Aramark: Reports First Quarter 2020 Results

Philadelphia / PA. (arm) Aramark reported first quarter fiscal 2020 results. «Our financial performance in the quarter largely materialized as expected and reflects the early actions of our strategies to unlock the economic potential of the business,» said John Zillmer, Aramark’s Chief Executive Officer. «In just a few short months, we have mobilized strategic leadership changes and targeted investments, as well as realigned resources to more directly support our field organization and clients – all of which creates catalysts to drive future growth in the business.»

First Quarter Results (*)

Consolidated Revenue was USD 4.3 billion in the quarter, down 0.3 percent year-over-year, primarily due to approximately six weeks of operations from the Healthcare Technologies business in the prior year before its divestiture in November 2019. Organic Revenue grew 1.6 percent over the prior year with growth across all segments:

• FSS United States increased 0.9 percent due to base business growth primarily in Healthcare and Sports, Leisure and Corrections, partially offset by Education.
• FSS International grew 3.2 percent driven by particularly strong performance in South America, despite the impact of social unrest in Chile and the strategic exit of non-core custodial accounts in Europe late last year.
• Uniform + Career Apparel increased 2.5 percent from improved pricing and volume with a continued focus on adjacency services.

Revenue		Q1/2020		Q1/2019	Change	Organic Revenue Change
FSS United States1	USD	2,639M	USD	2,660M	(0.8)%	0.9%
FSS International		946		953	(0.7)%	3.2%
Uniform + Career Apparel		668		652	2.5%	2.5%
Total Company	USD	4,254M	USD	4,265M	(0.3)%	1.6%

Difference between GAAP Revenue and Organic Revenue reflects the elimination of currency translation and divestitures
(1) Q1-2019 GAAP numbers include divested Healthcare Technologies revenue of USD 44 million. This has been excluded from the calculation of Organic Revenue for comparison purposes.

Operating Income was USD 254.3 million, down 32 percent year-over-year primarily due to the prior year divestiture of the Healthcare Technologies business. Adjusted Operating Income was 2 percent lower on a constant currency basis as follows:

• FSS United States decreased 11 percent reflecting the Company’s actions to accelerate growth; negative net-new business in Education; increase in medical insurance claim costs; and lower income from possessory interest versus the prior year.
• FSS International grew 43 percent largely due to the benefit from the strategic exit of non-core custodial accounts in Europe late last year as well as the timing of incentive-based compensation in the prior year.
• Uniform + Career Apparel increased 2 percent resulting from AmeriPride acquisition synergies and efficiencies from operational performance, partially offset by investments for accelerated growth.

Income		Operating Income						Adjusted Operating Income
		Q1/2020		Q1/2019	Change			Q1/2020		Q1/2019	Constant Currency Change
FSS United States	USD	186M	USD	364M	(49)%		USD	204M	USD	228M	(11)%
FSS International		44		11	281%			46		33	43%
Uniform + Career Apparel		53		53	1%			67		66	2%
Corporate		(29)		(55)	47%			(31)		(34)	9%
Total Company	USD	254M	USD	373M	(32)%		USD	286M	USD	293M	(2)%

(2) Q1 2019 GAAP numbers include divested Healthcare Technologies operating income of USD 4 million and gain on sale of USD 157 million. This has been excluded from the calculation of Adjusted Operating Income for comparison purposes.
(*) May not total due to rounding.

GAAP Summary

On a GAAP basis, revenue was USD 4.3 billion, operating income was USD 254.3 million, net income attributable to Aramark stockholders was USD 145.8 million, and diluted earnings per share were USD 0.57. This compared to the first quarter of 2019 where, on a GAAP basis, revenue was USD 4.3 billion, operating income was USD 373.4 million, net income attributable to Aramark stockholders was USD 250.7 million and diluted earnings per share were USD 0.99. First quarter GAAP diluted earnings per share decreased 42 percent over the prior year principally due to the USD 157.3 million gain in the prior year period from the sale of the Healthcare Technologies business. A reconciliation of GAAP to Non-GAAP measures is included in the appendix.

Currency

A stronger U.S. Dollar decreased revenue by approximately USD 37.4 million and a USD 1.2 million unfavorable impact on operating income. Currency had a negligible effect on GAAP and adjusted earnings per share.

Free Cash Flow

Net Cash used in operating activities was USD (309.5) million compared to USD (203.7) million in the prior year. Free Cash Flow was USD (405.0) million compared to USD (317.1) million in the prior year. The year-over-year decrease was due, in large part, to the timing of annual cash-based incentive compensation payments in the prior year and special employee retirement contributions this year. Cash flow is historically negative in the first quarter due to seasonality in the business.

Capital Structure

The Company reduced its net debt position by USD 221.2 million compared to the prior year quarter and maintained approximately USD 1.1 billion in cash and availability on its revolving credit facility. Total trailing 12-month net debt to covenant adjusted EBITDA was 4.2x at the end of the quarter, unchanged from the prior year.

Subsequent to the end of the first quarter, the Company further strengthened its balance sheet and improved financial flexibility through a USD 900 million debt refinancing action. As part of this strategy, Aramark raised secured term loans to redeem its 2024 Senior Notes and executed USD 800 million of interest rate swap contracts at favorable fixed interest rates. The transaction is net leverage neutral, maintains a comparable level of fixed-to-floating debt exposure due to the interest rate hedges and extends the debt maturity by an additional three years to January 2027.

Business Update

The Company is currently activating strategies to accelerate future revenue growth and unlock the economic potential of the business. These actions include fostering a hospitality culture, aligning leadership and operational resources, as well as initiating targeted investments that will support new account sales efforts and client retention; enhanced product and service offerings; and value-added innovation and technology – all executed with a commitment to drive long-term shareholder value.

«Since joining Aramark a few weeks ago, I have spent time immersing myself in the organization and have already confirmed my initial belief in the growth potential for the business,» said Tom Ondrof, Aramark’s Chief Financial Officer. «While appreciating the immediate work ahead of us, I am confident that we will execute over time on our actions and position Aramark for sustained excellence. As these strategies are implemented, the Company maintains its near-term financial performance outlook for Fiscal 2020.»