- Revenue +37%; Organic Revenue +35%
- Double-digit growth across all segments, led by FSS U.S.
- Revenue at 97% of pre-COVID level; Organic Revenue at 95% of pre-COVID level
- Operating Income up $137 million; Adjusted Operating Income (AOI) up $138 million
- Operating Income Margin of 3.7%; AOI Margin of 4.5% on a constant-currency basis
- Increased profitability driven by higher sales volume and operational cost management
- EPS increased $0.44 to $0.14; Adjusted EPS increased $0.46 to $0.22
- Positioned for second consecutive year of record-breaking Net New Business
- Strong start to fiscal year driven by better-than-expected new account wins
- Robust sales pipeline for the remainder of the year
Aramark (NYSE: ARMK) today reported second quarter fiscal 2022 results.
“Success driving our operational, strategic, investment, and cultural initiatives enabled Aramark to deliver double-digit organic revenue growth in each segment,” said John Zillmer, Aramark’s Chief Executive Officer. “As our financial performance across the business continues to strengthen, I’m encouraged by the record-breaking pace of new client wins, and a sales pipeline for the remainder of the year which we believe puts us on track for a second consecutive year of record-breaking Net New Business performance. None of this could be accomplished without the extraordinary Aramark people around the world who are focused on living our hospitality culture in our client locations and in the communities where we live and work. I couldn’t be more proud of this team and all they continue to do.”
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*Pre-COVID level reflects constant-currency performance compared to the same period in fiscal ’19 |
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Note: Supplemental business review slides available on Aramark’s Investor Relations website |
SECOND QUARTER RESULTS
Consolidated revenue was $3.9 billion in the second quarter, an increase of 37% compared to the prior year period. Organic revenue, which adjusts for the effect of currency translation and certain acquisitions, improved 35% year-over-year with double-digit growth in all segments.
An improving base recovery, pricing pass-through and the benefit from new client wins led to consolidated revenue at 97% and organic revenue at 95% of pre-COVID levels.
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Revenue Change Year-Over-Year |
||||
|
|
Q2 ’21 |
Q3 ’21 |
Q4 ’211 |
Q1 ’22 |
Q2 ’22 |
|
FSS United States |
(30)% |
55% |
51% |
68% |
51% |
|
FSS International |
(21)% |
41% |
22% |
26% |
29% |
|
Uniform & Career Apparel |
(9)% |
6% |
(2)% |
8% |
10% |
|
Total Company |
(24)% |
39% |
32% |
44% |
37% |
|
|
|
|
|
|
|
|
|
% of Fiscal ’19 Quarter |
||||
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Total Company |
70% |
74% |
90% |
93% |
97% |
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|
|
|
|
|
|
|
|
Organic Revenue Change Year-Over-Year |
||||
|
|
Q2 ’21 |
Q3 ’21 |
Q4 ’21 |
Q1 ’22 |
Q2 ’22 |
|
FSS United States |
(31)% |
52% |
58% |
61% |
45% |
|
FSS International |
(26)% |
28% |
21% |
28% |
35% |
|
Uniform & Career Apparel |
(9)% |
5% |
5% |
7% |
10% |
|
Total Company |
(26)% |
34% |
37% |
41% |
35% |
|
|
|
|
|
|
|
|
|
% of Fiscal ’19 Quarter |
||||
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Total Company |
71% |
73% |
87% |
92% |
95% |
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1A 53rd week of operations during fiscal 2020 benefited Revenue Change % in Q4 ’20 and impacted Q4 ’21 |
- FSS United States organic revenue increased 45% compared to the second quarter last year largely driven by the following factors in each sector:
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Sector |
Q2 Revenue Activity |
|
Education |
Reported stronger year-over-year results despite managing through periodic business interruption from Omicron early in the quarter. Performance improved as the quarter progressed with meal plans at or above pre-COVID levels and retail sales on campuses continued to recover. In K-12, in-person attendance continued to increase and universal government-sponsored programs remain for the academic year. |
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Sports, Leisure & Corrections |
Significantly improved year-over-year performance led by increased fan attendance in professional sports. Sports & Entertainment drove strong per capita spending growth from expanded brand concepts and cashless solutions. Scheduling for concerts and events has accelerated, although still limited. Leisure experienced improving levels of activity within National Parks. Corrections remained steady. |
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Business & Industry |
Clients gradually returned to the workplace, particularly at the end of the quarter. Increased in-person activity enhanced by greater participation rates, meal subsidies, and customized offerings. |
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Healthcare |
Served higher levels of patient meals, while retail activity remained lower. Improved retention has been a key driver with a focus on innovation and enhanced patient experiences. |
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Facilities & Other |
Benefited from project-oriented services at existing clients as well as start-up of operations at new client accounts. |
- FSS International grew organic revenue 35% year-over-year for the second quarter, reporting ongoing progress in returning to pre-COVID levels. Europe and Canada experienced improved business activity compared to the prior year. Emerging Markets continued its strong growth trajectory led by Latin America. Despite increased lockdown restrictions in the quarter, China delivered growth through net new business, primarily serving Healthcare clients. Across the International portfolio, clients are shifting focus to re-openings with government support programs reduced or terminated.
- Uniform & Career Apparel organic revenue increased 10% year-over-year for the second quarter, surpassing pre-COVID fiscal ’19 levels for the same period. Growth was driven by salesforce productivity, targeted pricing, and base recovery.
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Revenue |
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Q2 ’22 |
Q2 ’21 |
Change ($) |
Change (%) |
Organic Revenue Change (%) |
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FSS United States |
$2,338M |
$1,551M |
$787M |
51% |
45% |
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FSS International |
871 |
678 |
193 |
29% |
35% |
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Uniform & Career Apparel |
651 |
591 |
60 |
10% |
10% |
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Total Company |
$3,861M |
$2,820M |
$1,041M |
37% |
35% |
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Difference between Change (%) and Organic Revenue Change (%) reflects the effect of certain acquisitions and the elimination of currency translation. |
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May not total due to rounding. |
Operating Income was $142 million for the second quarter, an increase of $137 million compared to the prior year period. Adjusted Operating Income was $169 million, a year-over-year increase of $138 million, resulting in an AOI margin of 4.5% on a constant-currency basis. Year-over-year improvement reflected operating leverage from greater revenue levels at existing accounts and the contribution from new accounts, partially offset by the timing lag associated with pricing pass-through related to changes in the rate of inflation, start-up costs from the significant volume of new client wins, and off-program procurement activity as the Company managed through the current complex supply chain environment.
- FSS United States effectively managed operating costs across lines of business as base revenue recovered, partially offset by a time lag in recovery of cost inflation in certain businesses, start-up costs for new accounts and off-program procurement activity.
- FSS International also effectively managed operating costs across geographies as base revenue recovered, as well as benefited from previously implemented cost savings actions.
- Uniform & Career Apparel improved operating efficiencies led by early-stage benefits associated with the near-complete implementation of its new Customer Relationship Management (CRM) system, as well as the benefit from net new business and continued base revenue recovery.
- Corporate overhead costs were tightly managed as revenue increased.
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|
Operating Income |
|
Adjusted Operating Income |
||||
|
|
Q2 ’22 |
Q2 ’21 |
Change ($) |
|
Q2 ’22 |
Q2 ’21 |
Change ($) |
|
FSS United States |
$82M |
$1M |
$81M |
|
$100M |
$20M |
$80M |
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FSS International |
37 |
12 |
25 |
|
41 |
11 |
30 |
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Uniform & Career Apparel |
56 |
22 |
34 |
|
62 |
31 |
31 |
|
Corporate |
(33) |
(29) |
(4) |
|
(34) |
(32) |
(2) |
|
Total Company |
$142M |
$5M |
$137M |
|
$169M |
$30M |
$138M |
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May not total due to rounding. |
GAAP SUMMARY
Second quarter fiscal 2022 GAAP results improved across all metrics compared to the prior year as the business continued to recover from the impact of COVID-19. On a GAAP basis, revenue was $3.9 billion, operating income was $142 million, net income attributable to Aramark stockholders was $36 million and diluted earnings per share was $0.14. These results included a $95 million revenue contribution from Next Level. Comparatively, second quarter fiscal 2021 revenue was $2.8 billion, operating income was $5 million, net loss attributable to Aramark stockholders was $78 million and diluted loss per share was $0.30. A reconciliation of GAAP to Non-GAAP measures is included in the Appendix.
CURRENCY
In the second quarter, the effect of currency translation decreased reported revenue by $43 million, operating income by $2.3 million and net income by $1.9 million.
CASH FLOW AND CAPITAL STRUCTURE
In the second quarter, Net Cash provided by operating activities was $375 million and Free Cash Flow was $278 million driven by improved operating performance as well as effective management of working capital. At quarter-end, Aramark had over $1.5 billion in cash availability.
DIVIDEND DECLARATION
As announced on May 4, 2022, the Company’s Board of Directors approved a quarterly dividend of 11 cents per share of common stock. The dividend will be payable on June 1, 2022 to stockholders of record at the close of business on May 18, 2022.
BUSINESS UPDATE
Through the first half of its fiscal year, Aramark delivered both organic revenue growth and margin improvement. The Company continues to advance its growth strategies with accelerated profitable new wins, while maintaining higher retention rates. With stronger-than-planned Annualized Net New Business to-date, and a robust sales pipeline for the remainder of the year, Aramark anticipates a second consecutive year of record-breaking Net New Business performance.
The Company continues to work closely with clients to effectively manage both higher inflation levels and a tight labor market. Aramark is leveraging all resources at its disposal, including its significant purchasing scale, talent acquisition initiatives, flexible operating model and, in certain cases, ability to restructure contract provisions. The Company has been implementing pricing pass-through, as appropriate, to cover incremental costs. There has been no fundamental change to Aramark’s business or value proposition that would cause inflation to change the ultimate margin model.
The Company continues to expect an incremental margin of 15% to 20% associated with the return of COVID-impacted volume. The number of new account wins in fiscal 2022 has grown significantly following record new business wins in fiscal 2021. Start-up costs temporarily affect AOI margin as unit-level profitability typically increases after the first year of operations.
Aramark believes continued execution of its strategies position it well to achieve its near-term outlook and longer-term financial targets.
OUTLOOK
The Company provides its expectations for organic revenue growth, Adjusted Operating Income, Adjusted EPS, Covenant Adjusted EBITDA and Free Cash Flow on a non-GAAP basis, and does not provide a reconciliation of such forward-looking non-GAAP measures to GAAP due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations, including adjustments that could be made for the impact of the change in fair value related to certain gasoline and diesel agreements and other charges and the effect of currency translation. The fiscal 2022 outlook reflects management’s current assumptions regarding the continued impact of COVID-19 on Aramark and its clients. The extent to which COVID-19 continues to impact segments, operations, and financial results, including the duration and magnitude of such impact, will depend on numerous evolving factors that are difficult to accurately predict, including those discussed in the Risk Factors set forth in the Company’s filings with the United States Securities and Exchange Commission.
As the Company enters the second half of the fiscal year, Aramark’s full-year performance expectations for fiscal 2022 are as follows:
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|
Organic Revenue Growth |
Annualized Net New Business |
AOI Margin |
Free Cash Flow |
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|
|
|
|
|
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Current Outlook |
At or very near 27% |
$650M – $750M |
At or very near 5% |
$300M – $350M |
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Previous Outlook |
23% – 27% |
$550M – $650M |
5.0% – 5.5% |
$300M – $400M |
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Due to: |
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As previously communicated, the Company’s prior guidance assumed both inflation and supply chain complexities would partially abate over the course of the year. These macroeconomic headwinds have continued to persist and are now expected to remain for the second half of the fiscal year. The majority of Aramark’s business has been able to adjust accordingly. Adjustments in certain lines of business, however, such as Higher Education, can be subject to a pricing lag. As such, the Company currently expects Adjusted Operating Income for fiscal ’22 to be very modestly below the midpoint, but well within the range implied by prior guidance.
Aramark remains confident in its ability to achieve the fiscal ’25 financial targets outlined at its Analyst Day in December 2021.
“Our strong growth trajectory is being driven by the hard work and unwavering support of the entire team across the globe. Aramark is a company transformed—stronger, focused, and more energized than ever before,” Zillmer added. “I’m incredibly pleased with the momentum achieved in the first half of the year, which we expect to continue to build on as the year progresses and beyond.”
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