Baird is impressed with the efforts Aramark (NYSE:ARMK) is putting to fuel topline growth and contain costs. The firm says that F1Q2016 showed that the efforts are paying off, leading it to restate its Outperform rating on the stock. However, the firm has stepped down its price target on the stock to $37 from $39, mostly citing margins and debt level concerns. It is worth noting that this juncture that Aramark finished F1Q with nearly $5.3 billion in long-term debt.

F1Q2016 earnings overview

Aramark (NYSE:ARMK) beat earnings expectations in F1Q2016, thanks mostly to a rise in organic sales and decline in costs.

Sales of $3.71 billion rose 3% YoY, topping the consensus estimate of $3.7 billion. Adjusted EPS of $0.50 rose from $0.47 a year earlier and also exceeded the consensus target of $0.48.

Aramark registered a 2% lift in sales in its North American food services division. The unit is the largest revenue contributor. Internationally, food service sales fell 8% but sales in the uniform segment rose 4% in the quarter.

Adverse forex movement has because a serious headwind for Aramark in the recent quarters because of its massive exposure to global markets.

Aramark’s corporate expenses declined 16% in F1Q.

2016 Outlook

Aramark (NYSE:ARMK) backed its previously announced fiscal 2016 earnings expectations. EPS in the year is expected in the range of $1.65 to $1.75. The company had earlier warned of a $0.03/share headwind in the year. The guided F2016 EPS range accommodates the consensus EPS estimate for the year of $1.67.

Baird impressed

Baird finds Aramark (NYSE:ARMK)’s F1Q results largely impressive. For example, while Baird was looking for EBIT margin of 6.9%, Aramark posted a stronger EBIT margin of 7.1%.

Valuation

In terms of valuation, Baird sees Aramark (NYSE:ARMK)’s shares as modestly valued although not necessarily compelling. Baird also notes that Aramark is run by an above-average management team. Additionally, the firm sees the company has having a steady business model.