Executive Summary / Key Takeaways

• Aramark is demonstrating strong operational momentum, driven by record client retention rates and significant new business wins, providing clear visibility to achieving 4-5% net new growth in fiscal 2025.
• The company's focus on supply chain efficiencies, disciplined cost management, and the maturation of new contracts is accelerating Adjusted Operating Income (AOI) growth and expanding margins, contributing to record profitability levels.
• Strategic investments in technology, particularly AI-driven tools for supply chain optimization and operational efficiency, are enhancing competitive positioning and driving tangible financial benefits.
• Aramark is actively leveraging its strong cash flow generation to enhance its capital structure, targeting approximately 3x leverage by the end of fiscal 2025 and initiating a share repurchase program to enhance shareholder value.
• Despite macroeconomic uncertainties and competitive pressures, Aramark's diversified portfolio and operational discipline underpin a resilient business model, supporting confidence in achieving and potentially exceeding fiscal 2025 financial guidance.

Setting the Stage: A Resilient Model in a Competitive Arena

Aramark stands as a global leader in providing essential food and facilities services across diverse sectors including education, healthcare, business & industry, and sports, leisure & corrections. Operating primarily through its Food and Support Services (FSS) segments in the United States and internationally, the company anchors its business in long-term partnerships with thousands of clients. This model, where approximately 84% of global revenue stems from food services and 16% from facilities services, positions Aramark deeply within the daily operations of its clients.

The industry landscape is highly competitive, dominated by a few large players, including Aramark, Sodexo (SW), and Compass Group (CPG). Competition also comes from other large distributors like Sysco (SYY), specialized providers like Cintas (CTAS) in uniforms, and increasingly, from clients opting for self-operated services or leveraging new technologies for in-house solutions. Broad industry trends include a general growth rate slightly above inflation, driven by the ongoing trend towards outsourcing as organizations seek efficiency and specialized expertise.

Aramark's strategic response centers on a clear three-pillar approach: driving strong, profitable top-line growth through base business expansion and net new wins, accelerating AOI growth through operational efficiency and cost discipline, and leveraging its capital structure for financial flexibility and shareholder returns. This strategy follows a significant portfolio change with the tax-free spin-off of the Uniform segment (Vestis (VSTS)) in September 2023, allowing a sharper focus on the core food and facilities services business. Acquisitions, such as Union Supply (Corrections) and Quantum (European GPO), have been strategically employed to build capabilities, expand scale, and enhance the global supply chain network. The sale of the remaining stake in the San Antonio Spurs further streamlined the portfolio and provided capital for debt reduction.

A foundational strength underpinning Aramark's strategy and competitive positioning is its investment in technology and innovation. The company is actively deploying AI-powered tools and platforms under its Hospitality IQ umbrella. This includes the Mosaic AI supply chain platform, providing clients with real-time, actionable data for procurement optimization. The Culinary co-pilot offers AI-powered menu recommendations, while Aramark Connected aims to create a frictionless guest experience through autonomous services. In facilities management, the AIWX Connect platform uses IoT technology to identify building and occupant needs, enhancing operational efficiency. Management highlights AI as a key driver of innovative solutions and data-driven insights, propelling financial performance by improving purchasing compliance, contract productivity, and speed in capturing pricing, ultimately contributing to cost management and margin expansion. While precise, directly comparable quantitative metrics for all competitors' technology platforms are not publicly detailed, Aramark's emphasis on integrating AI into core operations and supply chain management is a strategic differentiator aimed at enhancing efficiency and client value.

Performance Reflecting Strategic Execution

Aramark's recent financial performance demonstrates the effectiveness of its strategic focus. In the second quarter of fiscal 2025, the company reported $4.28 billion in revenue, contributing to $8.83 billion for the first six months, representing organic growth of 1.9% and 2.6% respectively compared to the prior year periods. This growth was primarily driven by base business expansion and net new business, although partially offset by negative foreign currency translation, the impact of facilities account exits from late fiscal 2024, weather-related closures, and a calendar shift in the education sector.

Operating income saw significant increases, rising 9.5% to $174.1 million in Q2 and 20.1% to $391.4 million for the six-month period. Adjusted Operating Income (AOI) growth was even stronger on a constant currency basis, up 11% in Q2, resulting in a 33 basis point AOI margin improvement to 4.8%. This marks record AOI profitability for any second quarter in global FSS history. The AOI growth and margin expansion are attributed to consistent execution of operating levers, including supply chain efficiencies, disciplined operational cost management, and higher revenue levels. The six-month AOI performance also benefited from the absence of prior year expenses related to the Uniform segment separation ($29.0 million), partially offset by higher contingent consideration expenses ($10.6 million).

Segment performance underscores these trends. FSS United States revenue grew modestly by 0.4% in Q2 and 1.6% for the six months, impacted by the factors mentioned above, particularly the exit of lower margin Facilities accounts (which decreased revenue by 12.2% in Q2 and 11.2% for the six months) and a calendar shift in Education (down 2.7% in Q2). However, Business Industry (up 13.3% in Q2, 13.1% for six months) and Sports, Leisure Corrections (up 4.6% in Q2, 4.9% for six months) showed strong growth. FSS US operating income increased 5.1% in Q2 and 8.2% for the six months, driven by base business growth and supply chain efficiencies. FSS International continued its strong momentum, with revenue increasing 5.8% in Q2 and 5.2% for the six months (despite foreign currency headwinds), and operating income jumping 21.2% in Q2 and 18.5% for the six months. This international growth is broad-based across geographies and driven by base business, net new wins, cost management, and supply chain efficiencies.

The Global Supply Chain and GPO network, including Avendra, plays a critical role. With managed spend expected to surpass $20 billion by the end of fiscal 2024, the GPO business, characterized by attractive margins (north of 55-60%), is a significant contributor to overall margin improvement. Leveraging this scale through AI-driven technology enhances purchasing compliance and contract productivity, directly benefiting both GPO clients and Aramark's core contract foodservice margins.

Strategic Momentum and Competitive Positioning

Aramark's strategic initiatives are generating tangible momentum, particularly in new business acquisition and client retention. The company achieved record gross new business wins of over $1.4 billion in fiscal 2024, representing nearly 9% of prior year revenue. New client wins totaled $760 million fiscal year-to-date by Q2 2025, providing management with clear visibility to achieving 4% to 5% net new growth for the full fiscal year. The sales pipeline remains robust, with significant opportunities in first-time outsourcing, a trend that remains elevated (mid-40s today) compared to historical norms (30-35%) and is seen across various industries and geographies. Recent notable wins include Philadelphia Union (MLS), University of Nebraska athletic venues (NCAA), Loyola Marymount University, Walmart (WMT)'s new headquarters, and Mastercard (MA).

Client retention is also a key focus. While overall retention in FY24 was impacted by the planned exit of some lower-margin facilities accounts (like Chicago Public Schools), core Foodservice retention in both the US and International was 95.2%. By the end of Q2 2025, overall retention rates were above 98% in both segments, a level management notes is unusually high for this point in the fiscal calendar. Proactive retention efforts and strong rebid results, such as retaining Arizona State University and expanding services there, underscore the company's commitment and capability.

In the competitive landscape, Aramark positions itself as a provider of integrated food and facilities solutions, leveraging its operational expertise and growing technological capabilities. Compared to global rivals like Sodexo and Compass Group, which have broader international footprints and often emphasize cost leadership, Aramark highlights its deep U.S. market presence, strong brand loyalty (particularly in sectors like Healthcare), and its bundled service offerings. While direct quantitative comparisons with all private competitors are challenging to ascertain, qualitative factors indicate Aramark's operational discipline and technology investments, such as AI-driven supply chain tools, are aimed at enhancing efficiency and service quality to compete effectively on value and performance. The healthcare sector, for instance, presents ongoing opportunities for Aramark to provide ancillary services beyond food, leveraging its operational scale to manage these services more effectively than hospitals can in-house, a key competitive angle in a cost-challenged industry.

Aramark is also actively managing its capital structure to support its strategic goals and enhance shareholder value. The company reduced net debt by $1.6 billion in fiscal 2024, improving its leverage ratio to 3.4 times. Management has a clear line of sight to reducing leverage further to approximately 3 times by the end of fiscal 2025. Recent debt refinancing actions, including upsizing Term Loan B facilities and issuing new Senior Notes, have extended maturities and enhanced financial flexibility, with the Euro Senior Notes securing a favorable interest rate. The approval of a $500 million share repurchase program signals confidence in future cash flow generation and the intention to return capital to shareholders, expected to offset equity dilution and be accretive to earnings.

Outlook, Guidance, and Risks

Looking ahead, Aramark maintains its previously stated financial performance outlook for fiscal 2025, reflecting confidence in its strategic trajectory and current business momentum. The guidance includes:

• Organic Revenue growth between 7.5% and 9.5%
• AOI growth between 15% and 18%
• Adjusted EPS growth between 23% and 28%
• Leverage ratio of approximately 3x by the end of the fiscal year

This guidance incorporates an expected benefit of approximately 2% on organic revenue and AOI from the 53rd week in fiscal 2025. Management anticipates revenue growth to accelerate notably in the third quarter and more meaningfully in the fourth quarter, driven by higher base business volume, net new business expansion, and the favorable impact of lapping the prior year's facilities exits. This momentum is expected to position the company for a strong exit rate entering fiscal 2026. AOI growth and margin expansion are expected to persist, fueled by continued supply chain efficiencies, effective cost discipline, and higher revenue levels.

While the outlook is positive, investors should consider potential risks. Macroeconomic volatility, including uncertainty related to inflation and tariffs, remains a factor, although management believes its business model is well insulated due to local sourcing and contractual flexibility. Risks associated with labor costs (anticipated 4-5% inflation) and availability, while currently manageable, could impact operations. The contract-intensive nature of the business carries risks of client disputes or non-renewals. Regulatory compliance across various areas (food safety, labor laws, environmental) is crucial. Cybersecurity incidents and data privacy breaches are ongoing concerns. The company's leverage, while decreasing, still subjects it to interest rate risk, and debt agreements impose limitations on financial flexibility. Legal proceedings, such as the shareholder lawsuit related to the Vestis spin-off, could result in liabilities. However, Aramark's diversified portfolio across recession-resilient sectors (education, healthcare, corrections) and its disciplined operational management are key mitigants against these risks.

Conclusion

Aramark's investment thesis is compelling, centered on a resilient business model executing a focused strategy to drive profitable growth and enhance shareholder value. The company's recent performance, marked by accelerating revenue growth, record AOI profitability, and expanding margins, reflects the successful implementation of operational efficiencies, strategic new business wins, and strong client retention. Investments in technology, particularly AI-driven tools, are providing a competitive edge in supply chain management and operational execution.

With clear visibility to achieving its fiscal 2025 guidance, supported by a robust sales pipeline, high retention rates, and a favorable inflation environment, Aramark is positioned for continued momentum. The company's commitment to deleveraging and returning capital to shareholders further underscores its financial discipline and confidence in future cash flow generation. While competitive dynamics and macroeconomic uncertainties persist, Aramark's diversified portfolio and proven operational capabilities provide a strong foundation for navigating challenges and delivering on its financial targets.