Aramark (ARMK)

Food and facilities services provider Aramark (NYSE:ARMK) missed Wall Street’s revenue expectations in Q3 CY2025, but sales rose 14.3% year on year to $5.05 billion. On the other hand, the company’s outlook for the full year was close to analysts’ estimates with revenue guided to $19.75 billion at the midpoint. Its GAAP profit of $0.33 per share was 44.7% below analysts’ consensus estimates.

Company Overview

From serving hot dogs at major league stadiums to managing college dining halls that feed thousands daily, Aramark (NYSE:ARMK) provides food services and facilities management to schools, healthcare facilities, businesses, sports venues, and correctional institutions across 16 countries.

The sector stands to benefit from ongoing digital transformation, increasing corporate demand for cost efficiencies, and the growing complexity of regulatory and cybersecurity landscapes. For those that invest wisely, AI and automation capabilities could emerge as competitive advantages, enhancing process efficiencies for the companies themselves as well as their clients. On the flip side, AI could be a headwind as well as the technology could lower the barrier to entry in the space and give rise to more self-service solutions. Additional challenges in the years ahead could include wage inflation for highly skilled consultants and potential regulatory scrutiny on outsourcing practices—especially in industries like finance and healthcare where who has access to certain data matters greatly.

Aramark's primary competitors include other multinational food and facilities management providers such as Compass Group plc, Sodexo SA, Delaware North Companies Inc. in the United States, and additional international rivals like Elior SA and ISS in its overseas markets.

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years.

With $18.51 billion in revenue over the past 12 months, Aramark is a behemoth in the business services sector and benefits from economies of scale, giving it an edge in distribution. This also enables it to gain more leverage on its fixed costs than smaller competitors and the flexibility to offer lower prices.

As you can see below, Aramark’s 7.6% annualized revenue growth over the last five years was solid. This shows it had high demand, a useful starting point for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. Aramark’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

This quarter, Aramark’s revenue grew by 14.3% year on year to $5.05 billion but fell short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 6.3% over the next 12 months, an improvement versus the last two years. This projection is above average for the sector and suggests its newer products and services will catalyze better top-line performance.

Adjusted operating margin is a key measure of profitability. Think of it as net income (the bottom line) excluding the impact of non-recurring expenses, taxes, and interest on debt - metrics less connected to business fundamentals.

Aramark was profitable over the last five years but held back by its large cost base. Its average adjusted operating margin of 4.8% was weak for a business services business.

On the plus side, Aramark’s adjusted operating margin rose by 2.9 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Aramark generated an adjusted operating margin profit margin of 5.7%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Aramark’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

Sadly for Aramark, its EPS declined by 31% annually over the last two years while its revenue was flat. This tells us the company struggled to adjust to choppy demand.

We can take a deeper look into Aramark’s earnings to better understand the drivers of its performance. We mentioned earlier that Aramark’s adjusted operating margin was flat this quarter, but a two-year view shows its margin has declinedwhile its share count has grown 1.3%. This means the company not only became less efficient with its operating expenses but also diluted its shareholders.

In Q3, Aramark reported EPS of $0.33, down from $0.46 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Aramark’s full-year EPS of $1.22 to grow 60%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Aramark has shown poor cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.1%, lousy for a business services business.

Aramark’s free cash flow clocked in at $1.05 billion in Q3, equivalent to a 20.8% margin. This cash profitability was in line with the comparable period last year and above its five-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Aramark historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.2%, somewhat low compared to the best business services companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Aramark’s ROIC averaged 4.1 percentage point increases each year. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

Aramark reported $639.1 million of cash and $5.72 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.33 billion of EBITDA over the last 12 months, we view Aramark’s 3.8× net-debt-to-EBITDA ratio as safe. We also see its $341.9 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Aramark blew past analysts’ full-year EPS guidance expectations this quarter. On the other hand, its revenue missed and its EPS fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock remained flat at $37.29 immediately after reporting.

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Aramark.

Aramark isn’t a terrible business, but it doesn’t pass our bar. Although its revenue growth was solid over the last five years, it’s expected to deteriorate over the next 12 months and its low free cash flow margins give it little breathing room. And while the company’s scale makes it a trusted partner with negotiating leverage, the downside is its operating margins reveal poor profitability compared to other business services companies.

Aramark’s P/E ratio based on the next 12 months is 17x. This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $44.60 on the company (compared to the current share price of $37.29).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.