Aramark (ARMK) 2014 Q4 法說會逐字稿

Good morning, and welcome to Aramark's FY14 earnings results conference call. At this time, I would like to inform you that the conference is being recorded for re-broadcast, and that all participants are in listen-only mode.

(Operator Instructions)

I will now turn the call over to Ian Bailey, Vice President of Investor Relations. Mr. Bailey, please proceed.

Thanks, Doug, and welcome to Aramark's conference call to review operating results for the fourth quarter and full year FY14.

Here with me today are Eric Foss, our President and Chief Executive Officer; and Fred Sutherland, our Executive Vice President and Chief Financial Officer.

I would like to remind you that any recording, use or transmission of this audio may not be done without the prior written consent of Aramark. I would also like to remind you about our notice regarding forward-looking statements, which is included in our press release this morning, and can be found on our website, Aramark.com, and is included in our other SEC filings.

During this call, we will be making comments that are forward-looking. Actual results may differ materially from those expressed or implied as the results of various risks, uncertainties and important factors, including those discussed in the Risk Factors, MD&A and other sections of our SEC filings. We disclaim any duty to update or revise such forward-looking statements, whether as a result of future events or otherwise.

Additionally, we will be discussing certain non-GAAP financial measures, including adjusted operating income, adjusted net income, adjusted corporate expenses and adjusted EPS, which are adjusted as defined. A reconciliation of these items can be found both in this morning's press release and on our website, as well.

Before turning the call over to Eric, a bit of housekeeping. As many of you are aware, once every six years we record a 53rd week in our financials, which occurred in the fourth quarter of FY14. This results from a standard quarterly reporting convention of 13 weeks per quarter, compared to a year of 365 days.

This extra week obviously affects comparisons to 2013, and to 2015 forward guidance. Our organic sales growth calculation adjusts for this week. The other metrics that we report, such as adjusted operating income, adjusted net income, adjusted EPS and our as-reported metrics, do not adjust for the extra week. So we have provided additional color on the estimated impact to allow for comparison.

With that, I'll turn the call over to Eric.

Thanks, Ian, and good morning and thanks to everyone for joining us.

We're excited to share Aramark's record 2014 financial and operational results, which are reflective of the breath, diversity and strength of the Aramark brand, the success of our clear and focused strategy, and the power and resilience of our operating remodel.

As our results demonstrate, we have and continue to make significant progress in our transformation journey. And while our results over the last two years have been gratifying, we're still in the early phases of this transformation effort, and have lots of opportunities ahead of us. As we look forward, we expect that 2015 will be another year of great progress along this journey.

We're clearly pleased with our results for 2014, and are excited about our future. And I'd like to spend a little time this morning expanding a bit on both of those topics.

In 2014, we saw meaningful momentum and continued contributions pretty much across the board from each of our business units, which led to organic sales growth up 5% to $14.8 billion. Adjusted operating income grew 12% to $878 million, which included an estimated 2% boost from the 53rd week. And we continued to show solid margin improvement of 20 basis points. Our adjusted EPS was a $1.51, which includes about $0.02 from the extra week, up over 20% from 2013's adjusted EPS of $1.24.

For the fourth quarter, organic sales growth was 6%, with about 2% coming from a non-recurring facilities project work we did with a major North American client. Adjusted operating income was up 15%, and adjusted EPS was $0.39, with the lift from the extra week of about 7% and $0.02, respectively.

Now I'd like to talk about how we're achieving these results. Our team has been very busy the past few years developing/launching a long-term strategy for the Company that focuses on defining our culture and facilitating profitable growth. The key to this strategy is addressing both the sales and margin opportunities that exist for Aramark. We communicated this strategy and launched our transformation efforts in late 2012, and feel we've accomplished quite a bit in the ensuing two years.

First, we refined our mission values and focus. Our mission is all about delivering experiences that enrich and nourish lives. And that mission is resonating with our clients and with our 270,000 associates worldwide.

Second, we've repositioned the portfolio and identified clear portfolio roles for our various sector verticals and countries, focusing them appropriately to deliver high, medium, or lower growth, with the expectation that our lower growth sectors will deliver higher-margin improvement. Third, we're in the process of developing and implementing a more repeatable business model that will drive improved quality and efficiency across our thousands of locations to provide a consistent, quality customer experience.

Although our financial results will vary somewhat by quarter, based on the timing of productivity captures, re-investments, as well as new business start-ups, this strategy and our underlying business model has solid resiliency and can deliver consistently over time. Our strategy is really built on what we call the pillar of three A's; accelerating growth, activating productivity and attracting the best people. And I'd like to briefly comment on each of these and provide some context around their impact on our financial results.

Let me start by pointing out that we have clearly accelerated our growth over the past few years. We've moved from what was flattish organic growth from 2009 to 2011, to an industry-leading position in 2014. And we're pleased with this year's organic growth of 5%, which was nicely balanced between new business, as well as building and growing our base business. Annualized new business wins this year exceeded $1 billion, and this represents the second-best result in the Company's history, behind only the extraordinary year we had in 2013.

Our focus on consumer insights that leads to innovation and ultimate service excellence at the moment of truth puts us in solid position to compete in the marketplace. Our client retention rate remains strong at 94%. And in a competitive environment, our wired-to-win initiative has helped us further solidify our connections with our clients and consumers.

Importantly, our growth is balanced and broad-based across our portfolio and geographies. In our North America food and support services segment, organic growth was 5% at $10.2 billion for the year. In the fourth quarter, we achieved organic sales growth of 7%, including the facilities project work I mentioned earlier.

This growth was led by strong performance in our education, as well as our sports, leisure, and corrections groups. Our growth was driven by notable new business wins, including the Chicago Public Schools, the University of Kentucky, St. Louis University, Tennessee Titans, Dignity Healthcare, and Erlanger Health System, just to name a few.

Our focus on branding and innovation are also very important drivers of our growth success. Our branding efforts are starting to bear fruit. Our advertising campaign delivered over 80 million impressions this year, and our logo conversions are largely completed across our facilities, vehicles and uniforms.

We're confident that the We Dream. We Do campaign has positively influenced our brand health, as we've seen brand perceptions scores among clients increase, and the positive momentum against prospective clients, in terms of consideration of our services.

Innovation is also essential for any business, and ours is certainly no exception. We continue to innovate, including tailoring culinary offerings, like our recent Fall Classic that we introduced during the World Series.

We continue to offer flexible service offerings, such as our mobile Starbucks truck pilot that we piloted in higher education. As well as bring new technology solutions, like our adoption of Apple Pay at select locations, as well as our ongoing culinary partnerships with some of the best-known names in the culinary world. Are all ways for us to differentiate ourselves with our existing and potential clients.

Moving on to our international segment, four-year organic sales growth grew 7%, while fourth-quarter growth was 6%. This increase was led by continued, double-digit sales growth in our key emerging-market geographies. In particular, Chile and China, both of which saw double-digit growth, as well as low-single digit organic sales growth in Europe.

During the year, we were excited to have added a number of new key client relationships to our rosters, including Croke Park Stadium in Ireland and Escondida Mining in South America. And in our uniform segment, organic growth was 3% for both the year and the quarter. So overall, as you can see, we experienced a record year, driven by strong new business wins and solid-based business growth across our North America, international and uniform businesses.

Turning to our second strategic imperative, activating productivity, our strategic goal here is to achieve productivity savings, to re-invest in growth going forward, while also expanding our margins. Our productivity programs are organized around our three major cost categories of food, labor and SG&A. The actions we're taking in these areas are collectively allowing us to improve our profitability, while simultaneously investing in technology and our people, that will support our ongoing food and labor initiatives into the future.

Our North America food and support services segment grew their adjusted operating income by 10%, and improved their margins by 10 basis points in 2014. As our productivity initiatives more than offset those re-investments, as well as new contract start-up costs.

In the fourth quarter, adjusted operating income increased 12% in our North America food and support services business. And you'll recall, the benefit of that extra week is estimated to be about 2% for the full year and 7% in Q4, for our three segments for the year and for the quarter, respectively.

In international, our international segment grew their annual adjusted operating income by 25%, and margins by 60 basis points, through a combination of sales growth, particularly in our emerging markets, as well as a solid focus on productivity. In our fourth quarter, adjusted operating income increased 27%.

In uniforms, they grew their adjusted operating income by 12%, and expanded margins by 70 basis points, as both their merchandise and plant productivity initiatives contributed to the segment's profitability improvement this year. In the fourth quarter, adjusted operating income on uniforms increased 15%.

Now, you may recall when we launched our initial transformation program, we targeted a productivity goal of $200 million to $300 million in gross savings, leading to $100 million of net savings [after pastor] to our clients. As well as reinvesting in growth, people and technology over the three-year period that we had targeted from 2013 through 2015.

And we're pleased to announce that we've achieved that initial target a year ahead of schedule. But as with any program of this magnitude, this is a continuing process, where additional opportunities are identified along the way. And as a result, in 2015, we'll begin Phase II of this transformation, targeting an incremental $300 million in gross savings over the next three years. Again, continuing to focus on the three big buckets of food, labor and SG&A.

Our food initiatives going forward will focus on improving our strategic sourcing, and developing more standardized menus. We'll also continue to roll out our field food production tool to improve efficiency and reduce waste.

Our labor initiatives are increasingly focusing on providing better labor scheduling tools to our front-line manager. We've now installed a labor scheduling system in client locations representing more than half of our North American hourly labor base. Improved scheduling at the implemented locations has reduced our hourly labor cost in the range of 2% to 3%.

In addition, we'll start driving a more standard, in-unit organizational structure, using consistent span and layer principles as we move forward. Our SG&A initiatives will continue to focus on streamlining our headquarters staff and standardizing our above-unit field organizational structures at the district, region and business unit level.

We've made significant progress by improving our reporting spans and reducing layers in the above-unit organization. And we've largely completed the transfer of our headquarters' financial processing functions to our Nashville shared service center. And are now focused, as we move forward, on extracting administrative tasks from our client locations to improve efficiency and reduce the administrative burden on our front-line managers.

A significant aspect of this next phase of this transformation will be transferring these additional activities from our North America client locations, and an expansion of our shared services across the globe. We expect these initiatives to continue to support our growth framework of mid-to high-single digit adjusted operating income growth over the coming years. Which will allow us the flexibility to continue to invest in new and innovative opportunities, think about Apple Pay or our in-seat stadium consumer purchasing tools, and to help offset, to some degree, external pressures that may arise, such as food or wage inflation.

We've also made significant progress on our third strategic pillar, our people, as we strive to attract and retain the best talent. Here, we're endeavoring to implement cultural change, with the real focus on our front-line-first mantra. As these front-line associates are really the ones that make the biggest difference and have the most direct impact on our consumers and clients. Their ability to understand and execute our repeatable business model is the key to consistently delivering excellent service at that all-important moment of truth.

To this end, we've ramped up our front-line manager training programs, with over 3,000 front-line managers completing the program. We significantly boosted our college recruiting program, bringing in nearly 1,000 recruits and interns this year. And our Encore! Encore! employee recognition program has been implemented worldwide.

And finally, our Board of Directors has increased our regular quarterly dividend by 15% to $0.08625 per common share. We feel this action expresses confidence in our continued ability to improve profitability and a competitive positioning, while simultaneously creating and returning shareholder value. So all-in, a strong quarter and a record year, with a continued bright future ahead of us.

And with that, I'll turn the call over to Fred.

Thanks, Eric.

To recap the year, we were very pleased with the results. Sales were $14.8 billion, with organic sales growth, which, again, is on a 52-week basis, at 5%. Our adjusted operating income grew 12% to $878 million versus $781 million prior year, which includes an estimated 2% boost from the extra week. Our adjusted net income of $359 million was up well over 30%, including a 2% benefit from the week. And EPS was $1.51, which, as Eric mentioned, included about 2% from the extra week, and was up 20%.

Now turning to the balance sheet. Total debt at year end was $5.4 billion. The Company's total debt-to-adjusted EBITDA ratio on a trailing 12-month basis improved in FY14 to 4.3 times, and liquidity remains strong. The Company's $770 million revolving credit facility was undrawn at year's end.

We expect continued debt ratio reduction, prior to the effect of any acquisitions, from a combination of higher EBITDA and lower debt. Net capital expenditures for the year were $505 million compared to $385 million in FY13; about 3.5% of sales. The Company's rate of capital spending increased year over year as a result of several key accounts renewals, a number of large new-client wins, and spending on technology.

In FY15, the Company expects capital expenditures in the range of 3% to 3.5% of total sales, including higher expenditures in the uniform segment to expand plant capacity. As we look forward, and as Eric mentioned, we clearly have the opportunity to drive additional productivity through a continuation of programs such as labor scheduling and more efficient food production, coupled with supply chain and menus standardization, further use of shared services, including outside of the US, and better standardizing our in-unit organizational structures, as Eric mentioned.

In Q4, we took an additional charge of $21 million for labor actions related to these initiatives. And we expect to incur additional costs of about $100 million over the next two years, also primarily from labor actions. And these would be pretax.

We're clearly pleased with our results, and encouraged as we look to 2015 and beyond. Our multi-year framework remains in place to deliver 3% to 5% revenue growth, mid-to high-single digit adjusted operating income growth, and low double-digit growth in adjusted earnings per share.

Now, for FY15, our adjusted EPS is expected to be within a range of $1.60 to $1.70 per share, based on an estimate of 245 million average diluted shares outstanding. Which is up a bit above 3% in 2014, primarily due to the annualization of the shares issued in the IPO.

While it has only a small negative impact for the full year 2015, the 53rd week in 2014 actually has a fairly significant impact on the 2015 quarterly results. This results from the fact that each quarter in 2015 starts and ends roughly a week later than the comparable 2014 quarter. As a result, the timing changes between our fiscal quarters on the one hand, and events like holidays, school semesters and major league sports seasons on the other.

Let me use Q1 as an example. With a later start to the year, we are essentially trading a week in late September/early October for a week in late December/early January. So we are losing, in the first quarter a week on the beginning of the quarter, when education is fully underway, both K-12 and higher education, and major league baseball season is still in session. And we're gaining a holiday week at the tail-end of the quarter with no baseball, schools on holiday break, and many businesses closed or at lower staffing levels.

Since our fixed costs, overhead costs, field structure, other fixed costs, are of course incurred in both weeks, there's a bigger impact on our adjusted operating income than on our sales growth. So for example, Q1 sales growth over 2014 Q1 will be reduced by about 2% to 3%, and adjusted operating income will be reduced by about 4% to 5%.

Now, as the table in the press release lays out, there is a negative shift as a result of this in Q1 and Q3. And then there are positive shifts in Q2 and Q4. The impact on Q1 is slightly higher, but since it applies really only to the quarter, the full-year impact of all of these quarterly shifts, on both sales and adjusted operating income growth, is expected to be essentially negligible.

So with that, I'll turn the call back over to Eric for some closing remarks.

Thanks, Fred. And Doug, I think if you could open the lines, we're happy to take any questions at this moment.

(Operator Instructions)

Manav Patnaik, Barclays.

Good morning, gentlemen. Congratulations, a good end to the year. I just wanted to probe a little bit more on your Phase 2 of the productivity plans, and to try and compare it with Phase 1. You are guiding to similar $300 million of gross savings. So on a net basis, should we be expecting that $100 million similar to what you delivered for Phase 1? And just in terms of the amount of traction you can get in Phase 2, should that realistically be something that you could get done earlier like you did with Phase 1, as well?

Well, thanks for your question. As we think about our progress, first of all, we're obviously very pleased to deliver the culmination of Phase 1 a year early. I think as we look at Phase 2, let me talk a little bit about the composition of how that might differ.

If you look at Phase 1, again, I think we've said historically about a little north of 50% of that savings was driven by SG&A, with the other 40% to 50% split between food and labor. I think as we go forward, you'll see a lot more of that savings be driven out of the big buckets of food and labor, and a little less so reliance on SG&A.

Having said that, if you look at our plans, we've continued to focus on making sure, from an SG&A standpoint, our above-unit labor we get at both layer and span opportunities. To make sure we've got a nimble and agile organizational structure, to move decision-making to the appropriate point close to the marketplace, and make sure we're very responsive to consumers and clients.

As we go forward, again, in the area of labor, you'll see us put a pretty large focus on coming up with a standard in-unit organizational structure, which will be a big driver of that Phase 2. Along with the point that Fred and I made around making sure we streamline our supply chain from a food standpoint, and then focus holistically on the whole food preparation process.

So I think, all-in, we're comfortable with the number we put out there of $300 million. Obviously, as was the case in Phase 1, that will continue to -- part of that will accrue to client interest-based contracts. And we will continue to invest, as we've said all along, on technology and people. So you can expect that to be the case. But we're pleased with our progress. And the great news is, we've got not only an opportunity, but a clear line of sight at how we're going to deliver and get at that opportunity.

Okay, thank you. If I can just squeeze one quick in for Fred, just in terms of FX exposure. How should we be thinking about that going forward?

Our FX exposure is really pretty minimal, and if you look at the overall impact on our sales and adjusted operating income for the year, I think it was about $100 million in sales and about $6 million in adjusted operating income. It's pretty much driven by the US currency versus the various foreign currencies. Our balance sheet exposure is pretty minimal, because we tend to have financing country by country to minimize our net asset position.

Our inputs, our sales, are all, by and large, recorded in local currency from our clients. Our costs, which are food and labor and overhead, are all paid in local currency. We remit our dividends in the form of earnings, which are relatively small compared to the overall asset positions. So I don't think there's any reason to think about the impact of the currency going forward as much different than what you've seen over the last couple of years.

All right, thanks, guys.

Thank you.

Flavio Campos, Credit Suisse.

Good morning, everybody, thank you for taking my question. I just wanted to focus on North America margins for a second. I understand there is some pressure there from the ramp-up costs from new clients, but if you can just give us some more color on those costs, and how should we be thinking about margins here on a go-forward basis. And if this is going to be the biggest driver of margin improvement for the Company, as well.

Well, a couple of things. Our North America margins are, from a geographic standpoint, the best margins in the portfolio. I think we've said from the beginning that our objective here is, across the Company and across each of our geographies, to dribble with both hands. Meaning we want to make sure we accelerate revenue growth, while at the same time capturing margin opportunity.

I think if you look at our results, we certainly did that. We saw growth across all three of our geographic business segments, and we saw margin improvement across all three, as well.

In North America, as we mentioned, in particular, as you add new clients, those start-up costs associated with those new clients -- particularly when you're looking at big, university, or any sector, really. When you're signing some of these larger clients, you going to be dealing with some of these headwinds, particularly in that first year.

And that was certainly the case, as we looked at 2014. But as we look forward, we would expect our North America business to certainly deliver margin improvement, and probably even at a faster rate than we did in 2014.

Just as an addition, much of our reinvestment in growth, people and technology, as you would expect, is focused against our North American business.

That was helpful, but just a quick follow-up on the same topic. International has been performing very well on the margin expansion column, right? And is this 5%-plus towards mid-5% be sustainable for the short [while], or was that just a temporary thing for Q4 and the end of the year?

I'm sorry. The 5% --?

Operating margin on international.

No. I think, again, I want to keep coming back to the same point. It probably sounds a little bit like a broken record, but hopefully, it's music to your ears. The fact is, is that we expect our international business -- obviously, if you looked at our international business, our Europe business, I think we were the only ones of our peers in this sector to show growth. Our European business showed 3% growth, 50 basis points of margin improvement. And our emerging market business showed double-digit growth and 50 basis points of margin improvement.

So the key here is dribbling with both hands to make sure we're not just -- even in emerging markets -- growing the top line. We have to make margin progress as well. And those two metrics are very critical to each of our businesses. And I think, again, as I said in my comment on North America, we would expect that journey to continue in our international business, as well.

Perfect, that's very helpful. And congratulations on a strong quarter.

Thank you.

Sara Gubins, Bank of America.

Good morning, this is Brian Davis in for Sara Gubins. Thanks for taking my questions. First off, regarding the large client that added 2% to North America in the fourth quarter, I'm just wondering what vertical that was in, and do you expect any similar wins in the future. And is any of that revenue going to trickle into the first quarter, as well?

The large client was a business client. So it was in the B&I vertical, at-large, leading the manufacturing company in the US, where we do facilities work at one of their plants. And the vast bulk of the sales are really recognized in the fourth quarter. And that's why we called it out. It was a great opportunity, we did a very good job, the client was very happy. But we're not counting on getting individual project work of that magnitude in the future.

It was a one-time event connected to disaster recovery. So because of that, it was one-time in nature.

Okay, very good. Thank you. And then just one follow-up, if I may. We talked before about food inflation. I'm wondering how that came in, in the fourth quarter, and what your expectations are for FY15? Thank you.

For 2014, our overall food inflation was in the range of 1% or so. As I think everyone knows, food inflation generally was more benign earlier in the year compared to later in the year. As we look at 2015, we're expecting overall food inflation to be in the range of 2% to 3%. So certainly while higher than 2014, manageable within our framework, consistent with price increases.

And again, I just want to remind everybody, when you think about food inflation and the impact it has on our business, there's a couple of key things to keep in mind. One is, just remember the diversity of our business model. So again, if you look at it, just remember that in addition to the foods business -- because of our uniform business, our facilities business and our healthcare technology business -- those businesses, 25% or so of our revenues are nonfood-connected.

Then again, when you take our food business, remember about 30% of those contracts are client-interest. So inflationary costs on those clients do not flow through to our P&L. And then finally, again, we have pricing opportunity, as Fred said, which we've certainly pursued as we go into 2015. But we also have menu optionality, and that menu optionality allows us to move the menu around, and flex the menu to deal with an any unreasonable inflationary pressures. But I think the punch line is, we're highly confident in our ability to deal effectively with any inflationary concerns.

Thank you very much.

Denny Galindo, Morgan Stanley.

Good morning, guys. My question is on minimum wage. So there was four or five states that passed minimum wage increases, and most of them were small, but also the City of San Francisco. And I was curious if you can talk about what kinds of impact these changes might have on North American margins.

Sure. Well, first of all, let me start with -- our whole commitment around this front-line-first mantra is that we want to make sure that are our front-line associates are paid a fair and competitive wage. About 90%-plus of our employees are actually already paid above the minimum wage. And so, again, as we look at this, the key question on any action taken is to make sure it's right for the overall environment.

And I think the fact is, is that we've looked at this, and certainly in the states you refer to, we can deal with the kind of minimum wage increases we've seen, effectively. Again, we have multiple ways to deal with that. And so at this point in time, I think, we're highly confident in our ability to continue to manage this thing as it evolves.

And just one more on that topic. It's also been discussed nationally as a potential area of compromise. Have you guys talked about how many of your employees are in between that $7.25 and $10.10 range? Or $10.10 was the minimum wage that President Obama was looking to increase minimum wages to.

I think, again, it's tough to talk about the hypothetical. So I think from our vantage point, the key question on any particular action taken is to look at its overall impact holistically, it's impact on employment and the broader economy, so on and so forth. And so, again, as I said, we certainly understand where our associates are paid. And as we look at that, we continue to monitor it, both at the federal and state level.

And again, we'll continue to do so as we go forward. But at this moment in time, we've been able to successfully manage through any of these increases at the state level.

Thank you.

Gary Bisbee, RBC Capital Markets.

Hi, guys. Good morning.

Good morning, Gary.

I want to just ask, with the second straight year of very strong new business sales, and several of those being very long-term contracts, how should we think about that in the context of this 3% to 5% growth? I think the last two fiscal years, you've been in the upper half of that. Does that range potentially increase over time?

Is 3% like a worst-case scenario if the economy deteriorates a little bit? Or is that really still the right medium-term range, even with the real momentum you seem to have created in the business in the last 24 months?

I think, Gary, it's the right range for us. To your point, we've had -- and as I referenced through my comments -- we've had two really strong years in new business results. And I think as we look at this, again the composition of our growth, if you think about it on a year-to-date basis, we had good growth not just from new, but very good growth off of our base business, as well.

But as we think about it going forward, the fact is, is that the new business pipeline continues to be very robust. The great news is, for us and for the sector, you still have 50% of business that's basically self-operated. And one of the things we have seen the last two years is, we've seen an uptick in the amount of self-op business that accrues to our new business. That's moved from what used to be something mid-teen's as a percentage of our new business, up to the mid-20%s, which is encouraging for us.

So I'd say, we still remain comfortable with the 3% to 5%. We are very encouraged by our progress the last couple of years, and we're also very positive about the pipeline we see right now.

Okay, great. And then, you had talked prior to the IPO about the importance of significantly increasing technology investments. And there were some opportunities you talked about where the managers of many of your facilities didn't even have real-time data to allow them to make the best decisions. I just wanted to ask for an update on that. How far are you along, in terms of developing the systems that you need, number one?

And number two, actually implementing them and having your people improve the decisions and improve the processes because of that? Is that still a big future opportunity, or are you are already making progress? Thanks.

Yes, Gary, I appreciate the question. I think it's both. I think we're making progress, but it's still a big future opportunity. I would say we're very much in the early phases of the deployment of technology and tools.

The good news is, again, we've made progress. Again, each line of business is at various stages of development. We're probably further along in our sports business or our higher education business than some of the other business verticals. But expect us to continue to invest for multiple years to come in the area of technology. Fred may want to share with you some of the specific things we're deploying right now.

But the fact is, is that we are making progress, but a long, continued journey ahead of us to continue to invest. And obviously, in the marketplace, with the changes you see -- Apple Pay is a great example. We need to stay current with any and all of these technologies, in terms of getting the exposure to those.

If I could just add to that, Gary. We think about our IT investment in buckets that really support the overall framework. So there's IT investment going in growth, that's through salesforce.com. Good news there is, that's been largely implemented worldwide -- just completed, really, over the last couple of months. Which helps us with tracking pipeline and progress with prospects.

On HR front, we've implemented the Oracle HR package, which we call the Human Capital Management System. That helps us, particularly in controlling wages and wage increases out in the field. As Eric mentioned, we're midway through the rollout of Kronos, which is a field labor scheduling tool. And that's one where there's another year or two to get that fully rolled out.

We're in the very early stages of rolling out an automated food production system at the field level, which we call PRIMA Web, and that's early on. So that's another few years. And we're rolling out a field financial system, an updated field data reporting system, that reduces administrative burden and provides faster reporting, which we call Global Field Financials. And that's going to be another year in North America, and then after that in international.

So we've identified the key systems. A few of them are done, some of them in early stages, some of them halfway through rollout. We've got another couple years to go for sure.

Great. And if I could just sneak in one last one. I understand the commentary on margins, investments and whatnot. But was there anything in particular in the fourth-quarter North America segment operating income margin? It went down. I wonder, was the margin lower on that project work, or was that start-up costs, as you referenced? Or the 53rd week impact? Or is it just the regular ebb and flow of the business? Thank you.

There was no real 53rd week impact -- good question -- on the margin. It was really just the timing of realization of productivity reinvestment, some fairly heavy reinvestments in the fourth quarter. And then, as Eric mentioned, we did have some pretty significant start-ups. Several of those were in education and related to the new school year, and several in healthcare.

Thank you.

Jeff Farmer, Wells Fargo.

Thank you. I have a question from a little bit different perspective for you guys. So restaurant companies have seen, I would say, some unexpected same-store sales growth acceleration over the last three to four months. Most of these management teams have been pointing to lower gas prices, lower energy costs, as basically key drivers of that increased demand. I'm just curious in looking at your business, really, across the business dining, even food service segments, across education, sports leader sectors.

Have those sectors historically benefited from a similar demand in revenue growth tailwind when you do see lower energy costs and theoretically increased disposable income? Would you expect a similar sort of supply/demand dynamic when you do see lower energy costs?

I think for us, Jeff, it's probably a little less than some of the businesses that you're referring to. Again, there's a couple of dynamics. One, we've got several sectors, large important sectors for us, in healthcare and education, that tend to be less economically sensitive, either benefiting from good times or being hurt in more difficult economic times.

And then I think the other thing is, is that our markets tend to be a little more captive then maybe some of the examples you're using. So we see some connection, but it's probably not nearly as linear as you're referencing.

All right, helpful. Thank you.

Justin Hauke, Robert W. Baird.

Good morning, guys. Two quick ones here. The first one is just the cash components of the $100 million of the restructuring for the next phase. How much of that is cash? And then what is your expectation for how that will be realized over the next few years? It looks like it was pretty front-loaded with the $21 million in the fourth quarter.

Sure. This is Fred. Just to clarify, the $21 million was in the fourth quarter. The $100 million that we refer to is going forward over the next couple years. And again, in support, as Eric mentioned, of Phase 2 of the transformation program, which is a three-year journey. Most of that which is a headline number -- it's obviously an estimate -- is related to labor efficiencies, as the $21 million was in the fourth quarter. As opposed to impairments or asset write-offs.

So that means that it would have a cash impact. And we'd expect to have the effect pretty much over the next two years. And from a income recognition effect, probably 50% to 60% in the first year, and the remaining 40% or so in the second year. The cash impact pretty much following that, probably trailing it a little bit.

Okay, that's helpful. My next question is -- turning to the uniforms, it's interesting that you mentioned investing in new facilities. I think that's the first time you guys have highlighted that. I was just hoping you could talk about that a little bit. Where are capacity levels in that business? And then also, how do you think about investments in that business just from a portfolio perspective, of a return on capital versus the food services? Thanks.

Well, it's a great business. We've got a very strong market position that's got very good margins. The returns on capital are quite good too, although it is a more capital-intensive business than our food business.

And with our growth, which we see continuing and increasing over the next year or so, we've clearly got some emerging capacity constraints. We plan to do some expansion out in the West Coast, where we have a very strong position, and with our growth, we're having some capacity issues. And then a couple of other selected markets across the country. So we do expect, as we look at 2015 and beyond, to see some uptick in our spending in the uniform business, to expand our capacity.

(Operator Instructions)

Denny Galindo, Morgan Stanley.

Just had a couple more quick modeling questions for you guys. Number one, on stock comp in the IPO process you have talked about -- one-time stock comp and recurring stock comp. As you move into your next year as a public company, what do you expect that the long-term recurring stock comp to look like as a percentage of revenue or expenses, or however you guys think about it?

Sure. So some of the stock comp associated with the IPO we categorize as part of the IPO expenses. Our stock comp increased 2014 over 2013, as we said, because of the transition to a public company, and as we move into options and restricted stock units performance, stock units programs that are more typical. So we expect that to increase somewhat over the next year or two, and be more or less in line with our relative competitors.

And then on capital allocation, you increased the dividend this quarter. You also made more aggressive investments in the CapEx line. And then of course, your debt came down. So how do think about allocation of capital between these priorities in the future, going forward?

Well, we start first and foremost with what we need to reinvest in the business in order to support our profitable growth. And that is, of course, principally in the bucket of the capital expenditures. From time to time, we'll make acquisitions for strategic purposes to strengthen our business. So we didn't make much in the way of acquisitions in 2014, but that's certainly also out there -- potentially, it will be lumpy.

The dividend, as we said at the time of the IPO, we expect over time to increase our dividend, consistent with the growth in the Company. So we consider the dividend to be important. But having said all of that, and particularly before considering acquisitions, the cash flow is strong enough that we expect there to be regular debt reduction.

Barbara Noverini, Morningstar.

Good morning, everybody.

Good morning, Barbara.

How would you classify the bulk of your revenue growth in uniform services? Is it also coming from new account wins? Are you starting to see customers add uniforms or shop more regularly with the strengthening of the employment environment?

We're seeing our base business, if you will, the f-stop ratio, staying about flat overall. And I think that's pretty consistent with the industry. We're adding lots of new customers. Our sales force reports a pretty strong pipeline, overall, in the uniform business. Our client retention rates have been pretty constant. So that's pretty much how we see the dynamics between the components of growth.

Okay. And then what would you say is the mix a new accounts that are starting a uniform program for the first time, versus those that are switching from another vendor?

I think, in general, it's not inconsistent with the step that Eric referenced for the overall Company. Generally, not programmers -- as we call them -- account for somewhere around a third or so of our new business.

Okay, great. Thanks.

We have no further questions in queue at this time.

Thank you, Doug. And just, again, in closing, let me thank everybody again for joining us. I want to reiterate how pleased we are with the 2014 results. I think it's a clear indication that we've got the right strategy in place and are executing well as we progress down this transformation journey.

As we've said, we're excited about the future. And again, as we think about this business going forward, rest assured we'll continue to deliver innovative solutions and focus on profitable growth and providing a great customer experience. And making sure, importantly, that as we look to the future, we've got more quarters and years of strong results to create long-term shareholder value. So thanks for your interest in Aramark.

Thank you for your participation, and have a nice day. All parties may now disconnect.