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Issue Date: Vol. 42, No. 14 / December 25, 2002 - January 24, 2003 , Posted On: 12/25/2002


Aramark

Notwithstanding the ongoing doldrums afflicting much of the world's economy, demand for vending and foodservice seems to be holding steady, if not increasing. Reports issued by leading international providers of vending and foodservice indicate that the past year presented difficulties, but that the problems could be overcome.

One such company is Aramark (Philadelphia), which is celebrating its first year of listing on the New York Stock Exchange after again going public (see VT, December 2001). It had been formed as a public company, Automatic Retailers of America, in 1959, but was taken private in 1984 through a management buyout, to protect it from a hostile takeover.

The company marked this anniversary by reporting consolidated sales for fiscal 2002 of $8.77 billion, 13% higher than those for the prior fiscal year. Net income of $270 million was 53% above the previous year's record level, and fiscal 2002 earnings per diluted share totaled $1.34. The company explained that, based on comparable accounting for goodwill, net income a year ago would have been $198.5 million, or $1.09 per diluted share

Excluding nonrecurring gains reported in the second and third quarters of 2002, and adjusting for the change in goodwill accounting, Aramark's net income for fiscal 2002 was $1.19 per diluted share, an increase of 20%.

"We are gratified by the overall financial performance of our businesses this year, reflecting record levels in sales, net income, earnings per share and cash flow," said Joseph Neubauer, chairman and chief executive officer of Aramark. "Our balance of economically sensitive and non-sensitive businesses, and our disciplined focus on cost management, have served us well in this difficult economic environment."

That balanced mix of enterprises includes vending, office refreshment and foodservice, as well as facility and other support services, uniforms and career apparel, and childcare and early education. Aramark serves the business, education, healthcare, government, sports and recreation sectors, and is active in 18 countries.

The value of balance is illustrated by Aramark's fourth-quarter results. Sales in the Food and Support Services - U.S. segment increased 21% from the year-earlier period. Excluding acquisitions and dispositions, organic growth was about 1% for the quarter; and, adjusting for management's estimate of the effects of September 11, 2001, sales were down about 1%. Not only was there a decline in national park visits as part of the overall decline in tourist travel, but the prospect of a strike against Major League Baseball adversely impacted stadium attendance. The Business Services sector also remained soft; but the company's economically non-sensitive businesses, including education, healthcare and corrections, performed well.

For the full fiscal year, sales for the U.S. Food and Support Services unit were 19% above the prior-year level, and operating income rose by about the same percentage over the comparable 2001 quarter.

Sales for the Food and Support Services , International segment increased 10% over last year's fourth quarter. The impact of changes in currency translation between the 2002 and comparable 2001 reporting periods increased reported sales growth by about six percentage points. Excluding the effects of currency exchange rate changes and acquisitions, organic sales growth was about 1%, similar to third-quarter performance. Operating income in the International segment grew about 8% in the fourth quarter, substantially all of which resulted from currency translation and acquisitions.

Neubauer expressed cautious optimism about the prospects for the year ahead. "Looking forward to the next year, we expect economic conditions to continue to be a challenge to growth through at least the first half of of our fiscal 2003, with gradual improvement occurring during the second half of the year," he said. "We anticipate 2003 fully diluted earnings per share to be in the range of $1.33 to $1.38, on a 53-week basis, compared to $1.19 in 2002 excluding the one-time gains."

The Aramark CEO predicted that consolidated organic sales growth in 2003 will be in the range of 3% to 5%, with slower growth rates early in the year gradually improving in the third and fourth quarters. "We expect our Food and Support Services business organic growth to be within this range," he amplified. "Our uniform business, which is more economically sensitive, is expected to show full-year organic growth in the 2% to 3% range. Educational Resources sales will likely be flat to slightly down, with lower profit resulting primarily from higher insurance costs." All these estimates included the acquisition of Fine Host, which was pending when the report was released. (It is now complete; see Page 10.)

Aramark employs approximately 225,000 people in its worldwide operations.


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