Aramark losing NBA, NHL, and education business with coronavirus closings and suspensions
The Philadelphia company may be insulated from large financial losses because it has low fixed costs, but its army of part-time workers might not fare so well.
With schools, universities, and professional leagues sending students home, suspending their seasons, or canceling events like the NCAA’s March Madness, it seems like Aramark, the Philadelphia food-service giant, would be facing large financial losses.
That’s not likely, though it could be a different story for their hourly and part-time employees.
When stadiums or arenas close — if a team is on a road trip, for example — the company doesn’t spend money on food and drinks nor does it have to pay an army of part-time workers who sell $10 beers at places like the Wells Fargo Center.
“Our employees, if the operations are closed, typically are not paid,” Aramark’s chief executive John Zillmer told investors last week.
These times, however, are far from typical, so it’s unclear how thousands of part-time, low-wage Aramark employees will fare. Some employees may be able to use vacation or sick time to keep money coming in.
“We recognize the hardship that this unprecedented event creates for everyone. We are actively working with our clients, government agencies, and within our own policies, to offer additional support, including expanded benefits, for our hourly team members who are directly impacted,” Zillmer said in a notice on Aramark’s website.
Under some of its food-service contracts, Aramark earns a fee to manage the services and does not carry the profit and loss risk. Expenses for labor, food, and beverages — which account for the bulk of Aramark’s expenses — are simply passed through. If the client agrees, employees can get paid during a shutdown under that arrangement.
According to Baird stock analyst Andrew J. Wittman, 30% of Aramark’s food business operates under that model. That means Aramark “is insulated from the full financial pain. Also, food is a variable cost and labor is typically hourly and can be cut if volumes don’t support,” Wittman said in a report Friday. “But headlines matter, and we don’t think they improve soon.”
That’s why Aramark’s shares have fallen about 50% since January.
Wittman estimated that revenue in Aramark’s U.S. food-service and supports segment — which employs nearly 150,000 people — could be down around 20% in the quarter that ends June 30. Those businesses had $2.4 billion in revenue in the corresponding quarter last year, which means the revenue loss this year could approach $500 million.
“Honestly it’s hard to know absolute magnitude but cancellations of schools and sporting events including many baseball games can be significant,” Wittman wrote.
Aramark has food-service contracts at eight arenas where NBA and NHL teams play and at nine Major League Baseball stadiums. It does not, however, have the food-service contract at Mercedes-Benz Stadium in Atlanta, where the NCAA’s Final Four was scheduled. That contract belongs to a unit of Aramark rival Compass Group.
Aramark’s shares closed on Friday on the New York Stock Exchange at $24.21, down 11 cents, or less than half a percent. The shares were as low as $20.96 on Wednesday, which was 55% below the stock’s $46.78 high in January.