Aramark (ARMK) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary reveals strong financial performance, with positive growth in key areas such as revenue and operating income. The Q&A section highlights robust client retention, effective inflation management, and strategic investments in AI, enhancing productivity. Despite some unclear responses, the overall sentiment is positive, supported by strategic growth in Europe and new contracts. The company's optimistic guidance and focus on technology investments further bolster the positive outlook.
Key Financial Performance
Organic Revenue $4.8 billion in Q1 FY2026, a 5% increase year-over-year. Growth would have been approximately 8% without the calendar shift. Growth driven by strong base business and net new business.
FSS U.S. Organic Revenue $3.4 billion in Q1 FY2026, a 2% increase year-over-year. Growth would have been approximately 5% without the calendar shift, primarily affecting Education. Growth driven by Workplace Experience, Refreshments, Healthcare, Sports and Entertainment, and Corrections.
International Organic Revenue $1.5 billion in Q1 FY2026, a 13% increase year-over-year. Growth driven by exceptional client retention and contributions from countries like the U.K., Spain, Germany, and Chile.
Operating Income $218 million in Q1 FY2026, slightly up year-over-year. Adjusted Operating Income (AOI) was $263 million, a 1% increase on a constant currency basis. AOI growth would have been approximately 11% without the calendar shift. Growth driven by higher revenue levels, technology leveraging, and cost management.
U.S. AOI 1% decline year-over-year in Q1 FY2026. Growth would have been approximately 9% without the calendar shift. Driven by revenue drop-through, technology efficiencies, and supply chain productivity.
International AOI 12% increase year-over-year on a constant currency basis in Q1 FY2026. Growth led by strong results in the U.K., Spain, and Chile, partially offset by mobilization costs and slight calendar shift impact.
Adjusted EPS $0.51 in Q1 FY2026, impacted by the calendar shift, which reduced growth by approximately 13%. Growth driven by higher revenue levels and cost efficiencies.
Cash Flow Cash outflow increased year-over-year in Q1 FY2026 due to greater working capital use from strong business growth. Capital expenditures were higher due to timing of commitments for new business wins and client renewals.
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Operating Highlights
New Client Wins: Significant new client wins in healthcare, education, and corrections within the U.S., and in sports, mining, and energy internationally. Notable wins include Penn Medicine, RWJ Barnabas Health, and the University of Albany.
AI Integration: Proprietary AI platforms are being integrated for menu planning and operational efficiency, particularly in corrections and supply chain operations.
International Expansion: International revenue reached $1.5 billion, a 13% year-over-year increase. New business wins include Welsh Rugby Union and mining contracts in Latin America.
Global Supply Chain Growth: Double-digit growth in global supply chain operations, with over $20 billion in contracted spend. Expansion into adjacent hospitality areas like theme parks, hotels, and cruise lines.
Client Retention: Achieved unprecedented client retention levels in both U.S. and International segments.
Operational Efficiencies: AI-driven technology is enhancing supply chain productivity and providing real-time business insights.
Strategic Acquisitions: Focused on scaling through select strategic acquisitions to enhance global supply chain operations.
Financial Flexibility: Repriced $2.4 billion of term loans at lower interest rates, resulting in interest expense savings.
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Risk or Challenges
Calendar Shift Impact: The calendar shift caused a 3% to 4% unfavorable impact on growth in the first quarter, reducing revenue by approximately $125 million. This shift also affected profitability, reducing adjusted operating income (AOI) by an estimated $25 million.
Mobilization Costs: Mobilization costs in certain countries, particularly within Sports and Entertainment and Higher Education, partially offset profitability growth in the International segment.
Working Capital Use: Increased working capital use due to strong business growth led to higher cash outflows compared to the prior year.
Capital Expenditures: Higher capital expenditures were incurred due to the timing of commitments associated with sizable new business wins and certain client renewals.
Interest Expense: Interest expense was $81 million, and while steps were taken to optimize financial flexibility, interest costs remain a financial burden.
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Guidance & Outlook
Revenue Growth: The company expects organic revenue growth of 7% to 9% for fiscal 2026, with strong performance anticipated in the second quarter due to onboarding new business and calendar shift benefits.
Adjusted Operating Income (AOI): AOI is projected to increase by 12% to 17% for fiscal 2026, driven by supply chain efficiencies, cost discipline, and higher revenue levels.
Adjusted EPS Growth: Adjusted EPS is expected to grow by 20% to 25% for fiscal 2026.
Leverage Ratio: The company aims to achieve a leverage ratio below 3x by the end of fiscal 2026.
Client Retention and New Business: The company anticipates maintaining high client retention levels and onboarding significant new business, including major contracts in healthcare, education, and corrections.
International Growth: International revenue is expected to continue its double-digit growth trajectory, with strong contributions from the U.K., Spain, Germany, and Chile.
Global Supply Chain and GPO: The company plans to expand its GPO network, targeting double-digit growth in contracted spend and leveraging AI-driven technology for operational efficiencies.
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Shareholder Return Plan
Share Repurchase Program: We continue to advance our capital allocation priorities by repurchasing another $30 million of Aramark shares as part of our share repurchase program.
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Key Q&A
Q:It seems like you are winning a lot of competitive business, including from larger competitors. Is this a trend we should expect, and what do you attribute this success to?
A:The company has seen significant success in competitive new account wins, including complex organizations like Penn and RWJ Barnabas. This trend is expected to continue due to the company's strong capabilities, systems, and sales processes that meet client needs effectively.
Q:Are there any other large bidding opportunities or rebidding happening? How are you improving retention to maintain exceptional levels?
A:The company is pursuing several large opportunities but did not disclose specifics due to competitive reasons. Retention is a top priority, with record-high retention levels achieved through focused efforts and compensation systems tied to retention performance.
Q:Can you provide insights into the materiality of subsegments like Sports and Leisure (college athletics) and Business & Industry (refreshment component)? Are these sufficient to drive growth?
A:Revenue growth is broad-based across lines of business and geographies. While Sports and Entertainment and Refreshment Services are performing well, the company has not disclosed specific breakdowns. Both segments contribute to double-digit growth in the Business & Industry segment.
Q:What are the major factors affecting adjusted operating margin this quarter and expectations for the rest of the year?
A:Margins were impacted by $25 million in costs from the 53rd week in Q1, which will normalize in Q2. Adjusted operating margins are expected to increase by 30-40 basis points for the full year, consistent with guidance.
Q:What is the expectation for the duration of net new growth, and could it exceed the target? How is AI impacting revenues and costs?
A:Net new growth is strong, driven by high retention and robust pipelines, with potential to exceed the 4-5% target. AI is already improving back-office productivity and supply chain efficiency, with no significant additional investment required. AI is seen as an opportunity for growth, not a threat.
Q:Can you quantify the contribution of pricing and volumes to organic growth this quarter and update expectations for the full year?
A:Pricing contributed about 3% to organic growth in Q1, offset by a 3% impact from the 53rd week. Full-year expectations are 3% pricing, 0.5-1% volume growth, and 4.5% net new growth.
Q:Why was the seasonal cash outflow $200 million higher this year, and will it revert?
A:The higher outflow was due to elevated CapEx (4.5% of revenue in Q1) and increased working capital from business growth. CapEx is expected to normalize to 3.5% of revenue by year-end.
Q:What is the assumption for client retention in the fiscal '26 guide, and are there any notable trends in Q2?
A:Retention is expected to remain at record levels, consistent or better than fiscal '25. No significant changes in Q2 trends outside of previously disclosed calendar shifts and new account start-ups.
Q:How is inflation affecting food, supplies, and labor costs, and is it better than expected?
A:Inflation is running at about 3% for food and labor, consistent with expectations. Elevated beef prices are mitigated through menu design. Overall, inflation is manageable and in line with projections.
Q:What is driving unprecedented retention trends, and how does the retention pipeline look for the rest of the year?
A:Retention is driven by extraordinary focus and performance in meeting client expectations. The retention pipeline is normalized with no significant risks on the horizon.
Q:Are there changes in customer spending trends, such as average spend per transaction?
A:Consumer spending remains strong, particularly in Sports and Entertainment, with good attendance levels and no significant pushback on economic conditions.
Q:What is the update on the World Cup contract and its impact on revenue?
A:The company will operate games in stadiums it already serves, with no single contract for all games. The World Cup is expected to be revenue and profit neutral due to offsetting impacts from reduced concert activity.
Q:What is the impact of March Madness and NFL playoffs on revenue?
A:March Madness and NFL playoff events are already factored into plans, with no significant changes expected. Q1 had fewer MLB games, but Q2 growth is expected to normalize.
Q:How does the RWJ Barnabas contract compare to Penn Medicine, and what is the timeline for its impact?
A:RWJ Barnabas is larger than Penn Medicine and will begin transitioning in summer, with significant impact expected in fiscal '26.
Q:What is driving strong growth in Europe, and what is the outlook for the rest of the year?
A:Growth in Europe is driven by improved performance, investments in sales resources, and strong leadership. The outlook remains positive with continued success expected.
Q:Are larger platform wins a result of a strategic shift?
A:Yes, clients are increasingly consolidating and systemizing operations to capture cost synergies. The company is well-positioned to meet these needs with its systems and processes.
Q:Has the timing to contract profitability changed, especially for larger contracts?
A:Yes, larger contracts in health care require less capital and have cost-reimbursable structures, leading to faster ramp-up to profitability.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on large bidding opportunities, the breakdown of Sports and Entertainment revenues, and the exact timeline for RWJ Barnabas contract implementation. They also did not disclose specific impacts of March Madness or NFL playoffs on revenue.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI analytics
AOI calendar
Aramark
Barnabas Health
Corrections
Healthcare
IR website
Penn Medicine
RWJ Barnabas
Refreshments
Rugby
Sports Entertainment
UK Spain
University Albany
Workplace Experience
account win
activity week
bed
chain GPO
client win
development
dining
end efficiency
enterprise
food service
health care
hospitality area
mining
patient
period calendar
region
reminder
result calendar
retention level
shift impacting
stadium
week activity
win client
ARMK Transcript
Aramark (ARMK) Q1 2026 Earnings Call Transcript
Positive2-10
The earnings call summary reveals strong financial performance, with positive growth in key areas such as revenue and operating income. The Q&A section highlights robust client retention, effective inflation management, and strategic investments in AI, enhancing productivity. Despite some unclear responses, the overall sentiment is positive, supported by strategic growth in Europe and new contracts. The company's optimistic guidance and focus on technology investments further bolster the positive outlook.
Aramark (ARMK) Q4 2025 Earnings Call Transcript
Positive11-17
The earnings call summary indicates strong financial performance, strategic growth opportunities, and robust pipeline. Despite some delayed contract start-ups, the company maintains high retention rates and anticipates 7-9% growth in fiscal '26. Positive factors include a new partnership with Penn Medicine, strategic investments, and shareholder returns. While Q&A reveals some uncertainties, overall sentiment remains positive, suggesting a 2-8% stock price increase.
Aramark (ARMK) Q3 2025 Earnings Call Transcript
Positive8-5
The earnings call summary reflects strong financial performance with high retention rates, significant new client wins, and strategic investments in technology and expansion. Despite some uncertainties in the Q&A section, management's confidence in achieving full-year guidance and the positive outlook for revenue growth and margin expansion support a positive sentiment. The proactive approach to shareholder returns through share repurchases further enhances the positive sentiment, outweighing minor concerns about margin variability and medical costs.
Earnings call transcript: Aramark Holdings beats EPS forecast in Q2 2025
Positive5-6
The earnings call highlights record revenue, a strong new business pipeline, and partnerships with major companies like Walmart. The management's guidance indicates robust growth expectations for revenue, AOI, and EPS, despite some uncertainties in specific verticals. The Q&A session reveals confidence in managing inflation and supply chain challenges. However, the lack of clarity on certain risks slightly tempers the overall sentiment. Given the strong financial performance and optimistic outlook, the stock price is likely to see a positive movement of 2% to 8%.
ARMK Slides
Aramark Q1 2026 slides: Calendar shift masks underlying growth, international segment shines2026-02-10
Aramark Q4 2025 slides: Strong annual growth overshadowed by quarterly miss2025-11-17
Aramark Q3 2025 slides: Revenue up 6%, AI integration boosts margins2025-08-05
Aramark Q2 2025 slides: Revenue growth continues with record client retention2025-05-06
ARMK Report
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