Aramark Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Acknowledged the loss of Tiru Chabba and expressed support for his family.
• Positive trends: strong client retention rate >98% in FSS US and international, monthly revenue growth acceleration (April revenue growth 6%), and $760 million in new client wins YTD with visibility to net new 4%-5% in fiscal '25.
• Second quarter organic revenue $4.3 billion, up 3%. Record AOI profitability in global FSS.
• FSS US: Organic revenue $3.1 billion, ~1% growth, driven by new business and higher participation in workplace experience. Sports business saw per capita spending increase on opening day.
• International: Strong growth with new business wins in sports and other sectors, innovation with SAP's S.Mart Store demonstrating tech-hospitality integration.
• Global Supply Chain: Focus on spend growth, AI-driven tech, GPO footprint expansion, and successful integration of Quantum acquisition.

Segment Performance

• FSS US: Organic revenue increased to $3.1 billion, a ~1% increase in the second quarter, affected approximately 3% by factors like facility exits, calendar shifts, and weather. Driven by new business, higher participation in workplace experience, micro market/vending services, and new wins such as the Philadelphia Union and University of Nebraska. Revenue contribution significant.
• International: Organic revenue reached $1.3 billion, up 10% year-over-year. Virtually all countries reported growth, with the UK, Spain, Chile, and Canada leading. New business wins include the Sussex County Cricket Club, Wimbledon Football Club, and Everton Football Club's new stadium. Revenue contribution notable.
• Global Supply Chain: Focus on growing, leveraging, and optimizing spend. Performance strong with AI-driven technology for purchasing compliance. Acquisition of Quantum integrating well, expecting procurement synergies. Organic revenue growth strong across GPO channels.

Guidance

• Anticipate revenue growth to notably accelerate in Q3 due to higher base business volume and net new business expansion, lapping facilities exits from last year.
• Expect momentum to continue into Q4, positioning a strong exit rate for fiscal '26.
• Maintain previously stated financial performance outlook for fiscal '25.
• Continue to achieve AOI growth and margin expansion from supply chain efficiencies, effective cost discipline, and higher revenue levels.

Risks

• Macro environment fluctuations, including tariffs and inflation, introducing uncertainty in pricing and cost expectations.
• Potential impact of university funding cuts and healthcare budget constraints on business performance.
• FX volatility affecting international revenue due to currency fluctuations.

Question and Answer

• Q: On net new and upside potential: A: Jim Tarangelo mentioned revenue accelerated in Q2, with April at 6%, and expects the exit rate to be north of the multiyear range of 5%-8% in Q4.
• Q: On Avendra and inflation: A: John Zillmer stated Avendra manages supply chain disruptions, able to price to recover inflationary costs, and the GPO consistently negotiates better deals.
• Q: On consumer behavior shifts: A: John Zillmer said there's no significant change in consumer behavior in their portfolio, and the business is recession resilient.
• Q: On Avendra margin impact: A: Jim Tarangelo said Avendra contributes to margin improvement via supply chain efficiencies, though specifics aren't disclosed for competitive reasons.
• Q: On retention and new business: A: John Zillmer noted retention above 98%, a robust pipeline with first-time outsourcing, and higher retention than normal due to proactive efforts.
• Q: On healthcare business and subsidies: A: John Zillmer said the healthcare industry is challenged, but Aramark helps reduce costs via ancillary services.
• Q: On CapEx and free cash flow: A: Jim Tarangelo said CapEx is expected to be ~3% of revenue, consistent with industry norms.
• Q: On international growth and FX: A: Jim Tarangelo mentioned international has strong double-digit growth, and FX headwinds were held steady due to market volatility.
• Q: On pricing and margin expansion: A: Jim Tarangelo said pricing is in line with inflation, and margin expansion comes from supply chain efficiencies, SG&A management, and food cost control.
• Q: On higher inflation: A: John Zillmer said Aramark is well-positioned to process higher inflation with detailed data and systems in place.