Good morning, and welcome to Aramark’s 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 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 remarks. I will now turn the call over to Felise Kissell, Vice President, Investor Relations and Corporate Affairs. Ms. Kissell, you may proceed..

Thank you, and welcome to Aramark’s 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 this call, we’ll 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, MD&A and other sections of our Annual Report on Form 10-K and other SEC filings. Additionally, we’ll 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 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 Avendra and AmeriPride 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 slide materials for detailed reconciliations. With that, I will now turn the call over to Eric..

Thanks, Felise. And good morning, everyone. In the third 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.

While 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 $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 in the U.S. to uniforms up 3%.

The business demonstrated notable legacy revenue progress in the third quarter over the prior year.

And I especially want to comment our team in the leisure business that had to contend with rebuilding our facilities after unprecedented weather struck Yosemite, it was there fortitude 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 heading procurement scale.

We now have more than doubled our purchasing power to $12 billion from $5 billion as we integrate and leverage Avendra. Third, advancing our brand and product portfolio. From one master brand Aramark into a multi-tier frictionless consumer experience that combines technology, convenience and curation 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 optimize 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 under way with the majority of the margin impact in the third quarter, reflecting approximately 20 basis points on the company’s 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 AmeriPride, we’re realizing synergies from optimizing our production capacity to optimizing route density.

With Avendra, we’re recognizing the benefits across the business from increased purchasing scale, which meaningfully 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 authentic food experiences. Our enhanced brands offerings of Kitchen Collective, Simple Spoon, LifeWorks and Harvest Table Culinary Group complement our core Aramark identity and have contribute to increase retention rates and a strong pipeline of new clients.

Our latest addition to the brand portfolio Good Uncle 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 Uncle provides an on-demand platform for quality healthy options, convenient delivery and personalized offerings created by top chefs. We look forward to evolving this business and welcome the Good Uncle team to Aramark.

Turning to the balance sheet, it’s strong, it remains an area of continued focus as free cash flow adds 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 comment 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 a role our employees play 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 Women on Boards for having 30% of our Board comprised of women.

We were also once again named as a 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 deliberate 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.

AOI growth of 4% has exhibited consistent improvement with solid operating performance across the segments, while we preceded to exit non-core custodial accounts in Europe, we rebuilt our facilities at Yosemite, 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 the leverage ratio improvement of half a turn versus the prior year. We also took a small step forward in simplifying our financials on a year-over-year comparative basis as Avendra and AmeriPride are now fully reflected in the quarter’s 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 U.S.

legacy grew 1.5%, with sports, leisure and corrections and business and industry having solid gains as we captured higher consumer spending at sporting events, as well as capitalized on increased catering volumes within business dining.

This performance was partially offset by proactive renewal activities in 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 start up at Yosemite from the aforementioned winter storms.

As we continue to integrate AmeriPride into the portfolio, as well as pursue additional growth opportunities, including leveraging the launch of our patented WearGuard Eco Collection apparel lines, uniforms legacy revenue grew 3.1%.

In general, accounting changes from revenue recognition represent the difference between adjusted and legacy revenue growth with a consistent impact of 2.1% on the quarter and that’s primarily in uniforms.

Constant currency AOI 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 and 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 $0.47 for the quarter, which was 14% growth on a constant currency basis.

Year-to-date free cash flow, though it’s still seasonably negative, improved approximately $160 million compared to the prior year, with our strongest cash flow quarter in 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 the 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 non-core facilities accounts in Europe.

AOI growth in 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 Avendra and AmeriPride.

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 reclass spending and about $50 million of Avendra and AmeriPride integration spending, resulting in approximately $500 million in 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. And I’m now going to turn the call back over to Eric in front of Q&A..

Great. Thanks, Steve. Well, 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, Hilda with turn it over and open it up to Q&A..

Thank you. We’ll now begin the question-and-answer session. [Operator Instructions] We have Stephen Grambling from Goldman Sachs..

Thanks. Good morning. So in the quarter you had some news of a 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 fundamental basis or think through ways to create value from strategic actions, how would those change if you were private company versus a public company?.

Well, Stephen. 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 evolving.

And so, as you well know, we’ve 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 that’s resulted in pretty consistent growth across revenue, margin, AOI, 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 booster 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 U.S.

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 that’s a pretty good summary of the game we’ve been playing and the game we think we can continue to play to drive growth and really get the company positioned as 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 and the uniform side make moves through M&A acquisitions to position their brand and portfolio offering.

And so, the strategy that we followed really is intended to position this company for growth going forward and we felt an imperatives across those four dimensions of margins, procurement, the balance sheet and the brand is really kind of the centerpiece of the strategy..

Fair enough. And then maybe as a quick follow-up, you alluded to the acquisitions as 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 could continue to ramp and contribute to the results?.

Yeah. 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 has gone 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 Avendra and the AmeriPride 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 capture what we’ve identified and identify if there are any more opportunities. Steve, you want to get into....

Yeah. Hi, good morning, Stephen. We continue to expect to realize at least $110 million in synergies from a combination of the two deals that would be $40 million of synergies from the Avendra transaction and about $70 million from AmeriPride. I think we’re right where we would have expected to be, maybe a little bit ahead the Avendra transaction.

We should realize that $40 million over the first three years post the closing of that deal. On the AmeriPride transaction, it’s 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 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 Avendra by three years out.

And I think we’re well positioned to fully realize AmeriPride 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 J.P. Morgan..

Good morning, all. It’s 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, 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 the 9.8% legacy revenue growth?.

Hi, Andrew. It’s Eric. If you look at our International business, really over the last couple of years, we’ve seen extremely strong top line momentum across that business. And it’s not been 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 which have both seeing good kind of high single-digit growth numbers to China and South America that are growing double-digit in the quarter, it’s just been very broad based.

And 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 has 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..

Yes. Hi. I think I stay on International if we can. 9.8% is going to be gaining share, I think, in most of those markets that you mentioned.

So can you give any color on, who you think you’re winning that share from, is it mostly small players in-house or the larger caterers? And then which part of the offer is 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 tough to break down.

But 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-opp Phonetic conversions contribute 30% to 40%, you will see smaller regional players contribute 30% to 40% and then you’ll see some growth from the larger players. And 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 full year on the – within the 3% organic guidance, you talk about higher inflation this year.

Could you give any sense of how much of a boost in sort of higher inflation, any pass through as to your total organic growth?.

Yeah. Hi, good morning, Harry. This is Steve. Our year-over-year or let me start with the full inflation expectations. We expect to be about 3% or so for food related inflation and 4% for labor, so I call the total 3.5%. 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 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 the 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 and Steve.

In terms of the procurement increase from $12 billion to $5 billion, is that factored into the synergies already in Avendra? And if not, what can be the incremental synergies as you kind of step up the spending across the organization from a leverage perspective?.

Yeah. So, 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, we’ve taken the business from $5 billion to $12 billion, which primarily comes through just acquiring the procurement scale that Avendra brought along with a couple of other smaller tuck-in acquisitions that we did prior to Avendra.

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 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, if you dial back a few years, we were in pretty much a subscale position, and now moving from $5 billion to $12 billion really improves that competitive position.

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 Aramark and Avendra, 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 that Avendra is not participated in the past.

So that to me is kind of the strategic context, if you will. Does that get it at your question or Steve anything you’d like to add to that..

No. I think that’s accurate..

It does, it does.

And then just real quick, is Yosemite back to kind of businesses normal? And 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 that I don’t think will reopen for the year, but they are not significant in the big scheme of things. And it’s primarily an opportunity cost for us on the revenue side, we simply didn’t obviously start serving clients 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 start-up 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 Aramark trades in the Uniform rental peers? And what from my perception is not a whole lot of synergy between your food, facilities and 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?.

Yeah. I think, Gary, you have know us well and I’ll let Steve add his thoughts. But if you think about the portfolio in the uniform business, again, as we’ve – I think, said all along, it’s a business we like, it does have a similar service model, but it’s a business that has a lot of 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, we’ve never been dogmatic about what role it plays or continues to play, we do believe that this is a business – is a business that relies a lot on scale. That’s why the AmeriPride 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 we’ve identified through that acquisition, whether it be SG&A or merchandising 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?.

Yes, Gary, I would. Listen, there are sacred cows. We’ve 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 paths have pros and cons associated with them in terms of tax implications, etc.

Some of those paths, we can control, some of those paths, 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 in AmeriPride and continue to close the margin gap in that business and make it bigger and make it more profitable and that’s what we are very focused on doing..

Okay. Thank you. I appreciate it..

Seth Weber from RBC Capital Markets is online with a question..

Hey, good morning. I wanted to ask about Good Uncle acquisition.

I think, Eric, you mentioned, it’s kind of targeting to start ramping in the fall, but maybe give us a little bit more color on you 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, Seth. 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 personalize 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 way the consumer orders, the way she pays and the way the product gets delivered.

And so if you look at Good Uncle’s business model, it really provides a solution for all three of those.

So the way the model works is, you have kind of a high-quality, chef created foods prepared in a commissary, those are focused on health and wellness, there is personalized options and then those basically go through a route system and students through a proprietary app can then browse the menu, place the order and then the delivery vehicle preps the food and actually drops it at a variety of pick up 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 will get some learnings from it and we’ll continue to kind of operate it as an independent company. It has got a pretty unique culture, you might expect that.

But we’re very excited about it, we will get some experience with it and more to come. But we think 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 margin for the quarter, it was a little bit light. I think, based on our math it looks like it was down year-over-year.

I think, you called out some investments in that business, is that – do you think there is opportunity here in the next few years for that – for the margins in uniform to flip positive year-over-year or are that just ongoing investments. How should we think about that business? Thanks..

Yes. Hey, Seth. Good morning. This is Steve. Yeah. In uniform there’s obviously a lot going on in the uniform margins. So first and foremost, obviously, year-over-year we have the impact of the accounting change, which is right classing stuff up top, which will compress margins.

We’re also just by the incorporation of AmeriPride 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 and capturing synergies from the deal, I think, that’s exactly where we thought it would be and they are clearly making progress, but you’ve got those other items that prima facie are depressing what we’re reporting in the margin.

But the business continues to drive forward and realize 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, is it fair to expect margins to be up next year in uniform?.

Yes..

I think even this year, Seth, when we come through the year, you’re going to see that business kind of its base margins, if you take out some of the noise that Steve highlighted, you’ll see that business expand margins 20 to 30 basis points even this year. It just gets kind of covered with all the things that Steve referenced..

Sure. Okay. Thank you very much guys. I appreciate it..

Manav Patnaik from Barclays is online with a question..

Thank you. Good morning. Just to follow-up on the Good Uncle acquisition. I mean, I think, it obviously seems really interesting.

I was just curious maybe on a broader level, was this in response to maybe disruption and threat that you were seeing from the delivery space or, obviously, it’s some 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 Uncle and began to talk with the team, we saw it complimenting our business in a big, 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 disruptors, 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 complimented our business, but did help us address the friction points of order pay and deliver..

Okay, got it. And then, Steve, on the international side, I think you mentioned that some of the exits 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 ended up exiting of both good chunk of the non-custodial or the non-core 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 a 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 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. I wanted to ask a follow-up on food delivery.

Just wanted to ask a fits an area that’s attractive for you to do further acquisitions? And are there other examples of where you’re piloting local food delivery with partners or is Good Uncle sort of the first that you are doing?.

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, Toni. 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 Uncle..

Okay.

And then just question on your employees, 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 it’s sometimes hard to tell so early on, but any metrics you have there? And could you also just remind us how much of the $90 million investment is expected to be one-time versus recurring.

Just since I know the tuition program sounds maybe a little bit more recurring than one-time? Thank you..

Sure. 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, Toni, the other $80 million you should consider as one-time only.

And so, that investment and then if you think about the recently announced tuition 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 and education is really, really then well received. As a matter of fact, if you look at our turnover.

You can look at turnover at the front line, some of our key frontline field leadership positions, all have improved this year, which I think is indicative that the programs has – have worked as we wanted to in a pretty challenging environment for hiring great talent. So – and then this program we announced – this partnership for in stride.

Again, that will roll out in October for hourly associates. That is a unique kind of a 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 among our frontline associates as you might imagine..

Thank you..

Andy Whitman from Baird is online with a question ..

Great. Thanks. I just wanted to dig into the core U.S. foods segment revenue trends a little bit more. I think in your prepared remarks, you talked and cited, I think, an increase in business catering, as well as a better consumer spending at stadiums. You may have said some other things, 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 I’m wrong, that’s kind of like events at locations where you hire. I don’t know how recurring that business is. And 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, Andrew, and then I’ll let Steve jump in as well. There is a series of questions there. So let me try to make sure we get to them all.

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 roughly 4% growth year-to-date, you’re 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.

As we’ve looked at new business, each of the last couple of years, right now 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 kind of growth, we did see good growth out of business and industry, we saw sports leisure and corrections grow, we saw growth in healthcare and growth in education. So really fairly broad-based growth in the quarter. Steve, any....

I think, Andy, I would just add on the – to the two specific points on sports. What we’re trying to reference is 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 of this year in total than we had last year, which again is a function of schedules. So obviously that evens out over time, but per capita consumption was higher.

And then on the business dining, we’re trying to reference base volume, so it’s not exclusively a special 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..

Shlomo Rosenbaum from Stifel is online with a question..

Hi. Thank you very much. Just – for first question, I just want to focus a little bit more on the organic growth. Just you’re tracking toward 4% so far year-to-date, the guidance is approximately 3%.

So I’m just trying to understand, is that – is the whole difference really the managed exits that you were talking about? And then – are you still expecting the uniform growth to continue as it has done in the last quarter going forward? And I’d like to follow-up after that..

Yes, I’ll take the uniform question. The uniform question is – absolutely, we do expect the uniform business to continue 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. Shlomo, 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. And 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 Uncle 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 there is nothing meaningful to discuss or disclose. And again, it’s one that we will take, we will pilot it in a handful of locations as students come back in the fall. And we will, obviously, update you on our progress.

But I think it’s right to think of it as a cool new thing, to use your terms, that we think has real interest and 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. Foss..

Great. Well, in closing, again, thank you for your time, your interest in Aramark. I hope everybody has a great day. And we look forward to talking to you after next quarter. Thanks very much..

Thank you for participating. This concludes today’s conference. Thank you for participating. You may now disconnect..