Aramark reported third-quarter fiscal 2023 results.
Year-over-year summary
Revenue +15%; organic revenue +14%
- Performance driven by net new business, pricing actions, and base business growth
- Contributions to growth from each reportable segment
Operating income +38%; adjusted operating income (AOI) +34%
- Operating income margin +70 bps; AOI margin +75 bps
- Higher profitability due to operating leverage from increased revenue, improved supply chain economics, and disciplined above-unit cost management
EPS +706% to $1.29; adjusted EPS +48% to $0.36
- Results reflected consistent focus on profitable growth across the organization
- GAAP EPS included a net gain on sale from non-controlling equity investments
"Aramark's third quarter results reflect our continued focus on profitable growth across the organization," John Zillmer, Aramark's chief executive officer, said in the announcement. "With signs of inflation moderating, and our pricing actions taking hold, we are increasingly confident in the ramp in profitability as we finish the fiscal year. I am extremely proud of our teams across the globe, which exemplify our performance-driven culture that contributed to our raised outlook expectations. We believe that we are well positioned to capitalize on the substantial opportunities ahead."
Third-quarter results
Consolidated revenue was $4.7 billion in the third quarter, an increase of 15% year-over-year, driven by net new business, pricing actions, and base business growth. Revenue growth results included an incremental $47 million contribution from Union Supply Group, which was acquired in June 2022. A stronger dollar in the period impacted revenue by $21 million.
Organic revenue, which adjusts for the effect of currency translation and certain acquisitions, grew 14% year-over-year compared to the prior year period.
FSS United States revenue growth benefited from net new business and pricing actions, as well as strong base business performance led by higher per capita spending in the Sports & Entertainment business and increased return-to-work volume in the Business & Industry sector.
FSS International grew revenue across all geographies, particularly in the U.K., Germany, and Canada, as a result of net new business, pricing actions, and ongoing base business growth.
Uniform & Career Apparel increased revenue driven primarily by pricing actions, and growth in adjacency sales, partially offset by the rollback of an energy surcharge that was implemented in the third quarter last year.
Operating income increased 38% year-over-year, growing to $203 million, and AOI grew 34%1 to $240 million, reflecting an operating income margin increase of 70 basis points and an AOI margin increase of 75 basis points. Performance was driven by operating leverage from increased revenue, improved supply chain economics, and disciplined above-unit cost management. The effect of currency translation impacted results by $0.8 million.
Year-over-year profitability improvement was a result of the following segment performance:
FSS United States increase was driven by the ongoing maturity of new business, supply chain purchasing normalization and initiatives, and disciplined above-unit cost management across the entire segment.
FSS International results benefited from scaling new business, leverage from higher base business volumes, improved supply chain economics, and reduced above-unit costs from actions taken earlier in the fiscal year.
Uniform & Career Apparel improved due to a focus on revenue mix and base business performance as well as early savings associated with operating and administrative cost efficiency initiatives implemented at the end of the second quarter.
Corporate expenses reflected prudent cost management as revenue increased, as well as lower share-based compensation expense.
Business update
Aramark remains committed to driving its profitable growth strategies. The company has consistently delivered net new business wins at a higher rate than historical levels and third quarter 2023 organic revenue has now reached over 120% of the comparable period in fiscal 2019.
The company anticipates improved profitability in the near- and longer-term through:
- Ongoing supply chain normalization and optimization and expected benefits from early trends related to the moderation of inflation.
- Profit improvement through pricing actions, most notably in the fourth quarter in the Education sector and Corrections business.
- Profitability ramp of new business as a result of operational maturity and efficiencies.
- Benefit from recently completed organizational restructuring initiatives, particularly in FSS International and Uniform Services.
- Disciplined control and leverage of above-unit overhead across higher revenue.
Uniform services spin-off
Aramark has made significant progress related to the operational, regulatory, and financial logistics to complete the spin-off of the Uniforms segment. Based on the current macroeconomic and capital market environment, the company anticipates the transaction to be completed at the end of its fiscal year, subject to customary closing conditions.
Outlook
Aramark raised its full-year performance expectations for fiscal 2023.
"Our significant progress on a number of key initiatives this year — including record revenue results, accelerating AOI growth, and reducing our leverage — reflects our focus on execution and operational excellence, and delivering for our clients and customers," Zillmer added in the announcement. "As we enter the fourth quarter, I remain confident in our ability to close the year in a position of strength and build upon these results as we move into fiscal 2024."
