Aramark (NYSE:ARMK) Q2 2024 Earnings Conference Call May 7, 2024 8:30 AM ET Company Participants Felise Kissell - Senior Vice President, Investor Relations and Corporate Development John Zillmer - Chief Executive Officer Jim Tarangelo - Chief Financial Officer Conference Call Participants Toni Kaplan - Morgan Stanley Ian Zaffino - Oppenheimer Lizzie Dove - Goldman Sachs Emily Marzo - BOA Andrew Steinerman - JPMorgan Neil Tyler - Redburn Atlantic Shlomo Rosenbaum - Stifel Leo Carrington - Citi Ashish Sabadra ...

TOGETHER WE ARE | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |------------------|-------|-------|-------|-------|-------|-------|-------|-------|-------|-------|-------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Q2 Fiscal 2024 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Earnings Results | | | | | | | | | | | | | | May 7, 2024 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Forward-Looking Statements TOGE ...

Core Viewpoint - Aramark reported a decline in revenue for the quarter ended March 2024, with a total of $4.2 billion, representing an 8.7% decrease year-over-year, while EPS increased slightly to $0.29 from $0.28 in the previous year [1] Revenue Performance - FSS International revenues were reported at $1.16 billion, slightly below the average estimate of $1.19 billion, showing a year-over-year increase of 7.7% [2] - FSS United States revenues reached $3.04 billion, marginally below the average estimate of $3.05 billion, with a year-over-year change of 7.1% [2] Operating Income - Operating income for FSS United States was $144 million, exceeding the estimated $142.49 million [2] - Operating income for FSS International was reported at $43 million, below the average estimate of $45.20 million [2] - Adjusted operating income for Corporate was -$28 million, better than the estimated -$31.32 million [2] - Adjusted operating income for FSS United States was $168 million, surpassing the average estimate of $161.35 million [2] - Adjusted operating income for FSS International was $47 million, slightly below the average estimate of $48.38 million [2] - Overall operating income for Corporate was -$28 million, compared to the average estimate of -$31.32 million [2] Stock Performance - Over the past month, Aramark shares have returned -2.8%, while the Zacks S&P 500 composite experienced a -0.4% change [2] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [2]

Aramark (ARMK) came out with quarterly earnings of $0.29 per share, beating the Zacks Consensus Estimate of $0.26 per share. This compares to earnings of $0.28 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 11.54%. A quarter ago, it was expected that this provider of food, facilities and uniform services would post earnings of $0.35 per share when it actually produced earnings of $0.41, delivering a surprise of 17.14%.Over th ...

[Executive Summary & Highlights](index=1&type=section&id=Executive%20Summary%20%26%20Highlights) [Q2 Fiscal 2024 Highlights](index=1&type=section&id=Q2%20Fiscal%202024%20Highlights) Aramark reported strong Q2 fiscal 2024 results with significant growth and enhanced its capital structure Q2 FY24 Performance vs Prior Year | Metric | Q2 FY24 Change | | :--- | :--- | | Revenue | +7% | | Organic Revenue | +9% | | Operating Income | +27% | | Adjusted Operating Income (AOI) | +29% | | Operating Income Margin | +59 bps | | AOI Margin | +69 bps | | GAAP EPS | +271% to $0.20 | | Adjusted EPS | +79% to $0.29 | - The company opportunistically enhanced its capital structure by favorably repricing 2028 and 2030 Term Loans by **50 bps**, expecting interest expense savings, with over **$1.1 billion** in cash availability at quarter-end[1](index=1&type=chunk) [CEO Commentary](index=1&type=section&id=CEO%20Commentary) The CEO attributed record Q2 revenue and profit to strategic execution, volume growth, and cost control - The company achieved **record revenue** for any second quarter in FSS US and International segments, and **record second quarter profit** in the International segment[2](index=2&type=chunk) - Profitability improvement was primarily due to leveraging higher revenue, accelerating supply chain objectives, disciplined cost control, and benefiting from inflation trends[2](index=2&type=chunk) [Second Quarter Results](index=2&type=section&id=SECOND%20QUARTER%20RESULTS) [Consolidated Revenue Performance](index=2&type=section&id=Consolidated%20Revenue%20Performance) Consolidated revenue for Q2 fiscal 2024 reached $4.2 billion, a 7% increase, with organic revenue growing 9% Consolidated Revenue (Q2 FY24) | Metric | Q2 FY24 Value | YoY Change | Organic YoY Change | | :--- | :--- | :--- | :--- | | Consolidated Revenue | $4.2 billion | +7% | +9% | - Revenue growth was driven by strong base business volume, pricing actions, and net new business growth, while currency translation reduced revenue by $84 million[3](index=3&type=chunk) [Segment Revenue Breakdown](index=2&type=section&id=Segment%20Revenue%20Breakdown) Both FSS United States and FSS International segments reported strong revenue growth, with International showing particularly high organic growth Segment Revenue (Q2 FY24) | Segment | Q2 FY24 Revenue | YoY Change | Organic YoY Change | | :--- | :--- | :--- | :--- | | FSS United States | $3,044 million | +7% | +7% | | FSS International | $1,156 million | +8% | +16% | - FSS United States growth was led by Education, Sports & Entertainment, and Business & Industry sectors[5](index=5&type=chunk) - FSS International growth was broad-based, primarily from mining services in Latin America, business dining in the UK, and Education in Canada[5](index=5&type=chunk) [Operating Income and AOI Performance](index=2&type=section&id=Operating%20Income%20and%20AOI%20Performance) Operating Income and Adjusted Operating Income (AOI) grew significantly, reflecting margin expansion from revenue leverage and cost discipline Operating Income & AOI (Q2 FY24) | Metric | Q2 FY24 Value | YoY Change | Margin Change (bps) | | :--- | :--- | :--- | :--- | | Operating Income | $159 million | +27% | +59 | | Adjusted Operating Income (AOI) | $187 million | +29% | +69 | - Increased profitability was driven by leveraging higher revenue levels, supply chain strategies, and disciplined cost control, despite a $3 million negative impact from currency translation[6](index=6&type=chunk) [Segment Operating Income and AOI Breakdown](index=2&type=section&id=Segment%20Operating%20Income%20and%20AOI%20Breakdown) Both FSS segments delivered strong AOI growth, with International achieving record Q2 profitability, while Corporate expenses decreased Segment AOI (Q2 FY24) | Segment | Q2 FY24 AOI | AOI YoY Change | AOI Constant Currency Change | | :--- | :--- | :--- | :--- | | FSS United States | $168 million | +21% | +21% | | FSS International | $47 million | +21% | +29% | | Corporate | ($28 million) | +8% | +8% | | Total Company | $187 million | +27% | +29% | - FSS United States benefited from higher base business volume, new business maturity, operating cost management, and supply chain efficiencies[7](index=7&type=chunk) - FSS International achieved **record second-quarter profitability** from strong business growth and supply chain economics, despite the absence of AIM Services[8](index=8&type=chunk) - Corporate expenses were lower due to tight control of above-unit overhead costs[8](index=8&type=chunk) [Cash Flow and Capital Structure](index=3&type=section&id=CASH%20FLOW%20AND%20CAPITAL%20STRUCTURE) [Cash Flow from Operations](index=3&type=section&id=Cash%20Flow%20from%20Operations) The company generated a net cash inflow from operating activities and positive Free Cash Flow during the second quarter Cash Flow (Q2 FY24) | Metric | Q2 FY24 Value | | :--- | :--- | | Net cash provided by operating activities | $221 million | | Free Cash Flow | $140 million | - The company paid approximately **$25 million** in the quarter for remaining fees associated with the spin transaction completed on September 30, 2023[9](index=9&type=chunk) [Capital Structure Enhancements](index=3&type=section&id=Capital%20Structure%20Enhancements) The company proactively repriced its Term Loans, expecting annual interest savings, and maintained significant cash availability - Repriced **$730 million** 2028 Term Loan B and **$1.1 billion** 2030 Term Loan B at lower interest rates[9](index=9&type=chunk) - Expected annual interest expense savings of approximately **$10 million**[9](index=9&type=chunk) - Maintained over **$1.1 billion** in cash availability at quarter-end[9](index=9&type=chunk) [Dividend Declaration](index=3&type=section&id=DIVIDEND%20DECLARATION) The Board of Directors approved a quarterly dividend of 9.5 cents per share of common stock Dividend Details | Metric | Value | | :--- | :--- | | Quarterly Dividend | 9.5 cents/share | | Payable Date | May 28, 2024 | | Record Date | May 13, 2024 | [Business Update & Strategy](index=4&type=section&id=BUSINESS%20UPDATE) Aramark remains committed to profitable growth through innovation, operational efficiency, and its hospitality-focused culture - The company maintains an ongoing commitment to profitable growth, benefiting from increased base business volume, pricing actions, and net new business[11](index=11&type=chunk) - The strategy focuses on differentiating through innovative food and facility service offerings centered on customer experiences[11](index=11&type=chunk) - Management expects to scale revenue through supply chain efficiencies and disciplined cost management, alongside improving inflation trends[11](index=11&type=chunk) [Outlook](index=4&type=section&id=OUTLOOK) [Fiscal 2024 Full-Year Guidance](index=4&type=section&id=Fiscal%202024%20Full-Year%20Guidance) Aramark raised its full-year fiscal 2024 outlook for Organic Revenue growth and reiterated expectations for AOI and Adjusted EPS growth FY24 Outlook | Metric | Updated FY24 Outlook | Previous Outlook | | :--- | :--- | :--- | | Organic Revenue Growth | ~+9% | +7% to +9% | | AOI Growth | +17% to +20% | | | Adjusted EPS Growth | +30% to +35% | | | Leverage Ratio | ~3.5x | | - The updated outlook reflects confidence in global teams and the execution of strategies focused on creating significant stakeholder value[14](index=14&type=chunk) [Company Information](index=5&type=section&id=Company%20Information) [Conference Call Details](index=5&type=section&id=CONFERENCE%20CALL%20SCHEDULED) Aramark scheduled a conference call to discuss its earnings and outlook, with access available via its investor relations website - A conference call was scheduled for **May 7, 2024, at 8:30 a.m. ET** to discuss earnings and outlook[15](index=15&type=chunk) - The call and related materials are available on the investor relations page of www.aramark.com[15](index=15&type=chunk) [About Aramark](index=5&type=section&id=About%20Aramark) Aramark is a global leader in food and facilities management, serving diverse clients across 15 countries - Aramark (NYSE: ARMK) provides food and facilities management services to leading institutions and companies in **15 countries**[16](index=16&type=chunk) - The company is recognized on FORTUNE's "World's Most Admired Companies" and other prestigious lists for diversity, responsibility, and equality[16](index=16&type=chunk) [Non-GAAP Financial Measures & Explanations](index=6&type=section&id=Non-GAAP%20Financial%20Measures%20%26%20Explanations) [Definitions of Non-GAAP Measures](index=6&type=section&id=Selected%20Operational%20and%20Financial%20Metrics) This section defines key non-GAAP financial measures used to supplement GAAP metrics for evaluating operational performance - Definitions are provided for Adjusted Revenue (Organic), Adjusted Operating Income, Adjusted Net Income, Adjusted EPS, Covenant Adjusted EBITDA, and Free Cash Flow[18](index=18&type=chunk)[19](index=19&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk) - These measures are used as supplemental indicators of operating profitability and cash operating costs for performance evaluation[24](index=24&type=chunk) - Non-GAAP metrics are not measurements of financial performance under GAAP and should not be considered substitutes for GAAP measures[24](index=24&type=chunk) [Explanatory Notes to Non-GAAP Schedules](index=7&type=section&id=Explanatory%20Notes%20to%20the%20Non-GAAP%20Schedules) This section details various adjustments made in non-GAAP reconciliations to ensure transparency in financial reporting - Adjustments include those for the spin-off of Uniform Services, amortization of acquisition-related intangible assets, and severance charges[26](index=26&type=chunk) - Further adjustments cover spin-off related charges, gains and losses impacting comparability, and the effect of debt repayments and repricings[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk) - Explanations also detail the tax impact of adjustments and the effect of currency translation for constant currency reporting[30](index=30&type=chunk)[31](index=31&type=chunk) [Forward-Looking Statements](index=8&type=section&id=Forward-Looking%20Statements) This section serves as a legal disclaimer regarding forward-looking statements and associated risks and uncertainties - The press release contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially[32](index=32&type=chunk) - Key risk factors include economic conditions, client retention, competition, operating costs, currency risks, acquisitions, and high leverage[33](index=33&type=chunk) - Readers are cautioned not to place undue reliance on these statements, and the company undertakes no obligation to update them[33](index=33&type=chunk) [Condensed Consolidated Financial Statements](index=9&type=section&id=Condensed%20Consolidated%20Financial%20Statements) [Condensed Consolidated Statements of Income](index=9&type=section&id=ARAMARK%20AND%20SUBSIDIARIES%20CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20INCOME) The statements present financial performance for the three and six months ended March 29, 2024, compared to the prior year Three Months Ended (in thousands, except per share data) | Metric | March 29, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Revenue | $4,199,913 | $3,916,156 | | Operating Income | $159,086 | $125,357 | | Net income from Continuing Operations attributable to Aramark stockholders | $53,449 | $14,249 | | Diluted EPS from Continuing Operations | $0.20 | $0.05 | Six Months Ended (in thousands, except per share data) | Metric | March 29, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Revenue | $8,607,678 | $7,829,876 | | Operating Income | $326,036 | $277,042 | | Net income from Continuing Operations attributable to Aramark stockholders | $81,985 | $52,747 | | Diluted EPS from Continuing Operations | $0.31 | $0.20 | [Condensed Consolidated Balance Sheets](index=11&type=section&id=ARAMARK%20AND%20SUBSIDIARIES%20CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) The balance sheets provide a snapshot of the company's financial position as of March 29, 2024, compared to September 29, 2023 Balance Sheet Highlights (in thousands) | Metric (As of) | March 29, 2024 | September 29, 2023 | | :--- | :--- | :--- | | Total current assets | $3,328,421 | $5,220,027 | | Total Assets | $12,560,900 | $16,871,241 | | Total current liabilities | $2,658,102 | $5,029,967 | | Long-Term Borrowings | $5,879,086 | $5,098,662 | | Total Stockholders' Equity | $2,891,140 | $3,712,718 | - Significant changes in current assets and liabilities reflect the impact of the Uniform Services spin-off, with current assets of discontinued operations decreasing from **$620,931 thousand** to zero[41](index=41&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=ARAMARK%20AND%20SUBSIDIARIES%20CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) The statements outline cash movements from operating, investing, and financing activities for the six months ended March 29, 2024 Cash Flow Summary (in thousands, for Six Months Ended) | Metric | March 29, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities of Continuing Operations | ($435,797) | ($362,438) | | Net cash used in investing activities of Continuing Operations | ($289,821) | ($204,164) | | Net cash (used in) provided by financing activities of Continuing Operations | ($833,012) | $486,117 | | Decrease in cash and cash equivalents and restricted cash | ($1,558,226) | ($30,450) | | Cash and cash equivalents and restricted cash, end of period | $414,141 | $334,981 | [Reconciliation of Non-GAAP Measures](index=13&type=section&id=Reconciliation%20of%20Non-GAAP%20Measures) [Adjusted Consolidated Operating Income Margin Reconciliation](index=13&type=section&id=ADJUSTED%20CONSOLIDATED%20OPERATING%20INCOME%20MARGIN) This section reconciles reported Operating Income to Adjusted Operating Income by segment, highlighting various adjustments AOI Reconciliation (in thousands, for Q2 FY24) | Metric | FSS US | FSS International | Corporate | Total Company | | :--- | :--- | :--- | :--- | :--- | | Operating Income (as reported) | $144,365 | $42,576 | ($27,855) | $159,086 | | Adjusted Operating Income | $167,989 | $47,292 | ($27,855) | $187,426 | | Adjusted Operating Income (Constant Currency) | $167,966 | $50,340 | ($27,855) | $190,451 | | Adjusted Operating Income Growth | 21.21% | 21.43% | 7.56% | 27.15% | | Adjusted Operating Income Growth (Constant Currency) | 21.20% | 29.26% | 7.56% | 29.21% | - Key adjustments include amortization of acquisition-related intangible assets, severance and other charges, spin-off related charges, and gains, losses, and settlements impacting comparability[45](index=45&type=chunk) [Adjusted Net Income & Adjusted Earnings Per Share Reconciliation](index=15&type=section&id=ADJUSTED%20NET%20INCOME%20%26%20ADJUSTED%20EARNINGS%20PER%20SHARE) This reconciliation details adjustments from Net Income to Adjusted Net Income and Adjusted EPS for the second quarter Adjusted Net Income & EPS (in thousands, for Three Months Ended) | Metric | March 29, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Net Income from Continuing Operations Attributable to Aramark Stockholders (as reported) | $53,449 | $14,249 | | Adjusted Net Income | $76,599 | $25,772 | | Adjusted Net Income (Constant Currency), Net of Interest Adjustment | $80,298 | $44,299 | | Diluted EPS (as reported) | $0.20 | $0.05 | | Adjusted EPS | $0.29 | $0.10 | | Adjusted EPS (Constant Currency) | $0.30 | $0.17 | - Adjustments include amortization of acquisition-related intangible assets, severance, spin-off charges, gains/losses, debt repayment effects, and tax impacts[51](index=51&type=chunk) [Net Debt to Covenant Adjusted EBITDA Reconciliation](index=16&type=section&id=NET%20DEBT%20TO%20COVENANT%20ADJUSTED%20EBITDA) This reconciliation calculates the Net Debt to Covenant Adjusted EBITDA ratio for the trailing twelve months Leverage Ratio Calculation (in thousands, for Twelve Months Ended) | Metric | March 29, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Net Income from Continuing Operations Attributable to Aramark Stockholders | $476,914 | $246,317 | | Covenant Adjusted EBITDA | $1,284,945 | $1,463,650 | | Total Long-Term Borrowings | $5,921,485 | $8,017,097 | | Net Debt | $5,452,050 | $7,605,390 | | Net Debt/Covenant Adjusted EBITDA | 4.2x | 5.2x | - Covenant Adjusted EBITDA includes adjustments for interest, taxes, D&A, share-based compensation, and other specified items[56](index=56&type=chunk) - The twelve months ended March 29, 2024, has been restated to exclude the results of the Uniform segment for the entire period[56](index=56&type=chunk) [Free Cash Flow Reconciliation](index=17&type=section&id=FREE%20CASH%20FLOW) This section reconciles Net cash from operating activities to Free Cash Flow, illustrating cash available after capital expenditures Three Months Ended (in thousands) | Metric | March 29, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities of Continuing Operations | $221,280 | $253,310 | | Net purchases of property and equipment and other | ($81,042) | ($77,038) | | Free Cash Flow | $140,238 | $176,272 | Six Months Ended (in thousands) | Metric | March 29, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities of Continuing Operations | ($435,797) | ($362,438) | | Net purchases of property and equipment and other | ($192,243) | ($162,595) | | Free Cash Flow | ($628,040) | ($525,033) | - Free Cash Flow represents cash flow available for distribution to security holders, calculated as net cash from operating activities less net capital expenditures[23](index=23&type=chunk)

In its upcoming report, Aramark (ARMK) is predicted by Wall Street analysts to post quarterly earnings of $0.26 per share, reflecting a decline of 7.1% compared to the same period last year. Revenues are forecasted to be $4.25 billion, representing a year-over-year decrease of 7.8%.The consensus EPS estimate for the quarter has remained unchanged over the last 30 days. This represents how the covering analysts, as a whole, have reassessed their initial estimates during this timeframe.Before a company reveal ...

Aramark announced 17 chefs from its Collegiate Hospitality group have graduated from the prestigious ProChef® certification program at The Culinary Institute of America (CIA). Seen here is one of the three graduating cohorts. (Photo: Business Wire)Aramark announced 17 chefs from its Collegiate Hospitality group have graduated from the prestigious ProChef® certification program at The Culinary Institute of America (CIA). Seen here is one of the three graduating cohorts. (Photo: Business Wire)PHILADELPHIA--(B ...

Group 1 - Aramark's CEO John Zillmer and CFO James Tarangelo will participate in the BofA Securities Information and Business Services Conference on March 14, 2024, with a Fireside Chat session starting at 8:00 a.m. ET [1] - A live audio webcast and replay of the Fireside Chat will be available on Aramark's Investor Relations website [1] Group 2 - Aramark operates in 15 countries, providing food and facilities management services to educational institutions, Fortune 500 companies, sports teams, healthcare providers, and cultural attractions [2] - The company has received multiple recognitions, including being listed on FORTUNE's "World's Most Admired Companies" and Newsweek's "America's Most Responsible Companies 2024" [2] - Aramark emphasizes a hospitality culture among its employees, aiming to positively impact partners, communities, and the planet [2]

Investors interested in Consumer Staples stocks should always be looking to find the best-performing companies in the group. Has Aramark (ARMK) been one of those stocks this year? A quick glance at the company's year-to-date performance in comparison to the rest of the Consumer Staples sector should help us answer this question.Aramark is one of 193 companies in the Consumer Staples group. The Consumer Staples group currently sits at #13 within the Zacks Sector Rank. The Zacks Sector Rank gauges the strengt ...

Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.Considering these trends, value investing is clearly one of the most preferred ways to find strong stocks in any type of market. Value investors use tried-and-true metrics and fundamental analysis to find companies that they believe are undervalued ...