Ian M. Bailey - Vice President-Investor Relations Eric J. Foss - Chairman, President & Chief Executive Officer Stephen P. Bramlage - Chief Financial Officer & Executive VP.

Gary Bisbee - RBC Capital Markets LLC Denny L. Galindo - Morgan Stanley & Co. LLC Andrew Charles Steinerman - JPMorgan Securities LLC Stephen Grambling - Goldman Sachs & Co. Anjaneya K. Singh - Credit Suisse Securities (USA) LLC (Broker) Sara Rebecca Gubins - BofA Merrill Lynch Andrew John Wittmann - Robert W. Baird & Co., Inc.

(Broker) Dan Dolev - Nomura Securities International, Inc. Carla M. Casella - JPMorgan Securities LLC.

Good morning and welcome to Aramark's Second Quarter 2016 Earnings Results Conference Call. At this time, I'd like to inform you that this conference is being recorded for rebroadcast and that all participants are in a listen-only mode. We will open the conference call for questions at the conclusion of the company's prepared remarks.

In order to accommodate all participants in the question queue, please initially limit yourself to one question and one follow-up. I will now turn the call over to Ian Bailey, Vice President of Investor Relations. Mr. Bailey, please proceed..

Thank you, Jameson, and welcome to Aramark's conference call to review operating results for the second quarter of 2016. 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.

I would like to remind you that our notice regarding forward-looking statements is included in our press release this morning, which can be found on our website, www.aramark.com and is detailed on page two of our earnings slide deck. During this 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 Risk Factors, MD&A, and other sections of our 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 morning's press release as well. With that, I'll turn the call over to Eric.

Eric?.

Thank you, Ian, and good morning, everyone. I'm pleased to report another solid quarter, which, as you saw in this morning's release, keeps our outlook for the year unchanged. Strong end market execution of our strategy is delivering balanced and broad-based business momentum across the portfolio.

In fact, both in-quarter and year-to-date, all of our segments are showing top line growth, margin expansion, and improved profitability. Our improved performance is also creating opportunity with regards to the strategic management of the business.

Today's release includes some commentary on our acquisition of a small Irish specialty food company, Avoca, which brings a very strong European brand and new offerings to Aramark's portfolio.

The release also includes references to our previously announced portfolio optimization efforts, including exiting from India and two small countries in South America, which are driving meaningful margin improvement in our emerging markets business.

Four years ago, with trailing financial metrics and higher leverage, we might've been more hesitant to take some of these strategic actions, especially with the accompanying short-term volatility they create in quarterly results.

But with the momentum in improving our financials and a good line of sight to our food, labor, and overhead productivity goals, flexibility to act on strategic decisions like bolt-on M&A and portfolio actions only enhances our ability to compete and to create long-term shareholder value going forward.

Looking at the quarter, adjusted earnings per share were $0.39, an 8% increase from last year on a constant currency basis. Total company organic sales were up 1% and were negatively impacted by about 1.5 point from the Easter holiday shift as well as the portfolio actions we took to exit unprofitable geographies and accounts.

Actions, again, that were consistent with our Investor Day comments, as we focus on margins and returns. Productivity gains facilitated an increase in adjusted operating margins to 6.2%, a 30-basis-point improvement versus year ago.

Consistent with last quarter, about half of our productivity gains were reinvested in the business as we continue to support technology, capability and growth initiatives across the organization. Overall, our constant currency adjusted operating income was up 6%.

Looking at our strategic pillar of growth, retention rates are strong and remain consistent with our targeted mid-90s percentage for the year. Our new business pipeline is encouraging, and we're tracking north of $1 billion in new business wins for the year.

North America organic sales were up 1% in the quarter, with the early Easter holiday creating about a 0.5 point of timing headwind versus year ago. Our portfolio actions reduced sales by about 1 point, but are meaningful, accretive to margin improvement going forward.

North America new business wins were strong, particularly in higher education, including wins at Fordham University, the University of Louisville, Presbyterian University, and (05:05) State. Our international business grew organic sales by 1%.

In Europe, we saw good growth in Ireland, Germany and Spain, offset by further declines in oil drilling in the North Sea. Emerging market business growth was strong, led by double-digit growth in China, Korea, and Mexico. Our new business wins were also strong in our international markets.

During the quarter, we won the largest client in our German business's history, the Cologne Trade Fair company. This is a 10-year agreement starting in January that will provide for the delivery of food service for one of the world's most prestigious event venues and is the sixth-largest trade fair and exhibition convention center in the world.

Our uniform sector performance was equally positive. Uniforms continued to benefit from our investments in capacity expansion, which resulted in organic sales growth of 4% in the quarter. Another highlight of the quarter was the startup of our 15-year National Park Service contract at Yosemite, which I'm pleased to report, has gone exceptionally well.

I'd be remiss if not congratulating our entire Leisure team for executing a very complex opening extremely well. We retained well over 95% of the roughly 1,000-plus legacy Yosemite employees, which we welcome to the Aramark family.

We've been making enhancements to the facilities and upgrading technology to significantly enhance the guest experience as we head into the peak spring and summer season. As is the case at Yosemite, innovation across the entire business remains an integral component of achieving our goals.

And let me turn to one of the more important innovation areas, health and wellness, and give you an update on our partnership with the American Heart Association.

As part of our shared goal with AHA to improve the diet and health of millions of consumers, we've launched the next phase of our Healthy for Life 20 by 20 alliance that provides underserved communities with vital educational support.

A new engagement program is currently being piloted in Chicago, Houston, and Philadelphia that teaches people about a balanced diet and how to shop for nutritious ingredients to prepare healthy meals.

The learnings will be used to scale the program nationwide, and the impact of wellbeing will impact tens of thousands of families and communities most in need of this support. Looking at our second strategic pillar, capturing productivity, we continue to execute well.

We saw gains in our base productivity across food, labor and overhead, which drove about a 60-basis-point margin increase in the quarter.

These gains continue to be driven by a focus on waste as well as reducing complexity across the supply chain to reduce food costs, while also reducing our labor costs through a focus on overtime and agency expenses. And the further reduction of overheads, we continue to expand our usage of zero-based budgeting processes.

Productivity reinvestment in enterprise technology is and will remain an important catalyst in unlocking margin potential, including the deployment of our major tool investments. Kronos, our labor management tool, is now deployed in over 90% of our North America locations.

Prima Web, our master menu system, is installed in about two-thirds of our North America locations. Ariba, which is an SAP solution, is really still in the early stages. By month's end, we will be enabled in 30 pilot locations where we'll continue to refine our processes, tools and KPIs to ensure we have it right before broad launch.

And we're also making good progress with our MICROS installation, which is now in about 20% of our locations. Again, remember that MICROS is our point-of-sale system that facilitates our broader pricing strategy.

Expect us to continue to expand usage of these tools in coming quarters and have a good line of sight to capture our food, labor and overhead improvement that we identified at Investor Day. Occasionally, we're asked about the pace of deployment in terms of executing more quickly, which is a very fair question.

And I'd only point out that unlike a fast food chain or quick-serve restaurant that has a consistent physical footprint, each of our 10,000-plus locations is unique and requires some degree of customization to optimize results.

So, we'll continue to approach the rollout in a measured way, geared to our business that ensures we receive maximum benefit not only for us but for our clients, and the consumers that we serve.

In the second quarter, our productivity gains, net of reinvestment, drove an increase in North America constant currency adjusted operating income of 4%, which led to a 20-basis-point increase in North America AOI margins.

Our international business delivered a 6% increase in constant currency AOI and a 30-basis-point improvement in margins with particular strong margin expansion across South America. Uniforms drove a 9% increase in AOI coupled with a 60-basis-point improvement in margins.

So, I think it's fairly evident that our relentless focus on cost and productivity is paying off across our businesses. Moving to our strategic pillar of people, in second quarter, we garnered strong validation to ensure we're creating a great place to work.

Not only did we earn a spot on Fortune's Most Admired Companies list, we achieved first place ranking for diversified outsourcing companies. We also ranked in the top three categories for all nine criteria that companies are evaluated against including first place for innovation, global competitiveness, and social responsibility.

This honor is a testament to our 270,000 dedicated associates around the world who sell and serve with passion every day. Also in the quarter, we were included in DiversityInc's top 25 Noteworthy Companies for Diversity, which recognized our ongoing commitment to a diverse and inclusive workforce.

So, in summary, we had strong financial and operational performance in the quarter, and we continue to be encouraged by our progress. With that, let me turn the call over to Steve for a more detailed look at the numbers..

$1.65 to $1.75. Due to rounding, we have incurred $0.03 of year-to-date currency headwinds in the first six months. At current rates, we should have less of a currency headwind for the second half of the year than we faced in the first half and modestly less than we anticipated last quarter.

I would estimate approximately another $0.01 to go, which will largely be in the third quarter. Our capital spending expectations for the year also remain unchanged. We would not expect it to exceed 3.5% of revenue for the year.

Our bond offering last quarter did not impact our interest expense assumptions for the year, which remains flat versus 2015, and we continue to expect a full year effective tax rate of between 35% to 36%, which is comparable to the prior year.

Our free cash flow should be at least $200 million, which would be consistent with the earnings growth in the range above and clearly, our year-to-date performance gives us a nice start towards achieving this improvement.

Our segment expectations for the second half of 2016 are on the right, and you will see they're directionally consistent with our long-term algorithm expectations for broad-based improvement in the business both in terms of revenue growth as well as margin expansion. All of our segments will show year-on-year growth and revenue in the second half.

Our FSS North America segment will benefit from a full period of Yosemite revenue, which should approximate $90 million in the second half. We expect growth in Europe and Asia will drive our international revenue segments. Uniforms will remain on its steady trajectory of recent years.

For the company, we expect our portfolio optimization efforts will represent about a 1% headwind on a full year basis. Furthermore, at current levels, the energy sector will account for another 50 basis points of headwind for the year.

And finally, as I mentioned earlier, currency headwinds are mitigating, thus, at current FX rates, revenue changes from FX will present headwinds that equal to about a half of what we experienced in the first half of the year.

Adjusted operating income should grow year-on-year in each of our segments in the second half, primarily driven by better productivity and complemented by our portfolio optimization activities. This segment outlook is consistent with our full year earnings guidance.

I will now turn the call back over to Eric for some closing remarks and advance to Q&A.

Eric?.

Thank you, Steve. So in summary, we continue to execute against our focus strategy that's driving stronger client relationships, moving Aramark to a best-in-class employer and improving our financial results across businesses and geographies.

As the momentum illustrates, we've got the right team with the right strategy that balances continuously, improving financial performance with prudent reinvestment to maximize long-term shareholder value. And with that, Jameson, I think we're ready to take our first question..

Your first question comes from the line of Gary Bisbee. Your line is open..

Hey, guys. Good morning..

Hi. Good morning, Gary..

Good morning, Gary..

I guess the first question – so on the North America food and support services, Easter you called out, but what else accounts for the sequential deceleration in the year-over-year growth rate? Is that just the normal ebb and flow of the business? It seemed like maybe it was a little more than that..

Well, I think, Gary, if you look at our growth in North America in the quarter and year-to-date, I think we're seeing a pretty similar story develop, which is strong growth in sports and entertainment, education, leisure. And even our B&I business is experiencing some growth.

The real pressure points in North America, I'd say, rest in, as Steve mentioned, as we've exited, in one instance, a large, high-profile corrections account, as well as a similar situation in healthcare.

So I think, as is typical in this business, and you've heard me talk about how lumpy it is, while we feel good about where we stand, both in terms of new business pipeline in North America as well as some of the new business wins, the way in which we onboard that new business, the timing of that, I think, has been a little different than maybe we had anticipated.

So, I'd say those are the real variables driving the North America business..

Yeah. And, Gary, maybe I would just add, the seasonality of our business does matter in terms of the percentage changes right around the sequential, so.

But the dollar impact of things like the portfolio actions we've taken, as well as the energy headwind, is roughly comparable to the first quarter and second quarter, but the revenue base that it's applied against is going to be much smaller in the second quarter just because of seasonality.

So you end up with more of a percentage change just because the base is a little bit different in size..

Okay. That makes sense. And then the follow-up, just more broadly, as we think about it, so you gave us the adjustments, and I appreciate that, and adding those all back, 3% or so. But I guess when I step back, that's still the low end of your range.

That's quite a bit below what Compass is doing, and how do you think about what it's going to take to maybe get to the midpoint of your range over time? Is Yosemite coming in enough, or are there some other levers you need to pull here to be growing more to the mid or upper end at some point of the long-term range? Thank you..

Sure. Well, I don't think anything has changed, Gary, relative to the 3% to 5% framework. The multi-year framework, I think, remains very much intact from our perspective. Again, the good news is, is I think we're seeing growth across all reportable segments.

There is no debating in 2016 that we're going to encounter some of this headwind both from a portfolio action and energy perspective. But as we look at the business, again, the drivers of this business are retention that stays fairly steady at that mid-90% range. That's factual.

Our base business is actually performing well, which basically puts you back on the new business question. And I think the new business pipeline looks good. As I mentioned in my comments, we expect to book north of $1 billion in new business this year.

But it's really the onboarding of that new business that creates the lumpy quarter-to-quarter optics that we deal with. So I think as we look long term, we're going to play our game. Again, we're confident in the algorithm of 3% to 5%. Having said that, we're going to run this business for the long term.

And where we see and have opportunities to take corrective actions against the margin and return stream that we talked about at Investor Day, we're going to pursue it..

Great. That's helpful. Thank you..

Your next question comes from the line of Denny Galindo. Your line is open..

Hi, there. Good morning. Thanks for taking my questions. I wanted to delve into the education since we're in a season where you have a lot of wins. You called out three wins; you didn't call out any number of losses.

But I wanted to see if you could give any more color on the Toronto loss? It seemed unusual because they were moving from outsourcing to self-operated, whereas I kind of had a feeling that generally it's a one-way street.

Once they go to outsourcing maybe it shifts between the players from time to time, but it's unusual for it to go away from outsourcing. And then we were estimating this might be like a $0.02 impact in 2017. Just maybe if you could give us any color there that would be helpful as well..

Sure. Well, I think a couple of things. I think, first of all, Denny, I'm not going to talk about any specific clients, but what I would say is there is an industry dynamic where in some instances business will convert from competitor to competitor or in some instances it will convert from outsource back to in-source.

So it's not a unique to a particular client phenomenon that in fact does take place. Again, as I said in our opening comments here, our education business continues to perform very, very well through second quarter, through the first half of the year and certainly as we look to the four education clients that I highlighted.

As we onboard those in September, we'd expect to continue to see that education business perform like it has for us in the last several years. Again, I would just caution you that when you look at any of these social media posts or warn notices, it's only one side of the story.

And so as you try to net out a particular line of business, my caution would be in some instances there are new business wins that we're actually unable to disclose because of certain agreements we have with clients. So it's very difficult to look at what you're seeing in the media and draw any kind of long-term conclusions.

That would be my one caution..

Okay. That's very helpful. Secondly on sports and leisure, it looks like we were looking at the attendance. It looks like Toronto's attendance is very strong this year. You did lose one baseball team and that's going from 11 teams to 10 teams.

And then I think you have both the Presidential conventions and, of course, the full quarter of Yosemite which sounds like it adds maybe 1.9% or so.

So is this going to create an unusually strong quarter next quarter for that sports and leisure line item?.

Well, again, I'd make the following point. I think our sports and entertainment business has performed very, very well. It's a combination of things.

It's a combination of what happened relative to some wins in the business coupled with our performance to drive per capita consumption, coupled with some of the things that happened from a playoff perspective as well. We hosted the NCAAs this year. So we've had a very, very successful run.

I think as we look at our sports and entertainment business, again, you'll see a continued performance that, again, given quarter-to-quarter lap might create a little bit of pressure, but I would say in the whole scheme of things, not to hang your hat on any type of game schedule or playoff schedule or special event schedule.

Again, in the whole scheme of the company, it's actually not that meaningful..

That's it for me. Thanks..

Thanks, Denny..

Your next question comes from the line of Andrew Steinerman. Your line is open..

Hi.

Could you talk a little bit about Support Services and how is that doing? And are you getting some of those margin enhancements out of Support Services, or is most of the margin enhancement coming from the Food Services side of the business?.

Hey. Good morning, Andrew. This is Steve. Just to make sure I understand, when you're talking Support Services, you're specifically talking about what we would call facilities as opposed to food? I want to make sure I answer it correctly..

Yes, yes. Facility Services, Support Services..

I think our progress, I wouldn't differentiate significantly the margin progress we're making across food or facilities. Obviously food per se is not a lever on the facility side. It is much more around labor management. But we're also much further along in the rollout of our primary labor management tool, which is the Kronos tool.

So I don't believe there's a significant difference in the cadence around progress in either one of those two sectors..

Thanks..

Yes. The only thing I would add, Andrew, is if you think about it, the framework is the same. What we're trying to do is to improve head count productivity across any of our lines of business, whether it's food, facilities, uniforms, healthcare technology.

And the way we do that is to drive a real aggressive management approach to the management of our labor as well as in the case of facilities the same thing apply to the materials we purchase just like we would on the food side.

So I think this margin march, the way you should think about it is it's very broad based across lines of business, almost it's virtually every line of business and every geography. It's very, very consistent across the company..

Okay. Thank you..

Your next question comes from the line of Stephen Grambling. Your line is open..

Hey. Thanks for taking the question. Good morning..

Good morning. Good morning, Steve..

Good morning..

As you think about Micros rollout and pricing strategies, are already able to start testing some of those pricing tools, or do you have to wait until you get critical mass?.

Well, anything that we would apply to Micros, we would be in pilot. So I think I mentioned earlier, we were about 20% or so on the Micros rollout. So we certainly are piloting things, Stephen. But in terms of the broad-based rollout, again, as I mentioned before, our pricing initiatives and strategies are very much in the formative phases.

So the deployment of those will largely take place as we go forward. We're right now purely in pilot, and again, that's evidenced by the fact that the Micros rollout is pretty limited in terms of its current deployment..

And then on margin expansion more broadly, I think at the beginning of the year you had always anticipated a bit more flow-through in the back-half relative to the first half. It seems like you've exceeded that so far in the first half and yet you're still reinvesting a consistent 50%.

As you look into the second half, does that mean that you're going to be increasing the reinvestment based on where base margins have been?.

No, I don't think we think about it that way. I think what we've done, Stephen, if you think about the last couple of years, I would say there is a bit of a principle that would say our investment approach is driven by a couple of things.

But typically when we went into a plan year, you'd see a little more heavier investment during the first half of the year, but it can also be based on the rollout of certain initiatives. But broadly speaking, we're making a lot of progress with a lot of runway ahead of us.

And, again, as we look at the first half, our base productivity showed a 60 basis-point improvement. We invested 30 bps of that back into the business, but I wouldn't say that that becomes a trend.

I think we continue to look and evaluate, and I think for the most part you should expect first half investments to be a little higher than you typically see in the second half..

Fair enough. And one more if I can sneak it in, it's just that you mentioned the working capital improvements that help free cash flow.

Can you talk to whether that's a sustainable thing, if there's additional opportunities stemming from the various initiatives?.

Yeah. I'll try to answer this, Stephen. Certainly, I hope some of it is sustainable, but there's no doubt a portion of its timing. So, in the prior year, we were making – prior year being 2015, we made some large commission payments to a former client based on some activity in 2014.

And so, we didn't have to do that this year, which would be a one-off event in the first half of the year that would not necessarily carry forward.

But I think we're doing very well in terms of collections on things like DSO, that's getting a lot more focus in the organization and as we continue to consolidate transactional activity into more of a shared service center environment ultimately it will give us more visibility and control on centralized disbursements specifically on the payable side.

But I wouldn't want to overpromise how quickly we can make that happen. So, as I said before, I think the start is promising and certainly it gives us a higher level of confidence that we can achieve the target we set out here at the beginning of the year.

So much of our working capital is seasonal in the fourth quarter, and so while we're in good shape sitting here today, the reality is much of it will be determined on how we perform in the fourth quarter..

That's great. Thanks so much. Best of luck in the back half..

Thank you..

Thank you..

Your next question comes from the line of Anj Singh. Your line is now open..

Hi. Good morning. Thanks for taking my questions..

Good morning..

My first one, a question as it relates to your education business, but interested in how it relates to your overall business also. You've had some notable gains and losses of education contracts, either replacing a long time incumbent or being displaced after a long time of incumbency.

Could you talk about some of the factors involved in protecting and poaching such long-term relationships?.

Sure. I would say, as you look at this business and I'd say this applies not purely just to education, but to most of our lines of business.

The three reasons why we win or the three reasons why we might lose an account really come back to the following; are we providing real meaningful innovation for the client and the consumer? Second, are we providing a consistently great customer experience at the moment of truth? And third, do we have the right team on the ground? And if we win new business, typically it's because we've demonstrated an ability to do that, and we'll have the potential client tour existing clients and be able to see and touch and feel that.

And if we find ourselves in a tough retention situation, it's usually for one of those three variables as well. Having said that, I just want to come back to the fact that we expect our education retention rates this year to once again be in the high-90%s.

So, I just – I want to come back to that point, along with the fact that we are very encouraged by our new business wins. So, I want to make sure everybody at least has that as a data point as part of your fact set..

Okay. That's helpful.

And as a follow-up on Avoca, could you talk about this acquisition as it relates to your brand strategy? Is there a focus on adding brands selectively through M&A over time, or should we expect this one to just get absorbed and rebranded as Aramark? Just trying to understand your strategy here versus some of your multi-branded competitors. Thanks..

where we would look to add brands to improve our portfolio offering really is around, does it give us additional scale, does it give us additional competencies, does it allow us to maybe play in a particular area of the market where we're not playing today? So, I think the fact is that Avoca is a great destination store.

They've got a very successful catering business. And the Pratt family remains involved. So, I think, it's an acquisition that you'll see will continue to perform well, and the broader answer to your question is yes, we will look for these bolt-on, tuck-in acquisitions of brands as we go – as we look to the future..

Okay. Got it. Appreciate the thoughts. Thanks..

Your next question comes from the line of Sara Gubins. Your line is open..

Thank you.

As you're focusing both on revenue growth and margin expansion at the same time, do you see more contracts like Michigan and the healthcare one that you mentioned that might be low margin that you would consider exiting to help with the overall margin profile?.

Hi, Sara. It's Eric. Yes, I think one of the things that I think we talked a little bit about at Investor Day is, we're going to apply a very disciplined screen as we go forward around returns and margins. And so, that really results in a couple of applications.

One is we will look where we have select smaller geographies, where we've been in the country and haven't been able to make inroads to the level of profitability and return that we want and/or at the account level where after some period of time, we haven't been able to maybe implement some of the things we agreed to in the contract or the pace of play on some of the things that were originally part of the pro forma are not playing out.

We're going to be proactive in having those conversations and in making those decisions. So I do think that while they'll be fairly limited over time, I do think that it's a discipline and a screen that we feel is important to run the business for the long term in terms of shareholder value creation..

Okay. Great.

And then could you give us some more color on the onboarding being different from what you thought for some of the new business? I know there were issues last year around start-ups; is this something similar or is it different?.

Well, again, I think, if you're talking about Yosemite which is the big one we onboarded in the quarter, I mean, first of all, this is a big honor for us to be chosen. The team just really worked seamlessly during that onboarding process, and we continue to manage that transition.

But for the most part because we were able to transfer the employee base, that makes the degree of difficulty for some of these openings a little bit easier. And I think that, combined with a very aggressive plan that Bruce Fears and our Leisure team had has made that go exceedingly well.

And so I think as we look at this, one of the things that we're spending a lot of time on across all of our lines of business is the whole concept of mobilization in start-ups. And so I'd say the answer to the Yosemite question is it was a very successful transition, very seamless.

And I'd say, going forward, I think we've got a much more comprehensive plan as a result of some of our learnings the last few years to make sure we get businesses started up across various lines of business in a more proactive and effective fashion going forward..

Okay. Thank you..

Your next question comes from the line of Andy Wittmann. Your line is open..

Hi. Great. Guys, the margin gains were in line with the plan. I'm curious as to what the start-up costs for Yosemite and for the California uniform realignment were in the quarter, just so we can get a sense of maybe what was really underlying this quarter..

Yeah. I'll make a brief comment on that, Andy. I think in the case of Yosemite, several million dollars was I think the bottom line impact for us to the negative in terms of investment on start-up costs.

We had about a month of revenue based on the start-up date, and obviously we're – or a couple of months of revenue, and we were fully staffed and invested going into the quarter. And so that drag will improve as the year plays out, and we will certainly be profitable on a full-year basis by the time we get to the end of the year.

And then on the uniform side, I think the easiest thing to do, they obviously had a rough first quarter based on their kind of historical performance in terms of just profitability on a year-over-year basis.

And almost all of that underperformance versus their historical average I think you can attribute directly to the expansion project that we were doing on the West Coast. So, I think that's the easiest way to quantify that for that line of business..

And, Andy, the only thing I would add, if you want to tick and tie your math to the 60 basis point of margin improvement, and then you figure the 30 basis points that we reinvested, I think about two-thirds of that would have been connected to startups and the other one-third would have been connected to investments in technology and a few other things.

And I would just echo Steve's point that from a uniform standpoint, we are now through that capacity expansion. So, as we saw in the quarter, the solid quarter that uniforms had, we would expect the capacity expansion to be – that we talked about on the West Coast for a few quarters to be behind us..

Okay. Well, that's an interesting set-up there. Thank you for that info. I'm just curious as to how much longer with the trends that you're seeing do you see the oil and gas headwinds continuing? I know you said there is probably a 50 bps headwind for the year.

I'm just wondering, presumably this current quarter, the third quarter, it's going to be heavier than the fourth quarter which is probably a little heavier than the first quarter.

But when do you feel like on a run rate basis that that growth rate starts stabilizing?.

Well, obviously, we don't have a crystal ball around the energy prices which would give me a higher degree of confidence and a precise answer. But from a cadence standpoint this year, just looking at what has continued to transpire with energy costs, I think your premise is right.

Third quarter will probably be a touch more of a headwind than fourth quarter just based on the way energy has broadly behaved. But it's also, there's a lag, I would remind you, around our client decisions and they don't react immediately to changes in the price as well.

So, I think, for modeling purposes, I think, it's best to just assume a fairly consistent headwind quarter-to-quarter on energy over the course of the whole year. I wouldn't expect the energy headwind in total in the second half to look radically different than what it has in the first half..

Thank you..

Your next question comes from the line of Dan Dolev. Your line is open..

Question, as I look at Compass and I look at the organic growth which is about on a 1H basis about four times faster than yours. Is there anything that they're doing that you are not doing right now that you could be doing, is it end markets, is it being more aggressive on any of those markets? Thank you..

Sure, Dan. I'd say a couple of things. First of all, we look at our growth versus competition. I think, if you look at it over time, for us it's important to make sure our growth is in line and ahead of the industry. If you look at the last couple of years versus the competitor you mentioned, I think in 2014 we grew faster.

I think last year they grew faster than us. So as you look across the globe and dig a little deeper, there will be geographies where we've grown faster each of the last several years, and international business is one of those. There'll be markets where they've grown faster.

If you look at the North America breakdown, there are a couple of spaces where they play that we don't. One is in the GPO space, the other is the elder care space. But I would say again, we are at very different phases relative to our strategic focus. And as I've mentioned earlier, ours is going to apply a very strong return and margin filter.

So, as we make any decision, we are going to have that top of mind in this organization, make sure our orientation is around profitable growth. And again, that's translating into us doing a few things I think that might be different just based on where each of the separate companies are in their evolution.

So, at the end of the day, I'm not going to obsess about any individual competitor. Our approach is to play our game, and we have continued confidence in our ability to grow this business and create shareholder value going forward..

Got it. And then the follow-up on the EPS guidance. So, you saw $0.05 of FX headwind in February. Now, it's $0.04. Why not just let that $0.01 flow through to the guidance? Thank you..

I don't think we're that good to be that precise is my answer, right? So the currency today is different from the currency of last week.

In general, it's consistently – it has moved consistently enough in terms of the dollar, weakening a little bit that I don't think we will have the headwinds in total, but we obviously provide a range for the year and don't give specific within that range back to I'd point you to Eric's broader comments around lumpiness across the business in general, et cetera.

That's probably about as much as we can give you on that one..

Okay. Understood. Thanks a lot..

Your next question comes from the line of Carla Casella. Your line is open..

Hi. I wondered if you could give us some more thoughts on the cap structure. I know when you had spoken at our conference, you had mentioned potentially converting more of your term loans into longer-term bonds, less secured structure.

Any thoughts on potential or timing there?.

Yeah. Just consistent with what I've said in the prepared remarks, we're certainly constantly watching it. I don't think our longer-term objectives have changed. I think, it is safe to assume we will gradually move away from the secured – a very heavy secured structure and take on more unsecured as the opportunity presents itself.

That's obviously a term loan to bond kind of a trade over time. And so the market conditions remain, of course, pretty good by historical standards. And so we'll try to be opportunistic in pursuing something when we think it makes the most sense for us as we balance other considerations.

But our longer term objective has not changed, and you should expect us to continue to take incremental steps periodically to move in that direction well in advance of any maturities that are coming towards us..

Okay. And then what about these – you've got one bond that's callable now.

Any thoughts on what the transaction could include, looking at refinancing those, or is that longer term on your priorities?.

We look at all of our outstanding maturities. So obviously, we have to jump over some term loan debt to get to the callable bonds. And the term loans, of course, we can take out with no penalty. So, you have to get beyond that. But we look at the math all the time. Obviously, the call will also step down again in the future.

So those economics change, but we look at that as part of the broader what's the right financial and financial flexibility answer for us..

Okay. Great. Thank you..

There are no further questions. I'll turn the call back over to presenters..

Thank you, Megan. And, again, thanks to everybody for joining us. The year is off to a good start, and we continue to have confidence in the road that lies ahead. So, we thank you for your time, your interest and your investment in Aramark, and look forward to talking to you at the end of the third quarter. Thank you..

And we'll clear the way..

This concludes today's conference call. You may now disconnect..