Aramark

NYSE:ARMK

Earnings Call Analysis

Aramark Reports Strong Fiscal Year with Promising Guidance Ahead

Aramark had an impressive fiscal 2024, boasting an 8% revenue increase to $17.4 billion and a 10% organic growth rate, driven by robust business volume and pricing improvements. Adjusted operating income rose 20%, with a 35% boost in adjusted EPS. They foresee 7.5% to 9.5% revenue growth for fiscal 2025, alongside 15% to 18% AOI growth and adjusted EPS increasing by 23% to 28%. Aramark also announced a $500 million share repurchase program, reinforcing confidence in supportive cash flow. Post-exit from certain facilities contracts, they anticipate net new client growth of 4% to 5%, maintaining strong retention rates.

A Strong Finish to Fiscal 2024

Aramark concluded its fiscal year with remarkable financial performance, achieving record revenues and profits. The company reported $17.4 billion in revenue for fiscal 2024, marking an 8% increase from the previous year, along with a noteworthy 10% organic revenue growth. This growth trajectory was driven by strong base business volume and effective pricing strategies, alongside new business acquisitions. The adjusted operating income for the year rose by 20%, translated to a margin of 5.1%, demonstrating effective operational management.

Consistent Profitability Improvements

The adjusted earnings per share (EPS) rose significantly by 35%, reaching $1.55 on a constant currency basis, while the fourth quarter EPS was reported at $0.54, up 14%. This improvement in profitability underscores the effectiveness of Aramark’s strategies and operational efficiency, as reflected in a sustained margin expansion of 50 basis points for the fiscal year.

Robust Cash Flow Generation

Aramark generated $727 million in net cash from operating activities, with free cash flow surging by 121% to $323 million compared to the prior year, indicating significant improvements in cash management. This strong cash inflow positions the company favorably to not only reinvest in growth opportunities but also facilitate debt repayment, having reduced its net debt by $1.6 billion.

Strategic Share Repurchase and Capital Allocation

In a decisive move reflecting confidence in its future prospects, Aramark announced a new $500 million share repurchase program. The company aims to use its strong cash generation capabilities strategically, investing in growth initiatives while also focusing on enhancing shareholder value through opportunistic stock buybacks, dividends, and debt reduction activities.

Guidance for Fiscal 2025

Looking to the future, Aramark provided a robust outlook for fiscal 2025, anticipating organic revenue growth of 7.5% to 9.5%, driven partly by the benefits of an extra week in the fiscal calendar contributing approximately 2%. The company expects adjusted operating income (AOI) to rise by 15% to 18%, with EPS growth projected between 23% and 28%. Additionally, the leverage ratio is expected to improve to around 3x, reinforcing the company's commitment to a stronger balance sheet.

Operational Challenges and Strategic Responses

Despite facing challenges related to certain lower-margin facility services accounts, which slightly impacted overall retention rates, Aramark's core foodservice business demonstrated resilience with a retention rate of 95.2%. The company has swiftly exited unprofitable contracts and remains focused on expanding its client portfolio, maintaining a strong pipeline of new business opportunities.

Innovative Approaches and Technology Integration

Aramark is investing in innovation through initiatives like Hospitality IQ, aimed at leveraging AI to improve operational efficiency and enhance customer experience. This includes deploying advanced tools for supply chain management and menu optimization, positioning the company to remain competitive in a rapidly evolving market landscape.

Continued Momentum in International Markets

The company's international segment showed impressive growth with a 17% increase in organic revenue. Efforts to enhance service capabilities and cross-border collaboration are expected to yield continued momentum, particularly in key markets like Europe and Latin America.

Summary and Investor Takeaway

Aramark has demonstrated a robust recovery post-pandemic, poised for sustained growth in fiscal 2025. The strategic initiatives, strong financial performance, and commitment to shareholder value create an optimistic outlook for investors. With effective management practices and a sound capital allocation strategy, Aramark appears well-positioned to achieve its growth objectives and deliver substantial returns.

Earnings Call Transcript 2024-Q4

[Operator]

Good morning, and welcome to Aramark's Fiscal 2024 Earnings Results Conference Call. My name is Kevin, and I'll be your operator for today's call. At this time, I'd like to inform you this conference is being recorded for rebroadcast. [indiscernible] I will now turn the call over to Felise Kissell, Senior Vice President, Investor Relations and Corporate Development. Ms. Kissell, please proceed.

[Felise Kissell, executive]

Thank you, and welcome to Aramark's earnings conference call and webcast. This morning, we will be hearing from Aramark's CEO, John Zillmer; as well as CFO, Jim Tarangelo. As always, there are accompanying slides for this call that can be viewed through the webcast and are also available on the IR website for easy access.

Our notice regarding forward-looking statements is included in our press release. 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 the risk factors, MD&A and other sections of our annual report on Form 10-K and SEC filings.

We will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in our press release and IR website.

With that, I will now turn the call over to John.

[John Zillmer, executive]

Good morning, everyone. Thank you all for joining us. On today's call, Jim and I will be providing a detailed review of Aramark's earnings results released this morning and sharing our expectations for the business in fiscal '25.

Every quarter this past fiscal year, we reached new highs in our financial performance, which resulted in us raising our full year outlook throughout fiscal '24 and ultimately achieving record revenue and AOI profitability for any year in global food and support services history. This is a testament to what our teams are capable of, raising the bar every single day and challenging ourselves across the organization to deliver for our stakeholders.

For fiscal '24, this mindset led to year-over-year organic revenue growth of 10%, adjusted operating income increasing 20% and adjusted EPS rising by 35% on a constant currency basis. I truly believe the best is yet to come in recognizing our full potential.

We also announced this morning that the Board approved a new $500 million share repurchase program, clearly demonstrating our continued confidence in the business and the significant growth opportunities ahead. Our strong and predictable cash flow provides us considerable financial flexibility to first, strategically invest to drive growth, focus on building on our prominent client portfolio; second, to pay down debt with a clear line of sight to reducing leverage to around 3x by the end of this fiscal year; third, issue a quarterly dividend, which was just increased by 11%; and fourth, initiate a share buyback program to repurchase Aramark shares, highlighting our capital structure capabilities.

These actions reflect our ongoing commitment to maximizing shareholder value and further positioning the business on a firm foundation to deliver great results. Once again, we experienced significant annualized gross new business wins in fiscal '24, totaling more than $1.4 billion and representing nearly 9% of prior year revenue, the best year ever for global FSS.

Retention for the total company was impacted by recently exiting some lower-margin facility services accounts, most notably Chicago public schools as a result of a policy change driven by political considerations. And while I'm not pleased with the effect this had on our overall retention number of 93.2%, we see this as a unique occurrence.

Our core Foodservice businesses in both the United States and international achieved retention of 95.2% in the fiscal year. Our new business pipeline across the organization remains substantial, including in first-time outsourcing, and we are already off to a great start this fiscal year with several large opportunities leaking into fiscal 2025.

In just the first 6 weeks, we've added clients such as Broward Health Medical and Mastercard. I have strong confidence in the company's ability to achieve net new of 4% to 5% with retention levels above 95% in fiscal '25 and beyond.

Turning to the business segments. FSS U.S. grew organic revenue 7% in fiscal '24 primarily from record base business volume and pricing. In the fourth quarter, organic revenue in the segment increased 4% as pricing began to normalize with improving inflation, particularly in Education.

Strong per capita spending and high fan attendance levels continued in Sports & Entertainment along with increased participation rates in Workplace Experience. And retail expansion in Corrections more than offset facilities, which I referenced earlier.

New clients added in the fourth quarter included SAP America and Workplace Experience, House of Blues and Guinness locations in Sports & Entertainment and Palantir now in refreshments as well as our senior LifePlus business partnering with Asbury communities to provide dining and hospitality services in continuing care retirement communities.

Destinations also began operations at Adventures on the Gorge, which encompasses more than 70,000 acres in West Virginia. Corrections continued to expand the portfolio in the fourth quarter with our IN2Work program, a key differentiator as a second chance employer, offering training, certification, internships and scholarships. IN2Work recently had a record graduating class from its warehouse and supply chain program and in total, now has more than 6,000 graduates.

In the U.S., we just launched Hospitality IQ, a hub for AI-powered business applications to enhance the guest experience, empower our operators and further drive our clients' business objectives. These platforms include our award-winning Mosaic AI supply chain platform, which allows clients to receive real-time actionable supply chain data customized to their specific locations; Culinary Copilot, an AI-powered resource that provides real-time menu recommendations; and Aramark Connected, which creates a frictionless unified guest experience, leveraging multiple autonomous services that are open around the clock.

This offering is particularly appealing to clients in Education, Healthcare and Workplace Experience. Hospitality IQ represents another step forward in Aramark's mission to provide innovative and practical solutions for clients with strong financial benefits.

Now on to international. Momentum in international continued with organic revenue increasing 17% in fiscal '24 as the team has been extraordinarily successful in collaborating to deliver on our strategic priorities in the countries we serve outside the U.S. from partnering across borders to sharing best practices to thoughtfully building scale. These actions led to strong business growth, high retention and significant new business.

In the fourth quarter, international's organic revenue increased to 16%, included contribution from all geographic regions across the portfolio with the U.K., Germany, Canada and Chile leading the country specific performance.

Aramark is proud of our long-standing European Sports & Entertainment presence with the Bundesliga in Germany and La Liga in Spain. And more recently, as I shared on my last call, just entering the English Premier League and become the Everton Football Club's official global food and experiences partner for their new stadium opening in a few months.

We are now also pleased to announce the continuation and expansion of our relationship with one of the most powerful global brands in sports of [indiscernible] Barcelona. Through a dynamic long-term partnership, Aramark will be the exclusive food and beverage and hospitality partner for the renovated 105,000-seat camp new stadium scheduled to reopen later this year.

Additional new clients awarded in the fourth quarter within international included Allied Irish Bank in Ireland, BBVA Espana in Spain and BP Gulf of Mexico in our offshore business, among many others.

Moving to global supply chain. Global supply chain continues to grow, leverage and optimize our spend by providing a high standard of products, services, economics, analytical insights and sustainability solutions for our clients.

Our global GPOs are aggressively expanding with double-digit organic net new growth across all our GPO channels, contributing to the $1 billion in new spend this past fiscal year with total spend of reaching $20 billion. This momentum comes from wins in hospitality, senior living, wellness and entertainment.

We also launched Avendra International in the fourth quarter to enhance our service capabilities in the international marketplace, a key area of focus for us. To accelerate our success, we continue to selectively pursue acquisition opportunities to complement our organic efforts and enhance our potential in targeted areas.

A word on inflation. Inflation continues to be favorable across our global portfolio. Europe, North America and Asia are all showing continued improvement with only Latin America lagging behind. We expect this overall trend to continue with the business returning to historic inflation levels in the 2% to 3% range as we move through fiscal '25.

Lastly, we're focused on optimizing our balance sheet and leveraging our financial flexibility, as I mentioned in the beginning of my remarks. As part of this strategy, we recently completed the sale of our remaining ownership stake in the San Antonio Spurs NBA franchise for approximately $100 million and use the debt -- and use the proceeds for debt repayment. We continue to work closely with the Spurs as a valued client.

Before turning the call over to Jim, I'd like to highlight a few more accomplishments and the recognitions we received in the fourth quarter. First, as the new academic year began, Aramark volunteers worked together with local organizations to assemble and deliver backpacks [indiscernible] school supplies to students in need across 30 communities in the U.S., Ireland and Chile.

Second, the company was highlighted as one of America's Most Admired Workplaces in 2025 by Newsweek with fostering innovation and professional growth as key considerations. We were also named as the Best Place to Work in Healthcare by the industry-leading publication, Modern Healthcare taking the #2 spot.

And finally, a number of Aramark leaders received prominent recognition of our commitment to people and the planet for environmental sustainability, DEI efforts and building local communities. This included our Head of Sustainability, Alan Horowitz, as a featured speaker during UN Climate Week. I'm proud of what we've accomplished this past year at Aramark and know we have tremendous runway going forward.

I'll now turn the call over to Jim.

[James Tarangelo, executive]

Thanks, John, and good morning, everyone. As John mentioned, we had another record-breaking quarter, building on the strong results we have delivered throughout the fiscal year. Our passionate teams across the company are pursuing significant revenue growth and operational efficiency opportunities, which are expected to drive continued momentum in the business.

We are really pleased with Aramark's performance in fiscal '24. As you recall, we started the year with an outlook of 7% to 9% growth in organic revenue, we delivered 10%. 15% to 20% growth in AOI, we reported 20%. 25% to 35% growth in adjusted EPS, we had 35%. And leverage of approximately 3.5x, we ended the year at 3.4x, a 50 basis point improvement compared to the prior year.

We exceeded or achieved the high end of our financial expectations across the board, reinforcing that our growth-oriented model is working, driving our margin levers and generating substantial underlying performance.

Now let's review these results in more detail. For the full fiscal year, we reported revenue on a GAAP basis of $17.4 billion, up 8% compared to the prior year with approximately 2% of foreign currency translation impact.

Organic revenue grew 10% versus the prior year driven by record base business volume, pricing and the contribution from net new business. Fourth quarter organic revenue was up 7% from increased base business volume and reflecting more normalized pricing from favorable inflation trends.

Adjusted operating income was $882 million in fiscal '24, up 20% on a constant currency basis, resulting in an AOI margin of 5.1%. This consistent execution of our profitable growth model led to margin progression for the full year of 50 basis points.

For the fourth quarter, AOI was $271 million and grew 8% on a constant currency basis. AOI margin was up 10 basis points from higher revenue growth, cost discipline and supply chain efficiencies, which more than offset the gain in the prior year from possessory interest at a Destinations site, which we previously highlighted. Excluding this item, the company would have experienced double-digit AOI growth.

Our results for the fiscal year led to adjusted EPS of $1.55, an increase of 35% on a constant currency basis. For the fourth quarter, adjusted EPS was $0.54, up 14% on a constant currency basis. Interest expense and effective tax rate ended up in line with our expectations and consistent with the modeling assumptions provided on our IR site.

On a GAAP basis, Aramark reported consolidated operating income of $707 million and EPS of $0.99 for fiscal '24. And for the fourth quarter, operating income was $219 million, and EPS was $0.46.

Moving to cash flow. Consistent with our typical seasonality of the business, the fourth quarter generated a significant cash inflow, which contributed to our strong cash flow for the full year.

Net cash provided by operating activities in fiscal '24 was $727 million, and free cash flow was $323 million. Our free cash flow grew by 121% compared to the prior year period from higher cash from operations and favorable working capital. As we have previously stated, our current free cash flow would have been even higher if it were not for approximately $100 million of onetime cash payments for taxes from the gain related to the AIM Services sale as well as for expenses from the spin. Cash from investing activities benefited from the sale of our remaining ownership stake in the San Antonio Spurs NBA franchise, as John shared earlier.

In fiscal '24, we reduced net debt by $1.6 billion, which contributed to our leverage ratio getting down to 3.4x, an improvement of [indiscernible] basis points year-over-year. We ended the fiscal year with over $2.6 billion of cash availability. We continue to remain strategic around extending our balance sheet maturities and our cost of financing, closely monitoring the credit markets for opportunities.

Lastly, we are very excited about the Board's approval of our new $500 million share repurchase program. This is a significant step in further demonstrating the strength of our capital structure, confidence in our future and focus on shareholder value creation.

We intend to pursue stock repurchases opportunistically, which at a minimum is expected to offset equity dilution and be accretive to earnings. Our capital allocation approach will be strategic in achieving our deleveraging objectives and utilizing excess cash generation to repurchase shares, factoring in our intrinsic valuation assessment of the equity to optimize repurchase activity. In conjunction with these actions, let me be clear that our top priority is always to invest in the business to drive and propel growth, and we have the financial flexibility to do so.

I'll now [indiscernible] up with our outlook for fiscal '25. We are extremely pleased with the performance in fiscal '24, and we continue to make great progress in achieving our longer-term financial targets, which I am confident in us going to and through.

With that, we currently anticipate the following full year performance: organic revenue growth of 7.5% to 9.5%, AOI increasing 15% to 18%, adjusted EPS growth of 23% to 28% and a leverage ratio of approximately 3x. Of note, fiscal '25 and the fourth quarter specifically contain an extra or a 53rd week. This has an expected benefit of about 2% on organic revenue and AOI. Also, the outlook for adjusted EPS doesn't include any benefit which would occur from potential share repurchases.

In summary, we continue to deliver on both top and bottom line performance. Our strategies are producing great results, and we are excited to keep this momentum going.

Thank you for your time this morning. And with that, I'll turn it back to John.

[John Zillmer, executive]

Thank you, Jim. Entering this new fiscal year, we are confident in our ability to build upon the success we've worked so hard to establish, leveraging our hospitality culture and growth mindset. Our teams have laid the groundwork to create significant new business and value-creating opportunities, and we know what needs to be done. We will continue to take the steps necessary to reach and surpass new levels of financial performance. I am really excited about what's ahead.

And operator, we'll now take -- we'll now open the call for questions.

[Operator]

[Operator Instructions] Our first question comes from Neil Tyler with Redburn Atlantic.

[Neil Tyler, analyst]

Two, please. The first question really is just on the facilities contracts that you've exited. You mentioned that's a sort of unique specific issue. We could take it from that, can you confirm that there are no more sort of lurking within the portfolio you're unsatisfied with the profitability of? And can you perhaps give us an indication of what that means in terms of basis points of revenue growth missing from FY '25? That's the first question.

Second one is really on the margin. I think excluding those one-offs in the base year, the margins expanded sort of close to 7 basis points year-on-year. The guidance implies something toward half that level for the forthcoming year. So I wonder if you could just sort of talk about the different levers side by side within those 2 years, which take you over from which and in what order you see the sort of contributing factors to the margin improvement for FY '25?

[John Zillmer, executive]

Sure. We'll take that, the first part of the question first. First of all, yes, there are no other large facilities contracts lurking in the background that are unprofitable that we are looking to exit or to manage our way out of. Those are very unique circumstances, one of which was, as I described, Chicago public schools.

Another was a very large organization that's gone through some very fundamental change with respect to their industry. And they made a very tough decision to go ahead and change the decision they've made literally the prior year. So it was a very significant new contract, which we had recently won and had begun to [indiscernible]. And then because of a leadership change in that organization, they reversed course and went back to doing things the way they had done them.

So yes, very difficult and very unusual circumstances. We don't see that continuing. And we're very pleased with the overall state of the facilities business, its margin profile and profitability and the runway ahead. It is one of the businesses that has the largest opportunities for the company's growth rate going forward. So Jim, you want to go ahead and...

[James Tarangelo, executive]

Yes. In terms of the impact, like we said, so the retention rate in the food business was 95% versus 93%. So overall facilities impact about 2% on retention. You could think of that in terms of the revenue impact as well. The larger 2 contracts had an impact of over 1% on the retention rate that John was just mentioning.

Yes, in terms of the margin progression, so we've made great progress this year. We generated 50 basis points of margin improvement. I really see that as sort of our underlying run rate. There's always some one-offs quarter-to-quarter, but the levers are working.

We've seen great efficiencies in supply chain. We continue to scale our overhead. If you take a look at the SG&A cost, you can see how we're able to scale the business with the revenue growth.

I think at the midpoint of the guidance or so, we're at about 40 basis points for fiscal '25. And again, there's a range. If you take the low end of revenue and high end of AOI, you'd be higher than that. So like I said, we're very comfortable with the 50 basis points underlying rate and the progression that we've seen. And we'll see how things play out over the next year.

[Operator]

Our next question comes from Josh Chan with UBS.

[Joshua Chan, analyst]

Congrats on a good Q4 and finish to the year. I was wondering on your net new, I noticed that you kind of are presenting them on a consolidated basis. So wondering if there's any difference in terms of U.S. versus international in terms of net new this past year that we should be aware of?

[John Zillmer, executive]

Yes, we did present it on a consolidated basis. But yes, the net new is very strong in international. The -- but both domestic and international had record new account wins. And when you factor out the retention losses that we had on the facility side, both organizations would have had very strong net new as well.

So as I said, I think we consider this very unique circumstance, in particular for U.S. food and support services, very confident in the runway that, that business has, the size of the opportunities, frankly, our overall pipeline of opportunities. And frankly, some accounts that we anticipated that would be closing last year have leaked into the first quarter of this year. Some of them were very sizable. So a little bit of a timing difference with respect to when we would recognize those.

As a general rule, because we have incentive compensation tied to net new, we're very disciplined about when we recognize it. So at the end of the fiscal year, we called the number. And some of those opportunities that leaked into the first quarter of this year are very significant. And we look to be able to talk about those shortly.

[Joshua Chan, analyst]

That's really helpful. And then you mentioned that on the Education side specifically that you're lapping some prior year price increases. I was just wondering if you could talk about pricing just on an overall basis going forward in 2025. What level of pricing is currently embedded in that guidance? That would be really helpful.

[James Tarangelo, executive]

Sure. So as the inflationary environment normalizes in the 2s or so, I think we could expect our pricing to be in the 2% to 3% range for fiscal '25.

[Operator]

Our next question comes from Ian Zaffino with Oppenheimer.

[Unknown Analyst]

This is [ Isaac Saulson ] on for Ian. My question is on the strong revenue guide for '25. Maybe if you could just help us understand the main drivers in terms of vertical contributions or U.S. or international breakdown.

And then you've noted, I guess, the fiscal '25 includes an extra week. So maybe if you could help us -- remind us of the impact again on the year and the guidance.

[James Tarangelo, executive]

Sure. So on the print, the guide is 7.5% to 9.5% growth in fiscal '25. We estimated about a 2% impact from the 53rd week. So if you adjust for that, 5.5 to 7.5 is where we would be.

In terms of the way we think about the growth, contingent growth across both -- broad-based growth really across all sectors in both the U.S. and international. As I mentioned, pricing, I think, will be about 2% to 3% of that, generally net new at 2% to 3% and then the remainder coming from volume.

[John Zillmer, executive]

Yes. Jim, correction on the net new, it should be 4% to 5% for net new for next year, right?

[James Tarangelo, executive]

Yes, the in-year impact.

[John Zillmer, executive]

Oh, got it. In-year impact. Thank you.

[Operator]

Our next question comes from Andrew Steinerman with JPMorgan.

[Andrew Steinerman, analyst]

When looking at your impressive growth, how does that break down between new outsourcing and win away? And do you feel like there's still a rising tide for the overall kind of food services provider industry in terms of a trend towards newly outsourced contracts?

[John Zillmer, executive]

Thanks, Andrew. Yes, I would say we still see a very robust environment in terms of new account opportunities, both from a first-time outsourcing as well as just the market growth. So I think we believe that there's lots of runway ahead, very strong pipelines across the range of the business, both domestically and internationally, literally in every business unit.

So we feel very strongly about our ability to achieve those long-term objectives that the company has set. So really nothing changing, just still a very robust environment and one that we're working very hard to take advantage of.

[Andrew Steinerman, analyst]

And the profitability and the required upfront quest for new outsourcing still looks conducive?

[John Zillmer, executive]

Yes, absolutely, really consistent with our historical margin profile and the cost of investment in new business still at that low single-digit rate, call it, 2.5% to 3% potentially in the business. So really no change to the overall economic profile of winning new business.

[Operator]

Next question comes from Lizzie Dove with Goldman Sachs.

[Elizabeth Dove, analyst]

Wanting to see if I could get an update on the GPO network spend. I think you previously said that was to pass $20 billion by the end of this year. Any update on how you kind of see the opportunity to grow that further and just to remind of the key benefits there, especially on the margin side of things?

[John Zillmer, executive]

Sure, Lizzie. Thanks for the question. Yes, we absolutely see continued growth in the GPO network as one of the key [indiscernible] for our profitability going forward. We are consistently looking for new acquisition opportunities, both domestically and globally to expand the GPO reach.

We've been very successful this last year, not only in the organic growth of the -- selling some major new accounts and adding that $1 billion of spend. But we've also been able to cultivate some very strong new partnerships and relationships that are helping to help us negotiate new and better deals, both domestically and internationally.

So we are in the process of working through several opportunities, which we'll probably be able to disclose in the January time frame with respect to some opportunities Internet [indiscernible]. And we continue to be focused on the growth in this segment of the business because of its strong earnings potential.

[Elizabeth Dove, analyst]

Got it. That's helpful. And then just on the margin side, I know especially [indiscernible] the net new business [indiscernible].

[James Tarangelo, executive]

Lizzie, we're having a little trouble hearing you.

[Elizabeth Dove, analyst]

Oh, can you hear me now?

[James Tarangelo, executive]

Yes.

[John Zillmer, executive]

Thank you.

[Elizabeth Dove, analyst]

Perfect. So just on the margin side, with the net new business, obviously, that ramped a lot post COVID and was -- does the profitability of that with -- initially, it's a little bit of a headwind and then ramps over time. Could you give a reminder of where you're kind of at? Is that still kind of a margin benefit to 2025? Is that a net new kind of ramp? Or we got through that kind of phasing up now since you have that jump in that new business?

[James Tarangelo, executive]

Yes. So again, we've printed a record new business, right, 3 years in a row here and a record print, again, excluding the uniforms business in '24. And so with that, as we talked about, right, the margin profile of those newer accounts progresses over time.

I think if you look at the margin levers, it will continue to be a benefit in fiscal '25. It was a benefit, that progression in '24. And I think by '26, we'll be in that sort of steady state with respect to how that new business and the progression of the margins materializes.

[Operator]

Our next question comes from Jasper Bibb with Truist Securities.

[Jasper Bibb, analyst]

On the guidance, you mentioned some new contracts won at the end of the year, the exited facility services work and then the 53rd week next year. Just any color on how we should think about the, I guess, quarterly cadence of organic growth through fiscal '25, given those moving pieces?

[James Tarangelo, executive]

Yes. I think with that, we'd expect the quarterly growth to accelerate. So Q4 fiscal '25 will likely be the highest revenue growth of all 4 quarters, just the way the timing of the new is working out and some of the losses that John mentioned in facilities.

[Jasper Bibb, analyst]

Got it. That makes sense. And then I was wondering about the Avendra International launch. How do you think about the benefit of consolidating some of those international GPOs? Like is there potentially an impact to your purchasing power or maybe taking down the overhead costs required to support the international GPO operations?

[John Zillmer, executive]

Yes. We have already done the work of consolidating the GPOs internationally into one organization. So as we've acquired GPOs internationally, we've built them into one organization. We're really rebranding the individual companies as Avendra International, but the back-office work has already been done, the consolidation and leadership work has already been done.

And we're reaping the benefits of the improved management of that supply chain and that spend, which resulted in significant improvements year-over-year in total monies earned for the GPOs internationally. So we are reaping the benefits of it.

We continue to focus on growth internationally because we believe we have a very strong position and the opportunity to grow organically with our existing customers that we serve in the United States and other parts of the world. And we're working to strengthen that network by way of bolt-on acquisitions as well as just the organic growth in those existing GPOs.

[Operator]

The next question comes from Faiza Alwy with Deutsche Bank.

[Faiza Alwy, analyst]

Yes. I wanted to ask about the new business wins. And what your win rate has been like over the last few years? And if that has changed over time?

[John Zillmer, executive]

Yes. Our win rate has consistently gone up over the last several years. Our -- yes. We -- obviously, we have a very strong sales organization, very strong sales leadership, both domestically and internationally.

And so while we don't disclose our closure rate in individual businesses because of competitive insights that, that would give, we are seeing continued improvement in closure rates year-over-year, and we're very excited by that performance. So I would say, generally, you could probably attribute a number of 10% to 15% improvement year-over-year in our overall closure rates, which is substantial.

[Faiza Alwy, analyst]

Great. And then, Jim, I wanted to ask about your interest expense guide. I'm curious what you've built in there because I know you paid down some debt, and you have -- you do have some bonds that are due in 2025. Could you just give us some color on the assumptions behind your interest expense guide?

[James Tarangelo, executive]

There's a lot of moving pieces there. So you'll recall, we repriced some term loans in '24 favorable pricing. As you mentioned, we have some 2025 maturities that we need to address in the next few months as well, and we have some swaps rolling off as well.

So the other guide at 230, 330 is on a 53-week basis. On a 52-week basis, we think, 225. We'll see how interest rates play out this year and if they continue to decline, potentially some opportunity there. But those were the moving pieces in how we built up the guide.

[Operator]

Our next question comes from Shlomo Rosenbaum with Stifel.

[Unknown Analyst]

This is [indiscernible] on for Shlomo. The company had pricing normalizing, particularly in Education. Did Education see much less pricing than the rest of the business? And is the company being more precompetitive in this segment to win new business?

[James Tarangelo, executive]

Yes. I think what you're seeing there in the Education sector in the fourth quarter is that the higher education business generally had one less week of operating days in the prior year. So the calendar just started about a week later. So we should see more normalized growth rate in that segment in Q1 and again, the pricing consistent with what we talked about for the rest of the business.

[Unknown Analyst]

Okay. And could you provide more color on noncash inventory adjustment in the Corrections business? Does this imply a write-down?

[James Tarangelo, executive]

Yes, sure. So as we fully integrated the Union acquisition, which again strategically has been an excellent transaction for the business, building our capabilities in not only Foodservice but commissary, and you've seen the growth that we've generated in Corrections and a lot of that attributed to that getting that deal done.

Over the past year, we've essentially fully integrated that business as the earn-out period has concluded. The business during COVID built up some inventory like many companies did. And as we brought it on to Aramark's policies and procedures, we adjusted the inventory, continue to optimize. And we took a noncash charge of about $17 million.

[Operator]

Our next question comes from Toni Kaplan with Morgan Stanley.

[Toni Kaplan, analyst]

I was hoping you could give us an update on the workforce, how turnover is trending. And particularly also, you mentioned the 2% to 3% pricing. So just how we should be thinking about the price/cost spread as we move through '25?

[John Zillmer, executive]

Sure. Thanks, Toni. First of all, on the price/cost spread, we fully anticipate being able to recover any inflationary increases from food supplies through normalized pricing. So we don't see a particular spike affecting us this year from an inflationary perspective, both on the food and labor side.

Labor inflation is in the 4% to 5% range. We anticipate being able to price to recover that as well. So overall, pricing should be in the 2% to 3% range, might be a little bit higher depending on how things roll out over the course of the year.

But I think we'll be very sensitive to watching both from a labor perspective as well as a food perspective. But we see a much more normalized environment. Our ability to recover costs and our ability to reprice is built into our contract structure, and we really don't have any impediment to recovery at these kinds of rates.

[James Tarangelo, executive]

Yes. The only other thing I'd note there is the operating environment has normalized, right? There's a productivity with labor. We've seen a reduction over time in agency costs, right, which does offset some of the inflation that John mentioned.

[Toni Kaplan, analyst]

Great. And then just for a follow-up, I think we all saw a number of headlines in September. So wanted to just get your thoughts on whether we should be seeing industry consolidation at this point and what you think would drive that and just maybe the M&A environment?

[John Zillmer, executive]

Sure. Yes, I somewhat anticipated this question. And as I think was publicly stated by the other organization, there are no discussions going on between the 2 parties. So I think it's likely that any further consolidation in this industry will be at the margin, basically some of the smaller regional players that may decide to go ahead and sell, family-owned organizations that may sell, that kind of thing.

I don't think you'll see any real major consolidation any longer in this industry. So it's highly competitive. You got the 3 large players that have positions that are very well staked out. And are there some regional companies that are potentially going to consolidate? That's a possibility, but it probably won't be significant.

[Operator]

The next question comes from Andrew Wittmann with Baird.

[Andrew J. Wittmann, analyst]

Yes. Great. I thought I would start out and just ask on the 2026 guidance. Last year at this time, you kind of reiterated it here. I just was wondering, John, what you're thinking about the status of those targets if they're still good, how you're tracking towards them, et cetera?

[John Zillmer, executive]

Yes. Absolutely. Those targets are still good, and it's our intention to get to and through them. And I think we've been able to overdeliver this year. Our expectation is for another very strong year in 2025 and to be on the money or above the '26 targets that we established. So yes, we're feeling very bullish about the overall performance and the overall environment, Andrew.

[Andrew J. Wittmann, analyst]

Cool. And then I just wanted to ask a little bit on the Sports & Entertainment business segment. I mean you highlighted almost every quarter good attendance, good per caps here through '24. And I was wondering kind of what you're seeing in terms of the comps this year.

It sounds like you picked up some venues, which is always good. But if you look at maybe just even like playoff games, other things that can be notable, I'd just be kind of curious as to how you're thinking about that.

And really underlying that, how is your experience of the consumer to the extent that you've got these ones that are a little bit more commercial in terms of the commercial spending or the consumer spending. I'm just kind of curious what you're seeing across the business there, but specifically in Sports & Entertainment as well.

[John Zillmer, executive]

Sure. We continue to see robust consumer demand in the experiential markets of Sports & Entertainment. People still very much willing to go ahead and spend, to go ahead and either attend sporting events or concerts. And the activity level, very high; per capita spending, very strong across really all the venues. And we have not seen any change to consumer behavior from that perspective whatsoever.

From a playoff perspective, this year, we had 4 teams in the MLB playoffs. We'll probably be a couple of games short of our experience last year where we had 2 teams go very, very deep. But we've already exceeded our planned budget, if you will, for playoff experiences.

So we feel like we're in very good shape from an internal expectation perspective. [indiscernible] forward to a strong NHL and NBA season and then -- and a strong close to the NFL, where we've got a number of teams that are performing very well.

So a lot of what drives per caps literally is team performance. And when your teams are doing well, customers are excited, and they're willing to spend to go ahead and see their team. So right now, I would say it continues to be very robust and very supportive.

[Operator]

Our next question comes from Jaafar Mestari with BNP Paribas Exane.

[Jaafar Mestari, analyst]

I have a couple, if that's okay. Firstly, just on the new business signings. Could you maybe comment a little bit about the timing of those? You do not give explicit numbers in H1. We have a $1.4 billion number. Was this signed broadly linearly through the year? Or was it in any way weighted towards the second half? And the reason I'm asking is sort of get a view on the ramp-up you're assuming, how fast some of those can start contributing to revenue in '25.

[James Tarangelo, executive]

Yes. Again, I think the signing of that $1.4 billion was generally spread out relatively even throughout fiscal '24. So I don't think there's anything unusual to point out [indiscernible] that business would roll out for fiscal '25.

[Jaafar Mestari, analyst]

Super. Very clear. And then in terms of retention, the big hits, obviously, a bit outside of FM, your retention is still down about 30 basis points. Could you maybe give us some color on where you've not always been successful in food, if there are any trends to highlight or if it's just a bit broad-based.

And specifically, in Education, one of your competitors has flagged that in 2012 -- in 2018 in K-12, some contracts had to be resigned because of a change in procurement regulation. And they say they have a large number of those that are coming up for renewal in '24 and a little bit less but still in '25. Is that something you're seeing?

[John Zillmer, executive]

Yes. The USDA regs are very explicit in terms of how often school districts in the K-12 sector need to go out to bid. It affects the company's all a little bit differently depending on the timing of the award of contract.

So we had a larger year last year where we would have expected more contracts out for bid. Our competitors, I think, have a more active rebid season this year than we do.

So there's -- it affects each of the companies somewhat differently, but that phenomenon is consistent for all 3 of us. I would say in terms of retention, we had very strong retention in most of the businesses with facilities being the one outlier, both domestically or primarily domestically.

So I think it's -- I think we feel very strongly about the company's ability to be added to historic and even higher retention levels and consider this last year to be really an anomaly in terms of the circumstance. We also had one significant loss internationally due to a low price bid that was significant, but international was able to offset that through their new sales performance.

So overall, I'm very comfortable with our retention rate being in that plus 95% range and with our net new in the 4% to 5% range on an annualized basis. So I think the targets that we've established for ourselves are very consistent. We've been able to achieve them. And our people are very disciplined about both sides of the equation, selling new accounts at record levels and retaining their existing customers to the greatest degree possible.

[Jaafar Mestari, analyst]

Super. And very last one for me, I promise. If I do the math on your guidance, 2%, 53rd week, then [indiscernible] on pricing, 2% or 3% in your net new business, this leaves me with like-for-like volumes that need to contribute a positive 1.5%.

In this industry, historically, it's been flat. So how are you able to forecast markedly positive volumes? Is it that there's still some return to the office? Is it more digital, more self-help, better upsell to the end customer?

[James Tarangelo, executive]

We had, again, really high levels of base business, both volume and price throughout fiscal '24. And even in the fourth quarter, really strong base business across all of the sectors.

So we continue to see -- expect base business, both with volume performing better than historic even in '25, and that's the trend we're seeing as we close out even the first month here. So yes, we expect base visits to continue to be elevated, not at the levels that we saw record levels in '25 but certainly elevated, be higher than our historic levels in '25.

[Operator]

Our next question comes from Harold Antor with Jefferies.

[Harold Antor, analyst]

This is Harold Antor on for Stephanie Moore. I guess on Avendra, could you provide us the, I guess, the cross-selling opportunities? And then, I guess, how you are seeing your clients being receptive, particularly as clients as you can expand with them internationally, if you could provide any sense of how you see your business with current clients grow and expand through this on the initiative.

[John Zillmer, executive]

Yes. First of all, I'm sorry, we had a little bit of difficulty hearing you, but let me answer what I think I heard that first of all, the Avendra international growth rate, the opportunity that we have is very significant with our existing customers of Avendra. And we're continuing to do work with them in multiple countries around the world in multiple markets.

And we see that organic growth potential as being very significant. Overall, last year, we had significant organic growth in Avendra, both domestically and internationally that as we talked about in our remarks, over $1.2 billion of new spend generated as a result of these expanded relationships.

So some very large new customers but also just significant volume growth with our existing client base. So we see the Avendra growth as an opportunity for continued earnings improvement. Every time we add spend, it increases our ability to negotiate new and better deals that impact not only our customers at Avendra but also our overall supply chain and which benefits Aramark on the contract foodservice side as well.

So it's a very symbiotic relationship, one we're very much focused on growing. And we feel very good about the results last year, and we'll continue to pursue that business aggressively.

[Harold Antor, analyst]

And then, I guess, just one on Hospitality IQ. If you could provide -- now, I guess, how receptive clients who have been on the [indiscernible] clients are receiving there? And if you can provide any sense or anything else you're doing on the tech side.

[James Tarangelo, executive]

Yes. The Hospitality IQ live, it's already out there with our clients. A couple of examples we've talked about is our Culinary Copilot and with our menus that's optimizing often complex requirements, contractor requirements with our menus and matching that with optimizing our supply chain.

So that's something that enhances the client needs but also manages cost effectively. So that's something that's working very well. We've used the tool to aggregate our SKUs across the business. As you know, we have thousands and thousands of profit centers, thousands of SKUs.

And what the AI tool has enabled us to do is aggregate that spend with the common denominator and allow us to negotiate more effective pricing with our manufacturers and suppliers. So those are 2 tools already underway, improving -- generating very positive results.

[Operator]

I'll now turn the call back over to Mr. Zillmer for any closing remarks.

[John Zillmer, executive]

Terrific. Thank you very much, everybody, for your support of the company. We feel very, very good about the results for fiscal '24. I'm very positive about the runway for 2025 and 2026.

I'm really proud of the Aramark team. They have done an extraordinary job. I want to thank the Aramark team for their hard work and dedication to our customers, our clients and our shareholders. And we're all in this together.

I'd also like to say to the veterans that serve Aramark, thank you for your service to this country. And have a great Veterans Day. Take care.

[Operator]

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