Aramark (ARMK) 2024 Q3 法說會逐字稿

Good morning, and welcome to Aramark's third quarter fiscal 2024 earnings results conference call. My name is Kevin, and I'll be your operator for today's call. At this time, I'd like to inform you this conference is being recorded. (Operator Instructions)

I will now turn the call over to Felise Kissell, Senior Vice President, Investor Relations and Corporate Development. Ms. Kissell, please proceed.

Thank you, and welcome to Aramark's every quarter and fiscal 2024 earnings conference call and webcast this morning. We'll be hearing from the company's Chief Executive Officer, John Zillmer; as well as Chief Financial Officer, Jim Tarangelo. As a reminder, our notice regarding forward-looking statements is included in our press release this morning, which can be found on our website.

During this call, we will be making comments that are forward looking at our 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 US GAAP can be found in this morning's press release as well as on our website.

So with that, I'll now turn the call over to John.

Good morning, everyone. Thank you all for joining us today. We continue to successfully execute on our strategic vision. I'm pleased to report another strong quarter results for Aramark with record revenue and profitability for our third quarter and FSS US, as well as record international revenue and profitability for any quarter. Jim and I will review the key drivers for the out performance before turning to our financial expectations for the fiscal year with just one quarter to go.

Given the substantial growth opportunities ahead at our proven ability to capitalize on them. I'm confident that our business momentum will continue into next fiscal year and beyond. Aramark's third quarter revenue growth was broad-based, coming from virtually all lines of business and geographies.

Revenue for the quarter was $4.4 billion with organic growth up 11% year-over-year. Once again led by base business growth from a mix of volume and pricing, as well as contributions from new client wins.

There companies multiple operating levers allowed us to scale higher sales volume, managed costs, effectively it achieves supply chain efficiencies, all while benefiting from an inflation tailwind. Our actions contributed to 22% increase in operating income compared to the prior year and a 21% year over year increase in adjusted operating in come on a constant currency basis.

Aramark's performance is a testament to the extraordinary talent within this organization, which allows us to provide world class hospitality services to clients. While we focus on our ambitious path forward.

Turning now to the business segments. FSS US, grew organic revenue 9% versus the comparable period last year. By continued record levels of per capita spending and greater event attendance in sports entertainment, new wins coming on burden Business & Industry meal plan initiatives include your hospitality before entering the quieter summer season and enhanced commissary services and corrections.

We saw strength this quarter using our capabilities to deliver higher revenue volumes at Prominent events, including professional golf tournament such as the US open at Pinehurst and the Travelers Championship. In addition to serving over 300,000 fans at the Indianapolis 500. We also provided retail merchandise for the Philadelphia Phillies and the New York Mets, both Aramark clients as they participated in Major League Baseball's, London series

The sales pipeline remains extremely strong across sectors, particularly in the first time outsourcing new clients include the Tulsa public schools, our first entry into Oklahoma for student nutrition party University and the Southeast Georgia health system to name a few. Were in the process of finalizing some sizable new client opportunities, which we are targeting to close this fiscal year.

As part of our ongoing efforts to offer a differentiated and innovative client experience, we just entered into a partnership with renowned [Michelin Stardef], Daniel Boulud, which will be focused first on expanding our B&I culinary capabilities and corporate catering, special events, conferences and more.

The collaboration will be branded cuisine. Bill Lou, New York with operations primarily from a centralized kitchen located in Manhattan with services offered throughout the New York metropolitan area and beyond.

Lastly, in FSS US, a few weeks back, we brought together the top 1,000 of our senior operating district, regional and corporate leaders for ongoing leadership development training, educating teams on new initiatives, services, products, equipment and technology through our bonds. As Patel, the culture.

This type of collaboration across lines of business and job function is a clear realization of our values and will help propel us into the future.

Now to international. Momentum, in the international segment continued with organic revenue increasing 16% year over year. All geographies in the portfolio experienced organic revenue growth led by the UK, Canada and Spain, as well as Latin America from net new business base, business volume and pricing initiatives.

Our teams are hard at work, which included successfully driving our increased presence in sports and entertainment, particularly in highly attended and global blue globally recognized events. In Germany, we served approximately 1.6 million visitors during the 2024 men's European football championships, partnering with the majority of stadiums in the tournament, which are Aramark clients, including for the final match in Berlin.

And in Spain, we served over 280,000 fans for the Formula 1 Grand Prix multi-day race in Barcelona, and we are already working on plans in partnership with the rapidly growing Formula 1 for upcoming events this summer and into next season.

We're thrilled to share that our market has been selected as average and football clubs, official global food and experiences partner for the new efforts and stadium at Brambles more dock in Liverpool England. The approximately 53,000 capacity stadium, which opens ahead of the 2025 '26 season, will be one of the most accessible and sustainable stadiums in Europe.

This marks the company's first engagement in the English Premier League and expands on our long-standing European sports and entertainment business with La Liga in Spain and the Bundesliga in Germany. We also continue to build scale in other countries within industries we serve with new client wins coming from mining and Chile, healthcare in China and government related services in Ireland.

And finally, in international, we recently concluded our international chefs cup in Toronto, Canada, which after a year of in-country competition, recognized our global culinary talent and celebrated the winning chefs from each country. Our global supply chain team continues to effectively grow leverage and optimize Aramark spend, which contributed to our strong performance in the quarter.

By the end of this fiscal year, we expect our managed services global supply chain and GPO network spend to surpass $20 billion, we are pursuing GPO acquisition opportunities to complement the organic growth we are seeing to drive even faster growth and enhanced capabilities in key areas.

International expansion is of particular interest. If we run find the right fit domestically, we are leveraging our expertise in hospitality to expand and more deeply penetrate adjacent industries such as wellness and entertainment. On the inflation front, we're seeing continued improvement in North America, Europe and Asia.

While Latin America has been a bit stickier in the third quarter, we reached the low end of the range we originally estimated and expect global inflation in the threes for next quarter as long as these favorable trends continue with the US already dropping into that range.

As always, we're ensuring our supplier contracts are capturing any market opportunities, and we'll transition business appropriately to maximize these benefits. Lastly, we reach an agreement to sell the remaining portion of our ownership stake in the San Antonio Spurs NBA franchise. We anticipate the transaction will close in the fourth quarter, subject to FDA approval.

We expect to use the proceeds for debt repayment as part of our deleveraging strategy. We continue to work closely with the Spurs as a valued client. Before turning the call over to Jim, I'd like to highlight a few key accomplishments and recognitions we received in the third quarter. First, we were named as one of the 50 most community mining companies in the United States, often referred to as the Civic 50 by points of light and organization dedicated to accelerating people powered change.

Second, Fair360's highlighted Aramark is a top employer for both diversity and black executives were 36% of our management racially and ethnically diverse and 20% of the company's Board members being women of color.

And lastly, Aramark Canada was recognized as one of the country's greenest employers for 2024 by media Crop Canada highlighting our ongoing commitment to sustainability and the innovative green practices now ingrained in our operations. We believe that the focus on our people and communities we serve are a key differentiator for the company, which has led to tremendous outcomes.

Jim?

Thanks, John, and good morning, everyone. As John mentioned, we had another very strong quarter on both the top and bottom line across the business, with solid growth across nearly all sectors and geographies. We are excited about the many growth and operational efficiency opportunities ahead.

In the third quarter, we reported revenue on a GAAP basis of $4.4 billion, up 8% compared to the prior year period, reflecting approximately $116 million of foreign currency translation. Organic revenue grew 11% versus the prior year, driven by increased basis business volume and the contribution from net new business along with pricing.

Operating income in the third quarter increased 22% year-over-year to $162 million, and adjusted operating income was up 21% on a constant currency basis from a year ago to $193 million.

Eli margin grew nearly 40 basis points year-over-year and a constant currency basis, driven by those underlying operating levers. So core to our model, including supply chain efficiencies, discipline, middle of the P&L management and progression of new business majority, along with improving inflation trends.

Turning to the business segments, FSS US achieved a or a lot of growth of 14% within a wide margin improvement of 22 basis points, both on a constant currency basis compared to the same period last year. Note, there was some favorability in the prior year associated with insurance related costs. It wasn't for this item the FSS US, AOI margin improvement would have been comparable to last quarter.

The international segment had year over year, a growth of 41% and AOI margin improvement of 86 basis points. Also on a constant currency basis. Year-over-year AOI expansion was driven by higher base business volumes, net new business and control of operating labor in overall SG&A led by Spain, the UK, Ireland and Latin America.

Regarding inflation, trends continue to track favorably, which provided some tailwinds to our underlying margin levers in the third quarter. As John shared, we saw global inflation come in at the low end of our expected 4% to 5% range with the US even better. We are seeing overall inflation tracking into 3% range or so for the fourth quarter. And if current trends continue, we expect inflation to pin down even more heading into next fiscal year.

Turning to the remainder of the income statement, interest expense decreased 27% year-over-year, primarily from the $1.5 billion debt repayment of the 2025 senior notes. The adjusted tax rate was approximately 26%. Our quarterly performance resulted in GAAP EPS of $0.22 and adjusted EPS of $0.31, an increase of over 50% versus the prior year and it constant currency basis.

Regarding cash flow, net cash provided by operating activities was $141 million and free cash flow was $62 million in the third quarter in inflow, consistent with our normal seasonal business cadence, our free cash flow improved by almost $200 million from higher cash from operations and favorable working capital compared to the prior year. At quarter end, the company had over $1.1 billion in cash availability.

Turning to the capital structure, we improved our leverage ratio another 50 basis points this quarter compared to the prior year period. This positive trend reflects our financial discipline as we remain focused on reaching 3.5 times by the end of this fiscal year. And we are committed to continue reducing our leverage ratio.

After quarter end, we also took steps to further strengthen our balance sheet and create additional financial flexibility by extending the maturities of our revolving credit facility and term A loan by five years. Part of this action also included increasing our borrowing capacity under our revolving credit facility by $200 million to $1.4 billion We will proactively pursue other opportunities to enhance our capital structure with a focus and optimal returns for shareholders.

I'll wrap up with our outlook expectations for the remainder of this fiscal year. We are very pleased with our year-to-date performance as we continue to make great progress against our financial targets. As a result, we currently anticipate the following full-year performance. Organic revenue growth at approximately 10%, AOI growth at approximately 20%, adjusted EPS growth at approximately 35%.

And lastly, a leverage ratio at approximately 3.5 times with ongoing improvement. Our results reinforce our ability to execute on our focused strategies, which, in turn we expect will deliver significant shareholder value.

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

Thank you, Jim. We continue to work hard every day and are excited about the opportunities ahead to deliver for our stakeholders. We are exceeding the financial expectations, which we initially set for the fiscal year and remain confident in our strategic vision. Our talented teams across the globe and body our culture performing at a high level and pursuing a path that will bring us to new levels also success.

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

(Operator Instructions)

Shlomo Rosenbaum, Stifel.

Hey. Excuse me. Thank you very much for taking my questions. Hey, John, can you comment a little bit about the contracting in higher education space? June is usually the most important quarter that runs kind of talk little bit about the success the company had new, whether it was aligned with what you expected, how it sets you up for next year and after. And then I have one follow-up.

Yes, we had a very strong selling season in higher education. We actually sold more new accounts this year than ever in our history. So we're feeling very good about the new sales growth on the contract negotiation process in terms of pricing for next year for board plans has on a very, very well. And so we feel very good about higher education's opportunities for next year and beyond.

So you have all in all a very good selling season. We obviously did have a couple of accounts that we transitioned to this year. And so we're very focused on both the retention and new sales efforts in higher education and feel very strongly about that business's ability to perform at a high level.

Great. And then on for Jim, just are we at a point that the new wins are not really going to be something to be concerned about then on impeding the operating margin expansion over the last several years, we had a situation where the new wins were something as you ramped them, more headwinds to operating margin expansion and who we're starting to see margin expansion ahead of what was expected. How we at that point when the maturing contracts are really just offsetting the new business ramps?

Yes, that's right. I means, if you look to get a year to date, margin expansion at 60 basis points is very strong. Rating of those underlying margin levers are working. And one of those levers is the maturity of the new business of profile. And at this point, given where we are you that that should no longer be a significant headwind like it was prior to the new bill, this ramp up.

Great. Thank you.

Thanks, Shlomo.

Toni Kaplan, Morgan Stanley.

Thanks so much. And let's ask about the international business. Really strong leg of growth. Again, element there that might have led to this success than in prior quarters. You've had terminated the momentum there to outsourcing. So I'm assuming that's not the case, but are there any particular geographies where you're seeing more of and move towards outsourcing?

And is that being driven by carrying this lingering inflation or something out cents as inflation comes down to is that China has changed by dynamics going on? Thanks.

Toni. And frankly, we're seeing very broad-based success in international across all the geographies like really couldn't point to a 20 area that we're not enjoying that, that success. In terms of the growth, I think part of it's just the longer term discipline we've had in terms in terms of growth for international that team has been in place for a loan for a long time and is very disciplined and focused. And we continue to see great results across the portfolio and virtually every country.

So I think we have strong expectations for continued growth in that sector. I don't see any secular trends, which would really impacted one way or another. Outsourcing activity still remains high. And the pipeline the sales pipeline is even more robust now than it's than it's ever been. And it's just the just an amazing thing. So we're very pleased with the overall results in international, and we expect the that that growth will continue.

[Trevac] and then just on the margin driver, you mentioned on slide 8, and you've talked about in my prepared remarks, supply chain efficiencies. You've been sort of calling that out for a couple of quarters now. Maybe talk about how much more is there to go with regard to additional margin expansion from supply chain from operating efficiencies that you've been seeing? That be helpful. Thank you.

Yes, there's still significant opportunities ahead, right? With this growth oriented model of the supply chain efficiencies are generating really nice margin accretion. We continue to see disciplined management of SG&A at the organization is fit for growth. So we're able to take on, as I know you see there and in our corporate results as well. And then finally, is it the middle of the P&L, I think as the operating environment continues to normalize, obviously, staffing is more available now.

We're seeing improvement in labor and food productivity without, but maintaining high-quality service to our clients with reduced agency overtime as an example. So that will continue to provide a tailwind into next year and those margin levers will be continue to be more pronounced.

This right. And Toni, the last factor on supply chain, obviously, we continue to focus on growing the GPO spend and both domestically and internationally and the acceleration of that spend. It has significant efficiency benefits for us, both in terms of new contract development and overall rates for the products that we buy. So we see that lever continuing to be a significant impact item going forward.

Super. Thank you.

Thank you.

Andrew Steinerman, JPMorgan.

Hey. The 10% organic revenue growth this year stands out to me as above industry growth. And I just wanted to know if you had a sense of what you think industry growth is for food services right now, and given what you see in the industry, not just our large book of business, what do you the growth plans for food services, industry growth phase for the next couple of years?

That's a that's a great question, Andrew. I think first of all, we see are all the competitors have experienced growth year over year. I do think ours is industry-leading. I think that's a result of a number of different factors based on the portfolio that we have and based on the success we've had in terms of both new account acquisition and base business improvements.

So I'm sure our competitors are also seeing similar opportunities going forward. I think we've talked about a long-term growth rate for us in the mid single digits. I'll call it 7% going forward. And I would expect I think the industry is probably growing at a rate that's slightly higher than inflation and are very disciplined industry. I think we're all focused on managing effectively for our clients, but we love our we love our strategy in our portfolio, and we think it'll lead to significant growth going forward.

Thanks, John. That's great.

Thank you.

Ian Zaffino, Oppenheimer.

Hey. I'm going to move up maybe a little bit about kind of the pipeline and what's going on there on a lot of deep learning and give some color, but on some of the money geography or kind of areas and I guess on China key in on this effort in the congratulations on getting on the other opportunities vertical as well in that country. Thanks.

Yes, there are definitely other opportunities in that vertical, both. So there are another and in other parts of the world, in fact, we're very close to closing on another opportunity that's both retain and grow in that sector. In the international segment. So we're very excited about the overall growth prospects, some of the sports and entertainment business. We're also enjoying very significant special events opportunities.

Concert seasons team performance has a big impact on the overall sales and revenue growth in sports entertainment. So we're actually seeing very strong performance by our core teams that we serve around the world. So all in all, we're very pleased with it. And we see continued good opportunities going forward.

Okay, thank you. Can you maybe I guess just wrote off about a recession now on the amount of how the business performance, your ability to kind of reduce any type of impact of the recession than any other color you could give there. Thanks.

Yes, I think when it was a hallmark of this business is stands up very well during recession and it's literally a business with over 10,000 profit centers and a diverse set of sectors across 15 countries as a natural diversity to the business that stands up and is very resilient as the economy becomes more challenging.

If you look back over 20 years and you go back to the financial crisis in oh eight, again, that the business and add and margins were relatively intact. So it's a good spot to be. And when I was facing challenging economic times.

Yes, I would just add, we consider the business to be very recession resilient. I think as Jim said, it's based on the strength and diversity of the portfolio and the businesses that we serve by an arm and our ability to manage in a disciplined operating environment, the processes that we have in place.

The systems and the technology that we have in place in terms of managing the middle of the P&L for both food labor, yes, really puts us in a very good position. We manage this business literally on a weekly basis that we can rate react and respond very rapidly to changing economic conditions.

And we feel our people are very well equipped and it's been demonstrated over and over many, many years of the company, in particular, Aramark in particular, particularly the food part of the business. It is very recession resilient.

Okay. Thank you very much.

Heather Balsky, BofA.

Hi, good morning. Thank you for taking my question. And I was hoping you could talk a little bit more about your GPO. You talked about at surpassing $20 billion. And when you answered Toni's question, you talked about the margin opportunity there. Can you just talk about is the pace of growth you've been seeing? What's driven that and the opportunities ahead?

Do you have a target in terms of how big you think you can get it when you look at your peers? And I guess, how do you think about it from that perspective?

Yes, certainly it is obviously an area that we're very much focused on and beginning of all the way back to the vendor acquisition. And I think the company was embarking on a strategy not only to create a good GPO and a good business model for vendor, but also to create additional supply chain leverage that could be brought up share against the contract business.

So obviously, we're very focused on increasing that span. We've got a very active sales process and some very significant new client wins this year. We're also expanding our geographies, both domestically through from through rounding out the portfolio of services, which, as I mentioned in the script, approaching hospitality and entertainment or entertainment and wellness in a way that we haven't before thank golf clubs and other related kinds of facilities as well as geographic expansion.

And we've had a very good success in growing the GPO business outside of the United States. And we have an opportunity to expand significantly with our core customers, both domestically and internationally. So we'll continue to build that. We're not going to throw a number out there.

I think frankly, we're just going to trying to build it as rapidly as we can because we see the benefits on both sides and will continue to give you more insight and more information as we established strategy and the goals for next year.

Great, thanks. That's helpful. And to also with regards to the question on potential risks, are assured of managing the business through a downturn in this case currently, are you seeing anything in any of the segments of your business that point to softer demand from consumers on any sort of change trend?

I would say, no, we're not experiencing that in a in any significant way. I would say we're seeing very strong spending trends, particularly in sports and entertainment. We continue to have consumers who are willing to spend for the experience, particularly in the businesses that we serve, their event driven.

And so people will continuous support their sports teams even in times of very significant recession. In the past, attendance of stadiums was very, very strong because people would still make those kinds of expenditures. They may reduce the number of airline flights that they may take a moment, but they continue to do act committees that are closer to home.

So our portfolio is specifically designed to capture that opportunity and we feel very good about it. But to be very clear, we are not seeing any consumer driven trends that lead us to believe that we're seeing a downturn in consumer spending in our core businesses.

Thank you very much.

Neil Tyler, Redburn. Atlantic.

Good morning, John, Jim. Thank you very much. And then back to your new initiative in the US B&I business that you mentioned. I'm wondering if you could expand a little bit on how you see the addressable market in B&I, potentially having having changed if it has a tool. And as a consequence all and I suppose things like sort of unattended vending and the sort of model that that you're describing this new initiative using a single kitchen to serve lots of different customers, whether that unit and --

It brings down on the ball that commercial-type offer enough for the size of customer. That's what we're serving and therefore, whether how that's changed the size of the market. -- long-winded question.

And then secondly, a simple one and such in the you know that your guidance, it looks like it had an operating adjusted operating income to high single-digit growth for the fourth quarter at constant currency. And is there anything in the in the comp?

You mentioned a couple of things for Q3. Anything in the comp base that we should bear in mind when we when they're considering the rate appear on the growth? Thank you.

Yes, I'll start with that question. Say that that's right. The guide does imply sort of mid single digits for the fourth quarter. And again, that's a good cruising speed for this business. We've talked about the engine that's enough growth to fuel those margin levers that we talked about. That's 2 times to 3 times higher than where we were in the years, leading up to fiscal '19.

We are lapping some significant pricing actions as we come in into Q4, as inflation moderates you that the level of pricing will come down somewhat, but we're exiting the year at a very strong speed with good growth.

Yes, I'll comment on the first operational issue. First of all, the the marketplace said cat and that cuisine balloon is a focus on is really the high end catering opportunity. And so that is not we haven't established a central production facility in New York to go ahead and serve smaller facilities or the like. This is really focused on high end opportunities for both catering in-restaurant operations.

So there. So that's the model that it's that it's focused on. The B&I segment continues to be very robust. And we can we see continued growth and the opportunity an opportunity to grow and to grow that business through the addition of new accounts, we've had a very strong selling season there and each account maybe slightly different than it used to be in in 2019, lower populations, but we're serving more and the style of service has been altered to fit the upon the population rates and the participation rates of those accounts.

So overall, the B&I model is very robust. The small account model we serve through our refreshment services division, which is enjoying extraordinary growth through in many markets and our micro markets, vending services, office coffee services and the like refreshments and snacks services.

So we do have a service offering that's focused on those smaller sites solutions, if you will. But the specific Cathay or cuisine balloon referenced this morning was related really to high end catering and the opportunity to really serve that marketplace and a new and differentiated way with one of the world's smallest form own renowned Michelin star chef.

Understand, thank you so much.

Thank you.

Andrew Wittmann, Baird.

Yes. Great. Thanks for taking my question. So I guess you guys commented on inflation on couple of times and how it came in at the low end of your expectations for the quarter. There was even a comment in your prepared remarks talking about it stays here. You'll get some benefit to '25.

So Jim, maybe if I give you the opportunity to expand a little bit about that, that it sounds like that's your base case that inflations probably a little bit of a help for you, not only in the fourth quarter but into next year.

I was just wondering, when do you think the comps are inflation comps get to a point where it's no longer a tailwind and the idea you can help us with in terms of the quantum of that in the last quarter you said was defined basis points benefit the results. I didn't know if you wanted to kind of talk less about how that's been trending here for the end of '24. But I think we can all benefit from a little bit more detail on that topic.

The last quarter, we talked about expectation of inflation in the 4% to 5% range and it came in at the low end of that range for the third quarter globally in the US, we are in the high threes for the third quarter as we're trending in the fourth quarter. We're now into the threes across the organization, both in the US and internationally.

And we're obviously seeing favorable trends as we planned for fiscal '25, continue to be a moderate tailwind to the organization and includes three, I think we'll continue to be a moderate tailwind into Q4. We've talked about we don't place for profit right in the long run price pricing and inflation was sort of be neutral to the organization, but I think it will continue to provide a moderate tailwind over the next couple of quarters.

That's helpful. And then maybe, John, from a follow up on, I know that at the year and you always give the retention for the year, but I'm guessing you've got a pretty good sense of work falling, and you've talked a lot about net new. I was just wondering if you could just talk about the retention side of net new, how it fared in the quarter and how you expect that to come in for the year?

Yes, I think we expect to be up or down. And you're right, we will comment at the end of the year on our net new and overall retention in the business. But right now, we feel very good about the track, -- and I would say historical averages are right in line with our expectation.

Thank you very much.

Jasper Bibb, Truist Securities.

Hey, good morning, everyone. You reiterated your leverage target for this year? Seems like next year is set up pretty well. To answer any updated thoughts on when that might be appropriate for the company to increase capital return while improving balance sheet.

So we have a clear line of sight at this plant is about 3.5 times by the end of this fiscal year. That will represent the lowest leverage this organization has in 2017, 2018 period as we planned for fiscal '25, a path to leveraging the threes at low threes, which again will be the lowest we've had, I think going back to the LBO and 2007.

We have had discussions already at that the Board level with respect to potential share repurchase program. And it we're expect to give you another update at the next earnings call on that. But with a leverage ratio does tracking favorably. That's something we are strongly considering.

The Board continues to recognize our strong free cash flow recognition or recognition and generation. And it has it has had discussions around how do we optimize shareholder returns. And so and it is strongly considering what that approach should look like. And as Jim said, we will update you at the next earnings call in terms of our intentions and plans for that.

On from I know you're not guiding for fiscal '25 today, but wanted to take your temperature on how you're feeling in terms of your annual net new contributions and pension payments for next year based on what you see. And I guess the sales pipeline today and some of your existing client conversation.

So, yeah. The sales pipeline remains very robust deal. And as we planned for fiscal '25, we've already that we remain committed to our airline target of that $1 billion that we talked about previously was exiting the year in the mid to high single digits in terms of revenue. So we have a lot of confidence in the multi-year type is that we establish and we remain committed to achieving those targets and we see good momentum in that business to get there.

Make sense. Thanks for taking the questions.

Josh Chan, UBS.

Thank you for taking my question. I think, Jim you have mentioned that the US margin was held back a little by some favorable last year and then excluding those the margin improvement will be similar to last quarter? So I guess is, is the last quarter's margin improvement rate that the right rate to think about going forward?

How should we think about kind of the US margin improvement given some of the productivity and internal actions?

Yes. The underlying margin improvement in both US and international remains strong rates and 50 basis points to 60 basis points. So I know that the insurance comparability, we had some favorable insurance experience in their prior Q3 coming out of COVID. There's simply less activity and less liabilities required there with some actually drew up work that have occurred.

So we're now in a more normalized run rate with respect to insurance. But the underlying margin improvement, it remains consistent and strong, and we'd expect the same for Q4 as well.

Perfect. Thank you for that. And then on your comment about inflation possibly being lower for next year, is that mainly a labor commented that a food comment? Could you just kind of break down the different components that lead you to believe that you'll have lower inflation next year? And thanks so much.

So we have a detailed information, obviously building up our food inflation in labor. Both of them are trending favorably at the labor overall, still low, and we talked about 4% to 5% range. Labor spending closer to four at this point, we have good visibility with respect to the inflow outlook for food and just the trends that we're seeing and give us a lot of confidence in that will continue to come down as we enter fiscal '25.

Thank you for the color and congrats on a good quarter.

Thank you.

Stephanie Moore, Jefferies.

Hello. This is Harold on Stephanie Moore, wanted to share GPO that we will no incidents among physicians to use any particular geography, geographies where you see the most opportunity that you like to acquire to grow and multiples.

Yes, we're specifically focused on the European marketplace where we already have existing GPO infrastructure and adding scale to that is a very good is enhancing both margins and our ability to serve our customers. Well, yes, some of those acquisitions are multi-geography. They have the ability to impact our operations, not only in Europe but in Latin America as well.

And we're also focused on doing work with our with our current partners and other parts of the world where we've got pilots underway to establish GPO networks in markets where they've never had a GPO. So overall, the opportunity is significant and we're very focused on it. I want to make sure that people understand we are not looking at a material investment strategy for the GPOs.

This is really bolt-on kind of additions to the organization that will have an outsized impact based on our ability to capture the both the spend and the capabilities in certain markets. So that's our approach and strategy.

Got it. And then on just on some of the other levers on the margin front. And then you said, I think insurance because of their vote to the status of margin favorability in Fort Union slow. And then on corporate cost. -- think above the 2025 it's a 2024 rate, should we start, I guess, how much more --

Could you repeat the first part of your question, we just had a little trouble hearing you.

I said, insurance costs was a benefit to. So I just wanted to get a sense for how we should think about that iand four year is low. And then on corporate costs when we think about trying '25 is the rate that we're seeing in 2024 have been continue to employ the new run rate and I guess how much more rumors there too.

Yeah, just to confirm the insurance cost savings? There was a benefit in Q3 of '23. So we're just we're pointing out that we were lapping a period of unusually low insurance cost. So the insurance run rate is now normal. So in that neither be a headwind or tailwind to the margin going forward. With respect to corporate cost on that versus plan sort of a moderate increase overall, we targeted corporate cloud is growing at about half the rate of our revenue growth. So that 2% to 3% range is what you can model for fiscal '25.

Thank you. And I'm not showing any further questions at this time. I'll now turn the call back over to Mr. Zillmer for any closing remarks.

Thank you very much, and thank you, everybody, for your questions and for the support of the organization. We feel very good about our third quarter results. The opportunities ahead for the organization are bright, and I want to thank all the Aramark employees around the world for their diligence, hard work and their continued dedication to the top of the growth of this company. So again, thank you very much and enjoy the rest of the day.