Aramark's Strong Earnings Report Sent Shares Soaring

Aramark has reported earnings for the first time since it went public again, and the results blew away the estimates. Let's see if this is our time to buy shares.

Feb 11, 2014 at 10:15AM

Aramark (NYSE:ARMK) has released its first earnings report since its return to the market as a public company. The results impressed analysts and investors alike, and sent shares much higher in the trading day. Let's take a look at what the company was able to accomplish and whether this is our opportunity to buy. 

The service giant
Aramark is a leading global provider of food, facilities, and uniform services to numerous industries. Its core market is North America, but it operates in an additional 19 countries and employs more than 272,000 people. Its recent IPO represents the third time the company has gone public, with the first two IPOs taking place in 1960 and 2001.

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Source: Aramark.

The results
Aramark released its first-quarter report for fiscal 2014 on Feb. 5, and the results beat analyst expectations on both the top and bottom lines. Here's an overview of the report:

MetricReportedExpected
Earnings per share $0.52 $0.43
Revenue $3.76 billion $3.70 billion

Earnings per share increased 52.9% and revenue increased 6.4%, driven by growth in the food services segment. Food and support services saw sales increase 7% to $2.6 billion in North America and 7% to $775.6 million internationally. CEO Eric Foss was very pleased with the report, stating, "We continue to win new business and achieve high client retention rates, which drove broad-based topline growth across our segments and geographies."

Even though all of this information equated to a great quarter, the most bullish aspect of the report came when Aramark declared a quarterly dividend. The company will begin paying a $0.075 quarterly dividend in March, which represents an annual payment of $0.30, giving the stock a yield of roughly 1.1% at current levels. I am a huge supporter of this move, as it shows that the company is dedicated to returning the maximum amount of cash to shareholders. To add to the positivity, Aramark then provided its outlook...

Outlook on quarters ahead
In the report, Aramark reaffirmed its outlook for the rest of the year. The company expects the following results:

  • Earnings per share of $1.30-$1.40
  • Organic sales growth of 3%-5%
  • Operating income expected to grow in the mid-to-high single digits

For the company's first year back in the market, this is a solid set of expectations. If Aramark can deliver on these expectations while paying its dividend and repurchasing a few shares, I am fully confident its stock will continue rising throughout the year.

Uniform industry showing strength
The uniform industry has been a bright spot for Aramark, as it saw its revenue in this segment rise 4% in the quarter. It is not the only company feeling the love, as UniFirst (NYSE:UNF), one of its largest competitors in the space, has also shown strength. UniFirst reported quarterly results on Jan. 8:

MetricReportedExpected
Earnings per share $1.71 $1.62
Revenue $346.70 million $347.07 million

Unifirst's earnings per share increased 12% and revenue increased 4.3%, driven by a 5.9% increase in its core laundry operations. More important, following the results, UniFirst updated its guidance for the year and pointed toward the high end of its previously issued range; the company expects earnings per share to be in the range of $5.60-$5.85 on revenue of $1.372 billion-$1.385 billion. This raised outlook is positive for Aramark because it shows that the industry's strength is expected to continue and momentum will have a positive effect on earnings. With this said, UniFirst is a great investment option if you are looking for a pure play on the uniform industry.

Sysco's loss is Aramark's gain
Sysco (NYSE:SYY), Aramark's largest competitor in the food service industry, recently reported quarterly results as well. The results were released on Feb. 3 and were mixed in comparison to expectations, causing very little movement in the stock. Here's a breakdown of the report and why it has not moved the needle:

MetricReportedExpected
Earnings per share $0.47 $0.40
Revenue $11.2 billion $11.35 billion

Sysco's earnings per share decreased 4.1% as revenue rose 4.1% year over year. Sysco noted that the quarter was "quite challenging for many of our customers, especially those who operate in the casual dining restaurant segment." It is a similar situation at Darden Restaurants, the owner of Olive Garden and Red Lobster, so investors should not want direct exposure to this industry. I would steer clear of Sysco for now, as the only true positives are its 3.35% dividend and its pending acquisition of U.S. Foods.

The Foolish bottom line
Aramark is an American titan that shows strength across several industries. Its better-than-expected results, affirmed outlook, and initiation of a dividend are just about all you could ask for in a company's first earnings release, and the market has responded by sending Aramark's shares higher. Investors should consider adding positions on any weakness in the coming days, as this stock seems destined to move higher.

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Joseph Solitro has no position in any stocks mentioned. The Motley Fool recommends Sysco. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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