Q4 2024 Aramark Earnings Call
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Speaker Change: Good morning and welcome to Aramark's Fiscal 2024 Earnings Results Conference Call. My name is Kevin and I'll be your operator for today's call. At this time, I'd like to inform you that this conference is being recorded for rebroadcast and that all participants are in a listen-only mode.
Speaker Change: We will open the conference call for questions after the conclusion of the company's remarks. I will now turn the call over to Felise Kissell, Senior Vice President, Investor Relations and Corporate Development. Ms. Kissell, please proceed.
Felise Kissell: Thank you and welcome to Aramark's earnings conference call and webcast.
Felise Kissell: This morning, we will be hearing from Aramark CEO, John Zillmer, as well as CFO, Jim Tarangelo. As always, there are accompanying slides for this call that can be viewed through the webcast and are also available on the IR website for easy access.
Felise Kissell: Our notice regarding forward-looking statements is included in our press release.
Felise Kissell: During this call, we will be making comments that are forward-looking.
Felise Kissell: Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties, and important factors including those discussed in the risk factors, MD&A, and other sections of our annual report on Form 10-K and SEC filings.
Speaker Change: We will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in our press release and IR website. With that, I will now turn the call over to John.
John Zillmer: Good morning everyone. Thank you all for joining us. On today's call, Jim and I will be providing a detailed review of Aramark's earnings results released this morning and sharing our expectations for the business in fiscal 25.
John Zillmer: Every quarter of this past fiscal year, we reached new highs in our financial performance, which resulted in us raising our full-year outlook throughout fiscal 24 and ultimately achieving record revenue and AOI profitability for any year in global food and support services history.
John Zillmer: This is a testament to what our teams are capable of, raising the bar every single day and challenging ourselves across the organization to deliver for our stakeholders.
John Zillmer: For fiscal 24, this mindset led to year-over-year organic revenue growth of 10 percent, adjusted operating income increasing 20 percent, and adjusted EPS rising by 35 percent on a constant currency basis.
John Zillmer: I truly believe the best is yet to come in recognizing our full potential.
John Zillmer: We also announced this morning that the board approved a new $500 million share repurchase program, clearly demonstrating our continued confidence in the business and the significant growth opportunities ahead.
John Zillmer: Our strong and predictable cash flow provides us considerable financial flexibility to first strategically invest to drive growth, focus on building upon our prominent client portfolio.
John Zillmer: Second, to pay down debt with a clear line of sight to reducing leverage to around 3x by the end of this fiscal year.
John Zillmer: Third, issue a quarterly dividend, which was just increased by 11%, and fourth, initiate a share buyback program to repurchase Aramark shares, highlighting our capital structure capabilities.
John Zillmer: These actions reflect our ongoing commitment to maximizing shareholder value and further positioning the business on a firm foundation to deliver great results.
John Zillmer: Once again, we experienced significant annualized gross new business wins in fiscal 24, totaling more than $1.4 billion and representing nearly 9% of prior year revenue, the best year ever for global FSS.
John Zillmer: Retention for the Total Company was impacted by recently exiting some lower-margin facility services accounts, most notably Chicago Public Schools, as a result of a policy change driven by political considerations.
John Zillmer: And while I'm not pleased with the effect this had on our overall retention number of 93.2%, we see this as a unique occurrence. Our core food service businesses in both the United States and international achieved retention of 95.2% in the fiscal year.
John Zillmer: Our new business pipeline across the organization remains substantial, including in first-time outsourcing, and we are already off to a great start this fiscal year, with several large opportunities leaking into fiscal 2025.
John Zillmer: In just the first six weeks, we've added clients such as Broward Health Medical and MasterCard. I have strong confidence in the company's ability to achieve net new of 4 to 5 percent with retention levels above 95 percent in fiscal 25 and beyond.
Turning to the business segments.
John Zillmer: FSS US grew organic revenue 7% in fiscal 24, primarily from record-based business volume and pricing. In the fourth quarter, organic revenue in the segment increased 4% as pricing began to normalize with improving inflation, particularly in education.
John Zillmer: Strong per capita spending and high fan attendance levels continued in sports and entertainment, along with increased participation rates in workplace experience and retail expansion in corrections, more than offset facilities, which I referenced earlier.
John Zillmer: New clients added in the fourth quarter included SAP America and Workplace Experience, House of Blues and Guinness Locations in Sports and Entertainment, and Palantir now in Refreshments, as well as our Senior Life Plus business partnering with Asbury Communities to provide dining and hospitality services.
in Continuing Care Retirement Communities.
John Zillmer: Destinations also began operations at Adventures on the Gorge, which encompasses more than 70,000 acres in West Virginia.
John Zillmer: Corrections continued to expand the portfolio in the fourth quarter with our Into Work program, a key differentiator as a second-chance employer, offering training, certification, internships, and scholarships. Into Work recently had a record graduating class from its warehouse and supply chain program and in total now has more than 6,000 graduates.
John Zillmer: In the U.S., we just launched Hospitality IQ, a hub for AI-powered business applications to enhance the guest experience, empower our operators, and further drive our clients' business objectives.
John Zillmer: These platforms include our award-winning Mosaic AI supply chain platform, which allows clients to receive real-time, actionable supply chain data customized to their specific locations.
Culinary Co-Pilot, an AI-powered resource that provides real-time menu recommendations.
John Zillmer: And Aramark Connected, which creates a frictionless, unified guest experience, leveraging multiple autonomous services that are open around the clock. This offering is particularly appealing to clients in education, healthcare, and workplace experience.
John Zillmer: Hospitality IQ represents another step forward in Aramark's mission to provide innovative and practical solutions for clients with strong financial benefits.
Now on to International.
John Zillmer: Momentum and International continued with organic revenue increasing 17% in fiscal 24 as a team has been extraordinarily successful in collaborating to deliver on our strategic priorities in the countries we serve outside the U.S. From partnering across borders to sharing best practices to thoughtfully building scale.
John Zillmer: These actions led to strong based business growth, high retention, and significant new business.
John Zillmer: In the fourth quarter, International's organic revenue increase of 16 percent included contribution from all geographic regions across the portfolio, with the U.K., Germany, Canada, and Chile leading the country's specific performance.
John Zillmer: Airmark is proud of our long-standing European sports and entertainment presence with the Bundesliga in Germany and La Liga in Spain, and more recently, as I shared on my last call, just entering the English Premier League, as we become the Everton Football Club's official global food and experiences partner for their new stadium opening in a few months.
John Zillmer: We are now also pleased to announce the continuation and expansion of our relationship with one of the most powerful global brands in sports, FC Barcelona. Through a dynamic, long-term partnership, Aramark will be the exclusive food and beverage and hospitality partner for the renovated 105,000 seat Camp Nou Stadium, scheduled to reopen later this year.
John Zillmer: Additional new clients awarded in the fourth quarter within the international included Allied Irish Bank in Ireland, BBVA Espana in Spain, and BP Gulf of Mexico in our offshore business, among many others.
Thank you.
Moving to global supply chain.
John Zillmer: Our global GPOs are aggressively expanding with double-digit organic net new growth across all our GPO channels, contributing to the $1 billion in new spend this past fiscal year, with total spend reaching $20 billion.
John Zillmer: This momentum comes from wins in hospitality, senior living, wellness, and entertainment.
John Zillmer: We also launched Avendra International in the fourth quarter to enhance our service capabilities in the international marketplace, a key area of focus for us.
John Zillmer: To accelerate our success, we continue to selectively pursue acquisition opportunities to complement our organic efforts and enhance our potential in targeted areas.
A word on inflation.
John Zillmer: Inflation continues to be favorable across our global portfolio. Europe, North America, and Asia are all showing continued improvement, with only Latin America lagging behind.
John Zillmer: We expect this overall trend to continue with the business returning to historic inflation levels in the 2-3% range as we move through Fiscal 25.
John Zillmer: Lastly, we're focused on optimizing our balance sheet and leveraging our financial flexibility, as I mentioned in the beginning of my remarks.
John Zillmer: As part of this strategy, we recently completed the sale of a remaining ownership stake in the San Antonio Spurs NBA franchise for approximately $100 million and used the proceeds for debt repayment. We continue to work closely with the Spurs as a valued client.
John Zillmer: Before turning the call over to Jim, I'd like to highlight a few more accomplishments and the recognitions we received in the fourth quarter.
John Zillmer: First, as a new academic year began, Aramark volunteers worked together with local organizations to assemble and deliver backpacks filled with school supplies to students in need across 30 communities in the U.S., Ireland, and Chile.
John Zillmer: Second, the company was highlighted as one of America's most admired workplaces 2025 by Newsweek with fostering innovation and professional growth as key considerations.
John Zillmer: We were also named as the best place to work in healthcare by the industry-leading publication Modern Healthcare, taking the number two spot.
John Zillmer: And finally, a number of earmarked leaders received prominent recognition for our commitment to people and the planet, for environmental sustainability, DEI efforts, and building local communities. This included our Head of Sustainability, Alan Horowitz, as a featured speaker during UN Climate Week.
Speaker Change: I'm proud of what we've accomplished this past year at RMR and know we have tremendous runway going forward. I'll now turn the call over to Jim.
Jim Tarangelo: Thanks, John, and good morning, everyone. As John mentioned, we had another record-breaking quarter.
Jim Tarangelo: building on the strong results we have delivered throughout the fiscal year. Our passionate teams across the company are pursuing significant revenue growth and operational efficiency opportunities which are expected to drive continued momentum in the business.
Jim Tarangelo: We are really pleased with Aramark's performance in fiscal 24. As you recall, we start the year with an outlook of 7% to 9% growth in organic revenue. We deliver 10%.
15% to 20% growth in AOI, we reported 20%.
25% to 35% growth in adjusted EPS. We had 35%.
Jim Tarangelo: And leverage of approximately 3.5 times, we ended the year at 3.4 times, a 50 basis point improvement compared to the prior year.
Jim Tarangelo: We exceeded or achieved the high end of our financial expectations across the board, reinforcing that our growth-oriented model is working, driving our margin levers and generating substantial underlying performance.
Jim Tarangelo: Now, let's review these results in more detail. For the full fiscal year, we reported revenue on a gap basis of $17.4 billion, up 8% compared to the prior year, with approximately 2% of foreign currency translation impact.
Jim Tarangelo: Organic revenue grew 10% versus the prior year, driven by record base business volume, pricing, and the contribution from net new business.
Jim Tarangelo: Fourth quarter organic revenue was up 7% from increased base business volume and reflecting more normalized pricing from favorable inflation trends.
Jim Tarangelo: Adjusted operating income was $882 million in fiscal 24, up 20% on a constant currency basis, resulting in an AOI margin of 5.1%.
Jim Tarangelo: This consistent execution of our profitable growth model led to margin progression for the full year of 50 basis points.
Jim Tarangelo: For the fourth quarter, AOI was $271 million and grew 8% on a constant currency basis.
Jim Tarangelo: AOI margin was up 10 basis points from higher revenue growth, cost discipline, and supply chain efficiencies.
Jim Tarangelo: which more than offset the gain in the prior year from possessor interest at a destination site, which we previously highlighted. Excluding this item, the company would have experienced double-digit AOI growth.
Jim Tarangelo: Our results for the fiscal year led to adjusted EPS of $1.55, an increase of 35% on a cost and currency basis.
Jim Tarangelo: For the fourth quarter, adjusted EPS was $0.54, up 14% on a constant currency basis.
Jim Tarangelo: Interest expense and effective tax rate ended up in line with our expectations and consistent with the modeling assumptions provided on our IR site.
Thank you for watching!
Jim Tarangelo: On a gap basis, Aramark reported consolidated operating income of $707 million and EPS of $0.99 for fiscal 24.
And for the fourth quarter, operating income was $219 million
Thank you for watching!
Speaker Change: Moving to cash flow. Consistent with our typical seasonality of the business, the fourth quarter generated a significant cash inflow which contributed to our strong cash flow for the full year.
Speaker Change: Net cash provided by operating activities in fiscal 24 was $727 million.
And free cash flow was $323 million.
Speaker Change: Our free cash flow grew by 121% compared to the prior year period from higher cash from operations and favorable working capital.
Speaker Change: As we have previously stated, our current free cash flow would have been even higher if it were not for approximately $100 million of one-time cash payments for taxes from the gain related to the AIM services sale, as well as for expenses from the spend.
Speaker Change: Cash from investing activities benefited from the sale of a remaining ownership stake in the San Antonio Spurs NBA franchise as John shared earlier.
Speaker Change: In fiscal 24, we reduced net debt by $1.6 billion, which contributed to our leverage ratio getting down to 3.4 times.
An improvement of 50 basis points year over year.
Speaker Change: We ended the fiscal year with over $2.6 billion of cash availability.
Speaker Change: We continue to remain strategic around extending our balance sheet majorities and our cost of financing, closely monitoring the credit markets for opportunities.
Speaker Change: Lastly, we are very excited about the board's approval of our new 500 million share repurchase program.
Speaker Change: This is a significant step in further demonstrating the strength of our capital structure, confidence in our future, and focus on shareholder value creation.
Speaker Change: We intend to pursue stock repurchases opportunistically, which at a minimum is expected to offset equity dilution and be accretive to earnings.
Speaker Change: Our capital allocation approach will be strategic in achieving our deleveraging objectives and utilizing excess cash generation to repurchase shares.
Speaker Change: factoring in our intrinsic valuation assessment of the equity to optimize repurchase activity.
Speaker Change: In conjunction with these actions, let me be clear that our top priority is always to invest in the business to drive and propel growth.
and we have the financial flexibility to do so.
I'll now wrap up with our Outlook for Fiscal 25.
Speaker Change: We are extremely pleased with the performance in Fiscal 24 and we continue to make great progress in achieving our longer-term financial targets.
which I am confident us going to and through.
With that, we currently anticipate the following full year performance.
Organic revenue growth is 7.5 to 9.5 percent.
AOI increasing 15% to 18%.
Speaker Change: Adjusted EPS growth of 23% to 28% and a leverage ratio of approximately three times.
Speaker Change: Of note, fiscal 25 and the fourth quarter specifically contain an extra or 53rd week.
Speaker Change: This has an expected benefit of about 2% on organic revenue in AOI.
Speaker Change: Also, the outlook for adjusted EPS doesn't include any benefit which would occur from potential share repurchases.
Speaker Change: In summary, we continue to deliver on both top and bottom line performance.
Speaker Change: Our strategies are producing great results, and we are excited to keep this momentum going.
Speaker Change: Thank you for your time this morning, and with that, I'll turn it back to John.
Thank you, Jim.
John Zillmer: Entering this new fiscal year, we are confident in our ability to build upon the success we've worked so hard to establish.
John Zillmer: Leveraging our hospitality culture and growth mindset, our teams have laid the groundwork to create significant new business and value creating opportunities, and we know what needs to be done. We will continue to take the steps necessary to reach and surpass new levels of financial performance.
I am really excited about what's ahead.
and operator will now open the call for questions.
Speaker Change: Thank you. We will now begin the question and answer session. If you have a question, please press star, then 1, 1 on your touchtone phone. If you're using a speakerphone, you may need to pick up a handset first before pressing any numbers.
Speaker Change: In order to accommodate participants in the question queue, please limit yourself to one question and one follow-up. To remove yourself from the queue, please press star 1 1. We will pause for a moment while we compile our Q&A roster.
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Speaker Change: Our first question comes from Neil Towler with Redburn Atlantic. Your line is open.
Good morning, thank you. Good morning John, Jim.
Two, please. The first question really is just on the
Speaker Change: On the facilities contracts that you've exited, you mentioned that's a sort of unique, specific issue. We could take it from that. Can you confirm that there are no more sort of lurking within the portfolio that you're unsatisfied with the profitability of? And can you
Speaker Change: Perhaps give us an indication of what that means in terms of
Speaker Change: from FY25? That's the first question. The second one is really on the margin. I think excluding those...
Speaker Change: and one-off in the base year. You know, the margins expanded to the close to 70 basis points year on year. The guidance is...
Speaker Change: applies something toward half that level for the forthcoming year. I wonder if you could talk about the different levers side by side within those two years, which is taking over from which.
Speaker Change: and in what order you see the sort of contributing factors to the margin improvement for FY25. Thank you.
Speaker Change: Sure, we'll take the first part of the question first. First of all, yes, there are no other...
Speaker Change: large facilities contracts lurking in the background that are that are unprofitable that we are looking to exit.
Speaker Change: or to manage our way out of, those are very unique circumstances, one of which was, as I described, Chicago Public Schools.
Speaker Change: and they made a very tough decision to go ahead and...
Speaker Change: changed a decision they'd made literally the prior year. So it was a very significant new contract which we had recently won.
Speaker Change: and had begun to mobilize, and then because of a leadership change in that organization, they reversed course.
Speaker Change: and went back to doing things the way they had done them. So yeah, very difficult, but very unusual circumstances. We don't see that continuing.
Speaker Change: and we're very pleased with the overall state of the facilities business, its margin profile and profitability, and the runway ahead. It is one of the businesses that has the largest opportunities for the company's growth rate going forward.
So, Jim, do you want to go ahead and...
Jim Tarangelo: Yeah, in terms of the impact, like we said, so the retention rate in the food business was 95% versus 93%. So overall facilities impact about 2% on retention. You could think of that in terms of the revenue impact as well. The larger two contracts
Speaker Change: had an impact of over 1% on the retention rate that John was just mentioning.
Speaker Change: Yeah, in terms of the margin progression, we've made great progress this year. We generated 50 basis points of margin improvement. I really see that as sort of our underlying run rate. There's always some one-offs quarter to quarter. But the levers are working. We've seen great efficiencies in supply chain. We continue to scale.
Speaker Change: are overhead if you take a look at the SG&A cost, you can see...
Speaker Change: how we're able to scale the business with the revenue growth.
Speaker Change: I think at the midpoint of the guidance or so, we're at about 40 basis points for fiscal 25. And again, there's a range. If you take the low end of revenue and high end of AOI, you'd be higher than that. So, like I said, we're very comfortable with the 50 basis points underlying rate and the progression that we've seen and we'll see how things play out over the next year.
That's great, thank you very much.
Speaker Change: Thank you. Our next question comes from Josh Chen with UBS. Your line is open.
Thank you. Thank you. Thank you.
Speaker Change: Hi, good morning. Congrats on that good Q4 and finish to the year. I was wondering on your net new, I noticed that you kind of are presenting them on a consolidated basis, so I'm wondering if there's any difference in terms of U.S. versus international in terms of net new this past year that we should be aware of. Thank you.
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Speaker Change: net new as well. So as I said, I think we consider...
Speaker Change: This is a very unique circumstance in particular for U.S. Food and Support Services.
Speaker Change: very confident in the runway that that business has, the size of the opportunities.
Speaker Change: frankly our overall pipeline of opportunities and frankly some accounts that we anticipated that would be closing last year have leaked into the first quarter of this year some of them were very sizable so a little bit of a timing difference with respect to when we would recognize those.
Speaker Change: As a general rule, because we have incentive compensation tied to net new, we're very disciplined about when we recognize it. So at the end of the fiscal year, we call the number.
Speaker Change: And some of those opportunities that leaked into the first quarter of this year are very significant and we look to be able to talk about those shortly.
Speaker Change: I was just wondering if you can talk about pricing just on an overall basis going forward in 2025, you know, what level of pricing is currently embedded in that guidance. That would be really helpful. Thank you.
Speaker Change: Sure, so yeah, as the inflationary environment normalizes in the twos or so, I think we could expect our pricing to be in the two to three percent range for fiscal 25.
Thank you and good luck in the new year.
Speaker Change: Thank you. Thank you. Our next question comes from Ian Zafina with Oppenheimer. Your line is open.
Speaker Change: Hey, good morning. This is Isaac Salazan on for Ian. Thanks very much for taking the question
Speaker Change: My question is on the Straught Revenue Guide for 25. Maybe if you could just help us understand the...
Speaker Change: main drivers in terms of vertical contributions or U.S. or international breakdown. And then you've noted, I guess, the fiscal 25 includes an extra week. So maybe if you could help us, remind us on the impact again on the year and the guidance. Thanks.
Speaker Change: Sure, so on the print, the guide, you know, 7.5 to 9.5% growth in fiscal 25, we estimated about a 2% impact.
Speaker Change: from the 53rd week, so if you adjust for that 5.5 to 7.5 is where we would be. Generally, in terms of the way we think about the growth, contingent growth across both...
Speaker Change: Broad-based growth really across all sectors in both the U.S. and international as I mentioned pricing I think will be about two to three percent of that Generally net new at two to three percent and then you know the remainder coming from volume
Thank you for watching!
Speaker Change: Yeah, Jim, correction on the net new, it should be four to 5% for net new for next year, right?
Speaker Change: Yeah, it's the in-ear impactor. Oh, got it. In-ear impactor. Got it. Thank you.
Okay, understood. Thank you very much.
Thank you. Thank you.
Speaker Change: Our next question comes from Andrew Steinerman with JP Morgan. Your line is open.
Speaker Change: Hi, when looking at your impressive gross new, how does that break down between new outsourcing and winaways and do you feel like there's still a rising tide for the overall kind of food services provider industry in terms of a trend towards newly outsourced contracts?
Thank you for watching!
Thank you.
Speaker Change: Thanks, Andrew. Yeah, I would say we still see a very robust environment in terms of new account opportunities, both from a first-time source outsourcing, as well as just the overall market.
Speaker Change: you know, the market growth. So yeah, I think we we believe that there's lots of runway ahead.
Speaker Change: those long-term objectives that the company has set. So really nothing changing, just still a very robust environment and one that we're working very hard to take advantage of.
Speaker Change: And the profitability and the required front costs for new outsourcing still looks conducive?
Speaker Change: single-digit rate, call up two and a half to three percent potentially in the business. So really no change to the overall economic profile of winning new business.
Thank you.
Speaker Change: Our next question comes from Lizzie Dove with Goldman Sachs. Your line is open.
Speaker Change: Hi there, thanks for taking the question. I just wanted to see if I could get an update on the GPO network spend. I think you previously said that would surpass 20 billion by the end of this year. Any update on how you kind of see the opportunity to grow that further? And, you know, just a reminder of the key benefits there, especially on the marginal side of things.
Speaker Change: consistently looking for new acquisition opportunities, both domestically and globally, to expand the GPO reach. We've been very successful this last year, not only in the organic growth of the GPOs, selling some major new accounts.
Speaker Change: in adding that billion dollars of spend, but we've also been able to cultivate some very strong new partnerships and relationships.
Speaker Change: that are helping to to help us negotiate new and better deals both domestically and internationally. So we are in the we are in the process of working through several opportunities which we'll probably be able to disclose.
Speaker Change: in the January time frame with respect to some opportunities internet. And we continue to be focused on the growth in this segment of the business because of its strong earnings potential.
Speaker Change: Got it. That's helpful. And then just on the margin side, I know, you know, especially post-COVID, the net you business is kind of ramped up very quickly. Hey, Lizzie, we're having a little trouble hearing you. Oh. Can you hear me now?
Yeah, that's better. Thank you.
Speaker Change: Perfect, thanks. So just on the margin side, with the net new business, obviously that ramped a lot post-COVID and was, you know, there's the profitability of that with, you know, initially, it's a little bit of a headwind and then ramps over time. Could you give a reminder of where you're kind of at? Is that still kind of a margin benefit to 2025? Is that net new kind of ramps? Or are we kind of through that kind of phasing up now since you had that jump up in net new business?
Speaker Change: Yeah, so again, we've printed a record new business, right, three years in a row here in a record print, again, excluding the uniforms business in 24.
Speaker Change: And so with that, as we talked about, right, the margin profile, those newer accounts, progresses over time.
Speaker Change: I think if you look at the margin levers, it will continue to be a benefit in fiscal 25. It was a benefit, that progression, in 24. And I think by 26, we'll be in that sort of steady state with respect to how that new business and the progression of the margins materializes.
Got it, thank you.
Speaker Change: Our next question comes from Jasper Bibb with Truer Securities. Your line is open.
All right.
Speaker Change: Hey, good morning, everyone. On the guidance, you mentioned, you know, some new contracts going at the end of the year, the exited facility services work, and then the 53rd week next year. Just any color on how we should think about the, I guess, quarterly cadence of organic growth through fiscal 25, given those moving pieces?
Speaker Change: Yeah, I think with that we'd expect the quarterly growth to accelerate, so Q4 fiscal 25 will likely be the highest revenue growth of all four quarters, just the way the timing of the new is working out and some of the losses that John mentioned in facilities.
Thank you for watching!
And then I was wondering about the Avenger International launch.
Speaker Change: How do you think about the benefit of consolidating some of those international GPOs, like is there potentially an impact to your purchasing power or maybe taking down the overhead costs required to support the international GPO operations?
Speaker Change: Yeah, we have already done the work of consolidating the GPOs internationally into one organization. So, as we've acquired GPOs internationally, we've built them into one organization. We're really rebranding.
Speaker Change: The individual companies as Avendra International, but the back office work has already been done, the consolidation and leadership.
work has already been done and we're reaping the benefits.
Speaker Change: of the improved management of that supply chain and that spend.
a very strong position and the opportunity to grow.
Speaker Change: organically with our existing customers that we serve in the United States and other parts of the world and we're working to strengthen that that network by way of bolt-on acquisitions as well as just the organic growth in those existing GPOs.
Thank you for watching!
Understood. Thanks for taking the questions.
Thank you for watching!
Speaker Change: Our next question comes from Faiza Alway with Deutsche Bank. Your line is open.
Speaker Change: Yes, hi. Good morning. I wanted to ask about the new business wins and, you know, what your win rate has been like over the last few years and if that has changed over time.
Speaker Change: Obviously, we have a very strong sales organization, very strong sales leadership, both domestically and internationally. And so, while we don't disclose our closure rate in individual businesses because of competitive...
Speaker Change: and we're very excited by that performance. So, you know, I would say generally you could probably attribute a number of 10 to 15% improvement year over year in our overall closure rates, which is substantial.
Speaker Change: Thank you. Great. Thank you. And then, Jim, I wanted to ask about your interest expense guide. I'm curious what you've built in there because I know you've paid down some debt.
Speaker Change: and you do have some bonds that are due in 2025. Could you just give us some color on the assumptions behind your interest expense guide?
Speaker Change: There's a lot of moving pieces there. So you'll recall we repriced some term loans in 24 at favorable pricing. As you mentioned, we have some 2025 maturities that we'll need to address in the next few months as well. We have some swaps rolling off as well. So the guide at 230, 330 is on a 53-week basis.
Speaker Change: On a 52-week basis, we think 225. We're seeing how interest rates play out this year, and if they continue to decline, potentially some opportunity there. But those were the moving pieces in how we built up the guide.
All right, thank you.
Speaker Change: Our next question comes from Shlomo Rosenbaum with Stiefel. Your line is open.
Speaker Change: Hi, this is Adam on for Shoma. The company is pricing normalizing particularly in education. Did education see much less pricing than the rest of the business and is the company being more price competitive in this segment to a new business?
Speaker Change: Yeah, I think what you're seeing there in the education sector in the fourth quarter is that the higher education business generally had one less week of operating days in the prior year, so the calendar just started about a week later. So we should see more normalized growth rate in that segment in Q1 and again the pricing consistent with what we talked about for the rest of the business.
Speaker Change: Okay, and can you provide more color on a non-cash inventory adjustment in the corrections business? Does this apply right now?
Speaker Change: Yeah, sure, so as we fully integrated the union acquisition, which again strategically has been an excellent transaction for the business, building our capabilities in not only food service but commissary, and you've seen the growth that we've generated in corrections and a lot of that attributed to that, getting that deal done.
Speaker Change: Over the past year, we've essentially fully integrated that business as the earn-out period has concluded.
Speaker Change: The business during COVID built up some inventory like many companies did, and as we brought it on to our remarks, policies, and procedures, we adjusted the inventory, continued to optimize, and we took a non-cash charge of about $17 million.
Thank you.
Speaker Change: Our next question comes from Tony Kaplan with Morgan Stanley. Your line is open.
Tony Kaplan: Thanks so much. I was hoping you could give us an update on the workforce, how turnover is trending, and particularly also you mentioned the two to three percent pricing, so just how we should be thinking about the price-cost spread as we move through 25.
Thank you for watching!
Speaker Change: Sure. Thanks, Tony. First of all, on the price-cost spread, we fully anticipate being able to recover any inflationary increases.
a particular spike affecting us this year.
Speaker Change: things roll out over the course of the year, but I think we'll be very sensitive to watching both.
Speaker Change: and it was built into our contract structure and we really don't have any impediment to recovery.
Speaker Change: at these kinds of rates. Yeah, the other thing I'd note there is, you know, as the operating environment has normalized, right, there's a productivity with labor. We've seen a reduction over time in agency costs, right, which does offset some of the inflation that John mentioned.
Speaker Change: Great and then just for a follow-up, I think we all saw a number of headlines in September, so why don't you just get your thoughts on whether we should be seeing industry consolidation at this point and you know what
Speaker Change: what you think would drive that and just maybe the M&A environment. Thanks.
Sure, yeah, I...
Thank you.
Speaker Change: I somewhat anticipated this question and, you know, as I think was publicly stated by the other organization.
Speaker Change: and sell family-owned organizations that may sell that kind of thing. I don't think you'll see any real major consolidation.
any longer in this industry. So it's highly competitive.
Speaker Change: You've got the three large players that have positions that are very well staked out.
Speaker Change: And are there some regional companies that are potentially going to consolidate? That's a possibility, but it probably won't be significant.
Very clear. Thank you.
The next question comes from Andy.
and Andrew Whitman with Barrett, your line is open.
Speaker Change: Yeah, great. I thought I would start out and just ask on the 2026 guidance. Last year at this time, you kind of reiterated it here. I just was wondering, John, what you're thinking about the status of those targets, if they're still good, how you're tracking towards them, etc.
John Zillmer: Yeah, absolutely. Those targets are still good, and it's our intention to get to and through them, and I think we've been able to over-deliver.
John Zillmer: This year, our expectation is for another very strong year in 2025 and to be on the money or above the 26 targets that we established. So we're feeling very bullish.
about the overall performance and the overall environment, Andrew.
Cool.
Speaker Change: And then I just wanted to ask a little bit on the sports and entertainment business segments. I mean, you've highlighted almost every quarter, you know, good attendance, good per caps.
Speaker Change: here through 24. And I was just wondering kind of what you're seeing in terms of the comps this year. It sounds like you picked up some venues, which is always good.
Speaker Change: But if you look at, you know, maybe just even like playoff games, other things that can be notable.
Speaker Change: I'd just be kind of curious as to how you're thinking about that and really underlying that how is
Speaker Change: your experience of the consumer to the extent that you've got these ones that are a little bit more commercial in terms of the consumer spending. I'm just kind of curious what you're seeing across the business there, but specifically in sports entertainment as well.
Speaker Change: Sure, we continue to see robust consumer demand in the experiential markets of sports and entertainment. People are still very much willing to go ahead and spend, to go ahead and either attend sporting events or concerts.
Speaker Change: and the activity level very high, per capita spending very strong.
Speaker Change: across really all the venues and we have not seen any change to consumer behavior from that perspective whatsoever. From a playoff perspective this year we had four teams in the MLB playoffs.
Speaker Change: We'll probably be a couple of games short of our experience last year where we had two teams.
Speaker Change: But we already exceeded our planned budget, if you will, for playoff experiences, so we feel like we're in very good shape from an internal expectation perspective.
Speaker Change: And we're looking forward to a strong NHL and NBA season and a strong close to the NFL.
Speaker Change: where we've got a number of teams that are performing very well. So, a lot of what drives the per caps literally is team performance. And when your teams are doing well, customers are excited and they're willing to spend to go ahead and see their teams. So, right now, I would say it continues to be very robust and very supportive.
Great. Thank you very much.
Thank you.
Our next question comes from...
and Barb Mastari with...
BNP Paribas, Xane, your line is open.
Thank you.
Speaker Change: Hi, good morning everyone. I have a couple of questions. Firstly, just on the new business signings, could you maybe comment a little bit about the timing of those? You do not give explicit numbers in H1. We have a 1.4 billion number. Was this signed broadly linearly through the year or was it in any way weighted towards the second half? And the reason I'm
Speaker Change: sort of get a view on the ramp-up, you're assuming how fast some of those can start contributing to revenue in 2025.
Speaker Change: Yeah, again, I think the signing of that 1.4 was generally spread out relatively even throughout fiscal 24, so I don't think there's anything unusual to point out with how that business would roll out for fiscal 25.
Speaker Change: In terms of retention, FM is the big hit, but outside of FM your retention is still down about 30 basis points. Could you maybe give us some colour on where you've not always been successful in food?
Speaker Change: If there are any trends to highlight or if it's just a bit broad-based and specifically in education
One of your competitors has flagged it.
Speaker Change: In 2018, in K-12, some contracts had to be re-signed because of a change in procurement regulation and they say they have a large number of those that are coming up for renewal in 2024 and a little bit less but still in 2025. Is that something you're just seeing?
Speaker Change: Yeah, the USDA regs are very explicit in terms of how often school districts in the K-12 sector need to go out to bid.
Speaker Change: It affects the companies all a little bit differently depending on the timing of the award of contract.
Speaker Change: We had a larger year last year where we would have expected...
Speaker Change: More contracts out for bid. Our competitors, I think, have a more active rebid season this year than we do. So it affects each of the companies somewhat differently. But that phenomenon is consistent for all three of us.
Speaker Change: I would say in terms of retention, we had very strong retentions in most of the businesses with facilities being the one outlier, both domestically, or primarily domestically. So I think it's...
Speaker Change: You know, I think we feel very strongly about the company's ability to be at its historic and even higher retention levels and consider this last year to be really an anomaly in terms of the circumstance.
Speaker Change: We also had one significant loss internationally due to a low-priced bid that was significant, but International was able to offset that through their new sales performance.
Speaker Change: Overall, I'm very comfortable with our retention rate being in that plus 95% range.
Speaker Change: and with our net new in the four to five percent range on an annualized basis. So I think the targets that we've established for ourselves are very consistent.
Speaker Change: We've been able to achieve them, and our people are very disciplined about both sides of the equation, selling new accounts at record levels and retaining their existing customers to the greatest degree possible.
Speaker Change: superb and very last one for me I promise if I do the math on your guidance
Thank you.
Speaker Change: 2% or 3% pricing, 2% or 3% in-year net new business.
Speaker Change: This leaves me with like-for-like volumes that need to contribute a positive 1.5%. In this industry, historically, it's been flat. So how are you able to forecast markedly positive volumes? Is it that there's still some return to the office? Is it more digital?
more self-help, better upsell to the end customer.
Speaker Change: We had, again, really high levels of base business, both volume and price, throughout fiscal 24, and even in the fourth quarter, really strong base business across all of the sectors. So we continue to see, expect.
Speaker Change: based business both with volume performing better than historic even in 25 and that's the trends we're seeing.
Speaker Change: as we close out even the first month here. So yeah, we expect base visits to continue to be elevated, not at the levels that we saw record levels in 25, but certainly elevated be higher than our historic levels in 25.
Thank you very much.
Speaker Change: Our next question comes from Harold Antor with Jeffries. Your line is open.
Hello, this is Harold Onto, all for Stephanie Moore.
Speaker Change: You know, on Avendra, you know, could you provide us, you know, the, I guess...
the cross-selling opportunities, and then I guess...
you know, how you are seeing your clients being receptive.
particularly as clients as you explore with them internationally.
Speaker Change: If you could provide any sense of how you see your business with
current clients grow and expand through this new initiative.
Speaker Change: Yeah, first of all, I'm sorry, we had a little bit of difficulty hearing you, but let me ask her what I think I heard.
Speaker Change: that, you know, first of all, the Avendra international growth rate, the opportunity that we have is very significant with.
Speaker Change: are existing customers of Avendra and we're continuing to do work with them in multiple countries around the world in multiple markets, and we see that organic growth potential as being very significant.
Speaker Change: Overall, last year we had significant organic growth in Avendra, both domestically and internationally. As we talked about in our
Speaker Change: Earnings improvement, every time we add spend, it increases our ability to negotiate new and better deals that impact not only our customers at Avendra, but also our overall supply chain.
Speaker Change: and which benefits Aramark on the contract food service side as well. So it's a very symbiotic relationship, one we're very much focused on growing, and we feel very good about the results last year, and we'll continue to pursue that business aggressively.
Thank you for watching!
Speaker Change: Thank you. And then I guess just on hospitality IQ, if you could provide, I guess, how receptive clients have been there, how the value clients are receiving there, and if you could provide any sense on anything else you're doing on the tech side.
Speaker Change: contractual requirements with our menus and matching that with optimizing our supply chain. So that's something that enhances the client needs, but also manages costs effectively. So that's something that's working.
Speaker Change: very well. We've used the tool to aggregate our SKUs across the business. As you know, we have thousands and thousands of profit centers, thousands of SKUs, and what the AI tool has enabled us to do is aggregate that spend with a common denominator.
Speaker Change: and to allow us to negotiate a more effective pricing with our manufacturers and suppliers. So those are two tools already underway, improving, generating very positive results.
Thank you for watching!
Speaker Change: Thank you. I'll now turn the call back over to Mr. Zillmer for any closing remarks.
Thank you for watching!
John Zillmer: Terrific. Thank you very much, everybody, for your support of the company. I feel very good about the results for fiscal 24, very positive about the runway for 2025 and 2026.
John Zillmer: I'm really proud of the Aramark team, they've done an extraordinary job. I want to thank the Aramark team for their hard work and dedication to our customers.
John Zillmer: our clients, and our shareholders. And we're all in this together. I'd also like to say to the veterans that serve Aramark, thank you for your service to this country and have a great Veterans Day. Take care.
Speaker Change: Thank you for participating. This concludes today's conference. You may now disconnect.
Thanks for watching!
Without him, none of this would be possible.
and many more. Thank you. Thank you.