Aramark

NYSE:ARMK

Earnings Call Transcript 2018-Q2

[Operator]

Good morning and welcome to Aramark's Second Quarter 2018 Earnings Results Conference Call. My name is Ellen 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 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 Kate Pearlman, Vice President of Investor Relations. Kate, please proceed.

[Kate Pearlman, Aramark]

Thank you and welcome to Aramark's conference call to review operating results for the second quarter of fiscal 2018. 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 in our earnings slide deck.

During this call, we will be making comments that are forward looking, including our expectations for fiscal 2018. 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 our 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 second quarter includes partial results from AmeriPride which closed in January and a full quarter of Avendra which closed in December. While we will quickly lose the ability to distinguish earnings related to the deals as we integrate them, we will track revenue separately for the next several quarters.

With that, I will turn the call over to Eric.

[Eric J. Foss, Aramark]

Thanks, Kate, and good morning, everyone. This morning, we reported another quarter of solid operating results driven by broad-based momentum across the business. Adjusted earnings per share was $0.48 in the quarter, a 7% increase from last year on a constant currency basis. Total company constant currency sales were up 6%. Our legacy business grew 2% in the quarter, which was consistent with expectations after factoring in roughly 1 percentage point impact related to adverse weather conditions, as well as the Easter holiday shift. Adjusted operating income was $252 million, up 8% on a constant currency basis.

With that in mind, I'd like to provide you with an update on how we're executing against our strategic objectives. Our first strategic imperative is accelerating growth. In the quarter, 2% of the growth in our U.S. segment was from our legacy business, which was also impacted by roughly one point due to calendar and Easter shift – calendar, Easter as well as weather. Our International segment delivered 4% constant currency growth, with good performance across Europe and emerging markets led by strong growth in China and Mexico. And our Uniform segment saw revenue increase 31%, of which 2% was from our legacy Uniform business.

So, as we sit at the halfway point of the fiscal year, our top line growth for the legacy business is up about 3.5%, which is a combination of strong base business growth, solid retention rates, and net new business wins. We are experiencing broad-based growth across all sectors in the United States, as well as strong growth across geographies International, and improving top line results in our Uniform business.

Our top line growth is being driven through an expanded consumer-centric product portfolio and a relentless focus on service excellence. And I'm pleased to report that we continue to see strong improvements in overall consumer satisfaction as a result of our efforts to exceed consumer needs across four critical dimensions: quality, health, convenience and personalization.

Innovation will always be a key component of our success as we create menus to offer fresh, on-trend flavors, good-for-you options and more convenience. We partner with celebrity chefs and retail brands to complement our menus and I'm pleased to welcome Jamie Oliver to our team. The Jamie Oliver Restaurant Group has been operating premium brands in Northern Europe for over a decade that are centered around health and well-being, with a particular appeal to millennial workforce. So, this was a natural fit for us.

But innovation doesn't stop with our menus. We've also done a lot to improve our brand strategy and segmentation through both our core and premium offerings. Today's consumer increasingly values the food experience. So, we're working with our clients to create a more vibrant dining environment. Because speed of service is also critical, we're innovating technology solutions that reduce friction in the ordering, payment and delivery of food.

With regard to health and wellness, we continue to increase on-trend options to help consumers meet their nutritional goals. This quarter, we began working with Ocean Hugger Foods to introduce the world's first plant-based alternative raw tuna. We're also expanding our plant-based culinary training across the country. And we are at the midpoint of our five-year initiative with the American Heart Association to improve the health of Americans 20% by 2020. Results are ahead of schedule with a 13% average reduction in calories, saturated fats, and sodium, plus significant increases in fruits, vegetables and whole grains.

I'm also encouraged by a number of new business wins. We're pleased to welcome Auburn University to our growing Southeast Conference family, as we now partner with many schools across the Conference.

In our leisure business, we've expanded our relationship with the National Park Service by winning the contract at Crater Lake Park in Oregon. And our healthcare sector is doing well with a notable win at the University of Pittsburgh Medical Center.

In International, we've expanded our relationship with BHP Billiton, a leading global mining company by winning the Spence mine contract in Chile.

Looking forward, I'm pleased with our growth momentum, solid mid-90s retention rates and encouraging new business pipeline. And we remain confident that we will deliver full-year growth of at least 3% within our multi-year framework.

Turning to our second objective, activating productivity, our adjusted operating margins in the quarter increased 10 basis points due to strong base productivity improvements in our operations of approximately 50 basis points, which was partly offset by the calendar shifts and the on-boarding of new accounts and reinvestments. Looking forward, we're confident that we will continue to leverage productivity enhancements to offset inflationary pressures, and we have a clear path to achieving our adjusted operating income margin target that we established at our 2015 Investor Day, all of which sets us up for a strong finish to 2018.

Turning to our third strategic objective, attracting the best talent, I'm pleased to announce that we have once again been recognized by DiversityInc as a top 50 employer for diversity, as well as a top 50 employer by Equal Opportunity Magazine. I continue to be proud of our efforts to build a diverse and inclusive workplace where people from all backgrounds can grow, contribute and succeed.

And finally, our fourth strategic objective is all about achieving portfolio optimization. The integration of both Avendra and AmeriPride is on track, and we are blending the best talent and technology from each company. We've made strides in combining into one organization, and we have a clear line of sight to realizing our synergy targets.

So, before I turn the call over to Steve, I'd like to frame for you why this is an exciting time for Aramark and why we believe that this company has a very bright future. First, this is a company with strong business momentum where 2018 will be another record year for the company across multiple financial metrics. We expect top line growth in framework of at least 3%. We expect strong margin improvement again in 2018, achieving our 100-basis-point margin commitment that we made at our 2015 I-Day. We're raising our adjusted EPS outlook to $2.20 to $2.30, which will represent our fifth consecutive year of double-digit EPS growth. We expect to generate greater than $400 million in free cash flow this year.

Second, we're well positioned to compete in an industry that is large, growing and has favorable outsourcing tailwinds that should continue. We have a clear right to win. We've upgraded our product offering, and we're bringing real innovation to market.

Third, we have a proven and resilient business model that works in good and challenging economic times, works in periods of low or no inflation as well as periods of higher inflation, and that has made strong gains on the productivity and margin line we still have runway ahead of us.

Fourth, we just completed two strategic and financially attractive acquisitions that improve our competitive position across our portfolio, enhance our purchasing capability, and extend our industry reach, and expand the scope and geography of our Uniform business.

And finally, we have solid financial flexibility that keeps us well insulated from rising interest rates as 85% of our debt is fixed and we have no significant maturities until 2024. All of this really sets the stage for our next Investor Day, which will be held on December 11 at the New York Stock Exchange. At this event, we'll discuss our strategy and multi-year framework and we look forward to hoping that all of you can join us.

Finally, I want to thank and express my appreciation for our 270,000 global team members for their laser focus on delivering a great customer experience every day.

With that, let me turn the call over to Steve.

[Stephen P. Bramlage Jr., Aramark]

Thanks, Eric. GAAP sales were $3.9 billion in the quarter, up 9%. This includes currency tailwinds of $89 million or more than 2% as the U.S. dollar generally weakened versus the prior year. Constant currency sales, therefore, grew by 6%. This increase was composed of 4% or approximately $150 million from the acquisitions, primarily from AmeriPride, with the remaining 2% growth coming via our legacy business. This quarter, sales on the legacy business were adversely impacted by approximately 1 percentage point related to the weather and Easter headwinds mentioned previously. After taking these factors into account, our underlying revenue growth was within our multi-year framework.

Adjusted operating income was $252 million, which was an 8% increase on a constant currency basis. AOI margins rose 10 basis points on a constant currency basis to 6.5%. As Eric mentioned, we had about 50 basis points of improvement from our operations, which was offset by continued reinvestment as well as a modest impact from an adverse weather. As expected, we had significant sequential improvement in profitability versus the first quarter.

With regard to our GAAP operating income, this quarter, our results were materially impacted by integration-related charges, as well as severance and other charges from our continued efforts to streamline our overhead structure. These charges are detailed in the press release tables and in the 10-Q.

Adjusted EPS increased to $0.48 a share or 7% on a constant currency basis, as the 13% benefit from higher AOI and the 7% lower tax rate benefit more than offset the 13% negative impact from higher interest expense. The dilutive impact from Avendra and AmeriPride in the quarter was approximately $0.04 per share.

I could not be happier with our M&A financing which was completed this quarter. Our timing and our results were excellent. We have maintained tremendous financial flexibility with no significant refinancing events required for the next seven years. We do plan to renew our 2019 accounts receivable securitization program shortly as it is our lowest cost source of funds. Our near-term deleveraging progress will target and eliminate the 2022 and 2023 maturities well in advance of those years.

Equally important is that we have a low exposure to rising interest rates with 85% of our debt fixed for the next five years. A 100-basis-point increase in LIBOR today would impact us by about $0.04 per share annually, though this figure will decrease as we focus on repaying variable rate debt. We remain committed to delevering and expect to be below 4.5 times by year end and within the target range of 3 to 3.5 times by the end of 2020.

Our full-year 2018 revenue expectation of at least 3% from the legacy business is unchanged and is an improvement on the prior year. We will report a larger percentage increase at the company level due to the acquisitions. As Eric mentioned, we have firm line of sight to achieving our three-year margin improvement target of 100 basis points versus 2015. Productivity progress is leading us to raise the low end of our prior EPS range by $0.05 from $2.15 to $2.20. Our range for full-year adjusted EPS is now $2.20 to $2.30 per share. The midpoint of that range, $2.25, represents an approximate 15% increase versus 2017.

We are also affirming our annual free cash flow outlook of greater than $400 million. This year, we anticipate an incremental benefit of approximately $100 million versus our original guidance due to tax reform and the net cash accretion from the acquisitions. Offsetting this benefit is approximately $100 million in one-time seller obligations that we agreed to pay in exchange for dollar-for-dollar reductions in our cash purchase price. The easiest way to understand this geography change is as follows. We paid approximately $2.35 billion for the deals. Our cash flow statement reflects an investing outflow of cash of approximately $2.2 billion. The remaining $100-million-plus from the purchase price is reflected as an outflow of operating cash on the working capital line. In other words, it's included in the free cash flow calculation under GAAP.

So as a result, our fiscal 2018 free cash flow outlook of greater than $400 million is unchanged. We will continue to update free cash flow expectations as we work through the balance sheet consolidation impacts in the second half of the year. However, it is important to highlight that absent the deal-related geography change, our free cash flow conversion is 90% of the midpoint of our EPS range.

Going forward, I remain quite confident that our free cash flow conversion ratio should consistently be at least 90% or more of adjusted earnings. Our previously communicated assumptions regarding the impact of tax reform and M&A remain unchanged at this time.

In the second half of this year, we expect that margin expansion will accelerate sequentially. Our third quarter adjusted EPS growth is expected to be between 10% to 15% ahead of prior year, and therefore, the fourth quarter is expected to be significantly more than 15% above prior year. Remember that in the fourth quarter, beyond our improved productivity momentum, we will also benefit from easier comparables due to weather and Uniform pricing actions in the prior year.

So, sitting here six months out from our Investor Day and expecting a record year of profitability and double-digit adjusted EPS growth in 2018, like Eric, I am very encouraged by our future prospects. The marketplace for all of our segments remains conducive to supporting growth. While we will be dealing with a higher inflationary environment and will continue to face reinvestment needs for our business and our technology, this company still has significant and actionable profitability improvement opportunities.

Our two deals have strengthened the strategic positions of our Food and our Uniform businesses, and will certainly provide growing earnings and cash momentum as synergies start to outpace integration spending.

Our deleveraging efforts and the low interest rate exposure are designed to insulate us from a rising rate environment. Tax reform will remain a tailwind for us for the next year. We expect to generate increasing amounts of free cash flow, and we're going to allocate it in ways that improve the balance sheet and drive maximum shareholder value.

So, while it'll take several months to create the specific financial expectations for 2019, I love what I see regarding the strategic and the financial momentum Aramark is going to carry into the next few years.

I'll now turn the call back over to Eric.

[Eric J. Foss, Aramark]

Thanks, Steve. So, in summary, we remain focused on executing against our strategy. We're encouraged by the momentum across the portfolio of businesses and we look forward to our future prospects of growth.

So, with that, Ellen, we'd be happy to open up the line and take any questions.

[Operator]

Thank you. We will now begin the question-and-answer session. Our first question is from Hamzah Mazari from Macquarie Research.

[Hamzah Mazari, Macquarie Capital (NYSE:USA), Inc.]

Good morning. Thank you. The first question is just on the International business. If you could sort of frame for us how to think about sustainability of the growth numbers you're putting up internationally. And also with regard to that, any changes competitively or structurally in International versus the U.S. that you see whereby International has just higher growth going forward?

[Eric J. Foss, Aramark]

Well, Hamzah, it's Eric. Thanks for your question. I think we've talked in the past we like the position of our portfolio. And specific to International, I mean, we saw strong growth in the quarter. While we did have some Easter calendar shift headwind, the mid-single-digit growth was certainly strong. And, again, it was broad-based. We're seeing that same mid-single-digit growth across Europe as well as emerging markets, and as I mentioned in my prepared comments, led by countries like China and Mexico.

So, I think the beauty of our International portfolio is we're well positioned in each of the three geographies of South America, Europe, and Asia. We're very focused. I mean, to a large extent, our business in each of those geographies is very focused on – more focused even than our U.S. business. And I think in addition to the top line growth, we've tried to run, particularly our emerging market business, in a way that not only is generating strong top line growth, but showing some decent margin improvement as well.

And I think as you know, as you've heard us talk before, as we look at that emerging market business, it's really the above unit costs that you either have to grow into or address, and I think Brent and the team have done a really good job doing that.

So, as we look at our International business going forward, we would expect it to continue to grow. It has certainly all of the outsourcing momentum that you would see on our U.S. business. And again, we like both the Europe business, as well as what we're seeing in emerging market relative to the trends.

[Hamzah Mazari, Macquarie Capital (NYSE:USA), Inc.]

That's very helpful. And then just second question on productivity. Is the 50 bps baseline productivity is sort of a good number to use going forward? And then as you look over the long-term, given some of the technology initiatives you had spoken to in the past, and as those take hold, what sort of pull-through on the 50 bps should investors expect longer term?

[Eric J. Foss, Aramark]

So I'll address that just based on the remainder of the year. And as Steve and I both commented, we'll get into our future year guidance as we talk through the December Investor Day. But I would say the following. I mean, we've had very strong year-to-date based productivity.

And so the 50 basis points we referenced in second quarter is being driven by a variety of things, really strong numbers on the food management side, strong improvement in some SG&A savings. And I think as you think about that, those are obviously being offset by start-ups, as well as those investments. As you look at the trajectory of margin for the rest of the year, you'll start to see both start-up costs as well as the investments tend to subside as the year goes along.

And so, when you take those things in addition to us now fully through lapping the Uniform pricing actions, if you really look at our base productivity on the food and facility side for the last several quarters, it's been very, very consistent. And I think as Steve referenced, you're now going to see a lot more of that flow through the second half of the year. And then in addition to that, we lap some of the natural disasters in fourth quarter. So, that's why all along, we have said and remain very convicted and very confident in our margin march. Does that answer your question?

[Hamzah Mazari, Macquarie Capital (NYSE:USA), Inc.]

That's very helpful. And just had a follow-up for Steve and I'll turn it over, just any quantification on sort of the cash accretion from the deals? I know we referenced the $100 million, which I think includes tax reform as well. Thanks.

[Stephen P. Bramlage Jr., Aramark]

No. The $100 million, you're right, is a combination – the positive $100 million we referenced is a combination of tax reform and the net accretion from the deals. The majority of that is coming from tax reform because the deal accretion is a net number. So, the positive cash from the operations of both Avendra and AmeriPride is being reduced by the integration-related spending that we're putting against those. So, the net is positive, but the majority of that $100 million increase for this fiscal year will be a result of tax reform.

[Hamzah Mazari, Macquarie Capital (NYSE:USA), Inc.]

Okay. Thanks a lot.

[Eric J. Foss, Aramark]

Thank you.

[Operator]

The next question is from Toni Kaplan with Morgan Stanley.

[Toni M. Kaplan, Morgan Stanley & Co. LLC]

Hi. Good morning. On the...

[Eric J. Foss, Aramark]

Hi, Toni.

[Toni M. Kaplan, Morgan Stanley & Co. LLC]

Thank you. On the 11 bps of total margin expansion in the quarter, can you just help us bridge what part was from the legacy business and what part was from the acquired businesses?

[Stephen P. Bramlage Jr., Aramark]

Yeah. Toni, hi, good morning. There was not a material impact from the acquired businesses. I think directionally given the margin structure, Avendra was a positive, AmeriPride was a negative. Given those two structures, the net of those two was not significant on that result. As we have said before, it's not even a full quarter of results for both of those deals. And there's a tremendous amount of internal investment of resources being thrown against integrating those two deals. So, I think you're getting a very clean legacy business productivity drop through in the quarter when you go from the 50 basis points down to the positive 11 basis points.

[Eric J. Foss, Aramark]

I think the simple way to think about it, Toni, would be 50 bps of base productivity improvement offset by 25 or 30 bps of calendar shift in weather, and then 10 to 15 bps of kind of start-ups and investments, and that's going to get you to the roughly 10 bps we recorded.

[Toni M. Kaplan, Morgan Stanley & Co. LLC]

That's great. And then with one of your largest competitors having sort of growth and profitability issues recently, is there any risk that the new contract environment could become less rational as they look to increase new wins, or on the other hand are you benefiting at all from the issues that they're facing? Just sort of an update on the current competitive environment would be helpful. Thank you.

[Eric J. Foss, Aramark]

Sure. Well, I mean I would say the following. I mean, we're going to play our game and control what we can control. So the things that we're focused on in terms of controlling what we control is what we can do is bring meaningful innovation to market. What we can do is make sure that our product portfolio is well positioned. We're delivering a great customer experience and really building strong connected client relations. So that's the game we're playing. I think it's worked pretty well for us. It's certainly worked pretty well relative to the retention numbers and the new business wins to date.

Relative to your question on the competitive environment, from my perspective, I've seen no change to the competitive environment over the last several months or this year. So, I think from my perspective, it's very rational.

[Toni M. Kaplan, Morgan Stanley & Co. LLC]

Thank you.

[Operator]

Our next question is from Andrew Steinerman from JPMorgan.

[Andrew Charles Steinerman, JPMorgan Securities LLC]

Hi. It's Andrew. I have two questions. On the second fiscal quarter just reported, could you give the organic revenue growth for U.S. Food and Support Services as well as the Uniform division? And the second question is could you, for the third quarter, provide and quantify any calendar effects positive or negative?

[Stephen P. Bramlage Jr., Aramark]

Sure, Andrew. So, I just want to make sure I understand your first question. So, your question is growth for second quarter in the U.S.?

[Andrew Charles Steinerman, JPMorgan Securities LLC]

Organic revenue growth for U.S. Food and Support Services, organic revenue growth for Uniform.

[Stephen P. Bramlage Jr., Aramark]

Sure. Well, the answer is the same. It's 2% on both. Again, if you kind of break apart the 2% across our U.S. business, the good news is, is we did see growth across pretty much all verticals, really growth in sports, leisure and corrections. Education grew. Health care grew. Facilities grew. So, fairly consistent growth across the portfolio. But the specific answer is 2% on U.S. food and facilities and 2% on Uniforms.

[Eric J. Foss, Aramark]

And on your...

[Andrew Charles Steinerman, JPMorgan Securities LLC]

And regarding the second question.

[Eric J. Foss, Aramark]

Yeah. On the third quarter, Easter flips into the third quarter, so very modest positive benefits, certainly less than a point.

[Andrew Charles Steinerman, JPMorgan Securities LLC]

And no other calendar things to bring up about the third quarter?

[Eric J. Foss, Aramark]

Not of any significance that I'm aware of.

[Andrew Charles Steinerman, JPMorgan Securities LLC]

Okay. Okay. Thank you very much.

[Eric J. Foss, Aramark]

Sure.

[Operator]

The next question is from Justin Hauke with Baird.

[Justin P. Hauke, Robert W. Baird & Co., Inc.]

Yes, hi. Thanks for taking my question. Thank you for giving a little bit of color on the 3Q versus 4Q earnings progression. I just want to make sure that I understand the benefit in the fourth quarter from storms. So last year, I think you called out, it was like a 45-basis-point hit to the 4Q margin in 2017. So when we think about the 4Q 2018, should we think of up 45 basis points being basically flat and then whatever you'd get on top of that from productivity gains, or would that be overstating the way that you're thinking about the seasonality?

[Eric J. Foss, Aramark]

No, I think the fact is that when natural disasters become a headwind like they did last fourth quarter, it becomes a tailwind this fourth quarter. So, we will be lapping basically the 45 basis points that you referenced.

[Justin P. Hauke, Robert W. Baird & Co., Inc.]

Got it. Okay, that makes sense. And then my second question is, to the extent you're able to give a breakdown on the 3% organic growth, how much of that was price, how much was new business and how much of it was from a change in retention?

[Eric J. Foss, Aramark]

Yeah. If you're okay, just given some of the calendar shift, are you okay if I give you kind of a year-to-date number that may make a little more sense and be more relevant on that?

[Justin P. Hauke, Robert W. Baird & Co., Inc.]

Sure. Sure.

[Eric J. Foss, Aramark]

So again, take the roughly first half revenue growth of 3.5%. I think the way I'd ask you to think about that is our base business continues to perform very well, about 2.5 points of that comes from our base business and it's split between price and volume, probably about 80% price. And then on the – the remaining point is really driven by the net new performance, combination of new business wins and retention. So, that gets you to the 3.5%.

[Justin P. Hauke, Robert W. Baird & Co., Inc.]

That's helpful. And then the last one just a clarification, AmeriPride, I realize you had less than a full quarter here. Is $600 million in annual revenue still the right number to think about as you closed it and consolidated all those accounts? Is that the right number?

[Stephen P. Bramlage Jr., Aramark]

Yeah. Our previous communication is around the size of that business. Yes, that's still a good annualized number. We clearly will not realize all of that in the current year given the timing of the closing, but annualized, that's a reasonable figure.

[Justin P. Hauke, Robert W. Baird & Co., Inc.]

Great. Okay. Thank you very much.

[Eric J. Foss, Aramark]

Thank you.

[Operator]

The next question is from Manav Patnaik with Barclays.

[Manav Patnaik, Barclays Capital, Inc.]

Yeah. Thank you. My first question was just to clarify, Steve, I think you said third quarter EPS would be up 10% to 15%, which I think is $0.44 to $0.46. Just wanted to make sure that was right. And if you could just quantify what the dilution impact or FX impact on that number would be.

[Stephen P. Bramlage Jr., Aramark]

Yeah. 10% to 15% over prior year would be about in the range that you referenced. And in terms of currency, I don't think it'll be a material, at current rates, currency impact one way or the other. Our currency expectation for the full year is basically what we've realized so far in the first half. So, I don't have any particular currency figure reflected in there.

And then I presume your dilutive comment relates to the deals, and I would just go back to we haven't changed our full-year expectation for the deals because we haven't finalized purchase accounting. And so, we said it'd be $0.10 to $0.15 for the full year. That's a good number until we tell you otherwise when we finish the accounting. So, if we've picked up four or so in the first quarter, you can come up with some reasonable figure based on that.

[Manav Patnaik, Barclays Capital, Inc.]

Got it. And then just to flash out the second half margin confidence again just a little bit, like could you just maybe break out – so it sounds like there's a different component, there's timing that reverses, there's startup costs that probably go away and then there's the easy comp from the last year. Is there any way to maybe give a little quantification around how much each of those could contribute?

[Eric J. Foss, Aramark]

Yeah. I think the way I would answer it, Manav, is as follows. As you look to the second half productivity and kind of our margin march, what you're going to see is you're going to see continued very strong base productivity improvement. And that's going to be driven across the food and SG&A in particular to call out those two line items. And that's really a result of hopefully what has come across as a pretty comprehensive development plan that we've had in place, not only this year but for multiple years.

The second thing you will see is as you see each and every year, as we get into the second half of the year, start-up costs and reinvestments begin to subside. The third thing you'll see this year is one of the real pressure points for us on margin has been the Uniform pricing that we put in market a year ago that we're now fully through at the end of second quarter. And then the final thing you'll see is the fourth quarter lap that really deals, as I mentioned earlier, with these weather one-offs.

But this is why all along, throughout the year, we have been extremely confident in our ability to deliver against this number is how the year would progress. And so, you're beginning to see that come through a little bit in second quarter and you're seeing the confidence that Steve and I have relative to how second half will perform.

[Manav Patnaik, Barclays Capital, Inc.]

Got it. Okay. And then just last one for me. On the free cash flow side, so is the $100 million negative because of the geography, I guess, I'm not sure what you call it, but because of the geography changes you made? Is the right way to think of that is like a one-time, meaning next year that wouldn't repeat, and so your starting base should be $100 million higher?

[Stephen P. Bramlage Jr., Aramark]

Yes.

[Manav Patnaik, Barclays Capital, Inc.]

Okay. That was easy. Thanks, guys.

[Eric J. Foss, Aramark]

Thanks.

[Operator]

Our final question comes from Shlomo Rosenbaum from Stifel, Nicolaus.

[Unknown Speaker]

Hi. This is Adam (36:27) on for Shlomo. You may have kind of already touched on this. I was just curious, why was the adjusted operating margin in the Uniform so low and how did the acquisition impact this number or was it kind of more the weather/Easter pricing issue?

[Eric J. Foss, Aramark]

No. I think the way to look at second quarter – is your question largely second quarter?

[Unknown Speaker]

Right.

[Eric J. Foss, Aramark]

Yeah. I think the way to look at that is it's almost entirely due to AmeriPride. So I think that entire amount is really due to the transaction.

[Unknown Speaker]

Got it. Okay. My other questions were answered already, so thank you.

[Eric J. Foss, Aramark]

Okay. Thanks, Adam (37:00).

[Operator]

And ladies and gentlemen, that concludes the Q&A session for today. I'd like to turn the call back to the management team for closing remarks.

[Eric J. Foss, Aramark]

Thanks, Ellen. Thanks everyone for your time and interest. We look forward to speaking to you at the end of next quarter and hope to see you at our Investor Day in December in New York City.

[Operator]

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating and you may now disconnect.