What happened
Aramark (ARMK 0.65%) stock stumbled on Tuesday, down by 10% as of 2 p.m. ET, compared to a 0.1% drop in the S&P 500. That move pushed the food and uniform services specialist into negative territory for 2023, although shares are still beating the market by a comfortable margin over the past full year.
The slump came as Wall Street digested Aramark's latest quarterly earnings results.
So what
Sales growth was strong in the fiscal Q1 period that ran through late December. Organic revenue jumped 18%, with gains occurring across all business lines. Aramark added new clients and raised prices.
Profitability increased, too, thanks to the combination of strong sales growth, higher prices, and cost savings. "Our performance in the quarter reflected continued financial and operational momentum," CEO John Zilmer said in a press release.
However, Wall Street was more focused on management's outlook calling for a slowdown ahead. Executives noted a "challenging macro-environment" that appears to be pressuring many of its clients' industries.
Now what
Aramark still projects that organic sales will rise by between 11% and 13% this year. Given the strong Q1 performance, that forecast implies weakening revenue over the next few quarters. Management also lowered the short-term adjusted earnings outlook due to financial charges associated with its sale of its ownership in a Japanese joint venture.
These issues reflect short-term pressures on the business and don't challenge Aramark's wider growth ambitions. On the contrary, its ability to boost profitability through late 2022 suggests that the company will be able to navigate through any volatility in 2023, even if a recession develops.
As a result, Tuesday's stock price decline is likely to be a temporary blip for this business rather than an indication of more trouble ahead.
