Vending

Aramark takes a 46% Q3 revenue hit from COVID-19

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August 4, 2020

Aramark posted $2.2 billion in third quarter revenue, down 46.3% year-over-year from the impact of COVID-19 that more than offset modest underlying growth in the overall business, according to an earnings report.

Revenue for the quarter ending June 26 improved sequentially through each fiscal month with April reflecting the lowest performance in the quarter. Organic revenue, which adjusts for currency impact, declined 45.3% in the quarter.

An operating loss of $328 million was primarily due to the impact of COVID-19 and included $125 million in severance charges related to organizational realignment.

The adjusted operating loss was $144 million, largely from the effect of COVID-19 on business operations.

The company reported a loss of $1.01 in basic shares for the quarter compared to a 34 cent gain in last year's third quarter, and a $1.01 loss in diluted earnings per share compared to a 33 cent gain last year.

"I am encouraged by how well the company continues to navigate the complexities and challenges of the current environment," John Zillmer CEO, said in a prepared statement. "Our balance sheet and new business pipeline remain strong, and we have taken strategic actions to fortify Aramark for the future."

U.S. food and support services continued to experience business interruption, particularly in the sports and business and industry sectors with education and leisure improving at the end of the quarter due to USDA-sponsored meal programs in K-12 and the reopening of national parks. Facilities, healthcare and corrections remained relatively stable.

International food and support services managed through various stages of recovery based on geography. China "significantly" improved, driving double-digit organic revenue growth in the quarter, and continued to win new clients.

Europe and Canada exhibited increased activity during the quarter while balancing country-specific government mandates. South America was affected by the delayed COVID-19 impact compared to other regions.

Adjusted operating income drop-through was managed to 20% of the corresponding revenue decline led by cost mitigation efforts and the company's flexible operating model.

U.S. food and support services was impacted by COVID-19 — especially in education, sports and business and industry — partially offset by labor and product cost reduction, cost management and the outcome of client contract renegotiations.

International food and support services was affected by government-imposed shutdowns as well as higher labor costs that tend to be less variable in the near-term due to country-specific labor laws and regulations.

Corporate reflected a reduction in personnel costs and equity-based compensation expectations resulting from the impact of COVID-19.

On a GAAP basis, revenue was $2.2 billion, operating loss was $327.6 million, net loss attributable to Aramark stockholders was $256.4 million.

For the third quarter of 2019, on a GAAP basis, revenue was $4.0 billion, operating income was $188.8 million, net income attributable to Aramark stockholders was $83.0 million and diluted earnings per share were 33 cents.

GAAP metrics for operating income, net income attributable to Aramark stockholders and diluted loss per share included pre-tax charges of $125 million associated with actions taken to restructure and realign resources within the company. The majority of these charges, or $75 million, were within international food and support services that reflected labor law requirements in certain countries.

A stronger U.S. dollar decreased revenue by approximately $42.1 million and resulted in a $4.2 million favorable impact on adjusted operating loss during the quarter. Currency had a 1-cent favorable effect on adjusted loss per share.

The board of directors approved a quarterly dividend of 11 cents per share of common stock. The dividend will be payable on Sept. 2, 2020 to stockholders of record at the close of business on Aug. 19, 2020.

The company has been providing meals, food, supplies and PPE for local communities as well as offering safe and hygienic solutions for employees, clients and customers.

Recognizing the need for health and safety, Aramark developed EverSafe — a comprehensive offering committed to the safe reopening and sustainable management of client locations.

The company currently anticipates sequential top-line improvement in the fourth quarter compared to the third quarter.

For an update on how the coronavirus pandemic has affected convenience services, click here.