A Member of Pat McKeough’s Inner Circle recently asked for his advice on Aramark, a company that provides food services and manages concessions across North America and globally.
Pat likes the company’s prospects in a re-opening economy while more businesses and schools opt to outsource their non-core foodservice operations. He also likes the planned spinoff of the uniform business. However, wage and food-cost inflation will remain a challenge.
Aramark Corporation (Symbol ARMK on New York; www.aramark.com) operates in two main areas: it’s a leading food-services provider and concessions manager, serving a wide range of customers, including corporations, healthcare facilities, prisons, sports stadiums, and national parks. This division operates in North America through its Food and Support Services North America unit and outside the continent through FSS International.
The company also supplies work uniforms and related services through its Uniform and Career Apparel segment.
On May 10, 2022, Aramark announced that as part of its plan to deliver more value to shareholders, it would spin off its uniform business as a separate, publicly traded company.
The separation is aimed at letting both its uniform and food & facilities businesses focus solely on their operations. In addition, the split should let investors more easily value both businesses.
Aramark Uniform Services business generates about 20% of the company’s revenues. It provides its customers with full-service rental programs. The customer base is serviced by the company’s wide geographic footprint in the U.S. and Canada. Aramark Uniform Services provides work uniforms, including Dickies pants and shirts, for use in manufacturing, industrial, automotive, food service, and healthcare industries. It also supplies floor mats, towels, linens, as well as managed restroom and first-aid services.
Aramark will continue in the business of food and facilities services across Education, Sports, Leisure & Corrections, Healthcare, Business & Industry, and Facilities & Other.
Inner Circle: Revenues and earnings rocket at Aramark as events re-open for customers
Last year, the company secured what is reportedly the largest client win in its history. In January 2022, theme park operator Merlin Entertainment announced that it had chosen Aramark as its food and beverage partner for five locations in the U.K. and two in the U.S.
Notably, by April 2023, Aramark is scheduled to take over the concessions at the Merlin-owned LegoLand theme parks in California and Florida. In the U.K., the transfer of operations has already begun. The terms of the deal have not yet been disclosed.
Another big positive for Aramark was the resolution of the dispute between Major League Baseball’s (MLB) team owners and its players. In early March, the two sides reached a labour agreement, thereby eliminating the risk of a shortened or cancelled season. Aramark currently operates food and beverage concessions at a dozen or so MLB ballparks, including Turner Field in Atlanta and Boston’s Fenway Park. Among the company’s sports and leisure end markets, baseball is important, given the season’s long length versus other pro sports and its cumulative in-stadium attendance, which was recently four times the size of the National Football League (NFL).
Meantime, going forward, Aramark should benefit as more businesses and schools opt to outsource their non-core foodservice operations.
In the near term, wage and food-cost inflation will remain a challenge for the company. All in all, though, Aramark’s outlook is strong—and the planned spinoff adds significant appeal.
The company’s shares yield 1.3%.
Recommendation in Pat’s Inner Circle: Aramark Corporation is a buy.
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