Aramark (ARMK) 2017 Q3 法說會逐字稿

Good morning, and welcome to Aramark's quarterly earnings results conference 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 Third Quarter of Fiscal 2017. 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 is detailed on Page 2 of our earnings slide deck.

During this call, we will be making comments that are forward-looking, including our expectations for fiscal 2017. 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 on this morning's press release as well as on our website.

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

Thanks, Kate. Good morning, and thanks to everyone for joining us.

This morning, we reported another quarter of solid operating results, in line with our expectations, and we are also well-positioned to achieve our full year 2017 targets. Adjusted earnings per share was $0.40 in the quarter, an 18% increase from last year. Total company organic sales were up 1%, with growth in North America and international segments. Top line results were adversely impacted by roughly 50 basis points due to the timing of the Easter Holiday. Adjusted operating income was $209 million, an increase of 4% on a constant-currency basis.

We drove solid base productivity improvements in North America and international, and our in-unit food and labor productivity initiatives continued to gain traction. As we continue to reinvest in growth, technology and capabilities, our AOI margins for the quarter increased 20 basis points on a constant-currency basis to 5.8%. Looking forward, we expect margin expansion in the fourth quarter, driven by higher productivity. These results reflect the strong execution of our clear and focused strategy, which I'll discuss in more detail in a minute.

Turning to our performance by segment. North America organic revenue grew 40 basis points, led by Education, Business & Industry, Sports, Leisure and Corrections. North America AOI grew 14% to $142 million due to the strong base productivity gains.

Our international business delivered strong broad-based organic revenue growth of 4% in the quarter. And please note that after adjusting for the timing of the Easter Holiday, our year-over-year revenue growth was essentially unchanged from the second quarter to the third quarter. Productivity gains in our international business were more than offset by the timing of certain expenses as well as the Easter Holiday. This resulted in an AOI of $36 million, a decline of 5% on a constant-currency basis.

In Uniforms, revenues were essentially flat in the quarter, as expected. Adjusted operating income declined 11% to $46 million, largely due to installation cost related to the onboarding of new business. Looking forward, we're seeing market conditions gradually begin to improve, and we continue to invest for growth in this core business.

With regards to our full year outlook, our cash flow generation continues to improve, and I'm pleased to announce that we're increasing our full year cash flow outlook to more than $425 million. We also remain confident in achieving our full year adjusted EPS outlook of $1.90 to $2 per share.

Looking forward, I continue to be encouraged by the strong retention rates that we're driving, consistent with our targeted mid-90s percentage for the full year. We're also anticipating a strong exit to 2017, as we will be onboarding several new accounts across a number of key sectors. As I've mentioned previously, we're expecting a strong back-to-school season, as we begin serving food at Temple University, the University of South Carolina and Kent State University in Ohio. And we've just begun serving Drexel University this past spring. We're also ramping up our IFM work at the Chicago Public Schools. And in healthcare, we're launching new business that we've added with Baylor Scott & White Health, Christus Health and Sunnybrook Hospital. And we will be running the retail operations at this year's US Open Tennis as well. We expect these accounts, combined with the additional new wins that I will mention in a moment as well as solid retention rates, to enable us to achieve revenue growth in 2018 within the multiyear framework.

With that in mind, I'd like to provide you with an update on our strategic objectives. Our first strategic imperative is to accelerate growth by creating a consumer-centric product portfolio. And I'm pleased to report that we saw another double-digit increase this quarter in overall consumer satisfaction measures in our Voice of the Consumer survey. We remained focused on meeting and exceeding consumer needs across 4 critical dimensions: quality, convenience, personalization and health and wellness. And our client loyalty scores are also steadily improving as we continue to leverage our deep client understanding to meet their expectations. This obsessive focus on delivering consumer and client satisfaction is enabling us to win new accounts across a number of key sectors. I'm pleased to announce today that our Leisure business has been awarded the retail and e-commerce business contract at Colonial Williamsburg. Colonial Williamsburg is the world's most recognized living history museum, and we look forward to leveraging our industry experience and insights to create a dynamic and engaging shopping experience for visitors.

In our Sports business, we won the food and beverage contract at Louisiana State University Athletic facilities, where we'll manage all aspects of concessions for 8 campus venues. And we've also already expanded our relationship with the University of South Carolina by winning their athletics and conference center business as well.

In our Education business, we've been awarded the foodservice contract at Atlanta Public Schools as well as the Chandler Unified School District in Arizona.

On the Uniform side, we secured an exclusive contract with JBS USA, one of the world's largest meat processing companies.

Looking outside the U.S., we won a business dining contract with Škoda Auto, a Volkswagen subsidiary in the Czech Republic, which is a notable win for us in a region where our business has continued to expand. And our new management focus on the facilities business is already paying off, as we expanded our relationship with Eastern Kentucky University by adding the facilities contract there.

Turning to some recent highlights from operations. We'd like to congratulate 2 of our partner teams on their back-to-back championships, the Pittsburgh Penguins, who are the 2017 NHL Stanley Cup champions; and Real Madrid in Spain, which clinched the 2017 Champions League Final in European football. It's truly an honor to serve these winning teams.

This summer's travel season is in full swing with another record year of travel expected in the U.S., as we expect to welcome more than 40 million visitors and guests to the tourist destinations that we operate across the country. As an indication of our continued leadership in the Leisure business, TripAdvisor awarded a number of Aramark-managed lodges, restaurants and attractions its 2017 Certificate of Excellence. Just a couple of our locations that were recognized include the Majestic Hotel at Yosemite and Glacier Bay Lodge in Alaska.

To support our strategic initiative of accelerating growth, we also need to continuously innovate, centered around our innovation framework of making sure our product offerings come to life through our limited time offers as well as our restaurant rotations, making sure we continue to engage celebrity chef partners as well as pursuing our health and wellness initiative. And in addition to products, we're also innovating on the technology front.

A recent limited time offer example featured fresh seafood and a restaurant rotation called Fresh Ginger allows consumers to personalize their meals with unique ingredients and flavors from the Pacific. We're excited to expand our relationships with 2 of our celebrity chefs. Through our partnership with Danny Meyer, we're opening the first Shake Shack at an NFL stadium, at M&T Bank Stadium, the home of Baltimore Ravens. And with Cat Cora, we're launching Wicked Eats, a new proprietary concept inspired by the vibe and energy of street foods, highlighting Mediterranean and Middle Eastern cultures.

Regarding health and wellness, we're launching Treat Yourself patient menus in our Healthcare business. Fueled by patient insights and extensive research, these menus deliver innovative, engaging dining experiences through high-quality ingredients and sought-after flavors. The new Treat Yourself patient menus also support numerous specialty diets as well, meeting the specific needs of our healthcare consumers.

And we're focus on meeting consumer needs for a healthier lifestyle is demonstrated by our Healthy For Life commitment with the American Heart Association. Our Feed Your Potential public health campaign with AHA continues to gain traction, as we have a goal of reaching over 500 additional nonprofit organizations through a proven online health and wellness curriculum created with the association. And our innovation extends beyond our food portfolio as we continue to raise the bar through technology innovation. We've been building our momentum by mobile -- by enhancing our mobile ordering applications, which feature nutritional tracking capabilities that help our consumers meet their health and wellness goals while, at the same time, enhancing consumer loyalty.

Turning to our second strategic imperative of achieving productivity, we continue to attack complexity across the supply chain by creating a more efficient operating model, which allows our front-line associates to focus on delivering excellence at the moment of truth. As a reminder, the 3 levels we focus on are food, labor and SG&A. Our food and labor productivity initiatives continue to gain traction as we focus on our in-youth productivity across the portfolio. And our above-unit management is driving SG&A leverage, while creating a more agile workforce.

We're also improving our account mobilization efforts, becoming more efficient in starting up new accounts across the businesses. Our global operational excellence team is partnering with the local management teams to leverage our expertise in this area, allowing us to open accounts more cost-effectively. And as always, we'll focus on delivering excellent customer service from day one. Through our efforts, we're minimizing the impact to our clients through a seamless transition, which is their #1 priority.

We remain focused on executing against these productivity initiatives, and I'm particularly encouraged by both the near-term and longer-term opportunities I see to improve our operating leverage going forward.

Finally, turning to our third strategic objective, attracting the best talent. We're committed to attracting and retaining the best talent to create an engaged and productive workforce. We just welcomed our new class of recent college grads to Aramark, who joined us through our Accelerate to Leadership program, a management training program that we initiated a few years ago. This continues to be highly successful as we are growing the next generation of leaders here at Aramark.

We're also investing in the training development of our existing leaders by launching our next chapter of a comprehensive management training program across the company.

So in closing, I'm pleased with the progress that we're making in exceeding and executing our clear and focused strategy. Looking forward, I remain confident that we will deliver a strong exit to 2017, and that will continue to deliver our multiyear objectives in 2018.

Finally, let me extend my personal appreciation to our 270,000 global team members, who work tirelessly every day to deliver a truly great customer experience.

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

Thanks, Eric, and good morning, everyone.

Overall, we're both pleased and unsurprised by where we sit entering our fiscal fourth quarter. We have now lapped our largest 2017 revenue headwind as we exit the third quarter, which, combined with strong new business and retention trends, will bode well for stronger revenue growth as we exit the year. Our productivity initiatives continue to gain momentum and, along with the efforts from an improved balance sheet and some good planning, are contributing to strong and balanced EPS growth. Our ability to continue reinvesting in growth-generating opportunities, while simultaneously improving capital returns and raising cash flow expectations, is a reflection of the discipline and the focus of our entire team.

Let me now turn to the third quarter sales reconciliation. We recorded sales on a GAAP basis of $3.6 billion. This figure was comparable to prior year, and was impacted by currency headwinds of $33 million or almost 1%. This was due to the U.S. dollar strengthening year-over-year against the British pound and the euro, partly offset by U.S. dollar weakening year-over-year relative to the Chilean peso. Organic sales for the company grew by 1% in the quarter, driven by growth in North America and international, while revenue in Uniforms was essentially flat. And there was no material impact from mergers and acquisitions activity on any of our financial results in the quarter.

Adjusted operating income was $209 million in the second quarter, an increase of 4% on a constant currency basis. We delivered productivity improvements in our North America and international base accounts, and we continue to drive further efficiencies in SG&A. These were partly offset by reinvestments in technology and capability. The drop-through was further impacted by our investment in the onboarding of a significant amount of future business in Uniforms as well as the timing of certain expenses and the Easter Holiday in our international business. Currency did not have a material impact on margin or AOI in the quarter. Ultimately, AOI margins increased approximately 20 basis points on a constant-currency basis to 5.8%.

Adjusted EPS increased very nicely by 18% or $0.06 on a constant-currency basis over the prior-year quarter to $0.40 a share. This increase was due to a number of factors: solid business growth as well as lower interest and taxes, a balanced improvement. Adjusted interest expense was lower than prior year due to the impact of our recent refinancing, and our tax rate continues to benefit from both our tax planning efforts as well as the new accounting standards related to share-based compensation. Finally, dilution was less than it otherwise would have been due to the share repurchase earlier this year.

I'd now like to discuss our improved free cash flow outlook for the full year. And as a reminder, we define free cash flow as cash flow from operations, less net capital expenditures. I've previously mentioned the positive impact of the accounting rule change related to share-based compensation on our tax rate. The rule change also impacts the cash flow statement for both 2016 and 2017 in the form of a reclassification. As depicted on the slide, we now expect a current year benefit of approximately $50 million related to the rule change, and that will compare to a restated $61 million impact in 2016. This is a net reclassification in both years between operating and financing sections on our cash flow statement. We are restating the prior year cash flow statement each quarter, as required by the new rules. Please note that this request does not impact either the cash available to the company for our use or our leverage levels. The upshot of this is that we're increasing our full year free cash flow outlook from over $350 million now to over $425 million. This improved outlook is a combination of the estimated $50 million impact related to the accounting rule change as well as another $25 million improvement in the cash flow generation from the company's performance. Our first increase to the full year free cash flow outlook after the first quarter was exclusively related to improved business performance. So this is now the second time that we're raising free cash flow expectations due to stronger operations. We now expect fiscal 2017 free cash flow to improve at least 11% over the restated prior-year amount, and that's despite a negative 6% year-over-year impact from the accounting reclass in 2017 versus 2016. Corporate liquidity remains very strong, as reflected in the $1 billion in cash and revolver availability at the end of the quarter. And as you may recall, we've markedly extended our maturities. We don't have anything maturing now until 2022 of substance. Please note that our net debt to covenant adjusted EBITDA ratio decreased by 10 basis points year-over-year to 3.8x in the quarter.

Finally, let me turn to our business outlook for the remainder of 2017 and a few other changes to our prior expectations. At current rates, we now anticipate about a $0.01 negative impact from FX headwinds for the year versus the $0.02 impact that we were expecting last quarter, and that's due to a modest weakening in the U.S. dollar. We now expect CapEx to come in around 3.5% of sales based on our current investment schedule. We remain fortunate to have good growth opportunities for investment in front of us. And also, keep in mind that this year's capital expenditures include the wraparound of several 2016 projects that were not included until 2017. In the fourth quarter, we continue to expect that we will report our highest year-over-year revenue growth for the year, bolstered by the new business wins Eric mentioned. And the same holds for our margin expansion expectations as our productivity progress continues. For the full year, we remain confident in our adjusted EPS outlook of $1.90 to $2 per share. We expect to be in the center of the range, possibly a touch higher by the time the year concludes.

I'll now turn the call back over to Eric for some closing remarks and advance to questions.

Thanks, Steve. So in summary, we reported a solid quarter. We continue to be excited about the future prospects, and continue to have confidence in the road ahead to continue to deliver strong shareholder value.

So with that, let me turn the call back to our operator. Beth, we're ready for our question-and-answer session.

(Operator Instructions) Your first question comes from the line of Hamzah Mazari of Macquarie Capital.

The first question is just on revenue trajectory. Maybe just update us, are you done cycling through low-margin business? Or is that an ongoing process? And then any change you're seeing in terms of competitor behavior? It seems like one of your European counterparts had pretty disappointing results, maybe some share loss. The other competitor did not. Just curious to see, one, low-margin business and your view there. And then, two, any structural change in the marketplace?

Sure. Well, let me start. I think relative to our performance, I think the quarter was certainly solid and in line, as we talked about. I think from our perspective, we're going to control what we can control, and that is to continue to execute well behind our strategy. I think as we look at our own revenue, we feel positive and are going to start to see, as we mentioned, Q4 be the best top line growth that we've seen in 2017. It will be within kind of our long-term framework. That allows us to finish 2017 with better momentum than we did a year ago, and that gives us a good line of sight and momentum as we head into 2018. So from our perspective, again, if you look at the quarter, our North America top line performance was really very, very strong and broad-based from Education to business dining to Sports to Leisure to Corrections. I think relative to the cycling of the business, I mean, you'll always see this business cycle through different levels of low-margin business. So I'm not really sure on your question there, but what we have said is we've lapped and are now not lapping the healthcare headwind that we had going forward. So that will also help us as we look to fourth quarter in 2018.

Yes. And Hamzah, maybe I would just add the -- we've talked previously in quarters about some strategic decisions we've made over the last year or 2 around portfolio. We've fully lapped all of those particular notable decisions earlier in the year. And so while we will continue, we will always assess the appropriateness of returns in the portfolio as a matter of due course. The particular items that we've highlighted previously have all completely lapped.

That's very helpful. Just a follow-up question. I'll turn it over. As you think about the balance sheet, you outlined 3.6x by the end of the year. At what point do you start pushing the gas on M&A? Is there a certain leverage point where leverage gets to below 3x that you look at the marketplace and it's pretty fragmented still, and you guys push the accelerator on M&A? Just trying to get a sense of longer-term capital allocation versus near term.

Yes. I think, first of all, you should feel comfortable that we're highly confident in kind of our standalone strategy. Having said that, as we've strengthened the balance sheet, we certainly can run more M&A plays and have that optionality. So as we look at that, we certainly have the flexibility now. And you should see us, we've done some tuck-ins this year. And we've got an M&A framework that we apply with a lot of rigor, and the predominant focus of that is on tuck-in acquisitions. We've said, anything that adds scale or capability to our portfolio, we would have an interest in. And I think kind of the swim lanes that we've talked to you guys before about our -- an example is what we've done this year to add to our purchasing scale with a couple of those tuck-in acquisitions. Certainly, the Uniform business is something where we can add scale to help our local market share. Adding new geographies on a very targeted basis is something that we've talked about. And then you have adding capabilities to up our quality or our portfolio in either food or facilities. So that's the way we think about M&A. And Steve, you might want to comment a little more on...

Yes. I think just to reiterate what we've tried to communicate, on a longer-term basis, I think it's a fair expectation to expect our leverage to be somewhere in that 3 to 3.5x. It's probably unlikely we would choose to go much, much below that, at least in the current environment. It'll bounce around between there depending on debt maturities and other opportunities. And as we start to get below that threshold in 2018, our capital allocation will become more balanced than it's been before. We're obviously deleveraging at the front position and in the race. And so M&A will be a piece of that greater balance. And you'll continue to see us appropriately return capital via the dividend and via share repurchase, where that makes sense for us, within the broader capital allocation approach.

Your next question comes from the line of Gary Bisbee, RBC Capital Markets.

A 2-part question on margins. I guess, the good and the bad, right? North America food was extremely strong, and then the other 2 were down. Can you give a little more color just on the drivers of that, and how we should think -- in particular, how we should think about their trajectory in Uniforms looking forward to next quarter?

Sure. Gary, it's Eric. I'll start. I'm sure Steve will have some color commentary to add. So as you think about our margin performance in the quarter, let me just stay at the company level, if that's okay, to start. I think it's important for everybody, as you saw us put up the 20 basis point improvement, let me talk about what happened on the base productivity. Again, another quarter of strong base productivity improvement across the company. Our base productivity was up about 45 basis points, and then that was offset with some start-up activity and investments in growth capability and technology to the tune of about 25 basis points. And as you mentioned, North America performance was really, really strong. Let me talk a little bit and give you a little more color commentary about the international performance as well as our Uniform. So in international, we're going to have another great year in 2017 in our international business. You saw the top line in the quarter grow mid-single digit. Again, that was about 1 point of headwind due to Easter on the top line. Easter also impact the bottom line as well. So if you look at what happened, you had really, I think, a couple of items. You had the impact of the Easter shift on their margins. You also had some onetime charges and expenses that impacted our international margins. And so as we look to the full year again, I think you'll see that business perform like it has in the last couple of years, growing mid-single-digit top line, good bottom line improvement with margin expansion. On the Uniform side, we're finding ourself in a situation, as we mentioned on the last call, that the marketplace had heated up as a result of some consolidation in the industry. And so as we deal with that, what you're now starting to see happen is we are starting to ramp up and open new business. And what happens in the Uniform business -- I don't know if we've talked about this to you in the past, but what happens in the Uniform business is, as you're starting up new business, you have investments in costs that are going to hit your P&L before the revenue actually shows up. And that you've got costs connected to the embroidery and emblems that go on uniforms and amortization and things that will hit you. So that was in the quarter, and will continue to be in fourth quarter, a bit of a drag on our Uniform business. Again, I think what you like about this is, for a company this big -- it's the diversity and resilience of the portfolio that we really like. You're always going to have parts of your business that are bright spots. You'll probably always have some parts of that business that are hotspots. And I think it's our ability to manage those and to offset those given the diversity of the portfolio that speaks to the strength of the company. Steve, you want to add anything?

And I think the only other piece I'd say, Gary, is I do think, looking at the fourth quarter and how that fits in, we generally expect North America productivity will remain, I think, quite strong year-over-year because of the timing things that Eric referenced. International will bounce back because that stuff will go through. And Uniforms, again, we'll continue to invest because it's the right long-term thing for us to do.

Great. And then just one quick follow-up. Eric, I heard you say you think you'll be in the 3% to 5% revenue range in fiscal '18 or I think I heard you say that. I guess, just what at this point drives the confidence? Is it as simple as onboarding all the new business you've talked about and some of these headwinds that you've faced being in the rearview mirror? Or is there anything else that drives that?

Sure, yes. I think what gives us confidence is we've had strong new business wins in 2017 broadly. We very specifically had strong new wins in the Education space. We've talked about the Healthcare space, both the lapping of the headwind as well as some really sizable and significant expansions with Baylor Scott & White and Christus. And so as you put all that together and you now look at the -- kind of the momentum that we'll finish 2017 with, that's what gives us the high degree of confidence as we look at 2018, Gary.

Your next question comes from the line of Andrew Wittmann, RW Baird.

I wanted to just field a little bit more on the Uniform business. You took us to the margin side of that. I wanted to get a little bit more detail from you on the top line characteristics. Some of the industry peers are putting up a little bit better growth, and they're seeing price-led growth is the commentary that we hear from them. I guess, what I'd like to understand a little bit more is, what are the components of your growth rate doing today? Are you seeing price? Are you seeing new adds in net new? Or is there may be a retention issue that's holding you back, versus some of the peers? Some of the characterization about the top line, I think, would be helpful to help us decompose that.

Sure. I would say where we're seeing pressure is on the new business front as well as on the pricing front. I think we've spoken to this in the past. So I think 2 or 3 quarters ago, we've mentioned the increased competitive intensity in the marketplace. I think at the time, we said that we felt like that probably was going to be there for a few quarters, and then we would see it return to some level of normalcy. I would say we have seen kind of an improved level of stabilization, but my expectation is, is that we're probably into 2018 before we see things return to a normal level. But the top line pressure is really the need for us to accelerate our new business performance and the fact that we are seeing pricing pressure.

Okay. So you feel comfortable with your retention rates being at or above historical levels here?

Yes. I think if you look at our retention rates, again, this is a business because of the up and down the street nature of it. So I think for the most part, what you're used to hearing us talk about is mid-90s retention across the portfolio. In any direct store-delivered business, you're going to see retention rates more in the low 90s. And so that's just the nature of the DSD business. You have a lot more account churn because they may go out of business because again it's -- the majority of that business is up and down the street. But our retention rates are fairly much in line with what we've seen historically on the business.

Your next question comes from the line of Toni Kaplan, Morgan Stanley.

This is actually Jeff Goldstein on for Toni. On some of the new contract wins you're onboarding in the fourth quarter, would you say there's anything different that drove some of these new wins, maybe more client investment than in the past or some other change in strategy where we say it's just more of the natural ebb and flow of winning and losing contracts?

Well, I'd like to think it's not the natural ebb and flow. I think what we've seen is a couple of things. I think you heard us talk in my prepared remarks, and you heard us expand a little bit even last quarter, on a couple of leading indicators that we're starting to look at, which is both the level of consumer satisfaction as well as the level of client loyalty. Those are 2 very good leading indicators. And our consumer satisfaction, of course, in particular, are up double digit quarter-to-quarter-to-quarter this year broadly across the core metrics of quality convenience, so on and so forth. So with those 2 indicators leading, you're going to see, I think, that translate over time into better new business results. And you'd like to see it translate into better retention as well. So on the new business front, I think the reason why we're winning some of these new business is I think we're innovating and really obsessed about creating this consumer-centric product portfolio. The second thing is we're really focused on executing better through our repeatable business model to create a great guest experience. And finally, we're in the people business. So it's the right team on the ground. As I look at our businesses that we're opening in fourth quarter, those are the things that I think were big drivers of us winning the business. You've always got to be price and financially competitive, so that's certainly a dimension of it. But I think winning it really looks to those other 3 drivers.

Got it. And then you mentioned in your prepared remarks a couple of K-12 wins. I know, historically, this has not been as outsourced as the higher ed space. Are you starting to see a shift to more outsourcing there? Or did these wins come from other large competitors?

I think in the case of the 2 specifics that I talked about, they came from other large competitors. I don't think we've seen a massive move to increase outsourcing. But again, I think the 2 wins that we've talked about were due to wins from competitors.

Your next question comes from the line of Andrew Steinerman from -- with the firm, JPMorgan.

It's Andrew. I just wanted to get a little more clarity on the revenue growth for this fourth quarter, the final quarter within the guide. I definitely heard it's the fastest growth for the year. I definitely remember after last quarter thinking that this would be more like a 5%. I heard it's within the algo of 3% to 5%. So is it -- is the fourth quarter trending more like a 5% or a 3% as we're in it right now?

Yes. I think what we've said, Andrew, and I think what we're comfortable with is that as we look at the fourth quarter, there's a couple of things. It's going to be our strongest quarter of the year. It will be within that 3% to 5% framework. And it will give us strong momentum as we cross the finish line. And I think we, at this point in time, aren't going to get any more specific relative to a fourth quarter-specific revenue number.

Yes. I think, Andrew -- this is Steve. The fourth quarter is our biggest revenue quarter of the year seasonally. To some extent, it'll be dependent on performance of our sports teams and what happens in our Leisure business around attendance. The full year number, which should help a little bit, that will be somewhere in the 2% to 2.5% range kind of based on where we sit now based on what we know.

Your next question comes from the line of Kevin McVeigh from Deutsche Bank.

Just a follow-up on that. If I heard it right, and it sounds like Q3 revenue was negatively impacted 50 basis points around the Easter. Do you pick that up in Q4 in terms of incremental boost? Or is that business that just doesn't come back?

Well, I mean, the way to think of Easter is really it's just a flip between our second quarter and our third quarter. So we will not have an Easter headwind in the fourth. But on a full year basis, the number -- the impact is 0.

Your next question comes from the line of Manav Patnaik from the firm, Barclays.

So my first question was just on the free cash flow. Steve, I guess, you called out the FASB ASU, I guess, benefit to that number. Maybe just relative to your guidance of $1 billion from FY '16 to '18, like how impactful was that to that number?

Well, certainly, when we have given the broad 3-year time frame guidance, that would not have incorporated anything related to the accounting change. So that would've referenced it in the old paradigm with how we calculated that. So we would -- on a reported basis, we would benefit from that reclassification into free cash flow.

But otherwise, that -- I mean, let's just remove the FASB. With the $1 billion, it will be -- I mean, would you still expect to exceed that number?

Yes. Oh, absolutely, yes. We've raised -- in terms of what we actually generate from the day-to-day operations of the company, we've raised that again. Our confidence remains very good, and our line of sight remains very good. So over that period of time, yes, we fully expect to be north of that $1 billion.

Okay. And then, Eric, in the Uniform business, maybe I didn't catch this the right way. But I think you said after the consolidation occurred, you opened up the new business when I would've thought you would do that while the deals were pending just to go after share? Maybe I didn't hear that right. Maybe you could just help me understand that?

Well, I don't think I referred it specifically to any deal timing. I said what's happening right now, and as a result of the numbers we reported in the third quarter, what you saw was the new business that we had added. You had seen the impact of the start-up investment and the cost associated with really the merchandising cost associated with starting up that business that hits the P&L before the revenue. That's the point I was making. So you saw that in third quarter. We'll continue to probably experience a little bit of that in fourth quarter as we ramp up. And then I think you'll begin to see the revenue number begin to be reflected as well.

Okay, that makes more sense. And then last question, just in terms of you obviously talked about your visibility to be in that 3% to 5% in '18. As these contracts ramp up though, should we see more of that sort of margin noise that we've seen before in terms of ramping these on in the first half, and then maybe seeing the benefit in the second?

Well, again, as you know, Manav, any time you start up a new account in this business, the expectation is, year one, you will have investments in that account. And so one of the things we spend a lot of time on is our start-up teams and our operational excellence teams working closely with the lines of business. So I think you've seen it. Really for the last 12 months or so, you've seen us with a much more disciplined and kind of well-oiled start-up machine. So that's all in place. I think the start-ups we've seen to date have run on plan, which hadn't been the history a few years ago. But having said that, there will be start-up costs, yes, that you will see as we open up these new accounts in 2018, no doubt about it.

And that's fully reflected in our expectations for both this year and the 3-year -- in the 3-year framework in terms of where we expect profit margins ultimately to be. We fully expect that to be the case.

I will now turn the call back to our presenters for closing remarks.

Well, thank you, Beth. Again, we look forward to finishing 2017 and achieving our financial objectives. As always, we want to thank you for your interest and investments, and thanks for taking the time to join us today. Have a good day.

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