Cintas Shrugged

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Shares of corporate uniform services provider Cintas (Nasdaq: CTAS) were up today as investors digested fiscal Q3 financial results. The company, which said net income rose 13% and met Street estimates, has nevertheless seen its shares fall steadily since we last discussed it back in December.

The numbers, after a quick glance, look solid enough. Quarterly sales rose 5% to nearly $700 million. Wider gross margins helped Cintas boost operating margins to 15%. Cash is up significantly from a year ago, while debt is down. Operating and free cash flow for the first nine months of the fiscal year came in well ahead of year-ago levels and of reported net income.

So why are the shares falling? Largely, it seems, for matters outside the company's control. While it has had some success adding new customers in recent periods, it continues to have trouble growing its expanded base. That means slow growth. In a business as fragmented as this one -- Cintas is the leader and boasts an impressive $1.63 billion in trailing nine-month sales, but manages less than 10% market share -- it needs the job market to turn the corner so it can build out existing accounts.

Unfortunately, recent U.S. employment numbers and stagnant headcounts at current customers have let the company down. Cintas appears to be a well-run and financially sound operation -- Forbes magazine named it to its "America's Most Admired" and "America's Best Managed" lists during the quarter. However, it could continue to struggle until more concrete signs of sustained job growth become available.

If problems continue, though, investors might want to take a closer look. Today's news suggests Cintas is performing quite well in a challenging sales environment.

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Fool contributor Dave Marino-Nachison doesn't own shares of Cintas. He can be reached via email.