Aramark Results

Aramark Reports Strong Second Quarter Earnings And Reaffirms 2016 Outlook

Adjusted EPS Increased to $0.39, up 8% Constant Currency - Adjusted Operating Income Margin Increased 30 Basis Points to 6.2%

Aramark

Aramark (NYSE:  ARMK) today reported second quarter results and reaffirmed its earnings outlook for fiscal 2016.  

KEY HIGHLIGHTS

  • GAAP sales of $3.6 billion, up 1% on an organic basis; 
  • Adjusted operating income increased 6%1 to $221 million. GAAP operating income of $172 million;
  • Adjusted earnings per share increased 8%1 to $0.39. GAAP EPS of $0.27;
  • Adjusted operating income margin increased 30 basis points to 6.2%1. GAAP operating income margin of 4.8%.
  • Full year adjusted EPS expectations unchanged at $1.65 to $1.75.

    1 Constant currency 

"We delivered another quarter of strong financial and operational performance," said Eric J. Foss, Chairman, President and CEO.  "Despite a challenging global macro environment, the combination of our resilient business model and focused strategy is driving improved innovation and customer satisfaction.  That improvement, coupled with targeted investments to enhance execution and efficiency adds confidence in our ability to achieve sustained profitability expansion and shareholder value creation going forward."

SECOND QUARTER SALES RESULTS*

 

Q2 '16

GAAP Sales

Q2 '15

GAAP Sales

GAAP

Change

Organic 

Change 

FSS North America

$2,520M

$2,519M

Flat

1%

FSS International

664

700

(5%)

1%

Uniform & Career Apparel

391

376

4%

4%

Total Company

$3,575M

$3,595M

(1%)

1%

* May not total due to rounding. 

Organic sales growth in the quarter was in-line with the company's expectations, and was adversely impacted by previously announced strategic portfolio exits and the timing of the earlier Easter holiday. These items are estimated to have reduced second quarter sales growth by approximately 100 basis points and 50 basis points, respectively.  Underlying organic sales growth remains broad based, with notable gains in Education, Uniforms and Emerging Markets during the quarter.

SECOND QUARTER ADJUSTED OPERATING INCOME (AOI) RESULTS*

 

Q2 '16 AOI

Q2 '15 AOI

AOI

Change

AOI Change

Constant 

Currency

Q2 '16 GAAP 

Operating 

Income

Q2 '15 GAAP 

Operating 

Income

FSS North America

$158M

$154M

3%

4%

$137M

$128M

FSS International

30

30

Flat

6%

25

20

Uniform & Career 

Apparel

46

42

9%

9%

44

42

Unallocated Corporate

(12)

(13)

(33)

(35)

Total Company

$221M

$213M

4%

$172M

$155M

Effect of Currency 

Translation

4

Constant Currency AOI

$225M

6%

* May not total due to rounding.

The company continued to drive solid productivity gains from food, labor and overhead initiatives in the second quarter, particularly in its FSS North America base locations.  FSS International's operating results reflect ongoing productivity gains with notable improvement in emerging markets trends as the company executes its previously announced exits from unprofitable Latin American geographies.  Consistent with expectations, the Uniform & Career Apparel segment results improved both sequentially from the first quarter and versus the prior year as start-up costs associated with recent capacity expansion have begun to normalize.   

SECOND QUARTER SUMMARY

Adjusted net income was $96 million or $0.39 per share, versus adjusted net income of $91 million or $0.37 per share in the second quarter of 2015.  The stronger U.S. dollar versus the prior year period decreased sales by approximately $67 million, operating income by $4 million and earnings per share by $0.01 in the quarter.  

During the quarter the company completed its acquisition of the Irish specialty food and merchandise retailing company, Avoca Handweavers Limited.  The results from this entity will be excluded from organic growth and adjusted operating income calculations for its first year of consolidation.  Accordingly, in the second quarter approximately $8 million of revenue and $0.75 million of operating loss was excluded from organic sales and adjusted operating income, respectively.

On a GAAP basis, sales were $3.6 billion, operating income was $172 million, net income attributable to Aramark stockholders was $66 million and diluted earnings per share were $0.27.  This compares to the second quarter of 2015 where on a GAAP basis, sales were $3.6 billion, operating income was $155 million, net income attributable to Aramark stockholders was $60 million and diluted earnings per share were $0.24.  Second quarter GAAP diluted earnings per share increased 13% year-over-year.      

LIQUIDITY & CAPITAL STRUCTURE

As of April 1, 2016 the company's total debt was $5.4 billion, representing a reduction of approximately $160 million versus the prior year's second quarter end.  Total trailing 12-month debt to adjusted EBITDA was 4.1x, an approximate 25 basis point reduction versus the prior year measurement.  Corporate liquidity remains strong, and at quarter end the company had approximately $860 million in cash and availability on its revolving credit facility.                      

2016 OUTLOOK

The company's outlook for 2016 adjusted EPS remains unchanged within a range of $1.65 to $1.75 per share, which includes 4 cents of currency headwind.     

About Aramark

Aramark (NYSE:  ARMK) delivers experiences that enrich and nourish people's lives through innovative services in food, facilities management, and uniforms. United by a passion to serve, our 270,000 employees make a meaningful difference each day for millions of people in 21 countries around the world. Aramark is recognized as one of the World's Most Admired Companies by FORTUNE, rated number one among Diversified Outsourcing Companies, as well as among the World's Most Ethical Companies by the Ethisphere Institute. 

ARAMARK AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In Thousands, Except Per Share Amounts)

Three Months

Three Months

Ended

Ended

April 1, 2016

April 3, 2015

Sales

$       3,574,822

$       3,594,627

Costs and Expenses:

     Cost of services provided

3,209,710

3,239,214

     Depreciation and amortization

120,291

125,142

     Selling and general corporate expenses

72,707

75,418

3,402,708

3,439,774

Operating income

172,114

154,853

Interest and other financing costs, net

71,751

71,206

     Income before income taxes 

100,363

83,647

Provision for income taxes

33,866

23,542

     Net income

66,497

60,105

     Less: Net income attributable to noncontrolling interest

143

282

     Net income attributable to Aramark stockholders

$            66,354

$            59,823

Earnings per share attributable to Aramark stockholders:

Basic

$                0.27

$                0.25

Diluted

$                0.27

$                0.24

Weighted Average Shares Outstanding:

Basic

241,901

237,453

Diluted

248,270

246,019

 

 

 

 

ARAMARK AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In Thousands, Except Per Share Amounts)

Six Months

Six Months

Ended

Ended

April 1, 2016

April 3, 2015

Sales

$    7,285,097

$    7,296,980

Costs and Expenses:

     Cost of services provided

6,504,233

6,526,495

     Depreciation and amortization

247,809

250,425

     Selling and general corporate expenses

146,848

163,304

6,898,890

6,940,224

Operating income

386,207

356,756

Interest and other financing costs, net

143,071

143,129

     Income before income taxes 

243,136

213,627

Provision for income taxes

83,203

67,902

     Net income

159,933

145,725

     Less: Net income attributable to noncontrolling interest

236

405

     Net income attributable to Aramark stockholders

$       159,697

$       145,320

Earnings per share attributable to Aramark stockholders:

Basic

$             0.66

$             0.62

Diluted

$             0.64

$             0.59

Weighted Average Shares Outstanding:

Basic

241,205

236,040

Diluted

248,013

245,381

 

 

 

 

ARAMARK AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In Thousands)

April 1, 2016

October 2, 2015

Assets

Current Assets:

Cash and cash equivalents

$          147,724

$          122,416

Receivables 

1,473,654

1,444,574

Inventories

575,548

575,263

Prepayments and other current assets

224,345

236,870

Total current assets

2,421,271

2,379,123

Property and Equipment, net

989,756

959,345

Goodwill

4,591,958

4,558,968

Other Intangible Assets

1,072,182

1,111,980

Other Assets

1,253,253

1,186,941

$     10,328,420

$     10,196,357

Liabilities and Stockholders' Equity

Current Liabilities:

Current maturities of long-term borrowings

$            42,241

$            81,427

Accounts payable

749,665

850,040

Accrued expenses and other current liabilities

1,107,506

1,249,521

Total current liabilities

1,899,412

2,180,988

Long-Term Borrowings

5,366,112

5,184,597

Other Liabilities

1,003,573

937,311

Redeemable Noncontrolling Interest

9,980

10,102

Total Stockholders' Equity

2,049,343

1,883,359

$     10,328,420

$     10,196,357

 

 

 

 

ARAMARK AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)

Six Months

Six Months

Ended

Ended

April 1, 2016

April 3, 2015

Cash flows from operating activities:

     Net income

$        159,933

$        145,725

     Adjustments to reconcile net income to net cash provided by

       operating activities:

          Depreciation and amortization

247,809

250,425

          Income taxes deferred

29,832

(1,329)

          Share-based compensation expense

29,373

31,501

     Changes in operating assets and liabilities

(260,231)

(359,363)

     Other operating activities

3,083

11,758

Net cash provided by operating activities

209,799

78,717

Cash flows from investing activities:

     Net purchases of property and equipment,

       client contract investments and other

(233,833)

(220,738)

     Acquisitions, divestitures and other investing activities

(55,501)

767

Net cash used in investing activities

(289,334)

(219,971)

Cash flows from financing activities:

     Net proceeds/payments of long-term borrowings

123,153

147,630

     Payments of dividends

(45,795)

(40,685)

     Proceeds from issuance of common stock

16,524

16,652

     Other financing activities 

10,961

40,721

Net cash provided by financing activities

104,843

164,318

Increase in cash and cash equivalents

25,308

23,064

Cash and cash equivalents, beginning of period

122,416

111,690

Cash and cash equivalents, end of period

$        147,724

$        134,754

 

 

 

 

ARAMARK AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP MEASURES

ADJUSTED CONSOLIDATED OPERATING INCOME MARGIN

(Unaudited)

(In thousands)

 

 

Three Months Ended

 April 1, 2016 

FSS North America

FSS International

Uniform

Corporate

Aramark and Subsidiaries

Sales (as reported)

$        2,520,188

$           664,002

$           390,632

$        3,574,822

Operating Income (as reported)

$           137,236

$             24,560

$             43,734

$           (33,416)

$           172,114

Operating Income Margin (as reported)

5.4%

3.7%

11.2%

4.8%

Sales (as reported)

$        2,520,188

$           664,002

$           390,632

$        3,574,822

Effect of Currency Translation

17,000

49,897

-

66,897

Effects of Acquisitions and Divestitures

-

(7,970)

-

(7,970)

Adjusted Sales (Organic)

$        2,537,188

$           705,929

$           390,632

$        3,633,749

Sales Growth (as reported)

0.0%

-5.1%

3.9%

-0.6%

Adjusted Sales Growth (Organic)

0.7%

0.9%

3.9%

1.1%

Operating Income (as reported)

$           137,236

$             24,560

$             43,734

$           (33,416)

$           172,114

Amortization of Acquisition-Related Customer Relationship Intangible Assets and Depreciation of Property and Equipment Resulting from the 2007 LBO

18,438

147

(644)

-

17,941

Share-Based Compensation

282

112

89

14,211

14,694

Severance and Other Charges

1,840

4,015

2,480

2,870

11,205

Effects of Acquisitions and Divestitures

-

760

-

-

760

Gains, Losses and Settlements impacting comparability

485

-

-

3,955

4,440

Adjusted Operating Income

$           158,281

$             29,594

$             45,659

$           (12,380)

$           221,154

Effect of Currency Translation

1,700

1,969

-

-

3,669

Adjusted Operating Income (Constant Currency)

$           159,981

$             31,563

$             45,659

$           (12,380)

$           224,823

Adjusted Operating Income Growth

3.0%

-0.3%

9.2%

4.0%

Adjusted Operating Income Growth (Constant Currency)

4.1%

6.3%

9.2%

5.8%

Adjusted Operating Income Margin (Constant Currency)

6.3%

4.5%

11.7%

6.2%

Three Months Ended

 April 3, 2015 

FSS North America

FSS International

Uniform

Corporate

Aramark and Subsidiaries

Sales (as reported)

$        2,519,127

$           699,698

$           375,802

$        3,594,627

Adjusted Sales (Organic)

$        2,519,127

$           699,698

$           375,802

$        3,594,627

Operating Income (as reported)

$           127,582

$             20,371

$             41,631

$           (34,731)

$           154,853

Amortization of Acquisition-Related Customer

   Relationship Intangible Assets and Depreciation of

   Property and Equipment Resulting from the 2007 LBO

27,531

227

(619)

-

27,139

Share-Based Compensation

962

2,569

213

15,925

19,669

Severance and Other Charges

(2,388)

2,148

-

6,601

6,361

Gains, Losses and Settlements impacting comparability

-

4,367

600

(404)

4,563

Adjusted Operating Income

$           153,687

$             29,682

$             41,825

$           (12,609)

$           212,585

Operating Income Margin (as reported)

5.1%

2.9%

11.1%

4.3%

Adjusted Operating Income Margin

6.1%

4.2%

11.1%

5.9%

 

 

 

ARAMARK AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP MEASURES

ADJUSTED CONSOLIDATED OPERATING INCOME MARGIN

(Unaudited)

(In thousands)

Six Months Ended

 April 1, 2016 

FSS North America

FSS International

Uniform

Corporate

Aramark and Subsidiaries

Sales (as reported)

$      5,142,829

$      1,358,921

$         783,347

$      7,285,097

Operating Income (as reported)

$         305,565

$           54,583

$           94,077

$          (68,018)

$         386,207

Operating Income Margin (as reported)

5.9%

4.0%

12.0%

5.3%

Sales (as reported)

$      5,142,829

$      1,358,921

$         783,347

$      7,285,097

Effect of Currency Translation

48,102

131,952

-

180,054

Effects of Acquisitions and Divestitures

-

(7,970)

-

(7,970)

Adjusted Sales (Organic)

$      5,190,931

$      1,482,903

$         783,347

$      7,457,181

Sales Growth (as reported)

1.2%

-6.8%

3.7%

-0.2%

Adjusted Sales Growth (Organic)

2.1%

1.7%

3.7%

2.2%

Operating Income (as reported)

$         305,565

$           54,583

$           94,077

$          (68,018)

$         386,207

Amortization of Acquisition-Related Customer Relationship Intangible Assets and Depreciation of Property and Equipment Resulting from the 2007 LBO

45,780

289

(1,299)

-

44,770

Share-Based Compensation

608

184

129

29,874

30,795

Severance and Other Charges

1,840

3,151

2,480

6,305

13,776

Effects of Acquisitions and Divestitures

-

760

-

-

760

Gains, Losses and Settlements impacting comparability

2,195

381

-

4,720

7,296

Adjusted Operating Income

$         355,988

$           59,348

$           95,387

$          (27,119)

$         483,604

Effect of Currency Translation

5,079

5,856

-

-

10,935

Adjusted Operating Income (Constant Currency)

$         361,067

$           65,204

$           95,387

$          (27,119)

$         494,539

Adjusted Operating Income Growth

4.5%

-3.3%

2.2%

4.1%

Adjusted Operating Income Growth (Constant Currency)

6.2%

6.4%

2.3%

6.4%

Adjusted Operating Income Margin (Constant Currency)

7.0%

4.4%

12.2%

6.6%

Six Months Ended

 April 3, 2015 

FSS North America

FSS International

Uniform

Corporate

Aramark and Subsidiaries

Sales (as reported)

$      5,083,493

$      1,458,369

$         755,118

$      7,296,980

Adjusted Sales (Organic)

$      5,083,493

$      1,458,369

$         755,118

$      7,296,980

Operating Income (as reported)

$         289,959

$           51,039

$           96,180

$          (80,422)

$         356,756

Amortization of Acquisition-Related Customer

   Relationship Intangible Assets and Depreciation of

   Property and Equipment Resulting from the 2007 LBO

55,502

1,647

(1,321)

-

55,828

Share-Based Compensation

1,542

2,624

374

31,928

36,468

Severance and Other Charges

(888)

1,148

158

14,386

14,804

Gains, Losses and Settlements impacting comparability

(6,148)

4,825

(2,132)

4,275

820

Adjusted Operating Income

$         339,967

$           61,283

$           93,259

$          (29,833)

$         464,676

Operating Income Margin (as reported)

5.7%

3.5%

12.7%

4.9%

Adjusted Operating Income Margin

6.7%

4.2%

12.4%

6.4%

 

 

 

ARAMARK AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP MEASURES

ADJUSTED NET INCOME, ADJUSTED OPERATING INCOME, ADJUSTED EBITDA & ADJUSTED EPS

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended

Three Months Ended

Six Months Ended

Six Months Ended

 April 1, 2016 

 April 3, 2015 

 April 1, 2016 

 April 3, 2015 

Net Income Attributable to Aramark Stockholders (as reported)

$                    66,354

$                    59,823

$                  159,697

$                  145,320

Adjustment:

Amortization of Acquisition-Related Customer Relationship Intangible Assets and Depreciation of Property and Equipment Resulting from the 2007 LBO

17,941

27,139

44,770

55,828

Share-Based Compensation

14,694

19,669

30,795

36,468

Severance and Other Charges

11,205

6,361

13,776

14,804

Effects of Acquisitions and Divestitures

760

-

760

-

Gains, Losses and Settlements impacting

   comparability

4,440

4,563

7,296

820

Tax Impact of Adjustments to Adjusted Net

   Income

(19,144)

(26,951)

(38,257)

(46,575)

Adjusted Net Income

$                    96,250

$                    90,604

$                  218,837

$                  206,665

Effect of Currency Translation, net of Tax

2,308

-

6,879

-

Adjusted Net Income (Constant Currency)

$                    98,558

$                    90,604

$                  225,716

$                  206,665

Adjusted Earnings Per Share

Adjusted Net Income

$                    96,250

$                    90,604

$                  218,837

$                  206,665

Diluted Weighted Average Shares Outstanding

248,270

246,019

248,013

245,381

$                        0.39

$                        0.37

$                        0.88

$                        0.84

Adjusted Earnings Per Share (Constant Currency)

Adjusted Net Income (Constant Currency)

$                    98,558

$                    90,604

$                  225,716

$                  206,665

Diluted Weighted Average Shares Outstanding

248,270

246,019

248,013

245,381

$                        0.40

$                        0.37

$                        0.91

$                        0.84

 

 

 

 

ARAMARK AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP MEASURES

DEBT TO ADJUSTED EBITDA

(Unaudited)

(In thousands)

Twelve Months Ended

Twelve Months Ended

 April 1, 2016 

 April 3, 2015 

Net Income Attributable to Aramark Stockholders (as reported)

$                    250,323

$                    236,746

Adjustment:

Amortization of Acquisition-Related Customer Relationship Intangible Assets and Depreciation of Property and Equipment Resulting from the 2007 LBO

99,022

114,995

Share-Based Compensation

67,127

61,857

Effect of Currency Translation

10,935

-

Severance and Other Charges

65,517

54,531

Effects of Acquisitions and Divestitures

760

-

Branding

-

12,058

Gains, Losses and Settlements impacting comparability

10,094

68

Tax Impact of Adjustments to Adjusted Net Income

(96,862)

(104,862)

Adjusted Net Income

$                    406,916

$                    375,393

Adjustment:

     Tax Impact of Adjustments to Adjusted Net Income

96,862

104,862

Provision for Income Taxes

120,123

113,551

Interest and Other Financing Costs, net

285,884

292,588

Adjusted Operating Income

$                    909,785

$                    886,394

Adjustment:

Amortization of Acquisition-Related Customer Relationship Intangible Assets and Depreciation of Property and Equipment Resulting from the 2007 LBO

(99,022)

(114,995)

Depreciation and Amortization

501,417

509,865

Adjusted EBITDA

$                 1,312,180

$                 1,281,264

Debt to Adjusted EBITDA

Total Long-Term Borrowings

$                 5,408,353

$                 5,567,223

Adjusted EBITDA

$                 1,312,180

$                 1,281,264

Debt/Adjusted EBITDA

4.1

4.3



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