Aramark Reports Fourth Quarter and Full Year Fiscal 2023 Results

PHILADELPHIA–(BUSINESS WIRE)–Aramark (NYSE: ARMK) today reported fourth quarter and full year fiscal 2023 results.

“This year represented a significant step forward in achieving our strategic and financial goals,” said John Zillmer, Aramark’s Chief Executive Officer. “Our hospitality, field-focused culture generated a third consecutive year of strong Net New Business, with rising Revenue and AOI resulting in significant Adjusted EPS growth. Throughout the year, we continued to opportunistically de-lever through diligent cash management and strategic asset optimization. Additionally, we completed a key milestone with the Uniform Services spin-off, which we believe enhances our performance and focus. We could not have accomplished these results without our extraordinary teams around the globe, who exemplify our ‘Reach for Remarkable’ mindset in all that they do.”

FOURTH QUARTER RESULTS

Consolidated revenue was $4.9 billion in the fourth quarter, a 12% increase year-over-year, driven by net new business, pricing actions, and base business growth. The effect of currency translation increased revenue by $19 million.

Organic revenue, which adjusts for the effect of currency translation, grew 11% year-over-year. Organic revenue growth for Global FSS exceeded 12% versus the fourth quarter last year and Uniform Services increased 5%.

• FSS United States revenue growth benefited from net new business and pricing actions, as well as strong base business performance led by higher attendance and per capita spending in the Sports & Entertainment business, and favorable volume trends in the Business & Industry (“B&I”) sector.

• FSS International grew revenue across all geographies resulting from net new business, pricing actions, and ongoing base business growth—primarily from a robust events calendar and greater B&I participation rates in Europe, mining activity in South America, and a strong start to the academic year for higher education in Canada.

• Uniform & Career Apparel increased revenue largely through pricing actions, and growth in adjacency sales, partially offset by the rollback of an energy surcharge that was in effect during the fourth quarter last year.

Operating Income gained 40% year-over-year to $278 million, and AOI grew 28%¹ to $339 million, reflecting an operating income margin increase of 115 basis points and an AOI margin increase of 91 basis points¹. The effect of currency translation benefited results by $2 million.

Global FSS increased AOI 33%¹ compared to the prior year period, resulting in an AOI margin improvement of 94 basis points¹ to 6.1%. Performance was driven by operating leverage from increased revenue, continued contract maturity of accounts won in prior years, improved supply chain economics, and disciplined above-unit cost management. Uniform Services increased AOI 15%¹ in the quarter resulting in nearly 70 basis points of improvement in AOI margin from the third quarter and 106 basis points¹ higher AOI margin than the fourth quarter last year.

Year-over-year profitability improvement was a result of the following segment performance:

• FSS United States increased driven by the ongoing maturity of previous new business, improved supply chain economics and purchasing initiatives, and disciplined above-unit cost management across the segment, as well as actions taken to close the price-inflation lag within the Education sector and Corrections business.

• FSS International benefited from scaling new business, pricing, higher base business volumes, improved supply chain economics, and reduced above-unit costs from personnel actions taken earlier in the fiscal year.

• Uniform & Career Apparel improved through the execution on the strategic initiatives outlined at the Vestis Analyst Day in September.

• Corporate expenses improved primarily from above-unit cost containment while appropriately supporting the business, as well as lower share-based compensation expense.

FISCAL 2023 SUMMARY

Consolidated revenue was $18.9 billion, a 15% increase year-over-year, driven by net new business, pricing actions, and base business growth. Organic revenue increased 16% year-over-year to $18.9 billion, which adjusted for $186 million from Union Supply Group through the anniversary of its acquisition in June 2023, as well as $207 million of currency translation associated with a stronger dollar compared to prior year. Organic Revenue for Global FSS grew 18% to $16.1 billion, and Uniforms Services increased 5.5% to $2.8 billion.

Aramark’s operating income increased 37% to $863 million and margin increased 73 basis points to 4.6%. Adjusted Operating Income grew 34%¹ to $1.03 billion, resulting in a year-over-year AOI margin improvement of 76 basis points¹ to 5.5%. AOI in Global FSS increased 46%¹ to $743 million reflecting AOI margin progression of 92 basis points¹ to 4.7%. Uniform Services improved 10%¹ to $292 million, expanding margins 43 basis points¹.

The Company’s earnings per share of $2.57 included a net gain on sales of non-controlling equity investments. Adjusted earnings per share increased 50%¹ to $1.70, associated with the ongoing focus on profitable growth across the organization.

CASH FLOW AND CAPITAL STRUCTURE

Consistent with the typical quarterly cadence of the business, the fourth quarter generated a significant cash inflow. Net cash provided by operating activities was $1.04 billion, a year-over-year increase of $200 million, and Free Cash Flow was $892 million, representing a $174 million improvement compared to the prior year period.

In fiscal 2023, Net cash provided by operating activities was $766 million and Free Cash Flow was $334 million that included a payment of $64 million of deferred payroll taxes associated with the CARES Act and $72 million in spin-off and restructuring related costs that were less than expected due to timing. Before these items, fiscal 2023 Free Cash Flow was $471 million. Favorable year-over-year performance was primarily due to significantly higher operational results and lower working capital.

As a result of the cash flow performance, higher year-over-year earnings, and over $800 million of net debt reduction versus prior year-end, the Company’s leverage ratio improved 1.4x to 3.9x at year-end.

Immediately prior to year-end, Aramark received proceeds of $1.5 billion in debt associated with the Uniform Services capital raise in preparation for its spin-off. Subsequent to fiscal year-end, Aramark used the funds to redeem the entire $1.5 billion aggregate principal amount of its 6.375% Senior Notes due 2025, resulting in a future interest expense savings of approximately $100 million annually.

DIVIDEND DECLARATION

Given the Company’s strengthening financial profile, Aramark’s Board of Directors approved a 15% increase to its pro rata portion of the pre-spin quarterly dividend. The dividend of 9.5 cents per common share will be payable on December 8, 2023, to stockholders of record at the close of business on November 28, 2023.

UNIFORM SERVICES SPIN-OFF

Aramark completed the spin-off of its Uniform Services business—now called Vestis—on September 30, 2023, the first day of the Company’s fiscal year 2024. The strengthened results of the Uniform Services business in the fourth quarter reflected the strategic priorities outlined at the Vestis Analyst Day in September 2023.

ARAMARK BUSINESS UPDATE

With a growth mindset now firmly in place across the organization, Aramark continued its net new business momentum for the third consecutive year. In fiscal 2023, Annualized Net New Business for the Global FSS business was $582 million, representing 4.3% of its prior year revenue. The Company’s performance was a result of high retention rates of 95.5% and strength in new business signings that totaled nearly $1.2 billion across multiple lines of business and geographies. Entering fiscal 2024, Aramark is already off to a strong start and remains confident in the robust sales pipeline for the remainder of the year to achieve its target Net New Business at 4% to 5% of prior year revenue.

Aramark expects its typical “U-shaped” margin seasonality to continue in its Global FSS segments—with margins higher in the first and fourth quarters compared to the second and third quarters.

The Company anticipates increased profitability in the near- and longer-term through:

• Profitability ramp of new business booked in prior years as a result of operational maturity and efficiencies, following three consecutive strong years of adding new clients;

• Benefits from early trends related to the slow moderation of inflation, paired with progress in pricing, most notably in the Education sector and Corrections business;

• Run-rate of improved supply chain economics, as well as incremental optimization opportunities through purchasing, efficiencies from new deals, and benefits from greater scale;

• Continued rebound of front-line margins as food and labor costs normalize, combined with leveraging a flexible operating model;

• And, disciplined control and containment of above-unit overhead costs, including leveraging existing resources to support the lines of business in additional ways post-spin.

OUTLOOK

The Company provides its expectations for organic revenue growth, Adjusted Operating Income growth, Adjusted Earnings per Share growth, and Net Debt to Covenant Adjusted EBITDA (“Leverage Ratio”) 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 effect of currency translation. The fiscal 2024 outlook reflects management’s current assumptions regarding 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.

Aramark currently expects its full-year performance for fiscal 2024 as follows:

“With the spin-off now complete, fiscal ’24 represents a new chapter in Aramark’s history,” Zillmer continued. “The business is off to a strong start to the year in delivering profitable growth, and we believe it is well positioned for continued top- and bottom-line success. We remain confident in our ability to build upon the momentum we’ve worked hard to establish, rooted in the hospitality culture and growth mindset that now define all aspects of the organization.”

About Aramark

Aramark (NYSE: ARMK) proudly serves the world’s leading educational institutions, Fortune 500 companies, world champion sports teams, prominent healthcare providers, iconic destinations and cultural attractions, and numerous municipalities in 15 countries around the world with food and facilities management. Because of our hospitality culture, our employees strive to do great things for each other, our partners, our communities, and the planet. Aramark has been recognized on FORTUNE’s list of “World’s Most Admired Companies,” DiversityInc’s “Top 50 Companies for Diversity” and “Top Companies for Supplier Diversity,” Newsweek’s list of “America’s Most Responsible Companies 2023,” the HRC’s “Best Places to Work for LGBTQ Equality,” and scored 100% on the Disability Equality Index. Learn more at www.aramark.com and connect with us on LinkedIn, Facebook, X (formerly known as Twitter), and Instagram.