Aramark Reports Third Quarter 2017 Earnings

8/8/17

Aramark (NYSE: ARMK) today reported third quarter fiscal results.

"Our operating momentum continues as we make consistent progress against our strategic priorities, which led to another quarter of solid performance," said Eric J. Foss, Chairman, President and CEO. "Our results reflect broad-based strength fueled by a constant focus on innovating across the entire portfolio in quality, premium offerings, health & wellness, and technology to create a differentiated experience for Aramark customers."

"Simultaneously, our productivity expansion remains on track and is enabling reinvestment in growth and capability," Foss continued. "Our performance positions us well to achieve our 2017 full-year outlook and to continue driving future shareholder value creation."

Consolidated revenues were $3.6 billion in the quarter, an organic increase of 1% over the prior-year period. The North America segment was positively impacted by growth in Sports, Leisure and Corrections, Business & Industry and Education. The International segment delivered strong, broad-based organic growth, while Uniform sales were down modestly as expected.

The Company drove strong productivity improvements in North America and International base accounts, while continuing to reinvest in technology and capabilities. International margins were also impacted by the timing of certain expenses, as well as the timing of the Easter holiday. Uniform income was impacted by installation costs related to the onboarding of new business.

THIRD QUARTER SUMMARYOn a GAAP basis, sales were $3.6 billion, operating income was $155 million, net income attributable to Aramark stockholders was $65 million and diluted earnings per share were $0.26. This compares to the third quarter of 2016 where, on a GAAP basis, sales were $3.6 billion, operating income was $169 million, net income attributable to Aramark stockholders was $45 million and diluted earnings per share were $0.18. Third quarter GAAP diluted earnings per share increased 44% year-over-year. Tax expense benefited from the results of tax planning efforts and the adoption of new accounting standards related to share-based compensation.

Adjusted net income was $100 million or $0.40 per share, versus adjusted net income of $84 million or $0.34 per share in the third quarter of 2016. A stronger U.S. dollar decreased sales by approximately $33 million, but had no material impact on operating income or earnings per share.

CAPITAL STRUCTURE & LIQUIDITYTotal trailing 12-month net debt to covenant adjusted EBITDA was 3.8x, a 10 basis point reduction versus the prior year measurement. Corporate liquidity remains strong, and at quarter-end the company had approximately $1.0 billion in cash and availability on its revolving credit facility.

2017 OUTLOOKThe Company provides its expectations for full-year adjusted EPS and full-year free cash flow on a non-GAAP basis, and does not provide a reconciliation of such forward-looking non-GAAP measures to GAAP due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations, including adjustments that could be made for the impact of the change in fair value related to certain gasoline and diesel agreements, severance and other charges and the effect of currency translation.

The Company's outlook for 2017 adjusted EPS remains unchanged within a range of $1.90 to $2.00 per share, which includes 1 cent of currency headwind. Further, the Company is now expecting full-year free cash flow of greater than $425 million.

CONFERENCE CALL SCHEDULEDThe Company has scheduled a conference call at 10 a.m. ET 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) proudly serves Fortune 500 companies, world champion sports teams, state-of-the-art healthcare providers, the world's leading educational institutions, iconic destinations and cultural attractions, and numerous municipalities in 19 countries around the world. Our 270,000 team members deliver experiences that enrich and nourish millions of lives every day through innovative services in food, facilities management and uniforms. We operate our business with social responsibility, focusing on initiatives that support our diverse workforce, advance consumer health and wellness, protect our environment, and strengthen our communities. Aramark is recognized as one of the World's Most Admired Companies by FORTUNE, rated number one among Diversified Outsourcing Companies, as well as an employer of choice by the Human Rights Campaign and DiversityInc. Learn more at www.aramark.com or connect with us on Facebook and Twitter.

Selected Operational and Financial Metrics

Adjusted Sales (Organic)Adjusted Sales (Organic) represents sales growth, adjusted to eliminate the effects of material acquisitions and divestitures and the impact of currency translation.

Adjusted Operating IncomeAdjusted 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 "2007 LBO"); 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 material 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.

Covenant Adjusted EBITDACovenant Adjusted EBITDA represents net income attributable to Aramark stockholders adjusted for interest and other financing costs, net; provision (benefit) for income taxes; depreciation and amortization; and certain other items as defined in our debt agreements required in calculating covenant ratios and debt compliance. The Company also uses Net Debt for its ratio to Covenant Adjusted EBITDA, which is calculated as total long-term borrowings less cash and cash equivalents.

Adjusted Net IncomeAdjusted Net Income represents net income attributable to Aramark stockholders adjusted to eliminate the change in amortization of acquisition-related customer relationship intangible assets and depreciation of property and equipment resulting from the 2007 LBO; 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 material acquisitions and divestitures and other items impacting comparability, less the tax impact of these adjustments. The tax effect for adjusted net income for our U.S. earnings is calculated using a blended U.S. federal and state tax rate. The tax effect for adjusted net income in jurisdictions outside the U.S. is calculated at the local country tax rate.

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

Adjusted EPSAdjusted EPS represents Adjusted Net Income divided by diluted weighted average shares outstanding.

Free Cash FlowFree Cash Flow represents net cash provided by operating activities less net purchases of property and equipment, client contract investments and other. Management believes that the presentation of free cash flow provides useful information to investors because it represents a measure of cash flow available for distribution among all the security holders of the Company.

We use Adjusted Sales (Organic), Adjusted Operating Income (including on a constant currency basis), Covenant Adjusted EBITDA, Adjusted Net Income (including on a constant currency basis), Adjusted EPS and Free Cash Flow as supplemental measures of our operating profitability and to control our cash operating costs. We believe these financial measures are useful to investors because they enable better comparisons of our historical results and allow our investors to evaluate our performance based on the same metrics that we use to evaluate our performance and trends in our results. These financial metrics are not measurements of financial performance under generally accepted accounting principles, or GAAP. 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, net income, or earnings per share, determined in accordance with GAAP. Adjusted Sales (Organic), Adjusted Operating Income, Covenant Adjusted EBITDA, Adjusted Net Income, Adjusted EPS and Free Cash Flow 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 2007 Leveraged Buy-out - 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 organizational streamlining initiatives ($18.4 million net expense for the third quarter and year-to-date 2017 and $1.9 million net expense for the third quarter of 2016 and $9.0 million net expense for the year-to-date 2016), and other consulting costs related to transformation initiatives ($2.4 million for the third quarter and year-to-date 2017 and $4.8 million for the third quarter of 2016 and $11.4 million for the year-to-date 2016).

Effects of acquisitions and divestitures - adjustments to eliminate the impact that material 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, primarily for income from prior years' loss experience that were favorable under our casualty insurance program ($6.5 milliongain for the year-to-date 2017), expenses related to acquisition costs ($1.0 million for the third quarter of 2016 and $1.4 million for the year-to-date 2016), expenses related to long-term disability payments (approximately $2.3 million for the year-to-date 2016), property and other asset write-downs associated with the sale of a building ($5.1 million for the third quarter of 2016 and $6.8 million for the year-to-date 2016) and the impact of the change in fair value related to certain gasoline and diesel agreements ($2.9 million loss for the third quarter of 2017 and $4.0 million loss for the year-to-date 2017 and $11.3 million gain for the third quarter of 2016 and $8.3 million gain for the year-to-date 2016).

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.

Effect of refinancing on interest and other financing costs, net - adjustments to eliminate expenses associated with refinancing activities undertaken by the Company in the applicable period such as third party costs and non-cash charges for the write-offs of deferring financing costs and debt discounts.

Tax Impact of Adjustments to Adjusted Net Income - adjustments to eliminate the net tax impact of the adjustments to adjusted net income calculated based on a blended U.S. federal and state tax rate for U.S. adjustments and the local country tax rate for adjustments in jurisdictions outside the U.S. 

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