Aramark Q4 FY2025 earnings call

Management Statement and Operational Highlights

• New Business and Retention: Annualized gross new wins were $1.6 billion, 12% higher than fiscal '24, with a client retention rate of 96.3%. Net new business was 5.6%, and over $1 billion of new purchasing spend was added in the supply chain GPO network.
• Fiscal '25 Results: GAAP revenue was $18.5 billion, up 6% year-over-year; organic revenue grew 7%. Adjusted operating income for the full year was $981 million, up 12% on a constant currency basis.
• Key Initiatives: Advanced initiatives like the Penn Medicine multiyear agreement, leveraging AI in patient menus and staffing at Penn Medicine, and continued expansion in International and Global Supply Chain.
• Outlook for Fiscal '26: Anticipates organic revenue $19.45 billion to $19.85 billion (7%-9% growth), AOI $1.1 billion to $1.15 billion (12%-17% growth), adjusted EPS $2.18 to $2.28 (20%-25% growth), and leverage ratio below 3x.

Segment Performance

• FSS U.S.: In the fourth quarter, organic revenue grew 14%. Excluding the 53rd week, organic revenue was up mid-single digits. Workplace Experience and Refreshments had record net new business, Collegiate Hospitality saw strong retention and benefited from higher student enrollments, and Healthcare reported its best performance in over 2 years. For the full fiscal year, organic revenue grew 7% from net new business, base business, and 2% from the 53rd week.
• International: Delivered consistent double-digit organic revenue growth, increasing 14% in the fourth quarter. All geographic regions contributed, with particular strength in the U.K., Canada, Ireland, Spain, and Latin America. Toward the end of the quarter, International had its highest revenue ever for a single 1-day event.
• Global Supply Chain: Avendra International added another $1 billion of new purchasing spend in its GPO network. The supply chain team leveraged enhanced technology capabilities to optimize client compliance and contract productivity, with deployments globally and the Quantum acquisition contributing to growth in Europe and Latin America.

Guidance

• Organic Revenue: Expected to be between $19.45 billion and $19.85 billion for fiscal '26, representing 7%-9% growth.
• Adjusted Operating Income (AOI): Projected to be between $1.1 billion and $1.15 billion, a 12%-17% increase.
• Adjusted EPS: Estimated in the range of $2.18 to $2.28, reflecting a 20%-25% growth.
• Leverage Ratio: Aiming for below 3x in fiscal '26.

Risks

• Client-Driven Timing: Contract openings delayed due to client-driven processes, impacting revenue timing in quarters.
• Cost Ramps with New Wins: Potential cost increases with large new contracts, though offset by efficiencies from technology and SG&A leverage.
• Medical Expenses: Decisive actions taken to manage medical costs related to GLP-1 coverage, but ongoing monitoring required.

Question and Answer

• Q: Ian Zaffino asked about the shift in new account openings timing.

A: John Zillmer said it was client-driven across multiple businesses, but excited about '26 trajectory with strong new business and retention.

• Q: Toni Kaplan inquired about cost trajectory with new wins and AI initiatives.

A: James Tarangelo and John Zillmer discussed cost offsets via efficiency, AI, and normalized opening costs in guidance.

• Q: Leo Carrington asked about Penn Medicine deal implications and B&I segment growth.

A: John Zillmer talked about Penn's phased opening and B&I's growth through capabilities and performance.

• Q: Andrew Steinerman asked about organic revenue drivers.

A: James Tarangelo broke down '25 drivers (volume, price, net new) and '26 expectations.

• Q: Jaafar Mestari asked about net new business contribution in '26.

A: James Tarangelo explained timing of large wins like Penn and Oakland A's affecting revenue realization.

• Q: Neil Tyler asked about restructuring in International and contract startup delays.

A: John Zillmer and James Tarangelo stated delays were client-driven, not Aramark-driven.

• Q: Jasper Bibb asked about quarterly margin cadence.

A: James Tarangelo discussed first half vs second half impact of calendar shifts on margins.

• Q: Andrew Wittmann asked about 1Q revenue and pipeline.

A: John Zillmer and James Tarangelo talked about pipeline robustness and 1Q cadence based on seasonal factors.

• Q: Shlomo Rosenbaum asked about retention and contract renewals.

A: John Zillmer said retention is a priority, aiming for above 95% and continuing to raise the bar.

• Q: Joshua Chan asked about 2026 contract renewals.

A: John Zillmer said '26 is normal, well-positioned with no high-impact renewal items.

• Q: Stephanie Moore asked about in-sourcing vs outsourcing.

A: John Zillmer said elevated first-time outsourcing, strong market for Aramark due to quality and client relationships.