Aramark — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2023, ended June 30, 2023; comparisons are with the periods ended July 1, 2022. Aramark provides food, facilities and uniform services through FSS United States, FSS International and Uniform segments.
Financial performance
Amounts are in millions of dollars unless stated otherwise.
| Metric | Three months ended June 30, 2023 | Nine months ended June 30, 2023 |
|---|---|---|
| Revenue | $4,749; up 15.1% | $13,952; up 16.9% |
| Operating income | $203; up 37.5% | $585; up 36.0% |
| Operating margin | 4.3%, versus 3.6% | 4.2%, versus 3.6% |
| Net income attributable to Aramark stockholders | $338; versus $40 | $469; versus $119 |
| Diluted EPS | $1.29; versus $0.16 | $1.79; versus $0.46 |
| Cash from operating activities | Not presented separately for the quarter | $(270), versus $(142) |
Reported net income includes a $376 million net gain on equity investment sales, principally the $377.1 million pre-tax gain from selling Aramark’s 50% stake in AIM Services. The gain makes reported net income and EPS less representative of recurring operating performance. Interest and other financing costs rose 23.4% for the quarter and 19.7% year to date, primarily reflecting higher rates and increased borrowings.
By segment, quarterly revenue rose 16.5% in FSS United States, 18.9% in FSS International and 4.2% in Uniform. Year-to-date operating income rose 65.7% in FSS United States, but declined 22.5% in FSS International and 3.5% in Uniform.
Cash, debt and liquidity
- Cash and cash equivalents were $402 million at June 30, 2023, compared with $329 million at September 30, 2022. The company also reported $109.8 million of marketable securities and $618.3 million available under its revolving credit facility.
- Total borrowings were $7.646 billion, including $111 million current and $7.536 billion long-term, versus $7.411 billion at fiscal year-end. The filing reports approximately $823.8 million of foreign-currency borrowings.
- Operating cash outflow for the first nine months increased to $270 million from $142 million. Management attributed the greater cash use mainly to changes in operating assets and liabilities, particularly the timing of accounts-payable disbursements.
- Investing activities provided $282 million, primarily reflecting $633 million of equity-investment sale proceeds, partly offset by $311 million of property and equipment purchases. Financing activities provided $48 million.
- In June, Aramark refinanced about $1.1 billion of term loans due 2025 with new SOFR-based term loans due 2030. It also transitioned credit-agreement borrowings from LIBOR to SOFR. On July 19, after quarter-end, it increased the Receivables Facility limit from $500 million to $600 million and extended its maturity to July 2026.
- The company said it was in compliance with debt covenants. At June 30, the secured debt ratio was 2.45x against a maximum of 5.125x; the interest coverage ratio was 3.69x against a 2.000x minimum for specified actions.
Material changes, outlook and risks
- Management attributed revenue growth to base-business growth, pricing pass-throughs and new business, with continued recovery in volumes. Sports, Leisure & Corrections benefited from increased stadium and arena spending; Business & Industry benefited from employees returning to offices.
- Operating results continued to face product, energy and labor inflation. Management noted some moderation in inflation in certain markets, but expected economic and cost challenges to continue through the rest of fiscal 2023. The filing provides no numerical earnings or revenue guidance.
- Year-to-date results included $73.9 million of non-cash income from reductions in acquisition-related contingent consideration, $36.3 million of severance charges and $26.7 million of impairment charges. The contingent-liability reductions reflected lower-than-expected performance, in part due to inflationary pressures.
- Aramark continued to plan a tax-free spin-off of Uniform near the end of fiscal 2023, subject to board approval, tax-related conditions, SEC registration effectiveness and other approvals. Spin-off expenses contributed to higher costs.
- Key stated risks include inflation and cost-recovery limits in client contracts, labor availability and costs, client retention and contract renewals, leverage and variable interest rates, foreign-exchange exposure, supply-chain disruption, and completion, timing and costs of the proposed spin-off. The company reported no material change to the risk factors in its latest Form 10-K.
- Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter. It did not believe pending legal matters were likely to be material, while noting an unfavorable resolution could have a material adverse effect.
Investor verification points
- Assess recurring earnings separately from the AIM Services sale gain and other non-recurring or non-cash items.
- Track whether operating cash flow improves after the reported working-capital outflows, and compare capital spending with cash generation.
- Review debt balances, interest expense, refinancing terms and exposure to variable rates after the SOFR transition.
- Monitor inflation pass-throughs, segment profitability—particularly FSS International and Uniform—and the effects of severance and impairment charges.
- Confirm the proposed Uniform spin-off’s timing, approvals, tax treatment, financing and expected costs; completion remained conditional in this filing.