Good morning and welcome to Aramark’s First Quarter 2019 Earnings Results Conference Call. My name is Christine and I will be your operator for today’s call. At this time, I would like to inform you that this conference is being recorded for rebroadcast. [Operator Instructions] I will now turn the call over to Kate Pearlman, Vice President of Investor Relations. Kate, please proceed.

Thank you and welcome to Aramark’s conference call to review operating results for the first quarter of fiscal 2019. Here with me today are Eric Foss, our Chairman, President and Chief Executive Officer and Steve Bramlage, our Executive Vice President and Chief Financial Officer. I would like to remind you that our notice regarding forward-looking statements is included in our press release this morning, which can be found on our website www.aramark.com and in our earnings slide deck. During this call, we will be making comments that are forward-looking including our expectations for fiscal 2019. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties and important factors, including those discussed in the Risk Factors, MD&A and other sections of our Annual Report on Form 10-K and our other SEC filings. Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in this morning’s press release as well as on our website. Before I turn the call over to Eric, I wanted to mention that our first quarter includes AmeriPride and Avendra results. We will continue to track revenues separately for AmeriPride next quarter when we will lap the 1-year anniversary at the closing of the deal. Also, our results are impacted by accounting rule changes and changes to the definitions of adjusted operating income and adjusted net income. Please refer to the appendix to the earnings slide deck for detailed reconciliation. With that, I will turn the call over to Eric.

Thanks, Kate and good morning everyone. I am pleased to report 2019 is off to a good start as reflected in the revenue and earnings growth that we reported this morning. We saw strong and broad-based performance as we continue to transform the business. So let me start by providing a few financial highlights. Revenue grew 8% with our legacy business revenue growth at 4% driven by both strong new business wins and solid base business growth. Adjusted operating income was $279 million, up 21% on a constant currency basis driven by base business momentum as well as the inclusion of Avendra and AmeriPride results and synergy captures as well as a one-time client payment. Adjusted earnings per share, was $0.63 in the quarter, a 16% increase from the prior year on a constant currency basis. Looking forward, we are raising our full year adjusted EPS outlook to $2.30 to $2.40 per share, which now reflects the full impact of the healthcare technology divestiture. We continue to expect another strong year of performance driven by revenue growth of 2% to 4% on our legacy business and mid single-digit AOI improvement in the legacy business. We continue to expect to finish the year in the top half of the earnings range or above $2.35 per share. With that, I would like to take a few minutes to speak about our unwavering commitment to deliver continued great performance, while also ensuring we are a purpose-driven company that will allow us to capture the promising business opportunities that lie ahead. This commitment is what sets us apart at Aramark as a company that delivers value to our shareholders, our customers, our employees and the communities where we live and work. Our ability to consistently deliver strong financial performance is driven by disciplined execution…

Thank you, Eric. Our financial performance in the first quarter provided a nice start to the year and we continue to feel good about achieving our full year expectations. There are a number of factors impacting our reported results beyond the base business in 2019 and we are trying hard to demonstrate the impact of these items this morning. Additional reconciliations are also in the appendix for further assistance. We reported revenue of $4.27 billion this quarter, which is an increase of 8%. As Eric mentioned, our legacy business delivered broad-based growth of 4%, which was a bit stronger than we expected. Our U.S. FSS and uniform base businesses grew over 2% and nearly 3% respectively. Notably, our international FSS segment grew 10% from higher net new revenue in the final quarter of benefit from a joint venture reconsolidation in Europe. Please note that we are using the term of legacy business revenue here while we are identifying Avendra and AmeriPride separately. It is the equivalent of organic revenue and there is no difference and we will revert to the organic revenue term when we have totally lapped the deals, including $172 million related to the Avendra and AmeriPride transactions impacted revenue favorably by approximately 4%. Approximately, 80% of that number relates to AmeriPride. The Avendra transaction was lapped in early December and it will be in base or legacy results respectively. We also adopted ASC 606. Therefore, our reported revenue in the quarter increased by nearly $90 million or approximately 2%. Our uniform segment saw the largest impact from this change and it obviously will compress the segment margins significantly close to 200 basis points. Finally, currency was $59 million or 2% unfavorable from the strengthening U.S. dollar. The primary currencies impacting our results as a reminder are the…

Thanks, Steve. With that Christine, I think we are ready to open the lines for any questions.

Thank you. [Operator Instructions] Our first question is from Stephen Grambling of Goldman Sachs. Please go ahead.

Hey, good morning.

Hi. Good morning, Stephen.

Good morning. I guess, first on the base business, I guess can you elaborate a little bit on how we should think about reinvestment versus base margin expansion and how you expect that to evolve throughout the year? And then maybe as a follow-up related to that and maybe I missed this is in the opening remarks, but what was the client payment, I guess related to and how should we think about that going forward?

Sure, Stephen. It’s Eric. Well, let me start with your margin and reinvestment question. I will turn it over to Steve and he can take you through the one-time payment and any other comments he wants to add. I think the way to think about what we saw in Q1 from a margin standpoint is I captured as followed. I think our productivity journey continues. And so I think what you will see throughout this year is we have talked about more runway is number one, we continue to see increased purchasing scale that we can leverage as a result of the Avendra acquisition. As you know, we have talked about attacking kind of the complexity that exists in the supply chain. One of the things we are trying to do is simplify menus. And then as you look at labor, I think the work we have done on making sure we have got consistent structures, a consistent staffing model and really an obsession about reducing our highest labor cost of both over time and agency labor is kind of the game we are playing on food and labor. And then we have also talked about our zero-based budgeting that really has contributed. So, if you look in the quarter, I think we saw contribution from food, labor and SG&A. I think as the year unfolds you will continue to see us grow our base margins. I do think you will see some of our investments in the coming quarters. So I think you will see in second quarter, a larger reinvestment behind some of the things we are doing on the technology front that I mentioned. But that’s the way I would frame up how we are thinking about it and the reinvestment cycle. Steve, anything to add?

Yes. I think the only thing I would there before addressing the second question is I mean, at the very highest level, we are expecting revenue growth of 2% to 4%. We are expecting base AOI improvement of obviously a higher number than that 5% to 6%. So, mathematically, we will continue to have margin expansion occur over time consistent with our expectations. In 2019 that number becomes a little bit difficult to track, because of the revenue recognition dynamic where we are obviously going to have several $100 million of incremental revenue with no associated margin dollars there. But overall, we will definitely have base business margin expansion. As to the one-time payment, so the company services various national parks. We invest in those parks over extended periods of time obviously. And so it is not uncommon as our investment reaches a certain point at the park for the government to return some of that invested capital to us. Ultimately, the government owes us that money back where they need someone else to come in and buy that money back from us, should they ever make a change. And so it’s not uncommon for them to pay money back which is in the form of a buy down. We have received fees in the past nothing of this magnitude. This happens to relate to a contract where we have quite a bit of investment against it. And so we did expect to receive this money. I thought we would get it spread out over a couple of quarters given the shutdowns in the government etcetera. That’s obviously not what happened. And so we will recognize all of it in the first quarter. We had expensed that capital over previous years through adjusted operating income and as a result it pulls forward a little bit, some profitability that otherwise we would have gotten in the next couple of quarters.

Great. And then maybe one quick follow-up just the synergy capture this year, is that all Avendra and do you see any kind of quarterly fluctuation that we should be thinking about from synergy capture and the contribution from the acquisition?

No. I think the synergy capture we referenced is both Avendra and AmeriPride. And so as we look at the year, I think you will see it fairly consistent quarter-to-quarter, but there is synergy capture from both deals.

Great. Thank you so much.

Thanks, Stephen.

Thank you. Our next question is from Hamzah Mazari of Macquarie Capital. Please go ahead.

Good morning. My question is just on U.S. FSS growth of 2%, I know high level you are looking at 2% to 4%. But just curious for that to ramp, is it sort of net new business that needs to get better? Is it retention rates? Is it the base business? Is it pricing? Just curious is there just one lever or is it sort of you need things to pickup at a broad-based level, just curious, how you think about that growth rate.

Sure. Well, if you look at our U.S. business again as we talked, 2% growth in the first quarter, I mentioned some of the businesses. We had good growth in our sports business, our business and industry business, leisure, corrections and education. So I would say the composition of that growth was both new business and base business. I’d say as we look to the coming quarters, the area we are most focused on would be new business. Retention rates continue to hold kind of the net mid 90% or around 95%. So I’d say, if there is one growth lever, I think we feel comfortable with our base business including our ability to capture inflationary cost and really the one lever would be new business.

Great. And then just a follow-up on the international margins, is that all startup cost? Anything else going on in there, mix-wise that we should be thinking about? Thank you.

Yes, I’ll handle that one so specifically referring to the quarter no, it’s all start-up cost of course start-up costs have a fairly significant role to play given that high of a revenue number at 10% but consolidating the joint venture on a year-over-year basis was actually a negative margin impact for us mechanically in the quarters so that also weighs on us and we had mid-single digit to double-digit minimum wage increases in several of our countries in the quarter: Korea, China and Canada that put some pressure on us we will ultimately get most of that back from a pricing standpoint but not necessarily, obviously, we’ll be able to do that in the current quarter and then there was some timing associated with some personnel and incentive payout cost as well I fully expect the International segment margin to flip back positive on a year-over-year basis as we go forward.

Great. Thank you.

Thank you. Our next question is from Gary Bisbee of Bank of America. Please go ahead.

Yes, hi guys. Good morning.

Good morning.

Just can we talk a little bit about just the concept of better leveraging your purchasing scale post Avendra? I know when you announced the acquisition, there were some behind the scenes technology that had to be done to get your business on their systems you are working with third-party software to help with purchasing and then ultimately you also have to drive more of your managers to use fewer menu or fewer recipes where are you in all of that? And what’s the time line to think it will take to start to get more and more of the purchases leveraging the scale? Is this a multi-year process to get through all the categories? Just some update would be helpful. Thank you.

Sure, Gary. Well, I think I think a couple of things I think there’s no doubt that the first stop for us as we looked at this is, we were a large procurer before the acquisition and certainly Avendra was as well so, the first stop is to just look at what are we each buying, what are we paying, and how do we leverage that across our existing set of purchases that’s kind of phase one, if you will of our synergy capture phase two is, as we then look at different categories, or suppliers within categories how do we begin to kind of rationalize and make sure that we are leveraging our purchasing power I’d say that’s we’re kind of in that phase that phase right now and then consistent with that, would be how we look and make sure we’re purchasing the right items and simplifying that for everybody at the location level so I think from our perspective, we talked about kind of a three year synergy capture journey to get to the $45 million.

$40 million.

$40 million in synergies I think we’re on track slightly ahead of that journey and then, I guess, the final step would be to look and really extend our reach of Avendra in terms of a GPO space and look for where are there growth opportunities in some other segments beyond kind of largely hotel hospitality space they play in today.

Yes, I think Gary the only thing I would add is, the synergy capture, the $40 million we expect that to be pretty readable over the three-year period and that is taking advantage of contracts, we already have and businesses we already have the part of your question related to getting a system out in the field and helping people have standard menus and by the same kind of stuff that we want them to buy in our lingo that would fold under compliance and so that would not be a contributor to Avendra synergy, but that will be ongoing food productivity in the base business as we improve compliance in our existing operations.

That’s very helpful commentary. Thank you. Can you just give us a sense on both of those, the purchasing and the compliance? I mean, are we purchasing I guess probably early innings? Is the same true for compliance? Or you made quite a bit of progress to-date on them? Thank you.

So, listen on the synergy side, we would expect to get a third of the Avendra synergies, this year just like we’ve said so I think we’re right where we thought, we would be specifically on the Avendra synergies and the system investment required on the compliance side all of our FSS businesses are using a standard menu management system so they’re planning the menus with the technology, we want them to play and we can push out the desired menus and SKUs to them Ariba is the specific procurement system that we’re using which is the tool to get them to buy the right stuff from the right places that is rolled out across the majority of the U.S. business and I would expect, it will be fully deployed here over the next quarter or two in the U.S. business and then obviously, we have an opportunity to really start titrating how we give them choices as to who to buy from.

Great. And then just a follow-up question can you help us frame the investment in the U.S. workforce you discussed against, what, probably might not have been telling the whole story, but some press reports from your local paper about reduced 401(k) contributions and managers not getting bonuses? Adding all that up, what’s going on or what’s the incentive for doing this? Thank you.

Yes. Well, clearly, we are very pleased to have the opportunity to have this kind of a cash windfall from tax reform to reinvest in the domestic business we employ, as you may know, 170,000 people or so in the U.S. business so it’s a good opportunity for us listen, the company, as it relates there has been some press coverage around this from our perspective obviously, the company paid bonuses in 2018 that were earned we will pay those within the appropriate period of time that we’re able to do that and we’re very pleased to have the chance here to reinvest in the workforce in a couple of different ways some of those reinvestments will result in extra retirement contributions, above and beyond what we would normally do some of them, for sure, will allow us to recognize some folks with cash payments at the management level for the contributions they make to the company and then there’s a variety of philanthropic related community activities o there’s a lot of different stakeholders that we’re trying to cover and address related to this money, and I think it’s a very good news story for us.

Thank you.

Thank you. Our next question is from Andrew Steinerman of JPMorgan. Please go ahead.

Hi, it is Andrew. I just want to make sure I’m looking at the uniform margin correctly if you look at Page 10 of the press release or Page 15 of the slide deck, margins are down year-over-year first quarter 2018, it’s 10.08% versus a year ago first quarter of 2018 was 11.46% I think the reason why it’s down is, the year-ago quarter doesn’t reflect the 606 accounting change so please, just confirm that for me but then, help me think about the rest of the year will margins be down with uniform for the rest of the year because of this and is AmeriPride helping margins yet?

So, Andrew let me start and then Steve will reconcile some of the accounting changes that you referenced I think, first of all, the business had solid growth, so legacy revenue growth of 3% our underlying margins on our legacy uniform business continued to improve okay? So, I think the reported margins, which is really your question, are going to be driven by the revenue recognition changes and I’ll let Steve comment a little more about that the other thing relative to AmeriPride’s margins, their margins are lower but again, the synergy capture, I would say, is going as expected on the AmeriPride side so Steve, you want to.

Yes. Listen, for ASC 606, we do not restate the prior year from a revenue recognition standpoint, so I would expect, we so there is a number in the back where we’re literally adding $90 million or $100 million of revenue to the current year uniform numbers with no change in AOI so that’s driving the majority of, I think, it’s almost 170 or 180 basis points of margin compression, just mechanically, that number in the quarter we will have comparable revenue additions to the Uniform line going forward and I think you’ll therefore have comparable reported margin expansion because of that there is a little bit more of dilutive AmeriPride pro forma margin to add in, in the second quarter until we lap deal, and then gradually you’re going to get that tick up as synergies and base business improves but I think we will report lower Uniform margins for the year and that is primarily related to the revenue recognition impact overall four quarters.

Thank you. Thank you.

Thank you. Our next question is from Toni Kaplan of Morgan Stanley. Please go ahead.

Thank you. Good morning.

Good morning.

Can you talk about what you’re seeing with regard to cost inflation on the foodservices side? I know one avenue for passing through labor inflation is through renegotiating with clients and so can you update us on how these renegotiations have started to go and if you’re able to pass on the majority of wage inflation through higher prices?

Yes, Toni, it’s Eric. I think consistent with what we saw last year, we are seeing inflation something in the mid-3% range I would say, combination of both food and labor and, obviously, as you know based on our contract types about one-third of that gets passed through right away and then the other two-thirds of our contract types, we have the ability to price through that inflation, which is something that we’ve been very successful at doing over the last 18 months or so as we seen inflation creep up so I think at this point in time, we feel very comfortable that we have a good process and a lot of discipline and have the ability to deal with any inflation that we see I don’t see inflation getting any worse as we look to the remainder of the year, so I think we’ve incorporated into our plans and have dealt with it and are managing it accordingly.

Yes. We have disclosed in the material today and it’s probably 3% or so for food on the year, 4% for labor, so kind of 3.5% all-in and that’s really that’s pretty much the run rate that we exited 2018 with I also don’t think it’s getting worse I don’t think it’s necessarily getting better and so we’re pretty good visibility at this point so that would be the actual experience here over the rest of the year.

Great, thanks. And then just on the EPS guidance you raised the range by 3% and attributed it to the finalizing of the HCT divestiture I felt that core growth in margin expansion were pretty strong this quarter I know you talked a little bit about how we shouldn’t expect the momentum to continue into 2Q etcetera. but did you consider raising the range by more? Or did you feel like it’s too early? Did you want to be conservative? Just wanted to hear your thoughts on where you ended up with the range? Thank you.

Sure. So I felt like we had tried to be clear at the Investor Day event that we were we had a commitment to raise the range subject to the final allocation of the HCT money and how that ultimately was directed, and we thought that would be $0.02 to $0.03 it ended up being $0.03 and so for sure that’s a mechanical raise vis-à-vis our prior communication it’s early in the year, I think broadly beyond making other changes there is no doubt Q1 print is a stronger number optically than what we expect from the rest of the year for all the reasons we went through currency is a touch higher than we thought it was going to be at I Day, so we’ve absorbed a touch more of currency within the existing range and so we feel very good that we’re squarely focused on being in the top half of that range and we will continue to evaluate it every quarter here and as we have in the past, as we get further in the year, we will certainly refinance, but I think it’s the most prudent thing to do for us to keep what we have right now.

Thank you.

Thank you. Our next question is from Richard Clarke of Bernstein. Please go ahead.

Hi, good morning. Let’s start off just with maybe asking more specifically on the benefits you see from the employee payment during the investment you’re making are you expecting to see employee satisfaction pickup employee retention pickup as a result of making those payments and therefore you might be able to offset some of that labor inflation going forward? Is there some sort of company economic rationale for making this payment?

Sure, Richard. It’s Eric. I mean, I would say the following if you look at kind of the basket of investments that we’re making, it’s really pretty simple we are trying to make sure we can attract the right talent obviously, we want to be able to retain that talent and then finally, one of the buckers is really focused on training education we really want to make sure they’ve got the skills and tools to provide a great customer experience so our belief is this will be a an investment of $90 million it is a very smart investment to help us attract, retain and really give our in particular our front line employees and management teams the skills and tools they need to deliver great experience and so I think we’ll benefit in all three of those ways as a result of these investments.

Okay, thanks. Maybe as a follow-up, I just want to touch on the international business again. I understand the moving parts to get to the 3.4% margin, by headline that’s a reasonably low-margin there must be a mix across the sort of 17, 18 countries that are included in there we have seen some of your peers sort of trim their portfolio, exit from some of the countries they’re in is that something you could consider doing because there must be some that must be close to zero profitability I would imagine in that list?

Richard, it’s Eric. Let me make a couple of comments. First of all, I think we are pretty pleased with the overall performance of our International business. Certainly, if you look at 2018, where we saw a really good revenue growth and our profits grew mid-single digit on a constant currency basis so, our International business performed really, really well again, I’ll remind you that, our frontline contributions in our International business are very similar to the U.S. business, so part of that International opportunity is to make sure, you are above unit SG&A structure is right-sized and appropriate and there is some work underway to do that I’d say another thing is a there’s no doubt that the UK business has been a challenge for us and for some of our competitors I think they’ve talked about that in the past but as you really look at the portfolio rationalization question, a few years ago we took that action in our International business and I would say from where we sit right now, short of maybe one or two countries, I don’t think that’s a big opportunity for us or something you’ll see us pursue on any broader basis than that.

If I can just ask one very quick mechanical question at the Capital Markets Day, the free cash flow guidance was that just very simply at 90% of net income obviously you’ve raised the net income guidance but not the free cash flow guidance so is that 90% no longer the way you’ve calculated the $500 million? And therefore, what’s the right way to think about how you reach that number?

Sure, this is Steve. So our longer term expectation is that we will consistently generate between 90% to 95% of cash flow yield from our adjusted net income number that’s the expectation the starting point for cash flow generation this year is probably more fairly $600 million and then we’re spending $50 million related to the HCT divestiture on taxes et cetera, and then we’re still spending $50 million on integration expenses from the earlier deal so that’s mechanically, how you’re getting to the $500 million the reason we have not changed the free cash flow guide this year is it’s more related to the reinvestment in the domestic workforce obviously, we’ll spend some extra money in the current fiscal year after tax associated with that, and so we will absorb that within that guide but it didn’t feel prudent to raise it in light of this investment.

Very clear. Thank you very much.

Thank you.

Thank you. Our next question is from Andrew Whitman of Robert W. Baird. Please go ahead.

Great. Thanks Steve. On the international facility services and foodservices, how much was the added revenue from the joint venture consolidation over the period that you’ve been consolidating? And can you just and refresh us when the starting point of that consolidation began?

It’s about $25 million in the current quarter between $25 million to $30 million in the current quarter we finalized the reconsolidation of that I believe it was either late February or early March last year. So, we will still have kind of 2 months or so to go in the second quarter.

Okay, that’s helpful. Thank you. And then I guess, just going back on the employee bonuses, is it fair to say that there was a higher than usual number of managers, who didn’t get incentive bonuses for ‘18? And I guess, the question maybe more specifically is, how is this accrued for in 2018? Were you accruing some cost to that in ahead of reversal say in fourth quarter, I mean, one of the things you mentioned in your deck here is that the EPS guidance for fourth quarter is flat? And I’m just wondering, if that’s because of the compare that you have for maybe reversing some of that bonus?

Yes. Let me start with that, Andy. So, the 2019 reinvestment activity obviously is not related to 2018 business at all. So, there is no relationship there. For 2018, specifically the company, we accrue bonus payments relative to the targets that the company has set for folks, and so we disclosed in our proxy filing actually earlier this year that the company did not achieve target levels of profitability for bonus purposes. So, we actually paid out bonuses or paying out bonuses a little bit below our target levels, because we didn’t make the targets that had been set. So, that was all fully accrued in our 2018 business normal course, and again, those bonuses are being paid out in the existing timeline. And so there are always going to be in any given year folks who receive bonuses higher than the target amount based on line of business performance and there will be folks who receive no bonus payments based on results as well.

Okay. So then…

After that – yes, after that, Andrew, I was just going to say, if you look at our bonus program in any given year, it’s incented to drive performance. And so as you see across geographies or different businesses, disparate performance, you’ll see some no or low payments and you’ll see some higher than target payments, which I think is pretty consistent. So, no real difference in any given year.

Okay, that’s helpful. And then is 2019, are you accruing again for incentive bonuses or is this tax reform bonus really the only one?

No, we are fully accruing for normal course incentive compensation in 2019, anything we do related to the reinvestment for the tax proceeds will be incremental.

Great. That’s all I had. Thank you for your time.

Sure.

Thank you. Our next question is from Manav Patnaik of Barclays. Please go ahead.

Thank you. Steve, I think you had said that the 4% top-line was better than you’d expected. Is it fair to say that it was led by that strong international number? And I guess, if you could just give us a little bit more color where like some of the trends and why that growth is so strong?

Yes, I’ll start and I’ll let Eric provide color commentary. I do think it’s a little bit better than we thought. We had a pretty tough comp in the first quarter of prior year, where we had good growth and we had told people we thought that was going to be the toughest comp of the year. So, it is a little bit better. I don’t walk into any quarter with an expectation any line of business is going to grow 10%. So, I think it’s fair to say the international business was better than what we expected it to be. We had a really good retention quarter in that business and a really good new sales quarter in that business. We knew about the JV re-consolidation, so that wasn’t a change. And then in the U.S. business, right, the sports portfolio ended up doing a little bit better than we anticipated, and to some extent, that’s a function of team performance and attendance, especially, as the NFL season winds down and a couple of our venues that historically have not had as much team success performed better, this season than last and that helped the year-over-year attendance figures.

And the thing I would add to that is, if you think broadly beyond international, again, if you look at some of the things we’ve done to strengthen our brand and product offering, if you look at some of the innovation initiatives we’ve put in place, if you look at those consumer satisfaction metrics, I think one thing that probably was a little stronger than we went into the quarter was our base business performance and actually retention did uptick as well. And as I mentioned earlier, as we look to the rest of the year, if there’s one growth lever that is really receiving more focus, it’s on the new business front. So, I would characterize that the base business did perform better than we went into the quarter anticipating.

Got it. And just one clarification question. So, the 10% growth in international that includes that $30 million benefit from the JV consolidation and also just in Uniform, does the 3% include the benefit of the 606?

Okay. So, the international business does include the benefit of re-consolidation. So, it would be around 8% absent the JV re-consolidation. And the Uniform improvement of 3% does not include the benefit of the revenue recognition, the reported revenue is much higher in Uniforms because of that.

Got it. Thank you, guys.

Thank you. Our next question is from Kevin McVeigh of Credit Suisse. Please go ahead.

Great. Thanks. Hey Steve, you gave us good color on kind of the Q2 commentary. Is there any incremental impact from the new accounting recognition that should impact Q3 or Q4 earnings that we should think about?

Yes, the answer is yes. First, I think we’ll have a consistent revenue experience for each of the next 3 quarters across the business, and then we are – the only substantial earnings impact from the revenue recognition change is, we will be recognizing a benefit of somewhere $8 million to $12 million of benefit in our Uniform segment over the year related to how we account for employee commissions in that business. So, I think we said we picked up a couple of million dollars of benefit in the second quarter that should be pretty consistent in each of the next 3 quarters as well.

Got it. And then is it fair to say the EPS guide the boost would have been $0.04 higher if not for the incremental currency headwinds or the currency headwinds were in the guidance already?

Relative to Investor Day, I would tell you, we have an extra $0.01 or $0.02 of currency headwind based on current rates, I think that’s the easiest way to think about it.

Okay, thank you.

Thank you. Our next question is from Dan Dolev of Nomura. Please go ahead.

Hey.

Hi, good morning, Dan.

Last but not least, hey, thank you for taking my question. So, nice job on the Uniform rental growth, I don’t know if you’ve already alluded to that, but are you – what is the driver and then I have a follow-up, what is the main driver of that nice acceleration, I think we haven’t seen that kind of growth since 2016, so kudos to that?

Sure. Well, I think the solid growth is due to a couple of things, one, you’ve seen us talk about one, just good discipline on the Uniform side relative to how we sell and service, so we are seeing a little bit of a pickup on the retention number. Second, we’ve talked about some of these adjacency categories that we’re entering. So, if you think about first aid and restroom services, we’re starting to get into those categories in a much bigger way that certainly helps in terms of the mix, as well as the growth. And then the other thing that we’ve done is just like on the food side of our business, quality and innovation matters and we spent a lot of time. Our team has done a very good job introducing a FlexFit product, it is just a much different quality of Uniform kind of consistent with what you’d see in the athletic space. And so I think all of those things are contributing to improved growth momentum out of our Uniform business.

Got it. Thank you. That’s very helpful. And then just a quick follow-up, some of the feedback we were getting from investors today is – on December 11 at the Analyst Day, you said this is going to be a very nice EPS growth quarter with slow organic growth and it turns out – it turned out to be a little bit of the opposite. Is there anything maybe addressed it already, but is there anything we didn’t – you didn’t know at the Analyst Day that happened in between or it’s just us misunderstanding the guidance? Thank you.

Well, I’ll start and I’ll let Steve add. I think from an EPS perspective, the quarter played out pretty much as we anticipated. I think the one item Steve referenced was on the accessory interest payment. But other than that, I don’t think there were any surprises, right. We expected a strong earnings quarter, we expected strong base business, we expect it to be on track relative to the synergy capture from the deals and I think all of that materialized. So, I don’t think there’s any surprise on the EPS side, from my perspective. And the one upside was the growth that we’ve talked about. So, I think we did anticipate a little slower growth than we got in first quarter, which was a pleasant surprise. Steve?

Yes, I would agree. The clear takeaway for us post Investor Day, we’re obviously – we didn’t get the reaction that any of us would have liked was we needed to do a better job helping people understand the performance of AOI growth in the base business over the course of 2019. And so obviously we spent a lot of time today trying to make that as clear as possible. I think that was our first share point of emphasis here post Investor Day.

Got it. Thank you. Nice job overall. Appreciate it.

Thank you. Our next question is from Seth Weber of RBC Capital Markets. Please go ahead.

Hey, good morning, everybody.

Good morning.

Just wanted to go back to your comments about the better traction with the adjacencies in the Uniform business. Can you just talk about your appetite to do some acquisitions there this year and maybe frame what size type deals they might be to improve your route density in the Uniform business? Thanks.

Sure, Seth. Well, I think relative to M&A, our priority on capital is strictly to pay down debt to delever. So that will be our first, second and third priority near-term. I think as you think about our Uniform business as we go forward, there is no doubt that we have interest in the adjacency space. Most of those would be very, very small if we looked at anything, but I think will continue, we have and will continue to look, but I would say relative to anything material, you should not anticipate anything on the M&A front and that we will be really focused on delevering.

I would agree. There are very limited bolt-ons that would not be significant.

Okay, thanks. And then maybe just a follow-up on the Uniform margin discussion from before. Anything you’d call out from tariffs that were material headwind to margin here in the quarter and sort of how you’re thinking about tariff impact for the year in Uniforms?

Nothing material in the quarter. We talked about on an earlier call, right, we’ve got some exposure to China specifically, where we impacts – where we import, sorry, some things like hangers and lockers, but we’re not buying very much from China in total, it’s somewhere in the neighborhood of $50 million or so in total. So, I don’t think we’ve had any significant impact thus far, depending on what happens obviously going forward could that put some pressure on our Uniform business, I guess it could, but I think it remains to be seen exactly what’s going to happen. But our total exposure is relatively small because we do most of our self-manufacturing in Mexico in terms of where we source most of our garments.

And Seth to your question on route density, if you think about our kind of four-pronged synergy capture action plan with AmeriPride route density is that fourth leg. And so it is something that we are spending time on, but it’s really in the context of when we get to the synergy capture, how we leverage route density across the two enterprises.

Sure. Makes sense. Thank you very much guys. Appreciate it.

Yes.

Yes.

Thank you. Our last question is from Shlomo Rosenbaum of Stifel. Please go ahead.

Hi, thank you for squeezing me in.

Yes, good morning, Shlomo.

Hey Steve – good morning. Is there part payment is bringing [ph] return of capital that wasn’t taxed. So, it’s like a straight $0.06 a share add back in the quarter or you – accorded add back for contribution?

Ultimately, it will – it will be tax affected, but not on the AOI line, so it’s a straight add back to adjusted operating income and margins. It will just be rolled into the – to the extent, there is a tax effect that will get rolled into the overall provision.

Okay. And then if you – just in terms of understanding the pacing for the year, how much of that were you expecting in other quarters of the year that we should just know in terms of thinking about the next couple of quarters, was that just to be a 2-quarter thing, 3-quarter thing, 4th quarter thing when you were kind of working out your own projections for the year?

Yes, I mean, we never know for sure, because the government doesn’t always do exactly what we think it’s going to do. I was assuming a quarter, quarter, quarter, quarter, whether that would have borne itself out, I don’t know, but our assumption was kind of three quarters of that $16 million is essentially now out of period within the year.

Got it, okay. And then just from a high level, the $90 million or so, the reinvestment into employees. Should we think of that as a – this is a strategic investment to offset potential labor issues in terms of attrition and things like that or how should we think of that in terms of kind of the share going to employees versus accruing to investors?

Let me do the last part of that, I’ll let Eric comment around the front part of that question. We’re trying to be very balanced in what we’re doing with the proceeds. So, listen the one-time benefit is not the totality of the benefit that we received. So, we did get $100 million refund in the fourth quarter that felt prudent, inappropriate for us to reinvest in the workforce largely which obviously is what we’re talking about. Ongoing from tax reform, right, we’ve got a rate reduction benefit, right, if you just think of the change in the statutory rate, which will continue to benefit the organization prospectively. And so that’s over $50 million of the cash benefit each year. And so we will direct that for all intents and purposes exclusively to deleveraging and that’s more of an annuity. So, I think we’re trying to be balanced around the clear need to recognize employees, as well as deleveraging, but I’ll let Eric make some other commentary.

Yes. I think at the end of the day, it’s really quite simple from my perspective. You’ve heard me talk a lot about at the end of the day, you can look at our food business, facilities, Uniform business, at the end of the day we’re in the people business. And so the best or certainly one of the best investments we can make is into our people. And so there’s a lot of work that went into this to understand how to best maximize this investment, and so if you look at those buckets targeted front-line wage increases to attract talent in a difficult labor market, special recognition and appreciation awards for people, who are really delivering above and beyond, 401(k) one-time incremental investment, training, education and scholarships for our people and their families. Those are all investments that again will help us attract, retain, motivate and give our people the skills and tools. And so that is plain and simple, the motivation behind it, and it’s something we’ve been working on for several, several months and we couldn’t be more excited about announcing it today.

Okay. If you don’t mind, if I just squeeze in one thing on the Uniform, I was pleasantly surprised at the uptick in organic revenue growth. Do you feel like there is a certain inflection point where the company is just starting to perform better and we should have a better expectation than what has been kind of 2%-ish or less over the last several years?

Yes, I think from a Uniform standpoint, if you look at prior to 2017, when a lot of consolidation went into the industry. What you saw is that business growing actually faster than our overall food and facilities business, the margins expanding faster. And so as we look at that business, I would expect our Uniform business to grow greater than the company average and I think as we get into the latter part of this year and next year, you’ll see that happen. So again, if you look at between the 5 years prior to 2017, you’re going to end up with 3.5% revenue growth, high single-digit AOI growth, 50 basis points to 60 basis points of margin expansion, that’s exactly how we would expect that business to perform as we go forward.

Thank you. I will now turn the call back over to Eric Foss for closing remarks.

Great. Well, we appreciate your time and interest in Aramark as always and we look forward to talking to you on our second quarter call. Have a great day.

Thank you. And thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.