Aramark Reports Strong First Quarter 2016 Results

Adjusted EPS Increased to $0.50, up 9% Constant Currency

Adjusted Operating Income Margin Increased to 7.1%, up 30 Basis Points

Feb 10, 2016, 07:29 ET from Aramark

PHILADELPHIA, Feb. 10, 2016 /PRNewswire/ -- Aramark (NYSE: ARMK), a global leader in food, facilities management and uniforms, today reported first quarter fiscal results. 

KEY HIGHLIGHTS

  • GAAP sales of $3.7 billion, up 3% on an organic basis;
  • Adjusted operating income of $262 million, an increase of 7%1. GAAP operating income of $214 million;
  • Adjusted earnings per share of $0.50, an increase of 9%1. GAAP EPS of $0.38;
  • Adjusted operating income margin increased to 7.1%, a 30 basis point improvement1. GAAP operating income margin of 5.8%.
  • Full year adjusted EPS expectations unchanged, $1.65 to $1.75. 1 Constant currency  

"Our strong start to 2016 included accelerated organic revenue growth and solid margin expansion which are the direct result of maintaining disciplined execution behind our clear and focused strategy. Our momentum was broad based across sectors and geographies while our transformation initiatives continued driving productivity improvements," said Eric J. Foss, Chairman, President and CEO of Aramark. "We will keep investing in our people and business to position Aramark for additional growth and shareholder value creation going forward."

FIRST QUARTER SALES RESULTS*

Q1 '16

GAAP Sales

Q1 '15 

GAAP Sales

GAAP

Change

Organic

Change

FSS North America

$2,623M

$2,564M

2%

4%

FSS International

695

759

(8%)

2%

Uniform & Career Apparel

393

379

4%

4%

Total Company

$3,710M

$3,702M

Flat

3%

* May not total due to rounding. 

The company experienced solid retention rates, strong new client wins and underlying base business expansion in the quarter.  Organic sales growth was broad based across the segments, with notable gains in North America coming from new client onboarding in Education and strong playoff activity in Sports, Leisure and Corrections.  FSS International's organic growth was driven by strong expansion in Emerging Markets, particularly China. Organic sales in Uniform and Career Apparel continue to benefit from previously announced capacity expansion. 

FIRST QUARTER ADJUSTED OPERATING INCOME (AOI) RESULTS*

Q1 '16 AOI

Q1 '15 AOI

AOI

Change

AOI Change

Constant

Currency

Q1 '16 GAAP

Operating

Income

FSS North America

$198M

$186M

6%

8%

$168M

FSS International

30

31

(6%)

7%

30

Uniform & Career Apparel

50

51

(3%)

(3%)

50

Corporate

(15)

(17)

(35)

Total Company

$262M

$252M

4%

$214M

Effect of Currency Translation

7

Constant Currency AOI

$270M

7%

* May not total due to rounding.

The company continued to drive solid productivity gains from food and labor initiatives in the first quarter, particularly in its FSS North America locations.  FSS International's results reflect continued positive momentum in revenue and strong productivity trends, particularly in the emerging markets.  Consistent with expectations, the Uniform & Career Apparel segment results were adversely impacted by temporary start-up costs associated with capacity expansion.   

FIRST QUARTER SUMMARY

Adjusted net income was $123 million or $0.50 per share, versus adjusted net income of $116 million or $0.47 per share in the first quarter of 2015.  The significant strengthening of the U.S. dollar versus the prior year period decreased sales by approximately $113 million, operating income by $7 million and earnings per share by $0.01 in the quarter.

On a GAAP basis, sales were $3.7 billion, operating income was $214 million, net income attributable to Aramark stockholders was $93 million and diluted earnings per share were $0.38.  This compares to the first quarter of 2015 where on a GAAP basis, sales were $3.7 billion, operating income was $202 million, net income attributable to Aramark stockholders was $85 million and diluted earnings per share were $0.35.  First quarter GAAP diluted earnings per share increased 9% year-over-year.      

LIQUIDITY & CAPITAL STRUCTURE

As of January 1, 2016 the company's total debt was $5.5 billion, representing a reduction of approximately $270 million versus the prior year's first quarter end.  Total debt to adjusted EBITDA was 4.3x, an approximate 30 basis point reduction versus the prior year measurement.  Corporate liquidity remains strong, and at quarter end the company had approximately $780 million in cash and availability on its revolving credit facility.  Consistent with the company's commitment to strengthen its financial flexibility, during the quarter $400 million of 8-year fixed rate unsecured notes due in 2024 were issued.                     

2016 OUTLOOK

The company's outlook for constant-currency 2016 adjusted EPS remains unchanged within a range of $1.65 to $1.75 per share.

COMPANY UPDATE

At its 2016 Shareholders Meeting on February 2, Aramark elected the following directors to its board: Lisa G. Bisaccia, Executive Vice President and Chief Human Resources Officer for CVS Health Corporation; Richard Dreiling, Former Chairman and Chief Executive Officer of Dollar General Corporation; and Dr. John A. Quelch, the Charles Edward Wilson Professor of Business Administration at Harvard Business School and Professor in Health Policy and Management at Harvard TH Chan School of Public Health.  Director David A. Barr, a managing director at Warburg Pincus, an equity sponsor of Aramark prior to the company's 2013 IPO, did not stand for re-election.

CONFERENCE CALL SCHEDULED

The company has scheduled a conference call at 10 a.m. Eastern Standard Time today to discuss its earnings.  This call and related materials can be heard and reviewed, either live or on a delayed basis, on the company's web site, www.aramark.com on the investor relations page.

About Aramark

Aramark (NYSE: ARMK) is in the customer service business across food, facilities and uniforms, wherever people work, learn, recover, and play.  United by a passion to serve, our approximately 270,000 employees deliver experiences that enrich and nourish the lives of millions of people in 21 countries around the world every day.  Aramark is recognized among the Most Admired Companies by FORTUNE and the World's Most Ethical Companies by the Ethisphere Institute. Learn more at www.aramark.com or connect with us on Facebook and Twitter.

Selected Operational and Financial Metrics

Adjusted Sales (Organic)

Management believes that presentation of sales growth, adjusted to eliminate the effects of acquisitions and divestitures and the impact of currency translation, provides useful information to investors because it enhances comparability between the current year and prior year reporting periods.

Adjusted Operating Income

Adjusted Operating Income represents operating income adjusted to eliminate the change in amortization of acquisition-related customer relationship intangible assets and depreciation of property and equipment resulting from the going-private transaction in 2007 (the "Transaction"); the impact of the change in fair value related to certain gasoline and diesel agreements; severance and other charges; share-based compensation; the effects of acquisitions and divestitures and other items impacting comparability.

Adjusted Operating Income (Constant Currency)

Adjusted Operating Income (Constant Currency) represents Adjusted Operating Income adjusted to eliminate the impact of currency translation.

Adjusted EBITDA

Adjusted EBITDA represents Adjusted Operating Income (Constant Currency) further adjusted to exclude the impact of all other depreciation and amortization expense.

Adjusted Net Income

Adjusted Net Income represents net income attributable to Aramark stockholders adjusted to eliminate the impact of discontinued operations; the change in amortization of acquisition-related customer relationship intangible assets and depreciation of property and equipment resulting from the Transaction; the impact of changes in the fair value related to certain gasoline and diesel agreements; severance and other charges; share-based compensation; the effects of acquisitions and divestitures and other items impacting comparability, less the tax impact of these adjustments. Management believes that presentation of net income as adjusted is useful information to investors because we use such information when evaluating net income to better evaluate the underlying operating performance of the company.

Adjusted Net Income (Constant Currency)

Adjusted Net Income (Constant Currency) represents Adjusted Net Income adjusted to eliminate the impact of currency translation.

We use Adjusted Sales (Organic), Adjusted Operating Income, Adjusted EBITDA and Adjusted Net Income as supplemental measures of our operating profitability and to control our cash operating costs. These financial metrics are not measurements of financial performance under generally accepted accounting principles, or GAAP. We believe the presentation of these metrics is appropriate to provide additional information to investors about our operating performance. Our presentation of these metrics has limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. You should not consider these measures as alternatives to sales, operating income or net income, determined in accordance with GAAP. Adjusted Sales (Organic), Adjusted Operating Income, Adjusted EBITDA and Adjusted Net Income as presented by us, may not be comparable to other similarly titled measures of other companies because not all companies use identical calculations.

Explanatory Notes to the Non-GAAP Schedules

Amortization of acquisition-related customer relationship intangible assets and depreciation of property and equipment resulting from the Transaction - adjustments to eliminate the change in amortization and depreciation resulting from the purchase accounting applied to the January 26, 2007 going-private transaction executed with investment funds affiliated with GS Capital Partners, CCMP Capital Advisors, LLC and J.P. Morgan Partners, LLC, Thomas H. Lee Partners, L.P. and Warburg Pincus LLC as well as approximately 250 senior management personnel.

Share-based compensation - adjustments to eliminate compensation expense related to the company's issuances of share-based awards and the related employer payroll tax expense incurred by the company when employees exercise in the money stock options or vest in restricted stock awards.

Severance and other charges - adjustments to eliminate severance expenses and other costs incurred in the applicable period such as costs incurred to start-up our Business Service Center in Nashville, TN ($3.7 million for the first quarter of 2015), organizational streamlining initiatives ($0.9 million expense reduction for the first quarter of 2016 and $0.8 million expense reduction for the first quarter of 2015), and other consulting costs related to transformation initiatives ($3.5 million for the first quarter of 2016 and $5.6 million for the first quarter of 2015).

Effects of acquisitions and divestitures - adjustments to eliminate the impact that acquisitions and divestitures had on the comparative periods.

Gains, losses and settlements impacting comparability - adjustments to eliminate certain transactions that are not indicative of our ongoing operational performance such as insurance reserve adjustments due to favorable claims experience ($8.3 million for the first quarter of 2015), additional asset impairment associated with preparing a property for sale ($1.7 million for the first quarter of 2016), expenses related to a secondary offering of common stock by certain of our stockholders in December of 2014 ($1.1 million for the first quarter of 2015), the impact of the change in fair value related to certain gasoline and diesel agreements ($0.8 million for the first quarter of fiscal 2016 and $3.6 million for the first quarter of 2015) and other miscellaneous expenses.

Effect of currency translation - adjustments to eliminate the impact that fluctuations in currency translation rates had on the comparative results by presenting the periods on a constant currency basis.  Assumes constant foreign currency exchange rates based on the rates in effect for the prior year period being used in translation for the comparable current year period.

Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect our current views as to future events and financial performance with respect to, without limitation, conditions in our industry, our operations, our economic performance and financial condition, including, in particular, statements relating to our business and growth strategy. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as "outlook," "aim," "anticipate," "are confident," "have confidence," "estimate," "expect," "will be," "will continue," "will likely result," "project," "intend," "plan," "believe," "see," "look to" and other words and terms of similar meaning or the negative versions of such words.

Forward-looking statements speak only as of the date made. All statements we make relating to our estimated and projected earnings, costs, expenditures, cash flows, growth rates and financial results are forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results.  All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements.  Some of the factors that we believe could affect our results include without limitation: unfavorable economic conditions; natural disasters, global calamities, sports strikes and other adverse incidents; the failure to retain current clients, renew existing client contracts and obtain new client contracts; a determination by clients to reduce their outsourcing or use of preferred vendors; competition in our industries; increased operating costs and obstacles to cost recovery due to the pricing and cancellation terms of our food and support services contracts; the inability to achieve cost savings through our cost reduction efforts; our expansion strategy; the failure to maintain food safety throughout our supply chain, food-borne illness concerns and claims of illness or injury; governmental regulations including those relating to food and beverages, the environment, wage and hour and government contracting; liability associated with noncompliance with applicable law or other governmental regulations; new interpretations of or changes in the enforcement of the government regulatory framework; currency risks and other risks associated with international operations, including Foreign Corrupt Practices Act, U.K. Bribery Act and other anti-corruption law compliance; continued or further unionization of our workforce; liability resulting from our participation in multiemployer defined benefit pension plans; risks associated with suppliers from whom our products are sourced; disruptions to our relationship with, or to the business of, our primary distributor; the inability to hire and retain sufficient qualified personnel or increases in labor costs; healthcare reform legislation; the contract intensive nature of our business, which may lead to client disputes; seasonality; disruptions in the availability of our computer systems or privacy breaches; failure to maintain effective internal controls; our leverage; the inability to generate sufficient cash to service all of our indebtedness; debt agreements that limit our flexibility in operating our business and other factors set forth in the  "Risk Factors," –" Legal Proceedings" and "Management Discussion and Analysis of Financial Condition and Results of Operations" sections and other sections of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 1, 2015  as such factors may be updated from time to time in our other periodic filings with the SEC, which are accessible on the SEC's website at www.sec.gov and which may be obtained by contacting Aramark's investor relations department via its website www.aramark.com. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in our filings with the SEC. As a result of these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements included herein or that may be made elsewhere from time to time by, or on behalf of, us. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, changes in our expectations, or otherwise, except as required by law.

Contact:

Media Inquiries Karen Cutler (215)238-4063 Cutler-Karen@aramark.com

Investor Inquiries Ian Bailey  (215)409-7287 Bailey-Ian@aramark.com

 

ARAMARK AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In Thousands, Except Per Share Amounts)

Three Months

Three Months

Ended

Ended

January 1, 2016

January 2, 2015

Sales

$        3,710,275

$        3,702,353

Costs and Expenses:

     Cost of services provided

3,294,523

3,287,281

     Depreciation and amortization

127,518

125,283

     Selling and general corporate expenses

74,141

87,886

3,496,182

3,500,450

Operating income

214,093

201,903

Interest and other financing costs, net

71,320

71,923

     Income before income taxes

142,773

129,980

Provision for income taxes

49,337

44,360

     Net income

93,436

85,620

     Less: Net income attributable to noncontrolling interest

93

123

     Net income attributable to Aramark stockholders

$              93,343

$              85,497

Earnings per share attributable to Aramark stockholders:

Basic

$                   0.39

$                   0.36

Diluted

$                   0.38

$                   0.35

Weighted Average Shares Outstanding:

Basic

240,521

234,621

Diluted

247,613

244,724

 

 

ARAMARK AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In Thousands)

January 1, 2016

October 2, 2015

Assets

Current Assets:

Cash and cash equivalents

$              115,358

$              122,416

Receivables

1,494,072

1,444,574

Inventories

563,408

575,263

Prepayments and other current assets

213,829

236,870

Total current assets

2,386,667

2,379,123

Property and Equipment, net

927,278

959,345

Goodwill

4,548,379

4,558,968

Other Intangible Assets

1,077,534

1,111,980

Other Assets

1,210,036

1,186,941

$        10,149,894

$        10,196,357

Liabilities and Stockholders' Equity

Current Liabilities:

Current maturities of long-term borrowings

$                54,186

$                81,427

Accounts payable

650,655

850,040

Accrued expenses and other current liabilities

1,023,478

1,249,521

Total current liabilities

1,728,319

2,180,988

Long-Term Borrowings

5,485,964

5,184,597

Other Liabilities

955,855

937,311

Redeemable Noncontrolling Interest

9,980

10,102

Total Stockholders' Equity

1,969,776

1,883,359

$        10,149,894

$        10,196,357

 

 

ARAMARK AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)

Three Months Ended

Three Months Ended

January 1, 2016

January 2, 2015

Cash flows from operating activities:

Net income

$           93,436

$           85,620

Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization

127,518

125,283

Deferred income taxes

21,399

(11,955)

Share-based compensation expense

15,270

15,792

Changes in operating assets and liabilities

(456,127)

(455,004)

Other operating activities

3,179

(3,566)

Net cash used in operating activities

(195,325)

(243,830)

Cash flows from investing activities:

Net purchases of property and equipment, client contract investments and other

(89,482)

(125,919)

Acquisition, divestitures and other investing activities

3,348

1,281

Net cash used in investing activities

(86,134)

(124,638)

Cash flows from financing activities:

Net proceeds/payments of long-term borrowings

259,214

356,115

Net change in funding under the Receivables Facility

25,000

25,000

Payments of dividends

(22,853)

(20,225)

Proceeds from issuance of common stock

7,512

3,784

Other financing activities

5,528

12,918

Net cash provided by financing activities

274,401

377,592

Increase (decrease) in cash and cash equivalents

(7,058)

9,124

Cash and cash equivalents, beginning of period

122,416

111,690

Cash and cash equivalents, end of period

$         115,358

$         120,814

 

 

ARAMARK AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP MEASURES

ADJUSTED CONSOLIDATED OPERATING INCOME MARGIN

(Unaudited)

(In thousands)

Three Months Ended

 January 1, 2016

FSS North America

FSS International

Uniform

Corporate

Aramark and Subsidiaries

Sales (as reported)

$  2,622,641

$        694,919

$  392,715

$  3,710,275

Operating Income (as reported)

$     168,329

$          30,023

$    50,343

$  (34,602)

$     214,093

Operating Income Margin (as reported)

6.4%

4.3%

12.8%

5.8%

Sales (as reported)

$  2,622,641

$        694,919

$  392,715

$  3,710,275

Effect of Currency Translation

31,102

82,055

-

113,157

Adjusted Sales (Organic)

$  2,653,743

$        776,974

$  392,715

$  3,823,432

Sales Growth (as reported)

2.3%

-8.4%

3.5%

0.2%

Adjusted Sales Growth (Organic)

3.5%

2.4%

3.5%

3.3%

Operating Income (as reported)

$     168,329

$          30,023

$    50,343

$  (34,602)

$     214,093

Amortization of Acquisition-Related Customer Relationship Intangible Assets and Depreciation of Property and Equipment Resulting from the Transaction

27,342

142

(655)

-

26,829

Share-Based Compensation

326

72

40

15,663

16,101

Severance and Other Charges

-

(864)

-

3,435

2,571

Gains, Losses and Settlements impacting comparability

1,710

381

-

765

2,856

Adjusted Operating Income

$     197,707

$          29,754

$    49,728

$ (14,739)

$     262,450

Effect of Currency Translation

3,379

3,887

-

-

7,266

Adjusted Operating Income (Constant Currency)

$     201,086

$          33,641

$    49,728

$ (14,739)

$     269,716

Adjusted Operating Income Growth

6.2%

-5.5%

-3.3%

4.2%

Adjusted Operating Income Growth (Constant Currency)

8.0%

6.8%

-3.3%

7.1%

Adjusted Operating Income Margin (Constant Currency)

7.6%

4.3%

12.7%

7.1%

Three Months Ended

 January 2, 2015

FSS North America

FSS International

Uniform

Corporate

Aramark and Subsidiaries

Sales (as reported)

$  2,564,366

$        758,671

$  379,316

$  3,702,353

Adjusted Sales (Organic)

$  2,564,366

$        758,671

$  379,316

$  3,702,353

Operating Income (as reported)

$     162,377

$          30,668

$    54,549

$ (45,691)

$     201,903

Amortization of Acquisition-Related Customer Relationship Intangible Assets and Depreciation of Property and Equipment Resulting from the Transaction

27,971

1,420

(702)

-

28,689

Share-Based Compensation

580

55

161

16,003

16,799

Severance and Other Charges

1,500

(1,000)

158

7,785

8,443

Effect of Acquisitions and Divestitures

(157)

(104)

15

-

(246)

Gains, Losses and Settlements impacting comparability

(6,148)

458

(2,732)

4,679

(3,743)

Adjusted Operating Income

$     186,123

$          31,497

$    51,449

$ (17,224)

$     251,845

Operating Income Margin (as reported)

6.3%

4.0%

14.4%

5.5%

Adjusted Operating Income Margin

7.3%

4.2%

13.6%

6.8%

 

 

ARAMARK AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP MEASURES

ADJUSTED NET INCOME & ADJUSTED EPS

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended

Three Months Ended

 January 1, 2016

 January 2, 2015

Net Income Attributable to Aramark   Stockholders (as reported)

$                93,343

$                85,497

Adjustment:

Amortization of Acquisition-Related Customer Relationship Intangible Assets and Depreciation of Property and Equipment Resulting from the Transaction

26,829

28,689

Share-Based Compensation

16,101

16,799

Severance and Other Charges

2,571

8,443

Gains, Losses and Settlements impacting    comparability

2,856

(3,989)

Tax Impact of Adjustments to Adjusted Net    Income

(19,113)

(19,624)

Adjusted Net Income

$              122,587

$              115,815

Effect of Currency Translation, net of Tax

4,571

-

Adjusted Net Income (Constant Currency)

127,158

115,815

Adjusted Earnings Per Share

Adjusted Net Income

$              122,587

$              115,815

Diluted Weighted Average Shares Outstanding

247,613

244,724

$                    0.50

$                    0.47

Adjusted Earnings Per Share (Constant Currency)

Adjusted Net Income (Constant Currency)

$              127,158

$              115,815

Diluted Weighted Average Shares Outstanding

247,613

244,724

$                    0.51

$                    0.47

 

ARAMARK AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP MEASURES

DEBT TO ADJUSTED EBITDA

(Unaudited)

(In thousands)

Twelve Months Ended

Twelve Months Ended

 January 1, 2016

 January 2, 2015

Net Income Attributable to Aramark   Stockholders (as reported)

$               243,792

$               190,163

Adjustment:

Amortization of Acquisition-Related Customer Relationship Intangible Assets and Depreciation of Property and Equipment Resulting from the Transaction

108,220

118,678

Share-Based Compensation

72,102

55,808

Effect of Currency Translation

7,266

-

Severance and Other Charges

60,673

56,959

Branding

-

21,734

Initial Public Offering-Related Expenses,    including share-based compensation

-

14,276

Gains, Losses and Settlements impacting    comparability

10,217

(4,493)

Effects of refinancings on Interest and Other Financing Costs, net

-

25,705

Tax Impact of Adjustments to Adjusted Net    Income

(104,669)

(113,920)

Adjusted Net Income (Constant Currency)

$               397,601

$               364,910

Adjustment:

Tax Impact of Adjustments to Adjusted Net    Income

104,669

88,215

Provision for Income Taxes

109,997

95,625

Interest and Other Financing Costs, net

285,339

323,456

Adjusted Operating Income (Constant Currency)

$               897,606

$               872,206

Adjustment:

Amortization of Acquisition-Related Customer Relationship Intangible Assets and Depreciation of Property and Equipment Resulting from the Transaction

(108,220)

(118,678)

Depreciation and Amortization

506,268

510,040

Adjusted EBITDA (Constant Currency)

$            1,295,654

$            1,263,568

Debt to Adjusted EBITDA

Total Long-Term Borrowings

$            5,540,150

$            5,807,887

Adjusted EBITDA (Constant Currency)

$            1,295,654

$            1,263,568

Debt/Adjusted EBITDA

4.3

4.6

 

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SOURCE Aramark



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