Q3 2019 Earnings Call
Good morning, and welcome to our third quarter 2019 earnings results Conference call.
My name is Hilda and I will be your operator for today's call.
At this time I would like to inform you that this conference is being recorded for we'd broadcast and that all participants are in 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, Good South Vice President Investor Relations and corporate Affairs Mr. Sal you May proceed.
Thank you and welcome to Aramarks third quarter fiscal 2019 earnings conference call and webcast.
Here with me today are Eric Foss, our chairman, President and Chief Executive Officer, and Steve Bramlage, Our executive Vice President and Chief Financial Officer.
As a reminder, our notice regarding forward looking statements is included in our press release this morning.
Which can be found on our website and in our earnings slide deck.
During the call we will be making comments that are forward looking 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 Mdna and other sections of our annual report on Form 10-K , and other SEC filings.
Additionally, we will be discussing certain non-GAAP financial measures a reconciliation of these items to U.S. GAAP can be found in this mornings press release as well as on our website.
Before I turn the call over to Eric I wanted to mention that our results reflect those we have now fully lapped the one year anniversary of both of the Avenger and their pride acquisitions also our results are affected by accounting rule changes as well as changes in the definitions of adjusted operating income and adjusted net income, which we began to utilize in the first quarter.
Please refer to the appendix in the earnings slides materials for detailed reconciliations.
With that I will now turn the call over to Eric.
Thanks, Felise and good morning, everyone.
In the first quarter, we remain focused on driving the fundamentals of the business, which contributed to our strong performance in the quarter and through the first nine months of the year.
We're also implementing innovative growth strategies to capitalize on our ability to directly engage with millions of consumers every day.
Our purposeful actions resulted in legacy revenue growth of 3.7%.
And adjusted EPS growth of 14% on a constant currency basis.
As an additional point of reference through the first three quarters of 2019.
Legacy revenue growth was nearly 4%.
With adjusted EPS gains of 11% on a constant currency basis.
Combined with an increase in free cash flow generation of approximately a $160 million over the prior year.
We are building a business that is synonymous with stability flexibility sustainability and aspiration.
As we relentlessly pursue shareholder value creation.
From international growth of 10%.
To gains across nearly all sectors of the EU us to uniforms up 3%.
The business demonstrated notable legacy revenue progress in the third quarter over the prior year.
And I, especially want to commend our team and the leisure business that had to contend with rebuilding our facilities after unprecedented weather struck Yosemite.
It was therefore to Twod. That's now resulted in getting our significant presence back up and running in the park and resuming virtually all operations.
There are four clear themes that really underscore the business and provide a strong foundation for us upon which to build.
First improving our margin structure, which really fuels, our ability to pursue a clear disciplined and balanced strategy.
Second adding procurement scale.
We now have more than doubled our purchasing power to $12 billion from $5 billion as we integrate and leverage of Andrew.
Third advancing our brand and product portfolio.
From one master brand Aero Mark into a multi tier frictionless consumer experience that combines technology convenience and creation for our customers.
And finally, driving strong free cash flow that bolsters, our balance sheet and enhances our financial flexibility.
Now let me review each of these strategic imperatives that not only drove our success in the third quarter, but also significantly advances our competitive position going forward.
Our margin improvement journey has been powered by operational efficiencies as we prudently manage base labor and optimized menu offerings.
Somewhat offset this quarter by higher total incentive based compensation in the businesses.
In further pursuit of strategically capturing incremental margin opportunities as you know we took action to exit certain non core custodial accounts in our FSS International segment.
This initiative is currently underway with the majority of the margin impact in the third quarter, reflecting approximately 20 basis points on the Companys overall performance.
These intentional exits are expected to be margin accretive once completed.
We're also very pleased with our progress on the integration of the strategic acquisitions as we continue to expect at least $30 million of combined synergies this year.
With Ameriprise were realizing synergies from optimizing our production capacity to optimizing route density.
With the Vedra, we're recognizing the benefits across the business from increased purchasing scale, which meaningful lease strengthens our position in the marketplace.
And we are methodically rolling out and expanding our brand and product portfolio within our house of brands culinary strategy.
That includes teaming up with local restaurants to offer on trend, but fintech food experiences.
Our enhanced brands offerings of kitchen collective simple spoon life works and harvest table culinary group.
Complement our core arrow, Mark identity and have contribute to increase retention rates and a strong pipeline of new clients.
Our latest addition to the brand portfolio. Good Ankole is an innovative app based food delivery business that utilizes a regional commissary and a fleet of vehicles equipped with ovens to deliver exceptional meals to the most popular spots on and off college campuses.
Launching in the early fall good Onco provides an on demand platform for quality healthy options convenient delivery and personalize offerings created by top shows.
We look forward to evolving this business and welcome the good local team to Aero Mark.
Turning to the balance sheet is strong and remains an area of continued focus as free cash flow as a meaningful advantage for the company.
Through the third quarter, we increased free cash flow generation by nearly $160 million compared to the prior year with no significant maturities due until 2024, we possess financial flexibility, while remaining purposeful and disciplined with all our assets.
Just in 2019, we expect to make debt repayments of nearly $500 million, putting us well on track to achieve our goal of 3.8 times leverage by year end.
As a testament to the progress, we're making to drive enhanced financial flexibility. We're pleased to announce that our board has authorized a $200 million share repurchase program through 2022.
Before turning the call over to Steve I'd like to commend all of our associates across the globe, who collectively drove our performance in the quarter.
As you know earlier this year, we committed to invest in programs that benefit our associates, including targeted wage increases expanding training and development and scholarships for our employees and their children.
Recognizing how important role our employees played in our success.
And we were very excited on our recent announcement to provide full tuition coverage for college degrees for eligible hourly associates across the United States.
Beginning in October our associates will be able to apply and earn their college degrees from notable universities, including Arizona State University, one of the top ranked online degree programs in the country.
We're proud to provide this life changing pathway to our dedicated frontline team members, who want to pursue their dreams of a debt free education.
And I'm also pleased that our ongoing dedication to infuse the business with diverse talent from the front line to the boardroom continues to garner recognition.
We were recently recognized by woman on boards for having 30% of our board comprised of women.
We were also once again named as the best place to work for disability inclusion.
And recognized by diversity, Inc. As a top employer committed to hiring retaining and promoting women minorities, those with disabilities LGBT and veterans.
In closing we are extremely optimistic about our prospects for the future.
The strong foundation, we are creating will enable us to accelerate sales growth optimize our investments and realize operational benefits to de lever leverage and scale to the business.
We're executing on a clear disciplined and balanced strategy.
And as part of that effort, we continue to critically review all areas of the business to capitalize on opportunities in the marketplace and maximize performance.
I'm confident we're taking the right actions to drive growth and build a sustainable business.
With that Steve will now go deeper on our third quarter results and business outlook, Steve. Thanks, Eric We're proud of our overall performance in the quarter as we focused on growth optimal resource allocation expense management and value creation.
The key third quarter takeaways included legacy revenue increasing 3.7%.
Which is consistent with our year to date results led by impressive continuing strength in the international FSS segment.
Growth of 4% to exhibited consistent improvement with solid operating performance across the segments, while we proceeded to exit noncore custodial accounts in Europe , we rebuilt our facilities.
Semi as well as allocated higher incentive compensation throughout the business.
Adjusted EPS grew 14% on a constant currency basis with contributions from the entire income statement.
Most notably as a result of stronger operations lower interest expense due to ongoing deleveraging and a lower tax rate in the quarter.
And we continue to make progress on the balance sheet lowering net debt by $672 million with a leverage ratio improvement of half a turn versus the prior year.
We also took a small step forward and simplify our financials on a year over year comparative basis as a vendor and ameriprise are now fully reflected in the quarters underlying results.
Moving now to revenue the adjusted revenue grew 5.8%, which reflected legacy business growth of 3.7%.
As mentioned international continues to have excellent performance with 9.8% legacy growth contributing over $1 billion of revenue in the quarter.
Results were driven by increased retention rates and new business wins, particularly in mining within South America, and nearly all countries reporting gains over the prior year.
We began our deliberate exit of certain underperforming accounts in Europe . Although these actions ultimately commenced a bit later in the quarter to ensure a seamless transition for our clients.
FSS us legacy grew 1.5% with sports leisure and corrections and business and industry, having solid gains as we captured higher consumer spending as sporting events as well as capitalize on increased catering volumes within business dining.
This performance was partially offset by proactive renewal activities and our facilities business earlier in the year.
Ultimately they resulted in implementing longer term contracts as well as modestly lower leisure results due to the delayed startup because somebody from the aforementioned winter storms.
As we continue to integrate ameriprise into the portfolio as well as pursue additional growth opportunities, including leveraging the launch of our patented where guard eco collection apparel line uniforms legacy revenue grew 3.1%.
In general accounting changes from revenue recognition represent the difference between adjusted in legacy revenue growth with a consistent impact of 2.1% on the quarter and Thats primarily in uniforms.
Constant currency.
Increased 4% in the third quarter with quite strong operational performance, especially given that these results included approximately $8 million of exit costs in international which were a bit less than expected in the quarter due to the timing of the exits at approximately $12 million in net increased total incentive compensation.
Higher cash compensation was allocated across all segments with corporate reflecting lower share based compensation.
Adjusted earnings per share was 47 cents for the quarter, which was 14% growth on a constant currency basis.
Year to date free cash flow, though it's still seasonal seasonably negative.
Improved approximately $160 million compared to the prior year with our strongest cash flow quarter and 2019, yet to come.
Through purposeful and disciplined balance sheet management, we continue to make ongoing progress in deleveraging as our leverage ratio improved half a turn compared to the prior year.
Our capital allocation strategy is unchanged and we are firmly committed to achieve our long term leverage target of approaching three times debt to EBITDA by the end of fiscal 2021.
The renewal of a share repurchase authorization is consistent with our expectation of remaining deliberate and gradually becoming more balanced over time in our use of cash as leverage continues to decline.
Our full year performance expectations for 2019 remain unchanged.
As we anticipate another strong year with legacy revenue growth of approximately 3%.
And that considers the purposeful exit of the select noncore facilities accounts in Europe .
AOCF growth and incremental margin expansion after considering approximately 20 basis points of headwind from the impact of the revenue recognition accounting changes.
We continue to be on pace to capture at least $30 million in synergies. This year from the integration of a vendor and ameriprise.
Adjusted earnings per share of $2.20 to $2.30 with expectations of landing at about the midpoint of the range and that will represent high single digit growth year over year on a constant currency basis.
And generating approximately $600 million of cash before the $50 million of HCT, reclassed spending and about $50 million of of Andra and Ameriprise integration spending.
Resulting in approximately $500 million and reported free cash flow.
We continue to expect to be at a leverage ratio of 3.8 times by the end of the fiscal year as we continue to strengthen our financial flexibility.
We look forward to updating you on the progress at the end of the year.
I'm now going to turn call back over to Eric in Frac unit.
Great. Thanks, Steve we're pleased with our progress just reiterating strong quarter solid growth momentum on the business right now.
And we continue as we look forward to see multiple growth opportunities and are encouraged by what we consider to be a robust.
Marketplace opportunity that lies ahead for us so with that hill that we will turn it over and open it up to Q1 <unk>.
Thank you.
We will now begin the question and answer session.
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Please initially limit yourself to one question and one follow up.
We have Stephen Grambling from Goldman Sachs.
Thanks.
Good morning, So inter quarter, you had some news of consortium, considering an acquisition of the business I realize you can't comment on any transaction, but as you think about how you manage the business on a funnel metal basis.
Worthing through ways to create value from strategic actions how would those change if you were a private company versus a public company.
Well Steven Thanks for the question I think the good news about this company is it does have a history of being both public and private.
And I think the starting point for me is as you see in this quarter, how our business is performing I think is indicative both in the quarter and year to date.
How the strategy is is is evolving and so as you well know we have been pursuing a clear disciplined and balanced strategy to drive long term value and again, if you look at the performance of the business over time, I think thats resulted in pretty consistent growth across revenue margin A.O. line earnings and cash flow.
And again, our focus really of that balance strategy has been to improve our margin structure to make sure we increase our procurement scale.
To expand our brand portfolio and to boost or the balance sheet. So we have more financial flexibility and I think we've made progress against all of that and then if you look at the history of the company in understanding how you can create value through different portfolio actions.
If you look at the last 18 months I think the fact that we've completed the two largest acquisitions in the company's history, each of which is financially compelling along with strategically attractive to us that improves our competitive position both in us food and uniforms, we've exited a non core business, the healthcare technology business, which helped us reduce debt.
And we're now in the process as we mentioned of exiting the non core facilities business in Europe .
You can expect us to continue to really remain focused on taking the right actions to drive growth create a sustainable business and drive shareholder value and so I think for both Steve and I as public company CEO and CFO , that's really how we approach.
Both the strategy of the business and how we look to unlock value and I think thats a pretty good.
In summary of the game, we've been playing the game. We think we can continue to play to drive growth and really get the company positioned.
Yes, we as we exited.
I got here when the company was private right and.
We have been working you've heard us talk a lot about we needed to really ramp up our investments in technology, we needed to really ramp up the importance of brand you saw during those days that the company was private competition. Both on the food side in the uniform side make moves through M&A acquisitions to position their brand and portfolio offering and so.
The strategy that Weve, followed really is intended to position this company for growth going forward and we felt it imperative across those four dimensions of margins procurement.
The balance sheet and the brand is really kind of the the centerpiece of the strategy.
Fair enough and then maybe as a quick follow up you alluded to the acquisitions is a key contributor and also mentioned I think in the opening remarks about synergies can you just remind us where estimated run rate synergies are compared to your initial expectations and what's maybe left to integrate as we think about how these businesses continue to ramp and contribute to the results.
Yes, let me start and then I'll have Steve take you through the specific numbers I think as you think about the integration of both of these Stephen the integration is going extremely well I mean, we brought the organizations and cultures and.
The leadership teams together very very quickly.
I think we're largely through what I would consider to be most of the integration phase of both the aventura and the Ameriprise acquisition I think when it comes to synergies and again I'll, let Steve take you through the math, we're certainly on track and continue to work to.
To capture what we've identified and identify if there are any more opportunities Steve you want to get yes, hi, Good morning, Susan we continue to expect so realize at least $110 million and synergies from the combination of the two deals.
That would be $40 million of synergies from the vendor transaction and about $70 million from Ameriprise I think we're right, where we would have expected to be maybe a little bit ahead, the vendor transaction.
We should realize that 40 million over the first three years post the closing of the deal on the Ameriprise transaction. Its a four year ramp up to get to the full $70 million again, primarily just due to the complexity of rerouting, the existing network and touching the existing manufacturing footprint, but we fully expect to get at least $30 million of incremental synergies.
This year you may recall, we we started to get some synergy benefit last year, I think we will get something comparable or better to that in the next fiscal year and we will fully realize a vendor of by three years out and I think we're well positioned to fully realize ameriprise by four years out if not a little bit earlier.
Super helpful I'll jump back in the queue. Thanks, so much.
Thank you.
The next question comes from Andrew Steinerman from Jpmorgan.
Good morning, Andrew I wanted to ask about the excellent international growth of 9.8% I know you had a strong quarter last quarter, but if you look at the history. This is just unusually strong growth.
For the International Division Gong going back over years, and this quarter third quarter was handicapped a little bit by exits during the quarter. What was driving this level of revenue growth and are there any acquisitions in the international segment included in that 9.8% legacy revenue growth.
Hi, Andrew its Eric.
If you look at our international business really over the last couple of years, we've seen extremely strong topline momentum.
Across that business and it's not.
Its not being driven by one geography, if you think about the 10% number year to date, which does not include.
Any M&A.
Associated revenue with that.
It's been very very broad based I mean from Canada to Europe to which have both seen good kind of.
High single digit growth numbers to China, and South America, Theyre growing double digit in the quarter.
It's just been very broad based and it's if you think about the components of growth. We've seen really good really really good new business performance coupled with solid.
Retention and good base kind of like for like performance as well. So it's come across all three of the dimensions of components of growth.
Well done thank you.
Harry Martin from Bernstein is on line with a question.
Hi, Thanks stay on international if we can.
9.87 is going to be gaining share I think and most of those markets that you mentioned so.
Can you give any color on how you think youre, winning winning that shaft from is it mostly small players and in house or or the larger logic hatred, and then which part of the offer as getting you those wins.
Yes, I think if you think about it really is you have to look at it almost on a country by country basis. So, it's probably a little little tough to break down, but if you. If you think about the country growth again across Europe .
We're seeing really good growth in the UK really good growth in Germany, Spain, but within each of those countries I think it comes.
Predominantly the way, we would tend to see it more broadly you tend to see.
Self op conversions contribute 30% to 40%, you'll see smaller regional players contribute 30% to 40% and then you'll see some growth from the from the larger players and I think I think those numbers are pretty good benchmark without trying to take you through each and every country internationally.
Sure and then I guess, if I can just follow up.
For the for the full year on that and within the 3%.
Organic guidance.
You talked about higher inflation. This year could you give any sense of how much of a boost the sort of higher inflation any pass through as steel.
You will take through organic growth.
Hi, Good morning here. This this is Steve our year over year.
Our let me start with full inflation expectations, we expect to be about 3% or so per food related inflation and 4% for labor. So call. The total three and a half that is not radically different than the inflation experience that we had in the prior year. So there is an element of our.
Contracts as you know that are that are cost plus so they will pass through a large portion of that inflation, but on a year over year basis, the amount and the percentage of inflation that we're passing through is not radically different. So I don't think inflation differences are really contributing to any of its year over year delta to be fair.
Very clear thank you.
Thank you.
We have Kevin Mcveigh from credit Suisse online with a question.
Great. Thank you Hey.
Eric Steve in terms of the procurement.
Increased from 12 billion to five is that factored in to the synergies already.
In the Ventura and if not what can be the incremental synergies as you kind of step up the spending across the organization from a leverage perspective.
Yes, so I think I think the way to think about it.
Kevin is.
That.
We had a synergy plan and.
If you really think about the big unlock the strategic unlock if you will is is we've taken the business from 5 billion to 12 billion, which primarily comes through just acquiring the procurement scale that a vendor abroad, along with a couple of other smaller tuck in acquisitions that we did prior to of Andhra.
The strategic value of that is that scale can now begin to.
Not only increase your purchasing power and negotiating leverage.
But it also serves as a vehicle to sub.
To absorb a lot of the margin compression as you go pursue new business opportunities and so strategically for us getting that scale and leverage on the procurement side really improving our competitive position right I mean.
You know if you dial back a few years, we were in pretty much as sub scale position and now moving from 5 billion to $12 billion really improves that competitive.
Physician and then as you think about going forward. In addition to the $40 million in synergy capture where we've got overlap with suppliers between Aero market event Dre, how we negotiate better economics. You then have going forward part of kind of the next phase of this is extending our model to new channels.
You know that the vendor has not participated in in the past so that to me is kind of the strategic context. If you will does that get at your question or Steve anything you'd like to add to that.
I think that's accurate.
It does it does and then just real quick.
If you send money back to kind of business is normal in any way to frame out kind of what the contribution from that was in the quarter versus what it would be at full scale.
Yosemite is essentially back to business as usual there is a couple of very high camps that I don't think will reopen for the year, but they're not significant.
In the big scheme of things and it's primarily an opportunity cost for us on the revenue side, we simply Didnt, obviously start serving clients.
As as quickly as we thought so somewhere less than $10 million for sure of opportunity cost on the revenue side.
And we probably incurred a couple of million dollars of startup related.
Cost in terms of starting things up in the quarter.
Thank you.
Thank you.
Gary Bisbee from Bank of America Merrill Lynch is online with a question.
Hi, guys good morning.
Eric you opened with the line relentlessly pursue shareholder value creation I guess the question I've got around that.
Is just given the pretty massive valuation disparity between where aeromar trades in the uniform rental peers and what from my perception is not a whole lot of synergy between your food facilities in uniforms businesses.
Are you guys willing to talk more openly about considering a separation of the businesses at some point in that pursuit of relentless shareholder value creation.
Yes, I think Gary you you have no us well and I'll, let Steve add his thoughts, but if you think about.
The portfolio in the uniform business again as Weve I think set all along.
It's a business we like.
It does have a similar service model, but it's a business that has a lot to.
Great characteristics to it right in terms of its growth potential good margins.
Cash flow characteristics.
But bottom line, we have never not been open to looking at all ways to create value and so as we've said in the past I mean, we certainly did before we went public we have and do each and every year as part of the strategic planning process look to see are there opportunities to create shareholder value and how might we do that and what construct options might we have.
As we think about that so again weve never we've never been dogmatic about what role it plays or continues to play.
We do believe that this is a business that is a business that relies a lot on scale. That's why the ameriprise acquisition made sense for us.
From a scale standpoint, we obviously have a way to create a lot of shareholder value by capturing the synergies that weve identified through that acquisition, whether it be SGN a or.
Merchandizing cost optimized looking at the infrastructure across plants and warehouses and route density and optimization as I mentioned in my prepared comments.
And so as we do that that's going to certainly create a lot of shareholder value, but I think we remain and have an open mind relative to what are the various.
Value, creating options that we have available to us Steve Yeah, Gary I would add listen there are no sacred cows, weve tried to be very clear about that and that applies to all parts of the portfolio.
We fully understand.
There are multiple paths available to us on any of the businesses including uniforms.
Those plans those pads have pros and cons associated with them in terms of tax implications et cetera. Some of those paths. We can control some of those path, we cannot and so we constantly assess.
What's the right outcome in the long term for that business and for our shareholders. We will continue to do so and I would just reiterate Eric's point there is no doubt here in the near term.
Regardless of.
The longer term structural outcome for that business. The best thing, we can do to maximize shareholder value is capture synergies and ameriprise and continue to close the margin gap in that business and make it bigger and make it more profitable and thats. What we are very focused on doing.
Okay. Thank you appreciate it.
Thanks, Gary.
Seth Weber from RBC capital markets is on line with a question.
Hey, good morning.
I wanted to ask about the good day, good uncle acquisition, I think Eric you mentioned that.
Kind of targeting to start ramping in the fall, but maybe can you give us a little bit more color on.
Your thoughts around the transaction, how you see that kind of integrating into the model are there opportunities to eventually.
Fold that into.
University meal plans or just any more kind of extending thoughts on the transaction. Thanks.
Sure. So thanks, thank you.
Well again, let me start with a little bit of the strategic rationale.
As we looked at the marketplace one of the things that we continue to talk about and pursue is what are the real drivers of consumer satisfaction and if you think about them. There are really four things that consumers across our business are really looking for high quality products.
Conveniently kind of offered to them increasingly with a healthier orientation, and then personalized to kind of their needs and so if I take that convenience dimension of what drives consumer satisfaction and think about the friction points that tend to create.
Some of the barrier to convenience it really centers around three areas the weighted consumer orders the way she pays and the way the product gets delivered and so if you look at good encores business model. It really provides a solution for all three of those so.
The way the model works is you have kind of a.
Hi quality chef created foods prepared in a commissary.
Those are focused on health and wellness, there's personalized options and then those basically go through re route system.
And students through a proprietary app can mend browse the menu placed the order.
And then the delivery vehicle preps, the food and actually drops it at a variety of pickup points on campus. So again. This obviously complements the solid position that you mentioned, we already have in the education business and so we think as we put this into pilot, we'll give some learnings from it.
And we'll continue to kind of operated as an independent company. It's got a pretty unique culture, you might you might expect that but we're very excited about it we'll get some experience with it and more to come but we think it's a it's a nice fit for what the student is looking for and we think it will complement our business nicely.
Okay. Thanks, and then maybe just a follow up on the uniform margins for the quarter is a little bit light.
Based on our math looks like it was down year over year is that you called out.
In that business is that.
Do you think there's an opportunity here over the next year into that so the margins in uniform too.
Positive year over year.
Starting bearing investments Ashley thanks.
Business. Thanks.
Yeah, Hey, Seth Good morning. This is stevia uniform there is obviously a lot going on in the uniform margins. So first first and foremost obviously year over year, we have the impact of the accounting change, which is right classic stuff up top which will compress margin. We're also just by the incorporation of Ameriprise.
That base business was at a margin that was kind of half of the level of our legacy business. So that will be dilutive as well and then similar to the rest of the business.
In the quarter uniform absorbed some incremental year over year incentive compensation expense. So you've got all of that in the mix the base business in terms of driving productivity in capturing synergies from the deal I think thats exactly where we thought it would be in there clearly making progress, but you've got those other items that prime aphasia are.
Depressing, what we're reporting as a margin, but the business continues to drive drive forward and realized productivity and synergy capture the way, we would expect it to and I do think that that will continue.
Okay, but I mean do you think as you anniversary some of these.
Items and the synergies ramp so is it fair to expect margins to be up next year in uniform.
Yes.
I think even this year set when we come through the year you are going to see that business kind of its base margins. If you take out some of the noise that Steve highlighted you will see that business expand margins 20 to 30 basis points, even this year. It just.
Gets kind of covered with all the.
All the all the steep things that Steve referenced sure. Okay. Thank you very much guys.
Yes, Manav Patnaik from Barclays is on line with a question.
Thank you good morning, just a follow up on the good Encore acquisition I mean, I think it obviously seems really interesting I was just curious.
Maybe on a broader level. It was this in response to maybe disruption in trends that we're seeing from the delivery space or.
All the seats and technology, but just maybe some thoughts on that comment.
Well I think it's the way I would characterize it manav is that we have continued to pretty much obsess about quality convenience healthy and personalization as we saw good on coal and began to talk with the team we saw complementing our business in a big way. So I think it really was one of the few options available that addresses order pay and delivery all three in one and so again for the most part if you think about it.
And think about some of the Disrupters, if we're providing a high quality innovative solution.
We're certainly the closest because we have largely a captive market. So from a convenience standpoint, if we're doing our job on quality healthy and personalization.
We should and certainly from a value standpoint versus some of those disruptors, we have a lot going for us and so again for US. This just complemented our business, but did help us address the friction points of order pay and deliver.
Okay got it and then as Steve you know on the International side I think you mentioned that some of the exit you had talked about last.
Quarter.
Happened later in the quarter than you plan. So I was just hoping maybe you can give us some color on what we should expect in terms of the impact of growth in the next quarter.
Yes sure there is no doubt, we we ended up exiting.
A good chunk of the non custodial the noncore custodial business later in the quarter than we thought we actually ran that business for the majority of the quarter. So there wasn't much of a revenue headwind from that exit in the quarter and we thought there would be we are by and large completely out of those accounts as of the beginning of the fourth quarter. So I do expect.
Market reduction in the growth rate for international in the fourth quarter, because we will absorb the full year over year absence of that revenue. So so they will definitely feel that relative to the year to date performance in the fourth quarter.
All right. Thank you.
Toni Kaplan from Morgan Stanley is online with a question.
Thank you good morning.
Morning, Tony I wanted to ask a follow up on the delivery on just wanted to ask if it's an area. That's attractive for you to do further acquisitions and are there. Other examples of where you are piloting local food delivery with partners or is is that our goal is for the first.
Well I think from a delivery standpoint, it's the first we're doing but as you think about what we've done on the brand and product front, Tony we do have a lot of local partnerships, where we will look for unique culinary concepts and bring those into our venue and partner with companies, but I think on the delivery side. This is our first foray into actual delivery.
With good on coal.
Okay.
And then.
Just.
Question on your employees.
No just given the investments that you've been making in them this year.
Are you seeing any changes with regard to retention or employee satisfaction and sometimes hard to tell so early on but any metrics you have there and could you also just remind us how much of that 90 million investment is expected to be one time versus recurring just since I know the.
Tuition programs.
Maybe a little bit more.
During that time, thank you.
Sure. Let me, let me make a couple of comments I think if you think about the 90 million reinvestment.
Again, most of that was one time I think what we said was other than the investment in wages, which was about 10 million.
Of that 90 million Tony the other 80 million you should consider as onetime only and so.
That investment and then if you think about the recently announced two wishing for our frontline hourly associates that program will be ongoing as well obviously so.
And I think relative to what has it meant again one of our core values of this company is frontline first so I think what we've done through frontline wages recognition.
What we've done around scholarships in education is really really been well received.
As a matter of fact, if you look at our turnover you can look at turnover at the frontline some of our key frontline field leadership positions all have improved this year, which I think is.
Is indicative that the programs has have worked as we wanted to in a pretty.
Challenging.
The environment for hiring great talent. So and then this program we announced this partnership per in stride again that will roll out in October for hourly associates.
That is a unique kind of first of its kind in this space and so we're very excited about it and again look forward to it and there's certainly a lot of energy and excitement amongst our frontline associates as you might imagine.
Thank you.
Andy Wittmann from Baird is online with a question.
Great. Thanks.
Just wanted to dig into the core US foods segment revenue trends, a little bit more I think in your plan.
Prepared remarks, you talked incited.
I think an increase in business catering.
As well as better consumer spending at the stadium.
You may have said it some other things, but but those two in particular I just wanted to know how to think about that in the overall context of things, but I think catering correct me if im wrong thats kind of like events at locations, where where you hire I don't know how recurring that businesses and and is it is the is the stadium entertainment.
Stuff a reflection of your teams.
How do you see that playing out for the balance of the year and then just kind of related to that can you just give us a sense of how your net new business wins.
In that business are trending and how additive.
That is to your overall growth rate there.
Sure well, let me start and then I'll, let Steve jump in as well there is a series of questions. There. So let me try to try to make sure. We get we get to a mall I think the right way to think about the components of growth to get to your new business question is.
If you look at our are roughly 4% growth year to date youre going to see.
About you're going to see really good base business performance, that's probably about 60% of that and then the remaining 40 is split with a slight uptick in retention and the rest would be new business.
You know as we've looked at new business each of the last couple of years right. Now are our plan is to be pretty consistent with what we've seen in terms of new business results over the last couple of years.
And then to the question of of kind of growth.
We did see good growth out of business and industry.
We saw sports leisure and corrections grow we saw growth in health care and growth in education, So really fairly broad based growth in the quarter.
Steve any I think Andy I would just add on the.
The two specific points on sports.
What we're trying to references the per capita consumption.
At the events is higher on a year over year basis right people are spending more at the event.
Just based on the calendar, we actually had fewer games in the third quarter. This year in total than we had last year, which again is a function of schedules. So obviously that evens out overtime, but per capita consumption was higher and then on the business dining.
We're trying to reference base volumes. So it's it's not exclusively especial catering event per se, that's part of it but our base volumes in that line of business were higher on a year over year basis.
Okay. That's helpful. Thank you.
Thanks.
Slow more rosenbaum from Stifel is online with a question.
Hi, Thank you very much just first question I, just want to focus a little bit more on the organic growth just.
Youre tracking towards 4% so far year to date the guidance is approximately 3%. So I'm just trying understand is that is the whole difference really the managed exits that you were talking about and then.
Is are you still expecting the uniform growth to continue as you know.
As it's done in the last quarter going forward and we like to follow up after that.
Yes, I'll take I'll take the uniform question. The uniform question is absolutely. We do expect the uniform business to continue to to show good growth and I'll, let Steve take the second question, but most of it is I believe in the Europe exits that we've discussed yes love I would confirm that there we will see a sharp slowdown in the fourth quarter on the international revenue number relative to what we've been in that will clearly be the largest contributor to getting us closer to that 3% annual guide number.
Okay, Great and then.
Could you just talk on the good on call acquisition is there any real impact to the guidance can you talk about multiples or anything else other than it's kind of a cool new thing.
This is really a small small small acquisition that had penetration in a couple of higher education accounts, and so theres nothing nothing meaningful to discuss or disclose and again. It's one that we will take will piloted in a handful of locations as students come back in the fall and we'll obviously update you on our progress, but I think it's it's right to think of it as a cool new thing to use your terms that that we think has real interest in application. Both in the experience that good uncle already has and in the experience we look forward to getting in the fall.
I will now turn the call back to Mr. boss.
Great well in closing again, thank you for your time your interest in air remark I Hope everybody has a great day, and we look forward to talking to you. After next quarter. Thanks very much.
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