Earnings Call Transcript - ARMK Q4 2024

Operator, 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 would like to inform you 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 after the conclusion of the company's remarks. I will now turn the call over to Felise Kissell, Senior Vice President, Investor Relations and Corporate Development. Ms. Kissell, please proceed.

Felise Kissell, SVP, Investor Relations

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, CEO

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 upon our prominent client portfolio; second, to pay down debt with a clear line of sight to reducing leverage to around 3 times 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's 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. 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. We are already off to a great start this fiscal year with several large opportunities leading into fiscal 2025. In just the first six 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-based 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 and 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 in Workplace Experience, House of Blues, and Guinness Locations in Sports and Entertainment and Palantir now in refreshments, as well as our SeniorLIFE+ 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 Co-pilot, 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 base business growth, high retention, and significant new business. In the fourth quarter, International's organic revenue increases 16% included contributions 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 and entertainment presence with the Bundesliga in Germany and LaLiga in Spain. More recently, as I shared on my last call, we're entering the English Premier League as we 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, FC 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 Nou Stadium scheduled to reopen later this year. Additional new clients awarded in the fourth quarter within International included Allied Irish Bank in Ireland, BBVA Espania 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 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 at 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 used 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 recognitions we received in the fourth quarter. First, as a new academic year began, Aramark volunteers to work together with local organizations to assemble and deliver backpacks filled with 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 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 number two spot. Finally, a number of Aramark leaders received prominent recognition for 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.

Jim Tarangelo, CFO

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%. We expected 15% to 20% growth in AOI; we reported 20%. We projected 25% to 35% growth in adjusted EPS; we had 35% and leverage of approximately 3.5 times, we ended the year at 3.4 times, 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 destination 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. 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 weren't for approximately $100 million of one-time 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 3.4 times, an improvement of 50 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 wrap up with our outlook for fiscal '25. We are extremely pleased with our 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 3 times. Of note, fiscal '25 and the fourth quarter specifically contain an extra or 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, CEO

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 open the call for questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Our first question comes from Neil Tyler with Redburn Atlantic. Your line is open.

Neil Tyler, Analyst

Good morning. Thank you, John and Jim. I have two questions. The first one is about the facilities contracts that you've exited, which you mentioned is a unique issue. Can you confirm that there are no other contracts in the portfolio that you are dissatisfied with regarding profitability? Also, could you provide an estimate of how this might impact revenue growth in FY '25? The second question is about margins. If we exclude the one-time items from the previous year, margins increased by almost 70 basis points year over year. However, the guidance suggests that the margin growth for the upcoming year will be around half of that. Can you discuss the different factors affecting margins in these two years and how they will contribute to margin improvement for FY '25? Thank you.

John Zillmer, CEO

Sure. We'll address the first part of your question first. Yes, there are no other large facilities contracts that are unprofitable that we are looking to exit or manage out of. The situations we've faced are very unique. One involved the Chicago public schools, and the other was with a large organization that underwent significant changes in their industry, leading them to make a tough decision to revert to their previous approach after we had secured a substantial contract and started mobilizing. While challenging, these are exceptional circumstances. We do not anticipate these issues continuing, and we are very satisfied with the overall state of the facilities business, including its margin profile, profitability, and future potential. This sector presents some of the biggest growth opportunities for the company moving forward. So Jim, would you like to continue?

Jim Tarangelo, CFO

Yes. In terms of the impact, like we said, the retention rate in the food business was 95% versus 93%. So overall facilities impact about 2% on retention. You could think about that in terms of the revenue impact as well. The larger two contracts had an impact of over 1% on the retention rate that John was just mentioning. Yes, in terms of the margin progression, listen, 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 costs, 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 about 4 basis points for fiscal '25. 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.

Neil Tyler, Analyst

That's great. Thank you very much.

John Zillmer, CEO

Thank you.

Operator, Operator

Our next question comes from Josh Chan with UBS. Your line is open.

Josh Chan, Analyst

Hi, good morning. 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? Thank you.

John Zillmer, CEO

Yes, we did present it on a consolidated basis, but yes, the net new is very strong in International. Both Domestic and International had record new account wins. 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 a very unique circumstance, particularly for U.S. Food and Support Services, very confident in the runway that business has, the size of the opportunities, frankly, our overall pipeline of opportunities. Some accounts that we anticipated 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.

Josh Chan, Analyst

That's really helpful. Thank you. 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 can 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. Thank you.

Jim Tarangelo, CFO

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?

Josh Chan, Analyst

Thank you, and good luck on the new year.

John Zillmer, CEO

Thank you.

Jim Tarangelo, CFO

Thank you.

Operator, Operator

Our next question comes from Ian Zaffino with Oppenheimer. Your line is open.

Isaac Sellhausen, Analyst

Good morning. This is Isaac Sellhausen standing in for Ian. Thank you for taking my question. I'm curious about the strong revenue guidance for 2025. Could you clarify the main drivers regarding vertical contributions or the breakdown between US and International? Additionally, I understand that fiscal 2025 includes an extra week. Could you remind us of the impact this will have on the year and the guidance? Thanks.

Jim Tarangelo, CFO

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

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

Jim Tarangelo, CFO

Yes, the in-year impact. Got it. Thank you.

Isaac Sellhausen, Analyst

Okay. Understood. Thank you very much.

Operator, Operator

Our next question comes from Andrew Steinerman with JPMorgan. Your line is open.

Andrew Steinerman, Analyst

Hi, when looking at your impressive gross new, how does that break down between new outsourcing and win-aways? 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, CEO

Thanks, Andrew. Yes, I would say we still see a very robust environment in terms of new account opportunities, both from first time outsourcing, as well as just the overall market growth. 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. 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 costs for new outsourcing still looks conducive?

John Zillmer, CEO

Yes, absolutely. It's 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.

Andrew Steinerman, Analyst

Thank you.

Operator, Operator

Our next question comes from Lizzie Dove with Goldman Sachs. Your line is open.

Lizzie Dove, Analyst

Hi, there. Thanks for taking the question. I wanted to see if I could get an update on the GPO network spend. I think you previously said that would surpass $20 billion by the end of this year. Any update on how you kind of see the opportunity to grow that further? And just a reminder of the key benefits there, especially on the margin side of things?

Jim Tarangelo, CFO

Sure, Lizzie. Thanks for the question. Yes, we absolutely see continued growth in the GPO network as one of the key drivers 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 GPOs, 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 us negotiate new and better deals both domestically and internationally. We are in the process of working through several opportunities, which we'll probably be able to disclose in the January timeframe with respect to some opportunities internationally. We continue to be focused on the growth in this segment of the business because of its strong earnings potential.

Lizzie Dove, Analyst

Got it. That's helpful. Regarding the margin side, I understand that the net new business saw significant growth post-COVID. Can you remind us about the profitability of that growth? Initially, was it a challenge, and is it expected to improve over time? Are we still looking at that as a margin benefit extending to 2025, or have we already moved past that phase following the increase in net new business?

John Zillmer, CEO

Yes. So again, we've printed a record new business, right? Three years in a row here in a record print, again, excluding the Uniforms business in '24. 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. I think by '26, we'll be in that steady state with respect to how that new business and the progression of the margins materializes.

Lizzie Dove, Analyst

Got it. Thank you.

Operator, Operator

Our next question comes from Jasper Bibb with Truist Securities. Your line is open.

Jasper Bibb, Analyst

Good morning, everyone. Regarding guidance, you mentioned some new contracts secured at the end of the year, the exited Facility Services work, and the additional week next year. Can you provide any insight into how we should view the quarterly cadence of organic growth through fiscal '25 in light of those factors?

Jim Tarangelo, CFO

Yes. I think with that, we'd expect the quarterly growth to accelerate. So Q4 of fiscal '25 will likely be the highest revenue growth of all four quarters, just the way the timing of the new is working out in 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 on your purchasing power or maybe taking down the overhead costs required to support the international GPO operations?

John Zillmer, CEO

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 the total monies earned for the GPOs internationally. 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. We're working to strengthen that network by way of bolt-on acquisitions as well as just the organic growth in those existing GPOs.

Jasper Bibb, Analyst

Understood. Thanks for taking the questions.

Operator, Operator

Our next question comes from Faiza Alwy with Deutsche Bank. Your line is open.

Faiza Alwy, Analyst

Yes, hi, good morning. 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, CEO

Yes, our win rate has consistently gone up over the last several years. Obviously, we have a very strong sales organization, very strong sales leadership both domestically and internationally. 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. 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

Thank you. Jim, I wanted to ask about your interest expense guide. I'm curious what you've included there. I know you have reduced some debt and you have bonds that are due in 2025. Can you provide more details on the assumptions behind your interest expense guide?

Jim Tarangelo, CFO

There are many factors at play. As you may remember, we repriced some term loans in 2024 at favorable rates. We also have some maturities in 2025 that we'll need to address in the coming months, along with some swaps that will be expiring. The guidance of $230 million to $330 million is based on a 53-week period. For a 52-week period, we anticipate $225 million. We'll need to see how interest rates develop this year; if they continue to drop, there could be some opportunities. These were the factors we considered in arriving at our guidance.

Faiza Alwy, Analyst

All right. Thank you.

Operator, Operator

Our next question comes from Shlomo Rosenbaum with Stifel. Your line is open.

Adam Parrington, Analyst

Hi, excuse me. Hi, this is Adam on for Shlomo. The company pricing normalizing, particularly in education. Do education see much less pricing than the rest of the business and is the company being more price competitive in this segment to win new business?

John Zillmer, CEO

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. We should see more normalized growth rate in that segment in Q1. Again, the pricing consistent with what we talked about for the rest of the business.

Adam Parrington, Analyst

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

John Zillmer, CEO

Yes, sure. As we fully integrated the Union acquisition, which again strategically has been an excellent transaction for the business, building our capabilities in not only food service, but commissary. 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. As we brought it on to Aramark's policies and procedures, we adjusted the inventory, continued to optimize, and we took a non-cash charge of about $17 million.

Adam Parrington, Analyst

Thank you.

Operator, Operator

Our next question comes from Toni Kaplan with Morgan Stanley. Your line is open.

Toni Kaplan, Analyst

Thanks so much. 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, CEO

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. 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. 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 and from a food perspective. 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.

Jim Tarangelo, CFO

Yes. The other thing I'd note there is as the operating environment has normalized, right, there's a productivity with labor. We've seen reduction over time in agency costs, 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 I 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? Thanks.

John Zillmer, CEO

Sure. Yes, I somewhat anticipated this question. As I think was publicly stated by the other organization, there are no discussions going on between the two parties. 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. It's highly competitive. You got the three 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.

Toni Kaplan, Analyst

Very clear. Thank you.

Operator, Operator

Our next question comes from Andrew Wittmann with Baird. Your line is open.

Andrew 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, CEO

Yes, absolutely. Those targets are still good, and it's our intention to get to and through them. 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 we're feeling very bullish about the overall performance and the overall environment, Andrew.

Andrew Wittmann, Analyst

I wanted to ask about the Sports and Entertainment business segments. You've mentioned good attendance and per-cap revenues throughout 2024. What are you observing regarding the comparisons this year? It seems like you've acquired some venues, which is positive. I'm curious about the playoff games and other significant events. How are you approaching this? Additionally, how is your consumer experience, particularly concerning commercial spending versus consumer spending? I'm interested in your insights across the business, especially in Sports and Entertainment.

John Zillmer, CEO

Sure. We continue to see robust consumer demand in the experiential markets of Sports and Entertainment. People are still very much willing to go ahead and spend to attend sporting events or concerts, and the activity level is very high per-capita spending, very strong across really all the venues, and we have not seen any change in consumer behavior from that perspective whatsoever. From a playoff perspective, this year we had four teams in the MLB playoffs. We'll probably be a couple of games short of our experience last year where we had two teams go very, very deep. However, we already exceeded our planned budget, if you will, for playoff experiences. We feel like we're in very good shape from an internal expectation perspective, and we're looking forward to a strong NHL and NBA season, as well as a strong close to the NFL, where we've got a number of teams that are performing very well. A lot of what drives the per-caps literally is team performance. And when your teams are doing well, customers are excited and are willing to spend to go ahead and see their team. Right now, I would say it continues to be very robust and very supportive.

Andrew Wittmann, Analyst

Great. Thank you very much.

John Zillmer, CEO

Thank you.

Operator, Operator

Our next question comes from Jaafar Mestari with BNP Paribas Exane. Your line is open.

Jaafar Mestari, Analyst

Hi, good morning, everyone. I have a couple, if that's okay. Firstly, just on the new business signings. Could you 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? 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?

John Zillmer, CEO

Yes, again, I think the signing of that $1.4 billion was generally spread out relatively evenly throughout fiscal '24. I don't think there's anything unusual to point out with how that business would roll out for fiscal '25.

Jaafar Mestari, Analyst

Super, very clear. In terms of retention, while FM is doing well, your overall retention has decreased by about 30 basis points. Can you provide some insights into the areas where you've faced challenges in the food sector? Are there any specific trends to note, or is it more widespread? In the education sector, one of your competitors mentioned that in 2018, they had to renew some K-12 contracts due to changes in procurement regulations, and they anticipate a significant number of renewals coming up in 2024 and some in 2025. Is that something you've observed as well?

John Zillmer, CEO

Yes. The U.S. USDA regulations are very explicit in terms of how often school districts in the K-12 sector need to go out to bid. It affects the companies all a little bit differently depending on the timing of the award of contract. 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. It affects each of the companies somewhat differently, but that phenomenon is consistent for all three of us. I would say in terms of retention, we had very strong retentions in most of the businesses with facilities being the one outlier, both domestically or primarily domestically. I think we feel very strongly about the company's ability to be at its 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. 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. I think the targets that we've established for ourselves are very consistent, and we've been able to achieve them. 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

Superb. And the very last one for me, I promise if I do the math on your guidance, 2% 53rd week, then 2% or 3% pricing, 2% or 3% in-year 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 marquee 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?

Jim Tarangelo, CFO

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 the sectors. We continue to expect base business, both with volume performing better than historic even in '25, and that's the trends we're seeing as we close out even the first month here. We expect base business 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.

Jaafar Mestari, Analyst

Super. Thank you very much.

Operator, Operator

Our next question comes from Harold Antor with Jefferies. Your line is open.

Harold Antor, Analyst

Hello, this is Harold Antor filling in for Stephanie Moore. Regarding Avendra, could you share insights on the cross-selling opportunities and how your U.S. clients are responding, especially as you expand internationally? Additionally, could you give us an idea of how your business with current clients has grown and evolved through this new initiative?

John Zillmer, CEO

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. 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 work with them in multiple countries around the world, in multiple markets. We see that organic growth potential as being very significant. Overall, last year we had significant organic growth in Avendra both domestically and internationally. As we talked about in our remarks, over $1.2 billion of new spend generated as a result of these expanded relationships. Some very large new customers, but also just significant volume growth with our existing client base. 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, which benefits Aramark on the contract Food Service side as well. 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

Thank you. And then I guess just on Hospitality IQ, if you could provide, I guess, how receptive clients have been there, the value of clients are receiving there? If you could provide any sense of anything else you're doing on the tech side?

John Zillmer, CEO

Yes. The Hospitality IQ, a lot of it's already out there with our clients. A couple of examples we've talked about is our Culinary Co-Pilot and with our menus that's optimizing often complex requirements, contractual requirements with our menus and matching that with optimizing our supply chain. That's something that enhances the client needs but also manages costs effectively. 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 and thousands of SKUs, and what the AI tool has enabled us to do is aggregate that spend with a common denominator and allow us to negotiate more effective pricing with our manufacturers and suppliers. Those tools are already underway, improving and generating very positive results.

Operator, Operator

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

John Zillmer, CEO

Terrific. Thank you very much, everybody, for your support of the company. Feel 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, Operator

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