 09/23/09 10/28/09 01/27/10 04/28/10 N:$36 N:$32 N:$23 N:$21 N:$26 N:$22 N:$21 U:$21 N:$23 N:$26 N:$28 40 32 24 16 8 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 2009 2010 2011 06/15/10 08/18/10 11/02/10 01/19/11 02/02/11 05/03/11 N:$23 N:$24 N:$30 O:$37 O:$38 O:$40 Created by BlueMatrixRobert W. Baird & Co. 10
  11. 11. July 8, 2011 | Facility Services Rating and Price Target History for: UniFirst Corporation (UNF) as of 07-07-2011 10/30/08 06/01/09 06/02/09 07/02/09 09/23/09 10/29/09 01/07/10 04/01/10 07/01/10 10/20/10 O:$38 N:$37 N:$36 N:$39 U:$42 U:$43 O:$59 O:$60 O:$51 O:$54 75 60 45 30 15 0 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 2009 2010 2011 01/05/11 01/19/11 03/30/11 06/30/11 O:$57 N:$58 N:$60 N:$61 Created by BlueMatrix1 Robert W. Baird & Co. Incorporated makes a market in the securities of CTAS, GKSR and UNF.Robert W. Baird & Co. Incorporated and/or its affiliates expect to receive or intend to seek investment banking related compensationfrom the company or companies mentioned in this report within the next three months.Investment Ratings: Outperform (O) - Expected to outperform on a total return, risk-adjusted basis the broader U.S. equity marketover the next 12 months. Neutral (N) - Expected to perform in line with the broader U.S. equity market over the next 12 months.Underperform (U) - Expected to underperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12months.Risk Ratings: L - Lower Risk - Higher-quality companies for investors seeking capital appreciation or income with an emphasis onsafety. Company characteristics may include: stable earnings, conservative balance sheets, and an established history of revenue andearnings. A - Average Risk - Growth situations for investors seeking capital appreciation with an emphasis on safety. Companycharacteristics may include: moderate volatility, modest balance-sheet leverage, and stable patterns of revenue and earnings. H -Higher Risk - Higher-growth situations appropriate for investors seeking capital appreciation with the acceptance of risk. Companycharacteristics may include: higher balance-sheet leverage, dynamic business environments, and higher levels of earnings and pricevolatility. S - Speculative Risk - High-growth situations appropriate only for investors willing to accept a high degree of volatility andrisk. Company characteristics may include: unpredictable earnings, small capitalization, aggressive growth strategies, rapidly changingmarket dynamics, high leverage, extreme price volatility and unknown competitive challenges.Valuation, Ratings and Risks. The recommendation and price target contained within this report are based on a time horizon of 12months but there is no guarantee the objective will be achieved within the specified time horizon. Price targets are determined by asubjective review of fundamental and/or quantitative factors of the issuer, its industry, and the security type. A variety of methodsmay be used to determine the value of a security including, but not limited to, discounted cash flow, earnings multiples, peer groupcomparisons, and sum of the parts. Overall market risk, interest rate risk, and general economic risks impact all securities. Specificinformation regarding the price target and recommendation is provided in the text of our most recent research report.Distribution of Investment Ratings. As of June 30, 2011, Baird U.S. Equity Research covered 660 companies, with 54% ratedOutperform/Buy, 45% rated Neutral/Hold and 1% rated Underperform/Sell. Within these rating categories, 15% ofOutperform/Buy-rated, and 5% of Neutral/Hold-rated companies have compensated Baird for investment banking services in the past12 months and/or Baird managed or co-managed a public offering of securities for these companies in the past 12 months.Analyst Compensation. Analyst compensation is based on: 1) The correlation between the analysts recommendations and stockprice performance; 2) Ratings and direct feedback from our investing clients, our sales force and from independent rating services;and 3) The analysts productivity, including the quality of the analysts research and the analysts contribution to the growth anddevelopment of our overall research effort. This compensation criteria and actual compensation is reviewed and approved on anannual basis by Bairds Research Oversight Committee. Analyst compensation is derived from all revenue sources of the firm,including revenues from investment banking. Baird does not compensate research analysts based on specific investment bankingtransactions.A complete listing of all companies covered by Baird U.S. Equity Research and applicable research disclosures can beaccessed athttp://www.rwbaird.com/research-insights/research/coverage/research-disclosure.aspx .You can also call 1-800-792-2473 or write: Robert W. Baird & Co., Equity Research, 24th Floor, 777 E. Wisconsin Avenue, Milwaukee,Robert W. Baird & Co. 11
  12. 12. July 8, 2011 | Facility ServicesWI 53202.Analyst Certification. The senior research analyst(s) certifies that the views expressed in this research report and/or financial modelaccurately reflect such senior analysts personal views about the subject securities or issuers and that no part of his or hercompensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in the researchreport.DisclaimersBaird prohibits analysts from owning stock in companies they cover.This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflectour judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, butwe cannot guarantee the accuracy.ADDITIONAL INFORMATION ON COMPANIES MENTIONED HEREIN IS AVAILABLE UPON REQUESTThe Dow Jones Industrial Average, S&P 500, S&P 400 and Russell 2000 are unmanaged common stock indices used to measure andreport performance of various sectors of the stock market; direct investment in indices is not available.Baird is exempt from the requirement to hold an Australian financial services license. Baird is regulated by the United StatesSecurities and Exchange Commission, FINRA, and various other self-regulatory organizations and those laws and regulations maydiffer from Australian laws. This report has been prepared in accordance with the laws and regulations governing United Statesbroker-dealers and not Australian laws.Copyright 2011 Robert W. Baird & Co. IncorporatedOther DisclosuresUK disclosure requirements for the purpose of distributing this research into the UK and other countries for which Robert W. BairdLimited holds an ISD passport.This report is for distribution into the United Kingdom only to persons who fall within Article 19 or Article 49(2) of the FinancialServices and Markets Act 2000 (financial promotion) order 2001 being persons who are investment professionals and may not bedistributed to private clients. Issued in the United Kingdom by Robert W. Baird Limited, which has offices at Mint House 77 MansellStreet, London, E1 8AF, and is a company authorized and regulated by the Financial Services Authority. For the purposes of theFinancial Services Authority requirements, this investment research report is classified as objective.Robert W. Baird Limited ("RWBL") is exempt from the requirement to hold an Australian financial services license. RWBL is regulatedby the Financial Services Authority ("FSA") under UK laws and those laws may differ from Australian laws. This document has beenprepared in accordance with FSA requirements and not Australian laws.Ask the analyst a question Click here to unsubscribeRobert W. Baird & Co. 12

×