Aramark (ARMK) Q4 2025: $1.6B New Wins Signal Accelerating Outsourcing Tailwind
Aramark’s record $1.6 billion in new contract wins and 96%+ client retention underscore a business model pivoting toward higher-margin, technology-enabled outsourcing. Delayed contract starts and incentive payouts weighed on Q4, but the ramp of major deals like Penn Medicine and a robust pipeline set up fiscal 2026 for above-trend growth and margin expansion. Management’s focus on supply chain tech, disciplined cost control, and first-time outsourcing opportunities positions Aramark for sustained outperformance versus peers.
Summary
- Outsourcing Surge: $1.6B in new wins and a 96%+ retention rate redefine Aramark’s growth trajectory.
- Margin Resilience: Technology-driven supply chain productivity offsets startup and incentive costs.
- Pipeline Momentum: Major healthcare, education, and workplace contracts set the stage for sustained double-digit AOI growth in 2026.
Performance Analysis
Aramark delivered 14% organic revenue growth in Q4, with full-year revenue reaching $18.5 billion, up 6% YoY, driven by net new business, robust client retention, and a 53rd week tailwind. The company’s record $1.6 billion in annualized gross new wins (12% higher than FY24) included the largest contract in FSS U.S. history and a significant Penn Medicine healthcare deal. Retention reached an industry-leading 96.3%, with net new revenue contribution of 5.6%—well above historical norms.
Adjusted operating income (AOI) rose 6% in Q4 and 12% for the year, with margin expansion muted by $25 million in incentive-based compensation tied to new business wins and elevated medical claims. Excluding these, AOI margin would have been 70 basis points higher. International AOI grew 31% in Q4 and 21% for the year, with margin gains from supply chain efficiencies and cost discipline. Free cash flow increased over 40% YoY to $454 million, driving leverage to a 20-year low of 3.25x.
- New Business Ramp: Delayed contract starts in corrections, workplace, and healthcare shifted revenue into FY26, but many sites are now operational, supporting forward growth.
- Segment Strength: FSS U.S. organic revenue up 14% (mid-single digits ex-53rd week), with collegiate hospitality and healthcare outperforming; international also posted double-digit gains.
- Margin Dynamics: Supply chain technology and SG&A leverage offset most startup and incentive costs; normalized margin improvement remains on track for FY26.
Despite Q4 timing headwinds and incentive payouts, Aramark exits FY25 with strong momentum, a robust pipeline, and clear visibility on margin expansion and cash flow generation for FY26.
Executive Commentary
"First and foremost, we take delivering on our commitments very seriously, and it's important to understand that as we onboard an unprecedented level of new business, we took the appropriate time to work closely with certain large clients in preparing for a seamless transition to Aramark becoming their new hospitality partner. In some cases, this led to a shift in the timing of new account openings, which impacted revenue in the fourth quarter. With many of these sites now up and running, we are well positioned for strong revenue performance in the quarters ahead."
John Zilmer, Chief Executive Officer
"We are experiencing unprecedented levels of success in key leading indicators of performance, annualized gross new wins, and client retention, which provide us the momentum to deliver our expected growth in fiscal 26 and even beyond... Our free cash flow grew by more than 40% compared to the prior year period from higher cash from operations and favorable working capital, particularly from improved collections."
Jim Tarangelo, Chief Financial Officer
Strategic Positioning
1. First-Time Outsourcing Drives Structural Growth
Aramark’s business model is increasingly anchored in first-time outsourcing, particularly in healthcare, higher education, and sports hospitality. The Penn Medicine win, a conversion from self-operation, exemplifies the potential for large-scale system deals, with management noting that “the opportunity there is very large” as other hospital groups seek similar efficiencies.
2. Technology and Supply Chain Productivity
Supply chain technology, including AI-driven menu platforms and mobile client tools, is a central lever for both client differentiation and internal margin expansion. Avendra International, Aramark’s group purchasing organization (GPO, a collective buying network), added $1B in new purchasing spend for the second consecutive year, and these capabilities are being deployed globally to optimize compliance and efficiency.
3. Margin Expansion Despite Ramp Costs
Margin improvement is underpinned by productivity gains and SG&A leverage, even as new contract ramp costs are absorbed. Management expects “continued margin accretion as we continue to grow the company,” with normalized startup costs incorporated into guidance and offset by supply chain and overhead scale.
4. International Diversification and Restructuring
International operations delivered double-digit revenue and AOI growth, with new wins across Europe and Latin America. Select restructuring actions in international (SG&A streamlining, mining optimization, real estate consolidation) are designed to sustain growth and improve cost structure, positioning the segment for further expansion.
5. Incentive Alignment to Growth
Management’s incentive compensation is tightly linked to net new business, with 40% of the incentive plan tied to this metric. This direct alignment has driven both aggressive pursuit of new contracts and a culture of client retention, supporting the company’s above-peer performance trajectory.
Key Considerations
Aramark’s Q4 and FY25 results reflect a business model in transition, leveraging technology, scale, and a rising tide of outsourcing to drive durable growth and margin improvement. Execution on large, complex contract ramps and continued discipline in cost management are critical to delivering on FY26 targets.
Key Considerations:
- Healthcare Outsourcing Inflection: Penn Medicine deal sets a precedent for more large systems to outsource food and facilities services.
- Supply Chain Technology Rollout: AI-enabled menu planning and mobile platforms are now global, driving both client wins and internal efficiency.
- Retention as a Core Advantage: 96.3% retention, with management signaling 95%+ as a floor, supports stable base growth and de-risks new business ramp.
- Incentive Structure Drives Growth: 40% of leadership incentives tied to net new business ensures continued focus on pipeline and execution.
- International Streamlining: Restructuring in Europe and Latin America positions these markets for margin expansion and future bolt-on integration.
Risks
Execution risk remains elevated as Aramark ramps large, complex contracts and absorbs startup costs, particularly in healthcare and corrections. Timing of client-driven contract starts can create quarterly volatility. Inflation, while currently managed at around 3%, and competitive intensity in outsourcing remain ongoing challenges. Medical claims volatility (notably GLP-1 prescription costs) impacted FY25 but are being addressed with plan changes for FY26.
Forward Outlook
For Q1 FY26, Aramark expects:
- Revenue growth to be 3-3.5% below run-rate due to 53rd week calendar shift, recaptured in Q2.
- Margin pressure in Q1 from fixed cost leverage, normalizing through the year.
For full-year FY26, management guided to:
- Organic revenue of $19.45B to $19.85B (7-9% growth, 52-week basis)
- AOI of $1.1B to $1.15B (12-17% growth)
- Adjusted EPS of $2.18 to $2.28 (20-25% growth)
- Leverage ratio below 3x
Management highlighted:
- Major contract ramps (Penn Medicine, Oakland A’s) will build through FY26
- Base business pricing (~3%) and net new wins (4-5% of prior year revenue) underpin guidance
Takeaways
Aramark’s FY25 results confirm a business model pivoting toward higher-margin, technology-enabled outsourcing, with strong visibility on double-digit profit growth and cash flow generation in FY26.
- Growth Engine: Record new wins and retention drive above-peer revenue and margin trajectory, with first-time outsourcing as a structural tailwind.
- Cost and Margin Discipline: Supply chain technology and SG&A leverage offset startup and incentive costs, supporting normalized margin expansion.
- Watch for Execution: Timely ramp of large contracts and continued international integration will be key to sustaining outperformance.
Conclusion
Aramark exits FY25 with a robust contract pipeline, industry-leading retention, and a clear path to margin and cash flow expansion. The company’s disciplined execution on outsourcing trends and supply chain technology positions it for sustained value creation in FY26 and beyond.
Industry Read-Through
Aramark’s results highlight a secular acceleration in outsourcing across healthcare, education, and workplace services, with clients increasingly seeking technology-enabled, cost-efficient partners. Competitors in food, facilities, and hospitality services will face rising pressure to invest in AI-driven supply chain tools and digital client platforms. The Penn Medicine win signals a broader shift among large healthcare systems toward bundled outsourcing, while robust demand in international markets underscores the global opportunity for scale players. Industry participants should expect continued consolidation and technology-driven margin expansion as the outsourcing trend accelerates.