Q2 2025 Aramark Earnings Call
Thank you.
Kevin: Good morning and welcome to Aramark's second quarter fiscal 2025 earning results conference call. My name is Kevin and I'll be your operator for today's call.
Speaker Change: At this time, I'd like to inform you that this conference is being recorded for re-broadcast and that all participants are on a listen-only mode. We will open the conference call for questions at 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, and Ms. Kissell, please proceed.
Kevin: Thank you, and welcome to Aramark's earnings conference call and webcast.
Speaker Change: This morning we will be hearing from our 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.
Speaker Change: Our notice regarding forward-looking statements is included in our press release. During this call, we will be making comments that are forward-looking.
Speaker Change: Actual results made differ materially from those expressed or implied as a result of various risks, uncertainties, and important factors, including those discussed in the risk factors.
Speaker Change: and DNA and other sections of our annual report on form 10K and SEC violins. We will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. Gap can be found in our press release and IR website.
John Zillmer: With that, I will now turn the call over to John .
John Zillmer: Thanks, Felise, and thanks to all of you for joining us today.
John Zillmer: Before we begin, I want to acknowledge the deep pain all of us at Aramark are feeling from the unimaginable loss of our beloved colleague and friend who had lost during the mass shooting at Florida State University.
John Zillmer: T. Ruchada, Regional Vice President in the Southeast, had been a part of the Air Mark family for over 25 years. Our thoughts are with T. Roo's family, and we are supporting them wherever we can.
John Zillmer: This morning, Jim and I will be reviewing our second quarter results, along with our performance expectations for the remainder of the year. We continue to see significant growth opportunities in the business, and remain confident in our ability to achieve our financial objectives for fiscal 25 and beyond.
John Zillmer: We are currently experiencing very positive trends across the company as we enter the second half of the fiscal year.
John Zillmer: Second, Monthly Acceleration of Revenue Growth as the second quarter progressed, which continued into April with revenue growth of 6%.
John Zillmer: and lastly, New Client wins already totaling $660,000,000 in this fiscal year today with significant new business immediately ahead, providing its clear visibility to achieving net new of 4% to 5% in fiscal 25.
John Zillmer: Like others, we are managing the fluctuations in the marketplace both on Wall Street and Main Street. Given the breadth and depth of our portfolio, Aramark has a proven track record in benefiting from a highly resilient business model, particularly during periods of uncertainty.
John Zillmer: We expect to be well-positioned, no matter the macro-environment. The robust capabilities we built are rooted in the power of our people, the strength of our supply chain, and a growth-minded hospitality culture focused on providing exceptional service for our clients.
John Zillmer: Turning to the second quarter specifically, Aramark's organic revenue grew to 4.3 billion, representing an increase of 3%. A strong outcome considering the exit of some facilities accounts last year and the calendar shift in education we discussed previously.
John Zillmer: as well as certain temporary weather-related client-side closures that occurred in the southeast portion of the United States during the quarter. Without these factors, revenue would have grown another 3%.
John Zillmer: We experience record AOI profitability for any second quarter in global FSS history and once again delivered over 20% adjusted EPS growth on a cost and currency basis from the consistent execution of our strategies.
moving to the business segments.
John Zillmer: In the Texas S.U.S. organic revenue increased to $3.1 billion or roughly 1% in the second quarter affected approximately 3% by the factors I just mentioned.
John Zillmer: Operational performance was driven by new business and higher participation rates in workplace experience, increased micro market and bending services and refreshments, and additional new business wins and corrections.
John Zillmer: Most recently, we kicked off the season in Major League Baseball, the largest component of our sports business, with our client portfolio poised to have strong team performance.
John Zillmer: Our per capita rates on opening day increased nearly 15% compared to the prior year, and we are seeing the trend of higher per capita spending. Continue.
John Zillmer: The new sales pipeline remains robust in each of our sectors, particularly in first time outsourcing. Recent new wins include the Philadelphia Union, our first entry into Major League Soccer here in the United States.
John Zillmer: the University of Nebraska athletic venues growing our presence in the Big Ten and throughout the NCAA. Loyola Marymount University, where almost every student participates in a meal plan.
John Zillmer: Rutgers University in Camden, and the Oklahoma School District in Florida to name only a few.
John Zillmer: As I mentioned previously, we expect revenue growth in the U.S. to continue accelerating over the next two quarters from strong new business, high retention rates, and increased volume growth as well as having the facilities exits behind us.
John Zillmer: The top-line revenue growth drivers include an increase in base business volume within education, especially in collegiate hospitality from continued meal plan optimization, as well as more operating days at multiple universities within the portfolio.
John Zillmer: continued momentum in business and industry, particularly with increasingly prevalent return to office practices.
John Zillmer: and strong-based business performance in healthcare from vertical sales and expansion of core operations with new growth in senior living. We are focused and well on our way to capitalizing on those opportunities.
John Zillmer: Virtually all countries reported revenue grows in the quarter, with the UK, Spain, Chile, and Canada leading the way. We are seeing an incredible benefit from our ongoing strategy to provide clients with a superior overall experience, utilizing our in-country expertise, employee talent and product offerings.
John Zillmer: Similar to the United States, we continued our strong success in sports by adding the Sussex County Critic Club and Wimbledon Football Club in the UK, and getting Hanla at Eagle Stadium in Korea.
John Zillmer: We also want the General A. Stadium in Vienna, which is home to the successful Austrian football club, FK Austria. And we're very excited about the upcoming season at Everton Football Club's new stadium in Liverpool.
Speaker Change: An additional new business awarded in the second quarter within the international, included the Cadalco Salvadori, Mayan, Chile, the iconic Sotheby's, as well as numerous other new client wins across the entire portfolio.
Speaker Change: Along with the board, I was just with our German team and had the opportunity to see our operations thriving firsthand and to visit key clients, including the European Central Bank and Air of Us Industries.
Speaker Change: We saw an excellent example of innovation with our partnership at SAP where we launched our SMART store, a checkout free shopping experience at Demonstrates House Seamless Real-Time Technology Integration.
Speaker Change: and a work to bring the customer experience to the next level. These facilities include Advanced RFID for Inventory, Computer Vision AI for Consumer Engagement, and Product Testing, and Generative Intelligence Tools to drive smart decision-making.
Speaker Change: This pioneering solution is a living innovation lab and highlights what can be achieved when technology and hospitality join forces.
Speaker Change: Turning to global supply chain, our focus remains on growing, leveraging, and optimizing our spend while providing quality products, services, economics, analytical insights, and forcing solutions to clients.
Speaker Change: Performance continue to be strong with the team using our AI driven technology to create further purchasing compliance and contract productivity. Thank you very much for your time.
Speaker Change: We continue to actively grow our global GPO footprint and are pursuing several international geographies for further expansion. Organic revenue growth remains strong across all of our GPO channels, through a combination of both new and based business.
Speaker Change: Reasons U.S. Charifactivity is introduced to broader level of uncertainty in the market related to pricing levels and inflation expectations in general.
Speaker Change: We believe that our business model is well insulated from this volatility. The vast majority of our food products are sourced locally in the respective countries, including the US, where we operate.
Speaker Change: with a removal of Mexico and Canada from the terrorist list, at least for the items we buy, we just have at most single digit levels of purchasing from terrorist countries.
Speaker Change: mostly in textiles, disposables, amenities, and equipment. Primarily as part of the GPO. We're working closely with clients to adopt alternative solutions for their needs and never getting our extensive and adaptable supply chains.
Speaker Change: Regarding capital allocation, our ongoing ability to generate strong cash flow provides a flexibility to invest in the business to propel growth, while executing other shortholder return strategies, including dividends and share repurchases.
Speaker Change: As part of this focus, we re-purchased nearly 4 million shares or about $140 million since we initiated the program back in November . Our leverage is still expected to be around three times by the end of the fiscal year.
Speaker Change: We also recently enhanced our financial flexibility even further by extending certain debt maturities out to 2030 and beyond.
Speaker Change: Before handing the call over to Jam, I want to reiterate our high confidence in realizing the numerous growth opportunities that lie ahead for the business, driven by our extensive strategic and operational capability, and we believe we're well on our way toward achieving them. Jim?
Speaker Change: Thanks, John , and good morning, everyone. Our second quarter results continue to reflect progress in achieving our strategic and financial goals, including delivering another quarter of profitable growth and double-digit increases in both AOI and adjusted EPS on a constant currency basis.
Speaker Change: We also advanced our capital allocation priorities even further by extending debt priorities and returning capital to shareholders through sharey purchases.
Speaker Change: As John mentioned, we are very encouraged by the growth opportunities and positive trends we are seeing for the second half of the fiscal year, and we remain unwavering in our commitment to drive both top and bottom line performance and create substantial value for our shareholders.
Speaker Change: Regarding second quarter profit growth, operating income was 174 million, up 9.5% versus the prior year.
Speaker Change: Adjusted operating income was $205 million, up 11% on a constant currency basis compared to the same period last year.
Speaker Change: A.Y. margin of 4.8% increased 33 basis points year-over-year.
Speaker Change: The strong profit growth and margin expansion was driven by consistent execution of our operating levers, including supply chain efficiencies, discipline operational cost management, and higher revenue levels.
Speaker Change: Turning to the business segments, the US reported AI growth of 5% with an AI margin improvement and 30 basis points compared to the same period last year.
Speaker Change: Rose was driven by higher-based business and supply chain efficiencies, including leveraging AI-driven technology for purchasing compliance and contract productivity, which more than offset lower profit and fewer operating days due to the calendar shift in the education sector.
Speaker Change: We continue to see AI as a key driver of our innovative solutions and data-driven insights, which continue to propel our financial performance.
Speaker Change: One example of AI in action is a stability to notify our frontline managers with proactive product recommendations ensuring purchases are made at optimal prices and specifications.
Speaker Change: The international segment had year-ever-year AOI growth of 26% and more than 60 basis points of margin imprisonment, both on a constant currency basis.
Speaker Change: A.O.I. growth was led by higher-based business volume, new business majority, cost discipline and strength and supply chain economics.
Speaker Change: Turning to the remainder of the income statement, interest expense benefited from lower revolver borrowings in the quarter.
Speaker Change: The adjusted tax rate was approximately 26%. Our quarterly performance resulted in Gap, EPS of 23 cents, and adjusted EPS of 34 cents, an increase of 22% versus the prior year on a constant currency basis.
Speaker Change: With respect to cash flow, the company generated a cash inflow in the quarter consistent with our normal seasonal business cadence.
Speaker Change: Netcash provided by operative activities in the second quarter was $256 million, and free Casula was $141 million.
Speaker Change: Our year-to-date free cash flow is stronger by 64 million compared to the prior year period from higher earnings and favorable working capital, which more than offset higher capital expenditures from new business.
Speaker Change: As John mentioned, we also continue to repurchase shares under our 500 million share repurchase program.
Speaker Change: In addition, as previewed on the last earnings call, we further enhanced our financial flexibility
We repaid our 552 million 2025 U.S. senior notes.
Speaker Change: and refinancing nearly 840 million of 2027 term loans for the new term loan that retours in 2030.
Speaker Change: Additionally, we issued a new Euro senior note that mature in 2033, which subsequent to quarter in was used to repay our 325 million Euro senior notes due in 2025.
Speaker Change: These actions are net leverage neutral and at comparable interest rates.
Speaker Change: We are very pleased with the outcome of these deals and proud that our new European senior note secured the lowest interest rate for a high yield US issue of a Euro bond in the most four years, reflecting our strong financial profile and strategic execution.
Speaker Change: We will continue to proactively enhance our capital structure, focusing on shareholder value creation.
Speaker Change: At quarter end, the company had over 1.6 billion in cash availability.
Speaker Change: And finally, let me wrap up with our performance expectations for the second half of Cisco 25.
Speaker Change: We are seeing very positive upward trends in the business, including accelerated revenue growth throughout the second quarter and in April , significant new client wins, record level retention rates and a substantial sales pipeline.
Speaker Change: We anticipate revenue growth to notably accelerate in the third quarter driven by higher base business volume and net new business expansion as we begin to lap the facilities at this from last year.
Speaker Change: We expect this momentum to more meaningfully continue into the fourth quarter and position us with a strong exit rate as we enter fiscal 26.
Speaker Change: Additionally, we continue to achieve AI growth and margin expansion from our profit drivers and we expect this to persist due to our strong supply chain efficiencies.
Effective cost discipline and higher revenue levels.
Speaker Change: As John mentioned, we are monitoring the broader macroeconomic trends, including the latest on tariffs, and giving our extensive capabilities and diversified portfolio. We expect to effectively manage to achieve our financial objectives.
Speaker Change: With that, we remain very confident regarding the full year and are maintaining our previously stated financial performance outlook for fiscal 25.
Speaker Change: In summary, we are committed to driving excellence and achieving exceptional outcomes.
Speaker Change: This gives us great confidence as we head into the second half of fiscal 25, anticipating continued success and remarkable results. Thank you for your time this morning, John .
John Zillmer, John Zillmer, John Zillmer,
Speaker Change: Thanks, Jim. It goes without saying that we're monitoring the current economic environment very closely.
Speaker Change: We will continue to manage the portfolio for significant value creation. Through organic revenue growth, margin progression, and a strength and balance sheet, our new business pipeline is extremely strong, and we're highly motivated to win.
Speaker Change: I'm immensely grateful for our teams across the globe for the driving force behind our success.
and operator will now open the line for questions.
Speaker Change: Thank you. We'll now begin the question and after session. If you have a question, please stress star then one one on your touch tone phone. If you're using a speaker phone, you may need to pick up a hand that's first before pressing the 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 one and one again. We'll pause for a moment while we compile our Q&A roster.
Andrew Wittmann, John Zillmer, John Zillmer, John Zillmer,
Speaker Change: Our first question comes from Ian Zaffino with Oppenheimer. Your line is open. Hi, Greta. Thank you very much. Thanks for all the details.
Speaker Change: Jim, I wanted to maybe hold you a little bit, you know, some of your comments about the exit rate for, you know, entering 2026, so I'll hold you a little bit to this.
Speaker Change: I'm looking at these numbers kind of. Second half, it's really strong, 98% retention rate. I mean, do you think there's potential to be above kind of...
Speaker Change: You know, where you are, like maybe about 5% or something along those lines for net new, you know, how do we kind of think about that? What will be the upside just given how the business is performing right now? Thanks.
Thank you. Thank you.
Speaker Change: Sure, as we talked about, we saw a revenue accelerate throughout the course of the second quarter. The April print was 6% right, so that sort of takes into account some of the effects John mentioned earlier in the factors that have affected the quarter.
Speaker Change: So, and that's pre, you know, that's pre the facilities lapping, which had another 2% impact on the business. So, you know, we talk about our multi-year range in the five to 80% growth, as we talk about our multi-year growth targets.
Speaker Change: and I think as we look toward the exit rate, we're certainly be north of that or expect to be north of that in the fourth quarter.
Speaker Change: Okay, thanks, and then I guess as a follow-up.
Um, you know, how do we basically think about um,
Speaker Change: Avenger here, the GPO, in color, the higher inflationary environment, you know, is it can actually benefit from inflation as you're able to pass that through? How do we think about that? And then, you know, maybe just a little bit more color on what you saw on the quarter? I guess it didn't seem like you saw any type of... [inaudible]
Speaker Change: Slowdown or any type of hesitancy from the customer perspective, you know, just gonna ask her on the results or maybe I'm misreading that, thanks.
Speaker Change: For sure, Jim, I'll jump in for a second with respect to a Vendra. Certainly we see...
Speaker Change: Managing very effectively, we see inflation at this point being relatively benign, around 2.9% in the US, so slightly higher internationally, we're able to price to recover those inflationary cost increases.
Speaker Change: with respect to the GPO. You know, we're consistently negotiating new and better deals all the time to try to optimize for our clients and our customers.
Speaker Change: and, you know, that's one of the reasons we're so focused on both the growth of that spend as well as the extension of our capabilities there.
Speaker Change: We see that Andrew is playing a critical role, not only for our GPO customers, but also in helping us to leverage that supply chain to continue to have earnings improvement and margin progression for the court company.
Speaker Change: With respect to the quarter, we are seeing strong consumer behavior, we have not witnessed or it has not.
Speaker Change: Ben in evidence with respect to, slowing out the consumer with respect to our sports business, per capita spending continues to beat.
Speaker Change: Strong, and where we have weakness and attendance, it's generally related to team performance as opposed to consumer behavior. So, you know, I would say in generally in general, we're seeing consistent execution and strong spending across the enterprise. [inaudible]
Speaker Change: You know, to add a little more color to the quarter, as we've talked about, we've seen acceleration, you know, throughout the second quarter, January was essentially flat.
Speaker Change: Primarily driven again by those weather-related events in the southeast, we lost over 750 service days, in the case where 12 sectors result of school closures, which historically we would have recovered but because now people go to virtual learning, those days are lost.
So that had an impact during the quarter.
Speaker Change: February's revenues were up almost 4%, March was up almost five.
Speaker Change: and as Jim Senable is up six, so we see that progression.
Speaker Change: in growth rates coming through as we expected, and we expect that to continue as we anniversary rejects it as well and see the acceleration of both net new and retention impacting our exit rate for the full year.
All right, that's great colors. Thank you very much.
Speaker Change: Our next question comes from Toni Kaplan with Morgan Stanley . Your line is open.
Thanks so much.
Speaker Change: I think I sort of know where this is going, but you know when you sort of think about the acceleration you saw into the quarter and...
Speaker Change: You know, the second half needing to be at double digit, it sounds like you have a lot of momentum, you know, there and I understand.
Speaker Change: You know, the acceleration that you've seen. Maybe just go through specifically the operating metrics that need to continue to accelerate.
Speaker Change: maybe which verticals in particular also you're expecting to accelerate in that second half of the year. I know you talked about the four to five net new but and the strong retention but maybe just a little bit more color because it sounds like you're very confident in. [inaudible]
Speaker Change: in the ability to achieve that as well as the trends are sort of going in the right direction. So just any any additional color would be great.
Sure, Jim, you want to get started with that? [inaudible]
Jim Tarangelo: Yes, sure, we'll do. So, Toni, I think the run rate that we have, as I mentioned, if you think about April at 6% or so, so we've seen...
Jim Tarangelo: The acceleration in the base business in higher education, we've seen continued . . .
Jim Tarangelo: Good performance with new business and corrections in our B&I business as well. We're beginning to lap that facility's impact really toward the end of the third quarter so that sort of 2% will be a sort of incremental growth.
Jim Tarangelo: Ian, I would add, additionally the, as you know, so getting the importance of our business are priced.
in the fourth quarter, so corrections to K312.
Jim Tarangelo: and pricing occurs in the higher education segment for the new board plan rates for the following year.
which began to impact the business.
Jim Tarangelo: in August and September . So, you know, adding those pricing layers onto the growth layers that we've talked about, to re-tension rate the existing new business coming online and...
Great.
Speaker Change: I wanted to ask about the education business, maybe any color on what you're seeing there, and just I know you have sort of a different mix with regard to geography, and that has helped you, you know, and so maybe just...
Are you continuing to see like the...
Speaker Change: Stronger enrollment trends within your schools because of that education, the geographic exposure and what you're seeing there in terms of when you're going into those pricing season. I know it's not for a few months, but just...
Speaker Change: Anything there? Yeah, now we continue to see very strong enrollment rates in the universities that we serve and in our portfolio of business, which is...
Speaker Change: Heavily weighted towards the Southern part of the United States, highly desirable schools with really long-term strong growth rates in terms of student applications.
Speaker Change: and with relatively low acceptance rates. So in my discussions with the University Presidents as we travel the country.
Speaker Change: We don't have a concern about overall enrollment clips or any of those kinds of impact.
Speaker Change: affecting our particular portfolio of business and the accounts that we're focused on, selling the accounts that we're focused on operating.
Speaker Change: continue to have very strong performance indicators so we're very comfortable overall with our education sector and in particular higher education where we have had terrific results both from a retention perspective as well as strong new sales results this year.
Thank you.
Andrew Steinerman: Our next question comes from Andrew Steinerman and with JP Moore, and your line is open.
Andrew Steinerman: and then looking on the right-hand side of that same slide, five, when you list the three factors of factor-organic heavy growth by 3%, I think the client exits was 2%, or at least it was last quarter.
Andrew Steinerman: if you could confirm that for this quarter. So how much does that leave in terms of the revenue effect for the calendar shift and universities as it pertains to the second quarter?
Julia, I'll start with respect to the acquisitions, Andrew, so-
Andrew Steinerman: The largest deal we've done in terms of, you know, consideration is quantum.
Andrew Steinerman: and, as you know, those deals have very little revenues associated with it, right? So, the revenue impact from that is really diminimous, and the second largest M&A we've done is first class spending, which again aligned with our...
Andrew Steinerman: Strategy to continue to do both on deals and refreshment services. You know, that deal was done, I think at the end of February , so it's a really, really very little in terms of the...
Andrew Steinerman: that the quarter financials. So in terms of the breakout of the revenues, yes about 2% or so coming from facilities and about 1% coming from the calendar shift and the weather impact, that was total 3.
Okay, thank you.
Sir.
Speaker Change: My next question comes from Lizzy Dove of the Goldman Sachs, your line is open.
Ryan Davis: Hi, this is Ryan Davis, I'm Felise, thanks for taking the question.
Ryan Davis: Obviously, Consumer Health and the macro-chopnesses on everyone's mind right now, and you serve a wide range of clients. Are you seeing any shifts in consumer behavior or preferences across the segment? Any changes you can call out would be super helpful. Thank you.
Speaker Change: Yeah, thanks for the question. It's a good one. Certainly understand why people have those questions. I would say, at this point, we are not seeing any real change in consumer behavior, particularly in the customers and the portfolio business that we operate. You know, I guess.
Speaker Change: You know, we serve people where they work, where they get medical care, where they get their education. These are all facilities where people are continuing to frequent and continuing to eat.
Speaker Change: We do not see any significant change in currently in our sports and entertainment business. We're strong for capital spending, strong attendance in the venues that we operate. We're blessed to have very strong team partnerships.
Speaker Change: and sort of not saying a change in consumer behavior is there.
Speaker Change: and in our National Parks business we contain to see strong bookings for rooms and the like. So,
Speaker Change: really know fundamental change to our portfolio. That's one of the reasons we believe our business is particularly recession resilient and particularly resistant to resilience and times of economic stress.
Speaker Change: and uncertainty. So, you know, we feel very good about the portfolio we manage. We're not seeing any evidence of shifts in consumer behavior at this point.
Speaker Change: Great, thank you, and just one quick follow-up. Given the recent volatility and impacts from potential tariffs, have relationships with suppliers or the terms of contracts involved at all in recent months?
Speaker Change: We're always negotiating and renegotiating deals throughout, in particular the kinds of areas where we have...
Speaker Change: Terracomplications are typically related to, as I said, two disposable linens, towels.
Speaker Change: Equipment and the like. We do have alternative sources of supply so we can move.
Speaker Change: and our contracts are generally longer term, so we have the opportunity to manage within the contract framework to offset any potential tariff impact.
Speaker Change: To and including, you know, the opportunity basically to say no, that we don't accept that, that particular price increase and to negotiate through those terms.
Speaker Change: You know, I would say we see the tariff impact as being the minimus in terms of our overall operating performance, and we have not seen significant impacts in terms of the overall inflation environment as a result of tariff at least to this point.
Let's hope for color. Thank you very much.
Speaker Change: Our next question comes from Leo Carrington, but city, your line is open.
Leo Carrington: Thank you. Good morning. Can I ask, in terms of the eventra contribution to revenue growth, you called out the net new and base business effect.
Speaker Change: but nothing on the margin impacts. Can you, given the investments and success with the GPO, just outline the profit all through that we might expect going forward and in the quarter for that matter?
Jim, do you want to go ahead?
Speaker Change: in that business. You know, we don't quantify the exact amount, but it certainly has...
Speaker Change: contributed to Aramark's overall objectives to increase spend, which is over 20 billion.
Speaker Change: That size and scale is a big contributor to the overall margin improvement we are seeing in the business. So when I look at the 30 basis points of margin improvement for the quarter, a significant portion of that margin improvement is derived from supply chain efficiencies.
Speaker Change: and Economics, which again, with the backbone to that being, being, being of Andrew. Andrew Wittmann, John Zillmer,
Speaker Change: Daniel, I hope you can appreciate it. We don't disclose these numbers for competitive reasons. Obviously, our two largest competitors have their own.
Speaker Change: GPOs, we prefer not to give them a roadmap for competing. And so that's why we tend to be somewhat guarded with respect to the specifics related to our margins and our overall profitability from that segment.
Speaker Change: but as Jim said, very strong contributor to the overall margin progression of the company going forward and we've identified that over the last several years.
Speaker Change: Okay, that's very clear. Thank you. And then just to follow up, just time together, some of the...
T-thousand for the one-off.
in revenue dynamics and Q2 for USA. [inaudible]
Speaker Change: Q3 is going to be a broadly clean quarter, but where do you expect the organic growth to be landing Q3, Q4 excluding the working days effect? Thank you.
Speaker Change: Again, we're not going to give a specific quarterly number. John gave you a number for April at 6%, which is where we are for that month. In terms of the second half, again, we expect a double digit.
Speaker Change: Revenue Growth. I talked about Q4, exiting at a very strong rate. I talked about being north of the multi-year range of five to eight percent, and that's by the way that excludes.
Speaker Change: and the safety third week. I think that's the guidance I can provide in terms of how you might think about the quarterly cadence.
Thank you very much, Jen. Thank you, John .
Speaker Change: Our next question comes from Neil Tyler with Bread Burn Atlanta, if your line is open.
Good morning. Thank you.
Neil Towler: I just want to ask a couple of questions about retention and new business, please. The 98% obviously you mentioned that's well above.
Neil Towler: The level you'd expect to see, but is there typically a seasonality in the retention? Is it directly comparable with the full year percentages that you've disclosed?
Neil Towler: previously. And would you categorise this year as a fairly so normal rebuild year? That's the first question please. And then the second
Neil Towler: Coming back to the topic of, I guess, a sort of consumer confidence and recession. Have the conversations with customers or potential customers changed at all? I guess we're at what I'm trying to get at it is.
Neil Towler: Do you see an opportunity arising from, I suppose, operational friction taking place at, you know, at a potential first time outsourcing locations, or is it too early to, you know, to really be able to pick up on any, any sense there. Thank you.
Neil Towler: Condensed first-time outsourcers to move forward with their decisions which you know many times is a philosophical organizational decision rather than an economic one but periods.
Neil Towler: of uncertainty always accelerate the process, and we are seeing a continued trend towards first time outsourcing that has been going on for the last.
Neil Towler: Several years this could provide some accelerant to that process under certain circumstances, but I would say that our pipeline is very robust.
Neil Towler: Just, you know, a change in leadership is tough to sometimes gauge, but we see it as a potential tailwind and we're likely to...
to benefit from that. [inaudible]
Neil Towler: You know, with respect to the client retention numbers, client retention starts at 100% and works its way down throughout the year.
Neil Towler: and so we are, and we typically don't disclose retention numbers in the middle of the year because there is a little bit of volatility associated with it based on seasonality and the like.
Neil Towler: I would say, we're very pleased to be running above 98% at this point in our calendar year, our fiscal calendar. Normally, we would probably be in the 96-97 range around now so we see this continued.
Neil Towler: We've had great, rebid results on the key accounts that we did have go out to bid this year particularly, here is on a state where not only did we retain the business but we also added significant to the business with their athletic revenues in their...
Staff Dining Facilities,
Neil Towler: and then I would say that there is a kind of a normal level of read that activity throughout the industry. I don't see it as being...
significantly different from any other year.
Neil Towler: We might have a few less K-12 accounts out for Bibb this year than maybe one of our competitors does, but in general I would say it's pretty normalized year from a rebit perspective.
Jim Tarangelo: The only thing I'd add is sort of at the first half, first second half in terms of Aramark's portfolio. We had actually more out-to-bid in that the first half is a larger place that we've already retained as John talked about. So I think that positions us very well for in terms of the four-year outlook on retention.
Thank you, that's really helpful.
Speaker Change: Our next question comes from Jasper Bibb with true securities, your line is open.
Jasper Bibb: Hey, good morning, everyone. One of the ask about health care business, just curious around your discussion to possible customers doing some of the headlines around potential subsidy changes and maybe they would be facing some pressure on operating margins as a result.
Speaker Change: Yeah, I would say that that characterizes the healthcare industry constantly. I mean, the industry has been...
Jasper Bibb: very generous for a number of years with respect to cost management, cost containment, consolidation.
Jasper Bibb: Mergers and acquisitions, systems flying systems, and looking for opportunity to save.
Well-positioned to help our customers achieve their objectives.
Jasper Bibb: We've got very strong partnerships and yes, we're always looking for opportunities to help reduce their overall costs.
Jasper Bibb: Sometimes we do that by adding additional services to the ones that we currently operate by extending beyond.
Jasper Bibb: the walls of food service and into the facilities space, patient transport.
Jasper Bibb: Patient Parking, all kinds of opportunities to provide ancillary services where we can manage them more effectively than the hospital can using their own employees. So it's one of the things that we see as a continued opportunity.
Jasper Bibb: He provides long-term tailwind to the growth of the organization, and we're well positioned to capitalize on that.
Speaker Change: Thanks, and then on the outsourcing trend, I have a piece to say called 50% of net new was first on outsourcing a year or two ago versus
Speaker Change: A third or 35% pre-COVID. Where is that first-time outsourcing as a share of net new today? And I guess where are you seeing the most opportunity across your verticals to drive first-time outsourcing sales?
Speaker Change: Yeah, I would say it's still elevated. It's above the historical norm of 30 to 35%. You know, I would say mid-40s today.
Speaker Change: and still elevated. And the verticals that still represent significant self-occupied conversion opportunity are again healthcare, higher education.
Speaker Change: K-12, significant opportunities. There are significant opportunities in the corrections business and vertical as well. So, yeah, there's plenty of conversion opportunity across a range of verticals.
Speaker Change: and across geographies, so we have consistent growth opportunities for the whole organization that can come from self-off conversion.
Appreciate the detail there. Thanks for taking the questions.
Speaker Change: Our next question comes from Crawl Green with RBC Capital Market, your line is open.
Karl Green: Yeah, thanks very much. Good morning. Just a question on CapEx. If I can ask for your latest thoughts on how that's likely to progress over the next 12 to 18 months, obviously, progress from the CapEx spending leads net new business rampups.
Karl Green: General E. So, just in terms of the shape of that and how you'd expect that to flow through to free cash flow over the next 12-18 months. That's my first question. Thank you.
Speaker Change: Sure, I'll take that. So I think it's about 3.7% of sales for the quarter of a year to date. That's weighted a little bit higher due to some new business weighted toward sports and higher education.
Speaker Change: For the four-year, we would still anticipate capital expenditures being about 3% of revenue. And if you look back over 5, 10, 15 years, it's actually very consistent.
Speaker Change: Andrew Rindustry, and again, sort of is the foundation of this resilient, predictable cash load model that we have. So a little bit skewed higher in the first half of the year, but for the full year we'd still expect to be at about 3%.
Speaker Change: Very helpful, thank you. And then a quick follow up if I can. Just in terms of the comments about the 15% increase in per cap in sports and entertainment. Could you possibly just unpack that a little bit between the pricing and then the fact that you're delivering better services, better efficiency, ease the service. Just in terms of how we should be thinking about the sustainability of such strong increases going forwards. And then a quick follow up if I can.
Speaker Change: Jim, do you want to go ahead and take that? Yeah, I think that was opening day, so that's obviously a point in time. It's open to the strong start to the baseball season, but I think roughly we think about that in terms of your portion coming from price and then the remainder coming from additional efficiencies. We worked very hard to put in technologies, sort of cashless experiences to bring more folks through the line. So I think we're.
Speaker Change: I'm probably about a third price and about two-thirds of that additional flow through in terms of the participation in transactions.
Perfect, thank you.
Speaker Change: Our next question comes from Jaafar Mestari, with BNP, BNP Parabasics Aid, your line is open.
Hi, good morning.
Speaker Change: Two questions, please. On the outlook, I'm not sure I'm reading this correctly, but you've inserted a statement on the guidance being based on trends currently occurring in the business, and I appreciate there's loads of noise on some of your verticals. So, first question.
Speaker Change: on RISF and your approach to them. What are some of the things that sound the most credible when you hear some of the noise on university funding cuts?
Speaker Change: on potential cuts to medicate and with the dust to the healthcare vertical at this stage are you?
Speaker Change: Concerns, are you doing some sensitivities? Are you dismisses because so far none of your clients?
Speaker Change: and I guess just to be fair, second question on the opportunities. Have you already started to see any chatter from clients on expanding domestic production shifts or industrial clients opening new sites, anything to keep an eye on on the upside?
Speaker Change: Yeah, I would say I'll ask for the second part of the question first. I would say it's very early.
Speaker Change: Again, the expansion cycle, if you will, in terms of increasing production in the U.S., although I would say that we operate significantly in the heavy industrial space in our BNI sector, and serve many of the customers that are talking about expanding. [inaudible]
Speaker Change: Their production capacity, so we see that as an opportunity in both some of our existing facilities as well as in our existing relationships.
Speaker Change: You know, whether it be in the automotive sector or the manufacturing sector.
Speaker Change: So, yeah, we see it as a long-term opportunity, if in fact there is increased production and increased investment in manufacturing.
Speaker Change: in the U.S. were well positioned to take advantage of that.
Speaker Change: with respect to the healthcare budgets and cost-cutting and the like.
Thank you. Thank you.
Speaker Change: You can't buy the product for zero, so there is a recognition that at some point there's really no opportunity.
Speaker Change: to reduce further in the core in the core concept so you're looking for ways to go ahead and...
Speaker Change: and Bill beyond that and look for ways to provide services that we can do at a reduced expense.
to those systems partners that we operate in. [inaudible]
Speaker Change: Many of our largest partnerships in the healthcare systems. I have more than 50% of our revenues derived from providing alternative services.
to those institutions and we'll continue to look to build.
both that capability as well as those additional services, so. [inaudible]
Speaker Change: It is a difficult environment from a cost management perspective, but it's been that way for many, many years. It's no different now than it was five years ago.
Speaker Change: It's getting more attention because of the budgetary constraints and the like, but this process has existed in the healthcare industry for quite some time.
Speaker Change: Thank you, and in terms of the new business signings, I appreciate you may not have that on a weekly basis, but...
Speaker Change: H1 looks good and you seem constable. Any slowness recently, any wait and see attitude from any of your clients, anything you thought you would find in that half that's being delayed because of the uncertainty in any way?
Speaker Change: No, I would say the selling process, the close rate process, all seems very consistent with historical norms, and the level of rebate activity is normalized, the level of...
of Opportunity, the pipeline opportunity, very robust and very strong.
Speaker Change: and we're highly confident based on what we have in the pipeline and where they are in the sales process throughout the calendar of achieving our overall objectives of that 4% to 5% met new for the total year.
Tuber, thank you.
Speaker Change: Our next question comes from Andrew Wittmann with Bear, Drilline is open.
Thank you.
Thank you.
Okay, thanks for taking my question.
Speaker Change: I think this one will kind of ask the same question a little bit different way at the risk of beating the dead horse here, but it sounds like you guys deliver the revenue plan here, it sounds like the net new is baked and the biggest variable at this point is the level of base business. Is that a fair characterization?
Speaker Change: Yeah, I would say that's consistent. Andrew, I think, we are confident in both the retention and the net new, and as being the, you know,
T-Dryers of the second half performance.
Speaker Change: Manu Optimization, or Board Plan Optimization in higher ed, improved work through and workplace experience in other businesses and continued growth in some of the other verticals. So I think that's very consistent.
Yep.
Speaker Change: Just for my follow-up, I just thought I would ask a little bit more on the international business. We haven't talked about that as much on this conference call so far. And obviously the top line growth in international has been...
quite good for some time.
Speaker Change: And I just, you know, as you look over the next few quarters, like, when is that, or is that, does that become a tough comp? I guess I would say, I just given the year of year growth you've put up now for a while.
Speaker Change: So just like to hear your perspective on what that segment's growth rate could be, and just quick kind of...
I'd comment maybe for Jim. Jim is...
Speaker Change: I was surprised to see that the FX impact on your revenue outlook was unchanged since last quarter, given that the dollar index at least is down pretty substantially.
Speaker Change: which currencies are maybe the offset to that view, if any. So those are my two follow-ups, thanks.
Speaker Change: Yeah, I can start with the, just in terms of international, as you said, and you're really strong, double-digit growth, consistent for many.
Speaker Change: and many quarters at this point. And again, it's really been the growth engine for the organization. The net new has consistently been strong, not only for quarters but for many years. So that gives us the confidence in...
Speaker Change: sort of continuing to maintain that double digit growth and actually some some acceleration from where we were and
Speaker Change: and Q2 toward the Q4. So, strong base business, the countries who operate in have a lot of attractive.
Speaker Change: Attribute Leadership Team, doing a fantastic job in driving that growth and really driving this growth oriented model and you see coming through on the margins as well.
Speaker Change: Yeah, in terms of FX, I think we're about 112 million or so headwinds year to date. Where we are for the month, you're right, it was a bit more neutral as the dollar weakened.
Speaker Change: over the last month or so. So that trend continues, that you're right, we'd be less than 200 million, but give it the environment and just sort of one tweet away from effects going the other way, we sort of just held it steady.
Fair enough, thank you.
Speaker Change: Our next question comes from Stephanie Moore with Jeffries, your line is open.
Hi, good morning. Thank you.
Speaker Change: I wanted to touch on, I guess it's a two-part question.
Speaker Change: But if you could talk a little bit about expectations for pricing to continue to run ahead of inflationary costs and above historical levels, and then maybe kind of taking that a step further, as you think about the opportunities for incremental margin expansion. So, you know, where are the largest-
Speaker Change: Areas or drivers for that incremental marketing expansion as we look out in the next 12-18 months. Thank you.
Speaker Change: Sure, I can start. Yeah, so inflation, the expectation was in the two to three percent range, US was about two and a half, globally closer to three, so we're still operating.
Speaker Change: in that range, and obviously monitoring the situation on tires and pricing accordingly with our contractually based contract for into next year. So, yeah, the long term model is we don't price for profit, we generally want.
Speaker Change: In terms of incremental margins, I mean, the good thing is we've been very consistent with the sources of the margin improvement. So supply chain efficiencies and economics continues to be a big contributor of our margin improvement. We expect that to be continue to be steady going forward.
Speaker Change: We've managed our SGNA very effectively. You can see our corporate SGNA costs up only moderately in the corners. We're able to take on a lot of additional growth without adding a lot in the way of additional overhead. And again, that's very predictable.
Speaker Change: for the remainder of this year and as we planned for fiscal 26th. And then third, the middle of the P&L, I think the team did a nice job in particularly managing food costs throughout the organization. So that would be the third lever that's been contributing to margin enhancements.
Thank you for watching!
Okay, appreciate the time. Thank you.
Speaker Change: A next question comes from Josh Chan, with UBS, your line is open.
Hi, good morning, John and Jim.
on inflation. I guess if we were to hit a...
Higher-level in inflation later this year or next year.
How would you?
Speaker Change: King Bed, then Environment, compared to the inflation that we saw.
Speaker Change: a couple of years ago coming out of COVID and how do you think about your organization's ability to kind of process through the higher level inflation? Thank you.
Speaker Change: Yeah, I don't believe that we anticipate a significant shift up in inflation. We think that it will trend in these areas, you know, call it the 2.5 to 3% range.
Speaker Change: but our people are well positioned that they've built a muscle memory now and the processing systems are in place.
Speaker Change: We literally look in inflation data every week and we're looking at it highly on a highly detailed basis.
Speaker Change: from your basic core commodities to all the various factors impacting.
Speaker Change: Our supply chain around the world. So we get very detailed information into the hands of our operators. They can use that information to go ahead and negotiate pricing in their respective businesses.
Speaker Change: and they really built the capability to do that. So I don't anticipate any significant pricing lag if there were a spike of inflation at the same time we don't anticipate.
Speaker Change: inflation to run significantly higher than where it is today. Our labor inflation is in the range that we expected, food cost inflation in the range where we expected, and we don't see anything that would really drive it significantly higher at this point in time.
Speaker Change: That's great color, John , thanks for that. And then a quick follow-up on that 6% April number would you consider that number to be clean, clean of weather and timing calendar, timing type of effects so that we can kind of think of it as our number going forward? Thank you very much.
Speaker Change: I think it's a clean quarter, a clean month. Again, we haven't laughed at the facilities impact yet, but other than that, it's a clean month.
Speaker Change: Correct, that makes us awesome. Thank you very much. Thanks very much for the time.
Speaker Change: And I'm not showing any further questions this time, I'll turn the call back over to Mr. Zillmer for closing marks.
John Zillmer: Well, again, thank you very much for your support of the company and your interest. We're very focused on achieving.
John Zillmer: and the momentum that exists inside the organization, all committed to doing the right thing for our shareholders, our employees and our customers. So, again, thank you, and we'll see you next time. Take care. Thank you for participating. This concludes today's conference. You may now disconnect and have a wonderful day. Thank you very much.
Thank you.