Aramark — FY2022 Form 10-K
Reporting period: Fiscal year ended September 30, 2022 (52 weeks), compared with fiscal 2021 ended October 1, 2021. Aramark provides food, facilities and uniform services through FSS United States, FSS International and Uniform. Figures below are in millions of dollars unless stated otherwise.
Financial results and liquidity
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $16,326.6 | $12,096.0 | +35.0% |
| Operating income | $628.4 | $191.4 | +$437.0 |
| Operating margin | 3.8% | 1.6% | +2.2 percentage points |
| Net income (loss) attributable to Aramark stockholders | $194.5 | $(90.8) | Returned to profit |
| Diluted earnings (loss) per share | $0.75 | $(0.36) | Returned to profit |
| Net cash from operating activities | $694.5 | $657.1 | +$37.4 |
| Net cash used in investing activities | $(831.3) | $(634.4) | Higher outflow |
| Net cash used in financing activities | $(37.7) | $(2,005.3) | Lower outflow |
Cost of services provided was 90.5% of revenue, versus 91.0% in FY2021. Food and support-service costs rose as a share of total service costs, reflecting reopening activity and food inflation; personnel costs fell as a share. The filing does not present a free-cash-flow measure.
At September 30, 2022, cash and cash equivalents were $329.5; revolving-credit availability was $1,105.6; and Receivables Facility availability was $395.1, with $104.9 outstanding under that facility. Total borrowings were $7,410.9. The company reported no significant debt maturities before 2025 and stated that available liquidity was adequate for anticipated needs. Its secured-debt covenant ratio was 2.73x against a maximum of 5.125x; its interest-coverage ratio was 3.55x against a 2.00x minimum for specified actions. The company was in compliance with its covenants.
Segments and changes versus FY2021
| Segment | FY2022 revenue | Revenue change | FY2022 operating income | Operating-income change |
|---|---|---|---|---|
| FSS United States | $10,030.8 | +47.3% | $449.0 | +$317.2 |
| FSS International | $3,656.4 | +27.6% | $112.5 | +$54.3 |
| Uniform | $2,639.4 | +9.0% | $218.1 | +$97.3 |
Management attributed growth primarily to client reopenings as COVID-19 restrictions eased, net new business and pricing pass-throughs. Acquisitions contributed to growth, while foreign-currency translation reduced revenue by 2.6% overall and reduced FSS International revenue by 10.6%. U.S. FSS Sports, Leisure & Corrections benefited from higher stadium and arena spending and the Union Supply acquisition; Healthcare also benefited from the prior-year Next Level acquisition. Uniform revenue exceeded pre-pandemic levels, supported by reopenings, new business and improved pricing.
Operating-income improvement also reflected cost management, higher vendor discounts as supply disruptions stabilized, and a $20.7 gain from reducing Next Level contingent consideration. FY2021 included a $137.9 non-cash equity-investment gain and a $60.9 non-cash pension-plan termination loss, making the year-over-year income comparison affected by unusual items. FY2022 also included $19.6 of severance charges and $19.6 of PPE inventory write-downs; Aramark decided to stop selling PPE. Union Supply, acquired in June 2022 for $199.6 cash plus contingent consideration, contributed $82.5 of FY2022 revenue and an $11.3 net loss, which the filing attributed partly to purchase-accounting and contingent-compensation costs.
Outlook, risks and contingencies
- Management expected inflationary pressure on food and product costs, labor challenges and risks to some clients’ financial condition to continue into FY2023. It described ongoing use of supply-chain initiatives, cost management and pricing pass-throughs to mitigate these pressures. The filing provides no quantified FY2023 revenue, earnings or cash-flow guidance.
- Aramark intended to spin off Uniform as a separately traded company in the second half of FY2023. Completion was subject to Board approval, tax-related opinions and an IRS ruling, SEC registration effectiveness and other approvals. The filing cautioned about execution, cost, financing, lost synergies, customer and employee reactions, and timing risks.
- Rising food, wage, fuel and interest costs could pressure results, particularly because about two-thirds of Food and Support Services revenue came from profit-and-loss contracts, where Aramark bears operating costs and may have limited ability to pass increases through.
- Other material risks include client contract retention and renewal, labor availability and unionization, supply-chain and distributor disruption, COVID-19 and other operational interruptions, foreign-currency movements, food safety, cybersecurity, regulatory and environmental obligations, multiemployer pension exposure, and high leverage with variable-rate debt.
- Operating cash flow rose modestly, but reopening-related working-capital needs increased uses of cash in receivables and inventory. Investing outflows included acquisitions, marketable securities and equity-method investments. The company paid $113.1 in dividends and had $665.2 of capital and other purchase commitments at year-end.
- Aramark reported that its financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective as of September 30, 2022. The auditor identified goodwill valuation for the FSS U.S. reporting unit as a critical audit matter; no goodwill impairment was recorded.
Investor verification priorities
- Track whether revenue and margins remain resilient as reopening benefits normalize and inflation and labor costs persist; assess how much pricing pass-through offsets those costs.
- Review the Uniform spin-off’s final structure, tax treatment, financing, costs, timeline and resulting leverage for both companies.
- Reconcile reported earnings with unusual and acquisition-related items, including the Next Level contingent-consideration adjustment, PPE write-downs, severance and Union Supply’s contribution.
- Monitor cash conversion, working-capital movements, capital spending, dividend capacity and refinancing needs, particularly around debt maturities beginning in 2025.
- Check covenant headroom and sensitivity to higher interest rates, alongside the extent and duration of interest-rate hedges.
- Assess client retention, contract renewals, staffing and wage trends, and exposure to concentrated distribution relationships; Sysco handled approximately 46% of food and non-food product purchases in the United States and Canada.