Aramark (ARMK) Q4 2018 Earnings Conference Call Transcript

Aramark (ARMK 1.40%)
Q4 2018 Earnings Conference Call
Nov. 13, 2018, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome to Aramark's fourth quarter and full-year 2018 earnings results conference call. My name is Christine and I will be your operator for today's call. At this time, I would like to inform you that this conference is being recorded for rebroadcast and that all participants are in a listen-only mode. We will open the conference call for questions at the conclusion of the company's prepared remarks. In order to accommodate all participants in the question queue, please initially limit yourself to one question and one follow-up.

I will now turn the call over to Kate Pearlman, Vice President of Investor Relations. Kate, please proceed.

Kate Pearlman -- Vice President of Investor Relations

Thank you and welcome to Aramark's conference call to review operating results for the fourth quarter and full-year 2018. 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 at www.aramark.com and in our earnings slide deck.

During this call, we will be making comments that are forward-looking. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties, and important factors including those discussed in the risk factors, MD&A, and other sections of our annual report on Form 10-K and our other SEC filings. Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in this morning's press release, as well as on our website.

Before I turn the call over to Eric, I wanted to mention that our fourth quarter includes a full quarter of AmeriPride and Avendra results. We will continue to track revenue separately through the lapping of the one-year anniversary of the closing of the deals. With that, I will turn the call over to Eric.

Eric Foss -- Chairman, President and Chief Executive Officer

Thank you, Kate, and good morning and thanks to everyone for joining us. As you saw in our earnings release this morning, we finished our 2018 fiscal year with tremendous business momentum. It was a record quarter and 2018 was a record year, which marks our fifth straight year since our IPO of double-digit adjusted EPS growth. This morning, I want to focus my comments in three areas.

First, I want to discuss the quarter and our full-year results, and then I want to take an opportunity to share the progress we've made on our multi-year transformation journey. Finally, I want to provide a few thoughts on the promising future which will help set the stage for our December investor day. Following that, Steve will take a deeper look into our financials, and then we'll open up the lines for Q&A.

So let me begin with our results. For the quarter, we saw significant improvement across virtually across every key success metric. Revenue on a GAAP basis were $3.9 billion, an increase of 7% on a constant currency basis. Adjusted operating income was up 33% to $339 million. Adjusted operating income margins were up 160 basis points to 8.6% and adjusted EPS was at $0.70, up $0.30 versus prior year.

Our 2018 full-year results saw total company constant currency sales up 7% for the year to a record $15.8 billion. Our legacy business delivered broad-based growth of approximately 3.5%, driven by strong net new wins, consistent mid-90s retention, and solid base business increases. Adjusted operating income of $1.1 billion was up double-digit at 15% on a constant currency basis. AOI margins expanded 46 basis points this year to a record 7.05%.

As a result, I'm proud to say that we've achieved the three-year margin target set at our 2015 investor day. I want to thank the entire Aramark team for making that goal a reality. Over the past three years, we improved food productivity by attacking complexity across the entire supply chain; we leveraged our strategic sourcing capabilities; and continue to enhance food production management. We also established a standard in-unit labor model, reduced dependency on both agency and overtime labor, and then finally, we made significant strides reducing our SG&A expenses by eliminating duplication, and creating clear roles and accountabilities across the company.

Importantly, executing these strategic actions has positioned us as a stronger and more agile enterprise going forward. Rounding out our full-year financial results, we delivered double-digit growth in adjusted earnings per share for the fifth conservative year. The $2.25 adjusted EPS in 2018 represents a 14% increase on a constant currency basis. These solid operating results combined with disciplined financial management resulted in free cash flow of approximately $430 million for the year.

The strength of our business model and its proven ability to generate free cash flow is worth noting. Less than 12 months after completing two strategic acquisitions, either one of which would have been the largest in Aramark's history by itself, we ended 2018 with a leverage ratio of 4.1x. Based on these strong results, as well as confidence in our future, today we're announcing a 5% increase in our quarterly dividend to $0.11 per share. Now turning to our reporting segments, our business momentum was broad-based across the portfolio. Our legacy U.S. business delivered 3% revenue growth in 2018, with strong performance from sports, leisure, corrections, education, facilities, and healthcare.

Our international segment sales grew 6% on a constant currency basis, led by strong growth in Canada, Europe, China, and South America. In uniforms, our revenue increased 28%, with 2% growth from our legacy business. Now I'd like to transition and take a few minutes to reflect on the transformation journey that we've been on since the IPO to really reposition this business for consistently profitable growth. Our journey began by creating a high-performance culture, fueled by a shared mission to enrich and nourish lives, and values that were built around an obsession with service excellence.

The cornerstones were integrity and respect, a deep commitment to diversity and inclusion, and a focus on our front line associates that every day make, move, and market our products, and sell and serve with passion. Our path to strong performance over the last few years was anchored by a clear and focused strategy to accelerate growth, activate productivity, attract the best talent, and achieve portfolio optimization. Our transformation journey to accelerate growth has touched everything from our selling strategy and right to win to our brand product portfolio and service offerings, all of which has been focused on elevating the customer experience.

As we can all relate personally, today's consumers are foodies, and are far more discerning about what they eat and the overall food experience, whether it's at work, school, the stadium, or the hospital. Knowing that, we've enhanced our menus, improved the quality of our products and services, and innovated on both products and consumer-facing technology. These ongoing efforts are driving dramatic improvements in consumer satisfaction and across the critical dimensions of quality, health, convenience, and personalization.

We also know that consumers today expect their food to be fresh, local, sustainable, and healthy. Our passion around health and wellness has really led to the commitment to deliver significant nutritional improvements in our menus through the partnership with the American Heart Association and our groundbreaking, Healthy by Life 20 by 20 campaign. We're well ahead of our targeted goals and have already achieved a 15% reduction in calories, saturated fats, and sodium across our menus, while at the same time increasing our offerings of grains, fruits, and vegetables.

At next month's investor day, we'll unveil our Brands Matter strategy, a new and differentiated approach across both our core and premium categories. We'll also share how an integrated technology solution will bring more convenience and speed of service to enhance the overall consumer experience. These enhancements to the consumer experience have been made while also driving significant productivity improvements.

When I arrived in 2012, our adjusted operating income margins were just above 5%, well below the industry standard. We immediately developed a repeatable business model to standardize the way we sell, serve, market, and operate, resulting in executional and operational excellence that has been the center piece of our productivity and margin journey. We delivered an impressive margin improvement since then through a disciplined focus on in-unit labor, as well as food productivity, while also streamlining overhead, which has led to our margins improving to over 7%.

As I said from the outset, this margin target was never a destination, but rather one milestone on a longer journey to drive operating efficiencies. At investor day, we'll discuss some of the meaningful opportunities that are still ahead of us to further improve margins. Our strategic journey has also included repositioning the portfolio. Driven by a disciplined focus on returns, we've exited unprofitable geographies and accounts, we've divested non-core operations, including the recently completed sale of our healthcare technologies business. The majority of the proceeds from the sale will go toward debt repayment, and we will also plan to purchase $50 million in shares this quarter.

Our portfolio focus has also included executing a consistent M&A strategy with the objective of adding scale and capabilities, extending product offerings, and entering new geographies. The Avendra and AmeriPride acquisitions significantly bolster our competitive position across the portfolio. Combining Avendra's powerful procurement capabilities with Aramark's leading specialty management expertise really brings increased buying scale and improved service levels to our customers, while strengthening our industry reach. In fact, over the past couple of years, we've more than doubled our purchasing volume through the acquisition of Avendra, as well as some other smaller group purchasing organizations.

AmeriPride has expanded the scope, scale and geography of our uniform business, the highest margin business in our portfolio with strong cash flow and returns. This combination created the leading uniform services provider and substantially bolstered our competitive position in the U.S., and immediately established a strong position in Canada. I'm pleased to report that in both cases, the integration process is on track and we continue to expect these transactions to be accretive, with combined run rate strategies of $110 million. Our holistic approach to portfolio optimization has resulted in a more profitable, dynamic company that is far better positioned to compete going forward.

Finally, during this timeframe, we've dramatically improved our financial position through robust cash flow generation and disciplined financial management. As a reminder, we achieved our target leverage ratio of 3.5x at the end of fiscal 2017, a full year ahead of schedule, and a notable achieving considering that the balance sheet was levered at greater than 5x prior to the IPO. This greatly improved financial flexibility enabled us to pursue the Avendra and AmeriPride acquisitions, and despite these investments, we ended 2018 with leverage only 60 basis points higher than the previous year. Again, the testament to the power of our cash flow generation capabilities.

Our entire transformation journey has been designed to make Aramark a bigger, stronger, and more agile company. There is no doubt that we are much better positioned to compete and take advantage of future opportunities today than we were five years ago or even one year ago.

Now let me close our comments with a look to the future. While I'm excited by the strong business momentum we have coming off of fiscal 2018, and I'm certainly excited about the phenomenal progress we've made at this company making it stronger on multiple fronts, I'm most excited by what lies ahead. My excitement and confidence is really driven by a couple of compelling factors. We operate in a large, growing market with a long-term favorable outsourcing trend.

We're exiting 2018 with balanced and broad-based business momentum. We have an advantaged business model that is proven and resilient, which worked well in periods of low inflation and periods of higher inflation. We've worked to strengthen our brand portfolio, improve our selling strategy, and make sure we continue to focus on building better consumer satisfaction and client loyalty. And finally, the fact that I have the pleasure to work with such a talented and capable leadership team with a proven track record of results.

So before closing, I'd like to thank all of our 270,000 team members around the world for their ongoing dedication and service that made our record 2018 possible. I'd also like to, before I pass the call on to Steve, just reiterate that I look forward to seeing everybody at our investor day in December. So with that, let me turn it over to Steve for a more detailed review of our fourth quarter results.

Steve Bramlage, Jr. -- Executive Vice President and Chief Financial Officer

Thanks, Eric, and good morning, everyone. I'm going to focus my commentary on the fourth quarter income statement results and our year-end balance sheet and cash flow performance. Complete reconciliations of our full-year performance which Eric has already covered can be found in the appendix for your reference. Obviously, we'll be glad to discuss any questions regarding the quarter or the year.

Let me begin with the fourth quarter sales reconciliation. Sales on a GAAP basis were a touch over $3.9 billion. This represents an increase of 7% after currency headwind of $33 million or almost 1%. Currency was unfavorable for us in the quarter due to the U.S. dollar strengthening against our basket of currencies. Constant currency sales therefore grew by 8%. This increase was composed of 5% or $184 million from the acquisitions, about three-quarters of which related to AmeriPride, with the remaining 3% growth generated in our legacy business across all of our reporting segments.

There was a $30 million or approximately 75 basis point negative revenue impact from natural disasters in the quarter, and that primarily related to wildfires that burned outside of Yosemite and closed the park for several weeks at the peak of the season, and less so from hurricanes in the United States and Asia.

Adjusted operating income was $339 million in the quarter, which was a 33% increase on a constant currency basis. Impressively, AOI margins rose approximately 165 basis points on a constant currency basis to 8.6%. That's due to a variety of factors, including our continued focus on driving net in-unit food and labor productivity improvements, along with lower SG&A and incentive compensation expense. We incurred losses from natural disasters in the fourth quarter of both 2017 and 2018. The impact on 2018 AOI was $11 million, versus a $17 million headwind in 2017, which created a favorable year-over-year outcome for AOI in the fourth quarter. Furthermore, we have completely lapped the impact of 2017 fourth quarter pricing actions in our legacy uniform business, which provided additional year-over-year AOI improvement. Currency was not material to AOI or AOI margin in the quarter.

Now, let me make a few comments related to our full-year GAAP results. We continue to see a reduction in our LBO amortization in 2018. Our stock-based compensation expense increased in 2018 due to higher-than-target achievement levels in our performance shares, though our actual in-year granting practices were comparable year-over-year. Severance and merger-related costs increased, as we had planned as we integrated both Avendra and AmeriPride, and drove further SG&A rationalization programs.

Now, before I leave the topic of AOI margin, we thought there might be some interest on the call related to the achievement of our three-year margin target. Over the past three years, we have delivered 102 basis points of base productivity through reductions in food, labor, and SG&A expense. This is a tremendous improvement and sustained profitability and has allowed us to significantly close our profitability gap versus the leading competitor. This was partly offset by 7 basis points of AOI margin impact related t the $11 million from the natural disasters in 2018 and 5 basis points in currency headwind over the past three years versus our 2015 ending FX rate.

The accretive impact of the Avendra acquisition on AOI margin is offset by the dilutive AOI margin impact of the AmeriPride acquisition. And the net impact of those two acquisitions combined was immaterial. Moving to EPS, adjusted earnings for the quarter was $0.70, or an impressive 30% increase on a constant currency basis. The 45% benefit from higher AOI and the 2% benefit from a lower tax rate was partly offset by the negative impact from higher interest expense. The net dilutive impact from Avendra and AmeriPride deals in the quarter was $0.02 per share, and in addition, there was a $0.03 headwind from the natural disasters.

Our GAAP earnings per share in the quarter are nearly identical to our adjusted EPS of $0.70 per share, as GAAP EPS benefited from a $38 million gain related to the adjustment of estimated benefits that we will realize from tax reform in the United States. On a full-year basis, our adjusted tax rate was 26%, which is consistent with our expectations. Our GAAP tax rate is actually negative due to large gains recorded in the first quarter from tax reform. Our corporate liquidity remains very strong, as reflected in the $1.1 billion in cash and revolver availability at the end of the fiscal year. We also have extremely strong financial flexibility with no significant maturities until the year 2024.

In October, we extended the maturity of $400 million of our foreign nominated debt, another year to 2023. In addition, we amended the credit agreement to lower pricing on our revolver and term loans. We've now effectively refinanced and repriced the entire balance sheet in the last 18 months, taking advantage of historically low interest rates and a more favorable spread environment to lock in attractive long-term pricing on our debt. Equally important is that we have a very low exposure to rising interest rates, with 85% of our debt fixed at the end of the year. An, in fact, after we use the proceeds from the sale of our healthcare technologies to repay debt, our fixed rate debt mix will be closer to 90%, and of our 10% floating rate debt, less than half of that is exposed to interest rates in the United States.

For the full-year, we generated $429 million of free cash flow, which was negatively impacted by approximately $135 million in one-time deal-related expenses that were classified as operating. Now our free cash flow also benefited from approximately $130 million from the U.S. tax reform and some accelerated tax benefits from the deals. This ultimately was significantly more than we originally expected at the time of the law's passage in the prior year. While not all of this benefit will be recurring, we continue to expect to reinvest a portion of these savings back into our domestic workforce and in appropriate fashion during the course of 2019.

Finally, capital expenditures were 3.9% of sales for the year. This figure would've been in line with our normal run rate of approximately 3.5%, except for the fact that we were able to accelerate spending associated with our new headquarters building in Philadelphia into fiscal 2018. We continue to feel very strongly that the company is going to be able to consistently generate more than 90% conversion rate on free cash flow going forward.

As Eric mentioned, our leverage at the end of the year was 4.1 turns, well below our target. We reduced outstanding debt by over $600 million in the fourth quarter alone. Post the HCT sale, we will have reduced debt by over $800 million in the last six months. Our financial flexibility is strong, and it's only getting stronger.

As most of you are already aware, our reported resulted next year will be impacted by a variety of items related to accounting and now a portfolio change. So in the appendix to today's materials, we've tried to provide a head start to estimating and understanding the impacts on our 2018 and/or 2019 results, as we currently understand them on the company, as well as on our segments. At investor day, I will also review our assessment of our definition of adjusted earnings per share. Now let me turn the call back over to Eric.

Eric Foss -- Chairman, President and Chief Executive Officer

Thanks, Steve. With that, I think, Christine, we'd be happy to open up the line and take any questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, if you have a question, please press * then 1 on your touchtone phone. If you wish to be removed from the # sign. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press * then 1 on your phone now. Our first question is from Andrew Steinerman of J.P. Morgan. Please go ahead.

Andrew Steinerman -- J.P. Morgan -- Analyst

Hi, everybody. Could you give a comment on wage inflation? Have you kept in front of wage inflation? Obviously, you're expanding margins even with wage inflation in the system.

Eric Foss -- Chairman, President and Chief Executive Officer

Sure, Andrew. It's Eric. Good morning. I think a couple of things. One, if you think about 2018, I think one of the keys to our success is we were really two steps ahead of any inflationary pressures that took place in the market. I think as we look to 2019, I think our plan certainly doesn't anticipate any change to that. I think we'll see similar levels from an inflation standpoint, both on food and labor, as we saw in 2018. I think it's important (a) that we've planned for it, and (2) I think we have proactive initiatives to offset it.

Again, maybe just let me remind you that this is a model, this a company, this is a team that I think has a demonstrated track record to manage through no or low inflation, as well as higher inflationary environments. Again, just to walk you through some of the math, how we deal with that, a third of our contracts are purely passthrough. Most of the P&L contracts we have the price lever that we can pull to cover inflation.

Again, I want to remind everybody about the flexibility we have with our center of plate menu offering that we can flex around many types of food inflation. Then I think just the proven track record over the last multiple years and the way we approach and attack productivity to proactively offset it gives us a high degree of confidence that we're prepared.

Andrew Steinerman -- J.P. Morgan -- Analyst

Perfect. Thank you.

Operator

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

Hamzah Mazari -- Macquarie Research -- Analyst

Good morning. My first question is around potential consolidation of your supplier base on the food side. I guess you buy a little over $3 billion of food if you exclude Avendra. How hard does consolidation impact your business positive or negative?

Eric Foss -- Chairman, President and Chief Executive Officer

Sure, Hamzah. It's Eric again. Good morning. I think a couple of things. One, I think you're talking about food consolidation, which I think the consolidation in the food industry is not a new phenomenon, right? It's been out there for at least a decade. We're pretty indifferent. I think the fact that we do business with the biggest companies out there and the smallest companies is not likely to change. I think what's most relevant to our procurement is what we've done the last couple of years. You mentioned the Avendra acquisition. I mentioned in my prepared comments a couple of smaller GPOs that we bought.

I think the important thing to understand is we've almost doubled, 2x, our purchasing power over the last couple of years. To me what matters most is not what's happening relative to food industry consolidation. What matters is our scale, our ability to leverage that scale. I think what we've seen so far certainly post the Avendra transaction is our ability to consolidate suppliers, reduce SKUs and complexity across the supply chain is really the key to our success and I think is a key strength of ours as we've bolstered our strength and scale in that area. Steve, you want to add anything to that?

Steve Bramlage, Jr. -- Executive Vice President and Chief Financial Officer

I think the scale that we have, just to reiterate Eric's point, is a much more relevant factor in terms of leverage vis-à-vis anybody that we're buying from. Obviously, broadly the food industry is under quite a bit of pressure to find volume growth and we provide an opportunity for all of them to tap a pretty big source of volume that's getting bigger. I think that actually helps us rather than hinders us in this environment.

Hamzah Mazari -- Macquarie Research -- Analyst

Very helpful. My follow-up question, and I'll turn it over, is I realize your margin target, but international margins seemed like they were a bit weaker. Any color you can add on what's going on in terms of international margin and how to think about that going forward? Thanks.

Eric Foss -- Chairman, President and Chief Executive Officer

Yeah, Hamzah. Again, it's Eric. Let me start and I'll ask Steve to add some color commentary as well. Obviously, if you look at Q4 margins, full-year margins, three-year margin march against the commitment, there's a lot of great news. I think what that means is that to deliver those kind of results, we had to have very, very, very broad-based margin improvement and productivity across the company, whether that's lines of business, geography, or whether that's food or labor management, SG&A management. And so I think if you look at our international business, I'll have Steve talk about one kind of accounting change here, but short of that, I think we saw for the full-year broad-based margin improvement in Canada, across Europe with one exception, South America, China. So it was very, very broad-based for the year, and Steve, do you want to talk to maybe the one drag?

Steve Bramlage, Jr. -- Executive Vice President and Chief Financial Officer

Yeah, on international, I think there's only good news for us over the three-year period of time, if my recollection is right. I think we're up like 50 basis points or a little more than 50 basis points across that sector in terms of improved profitability, and I would remind you that over the course of or during 2018, we reconsolidated a joint venture in our European business that formerly had been obviously off balance sheet and as part of the mechanical aspect of that reconsolidation, it actually drove margins drove mechanically from an operating piece.

The other thing specific to the fourth quarter, the natural disaster impact that we referenced earlier, the portion of that which relates to Asia was primarily concentrated in our Japanese joint venture, of which we only record the equity interest. And so while there was no revenue headwind per se of substance in the fourth quarter from natural disasters in international, they did pick up a portion of AOI headwind from some storms in Japan and other parts of Asia.

Hamzah Mazari -- Macquarie Research -- Analyst

Thank you.

Eric Foss -- Chairman, President and Chief Executive Officer

Thanks.

Operator

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

Gary Bisbee -- Bank of America Merrill Lynch -- Analyst

Good morning. I guess if I could ask about the U.S. food and support services business, when we looked at the quarterly result, if we were to try to take out the impact of the natural disasters this quarter and in last year's quarter with the hurricane impacts, how is the business trending in terms of revenue and margins? It looks like it stepped down quick a bit from the last couple of quarters' revenue. Is that just the impact of that or is there anything else going on? Thank you.

Eric Foss -- Chairman, President and Chief Executive Officer

It's Eric. Let me speak to revenue. In the quarter, if you look at our North America business, I think setting aside our parks business that was obviously disproportionately impacted by Yosemite in peak season, as Steve mentioned in his prepared comments, I think we saw growth literally across every segment, maybe X one. We saw growth in the quarter across B&I, sports, corrections, facilities, and so I think for the most part, again, fourth quarter X all of the impact of weather was 3% for our North America business. I think similarly on the margin side, the margins from our U.S. business for the quarter and the year continue to perform very, very well.

So, I think as I look at our portfolio of businesses, whether it's the U.S. in your question, or Hamzah's question on the international front, I really mean when I look at the year, the quarter, and the momentum we have right now, it's as broad-based as I think I've seen it. So I think the business is working and it's very well.

Steve Bramlage, Jr. -- Executive Vice President and Chief Financial Officer

Maybe I would add our U.S. business was up almost 250 basis points in terms of profitability in the quarter with 3% top line growth. I think they demonstrated what we're trying to achieve, which we talk about dribbling with both hands. How do you drive improved profitability and still drive better revenue performance? The company as a whole certainly accomplished that this year. We obviously can't do that without our biggest business in North America being able to do it, and they did an excellent job in the quarter and the year helping us get to where we needed to be from a landing standpoint.

Gary Bisbee -- Bank of America Merrill Lynch -- Analyst

Great. Then just a follow-up, I realize you're withholding guidance or holding off until the investor day, but given the positive commentary overall, is there anything you'd call out that would not allow that to be in line with how you described the long-term growth of the business since becoming a public company?

Eric Foss -- Chairman, President and Chief Executive Officer

Well, Gary, it's Eric. Let me maybe take it this way. I think as I enter any new year, certainly as I enter 2019, a couple of things that you'd want. One thing I'd want is I'd want to have strong momentum. I think the fact is that we have it. The second thing I'd want is I'd want to look at the marketplace and be encouraged by the growth opportunity. As I said in my prepared comments, we continue to be very, very excited about the outsourcing opportunities in the industry.

Third, I think the work we've done to make us a stronger company, whether that's on product or brand or our right-to-win on the selling side, or just the improved and strengthened margins. I think as we think about 2019, again, from a macro standpoint specific to the question of inflation, as I mentioned during Andrew's question, we are not planning for the environment to get any better. I think we've got the right plan, and I think we've demonstrated a very effective track record and capability of driving productivity to offset inflation. I think we've demonstrated a very effective ability to drive double-digit earnings growth.

And so as we enter 2019, we continue to feel very good, not only about 2019, but beyond, the future of Aramark.

Gary Bisbee -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

Thank you. Our next question is from Stephen Grambling of Goldman Sachs. Please go ahead.

Stephen Grambling -- Goldman Sachs -- Analyst

Thanks. I guess two follow-ups to both of those questions Gary asked. I guess first on '19, are there any major contracts up for renewal that could be at risk? And are you seeing any change in the competitive landscape for either retentions or new contracts? Then second, on the U.S. business, how much of that -- and that's the food service business -- how much of that 250 basis point improvement was base margin expansion versus reinvestment versus maybe M&A? Thanks.

Eric Foss -- Chairman, President and Chief Executive Officer

Sure, I'll start, Stephen. Then I'll let Steve comment as well. First of all, your first question on the growth. I think as we exit 2018, the way to think about the new business performances, our new business in 2018 performed very much like our new business results did a year ago, so those were pretty good a year ago and they were pretty good this year. Our retention continues to run into the mid-90s, so I don't think there's anything that I can think of that is up for bid that is unusual to what we would typically see through the contract cycle.

Then relative to the margin, I think what you've seen happening which is typical, is you've seen very, very good broad-based base margin improvement largely driven by food and SG&A, and then the drags on that were the weather impact addition our investments, which got us down to that 46 basis points. Think about, I would say, strong, strong base productivity offset by the typical investment cycle we would have in Q4.

Steve Bramlage, Jr. -- Executive Vice President and Chief Financial Officer

That's right. The only maybe nuance in the fourth quarter is as we expected, the intensity of the reinvestment is a little bit less at the end of the year than what it is at the beginning, just because of the way we calendarize that and on the acquisitions. Fourth quarter is not radically different than what we described the full-year. Avendra is clearly modestly accretive for us in and of itself. AmeriPride is definitely dilutive from a margin standpoint and in the quarter, it's really a wash between the two of them. It's not significant. So the number we're printing here is for all intents and purposes base business.

Stephen Grambling -- Goldman Sachs -- Analyst

And so I guess one very quick follow-up on that M&A comment on Avendra and AmeriPride, can you just remind us what your expected timeline is for synergies versus integration investments as we think about the next couple years? Thanks.

Steve Bramlage, Jr. -- Executive Vice President and Chief Financial Officer

Sure. Stepping back for a second, between the two of them, we had expected to realize about $110 million of synergies over either three years in the case of Avendra, so $40 million in three years for Avendra, $70 million in four years for AmeriPride. That's a good assumption to have. We'll update that at investor day, but that's certainly a very safe assumption. I believe we had expected in the second year the two deals to become modestly accretive from an earnings standpoint.

Again, that's primarily going to be driven by Avendra, as opposed to AmeriPride. I think that is still a good assumption for us to have. Again, we have a little bit of a stub year because we didn't quite close at the beginning of the fiscal, but I would expect them to be even under our current definition, very mostly accretive in fiscal '19 between the two of them, and certainly from a cash flow standpoint they will be accretive in fiscal '19.

Stephen Grambling -- Goldman Sachs -- Analyst

Great. Thanks so much.

Steve Bramlage, Jr. -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

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

Toni Kaplan -- Morgan Stanley -- Analyst

Hi, good morning. I wanted to ask one on the uniform business. Can you talk about any risk from tariffs and how that could impact sourcing? Also, anything to call out on expense pressure such as fuel, labor, hangers, etc.?

Steve Bramlage, Jr. -- Executive Vice President and Chief Financial Officer

Sure. I'll start. We do import some cost of goods in our uniform business from outside the U.S. Most of that we self-manufacture in Mexico. What we import in terms of finished goods tends to come from Asia, mainly China. That's less than $100 million in total, well less than $100 million. So we are seeing a little bit of pressure on some steel-related stuff, that's kind of like hangers and lockers, things like that we put into a workforce.

Currently, it's probably several million dollars of incremental inflation run rate going into fiscal '19, but it's not significant from where I stand. It's certainly not going to change our expectations of overall business performance. The currency has moved a little bit in our favor in terms of what's happened with the Chinese currency to offset that. But we don't import a lot at the moment, and so I don't believe it will have a material impact on the uniform business specifically, or on the total company, because our food business imports even less as a relative proportion than the uniform business does.

Eric Foss -- Chairman, President and Chief Executive Officer

Toni, I would only add, just broadly speaking about our uniform business. I think you're aware prior to 2017, that business had been very, very accretive to us. Obviously, with the consolidation we had talked about for four quarter, kind of the second half of '17, in the first several quarters of this year, the price investment that went into the marketplace. But as you look at the way they finish the year in 2018, as you look at some of the initiatives that we've put in place to update the quality of the garments that we're selling, I think that business is set to have a very good year in 2019.

Toni Kaplan -- Morgan Stanley -- Analyst

Great. Then just thinking about margins. With Avendra and AmeriPride sort of now being part of the overall business, your long-term margin potential is likely improved. How should we just broadly be thinking about the pace of margin expansion going forward?

Eric Foss -- Chairman, President and Chief Executive Officer

I think specific to that going forward, that's something we'll be prepared to talk about at investor day.

Steve Bramlage, Jr. -- Executive Vice President and Chief Financial Officer

I would think that we're not going to provide a number on this call as a starter related to that, for sure.

Eric Foss -- Chairman, President and Chief Executive Officer

I think the way to think about it is I think we've demonstrated over the last several years a best-in-class margin reputation. I think as I said in my prepared comments that beginning to just north of 7% margin was never a destination from my perspective. So we continue to see and plan to continue to unlock those opportunities, but I think we're going to leave it at that for right now.

Toni Kaplan -- Morgan Stanley -- Analyst

Great. Thank you.

Operator

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

Manav Patnaik -- Barclays Capital -- Analyst

Thank you. Good morning, guys. I was just wondering broadly if you look at the next three years call it, is it fair to say that the next 100 basis points is going to be harder work than the first 100 you did? Maybe I guess excluding the acquisitions, because I guess they do give you a little bit of a help to start with. But just on the base side, is the low-hanging fruit done? I'm just looking for some color around the work that you're excited about.

Eric Foss -- Chairman, President and Chief Executive Officer

Again, I'm not going to get committed to any kind of number, but I think our playbook is likely to be pretty similar. If you look at the play we've been running, it's really been attacking complexity across the supply chain on food. It's been really making sure we continue to focus on improving headcount productivity from a labor standpoint, and it's been making sure that we're efficient and effective at our above-unit SG&A structure. I think that's likely to continue to be the playbook that we operate against. I think, as I said before, we continue to see opportunities. Again, we will talk about both the growth opportunities and the margin opportunities at investor day.

Manav Patnaik -- Barclays Capital -- Analyst

Okay. Then just in your facilities services business, I guess you had stood that up, I was just curious for any update on momentum, trends there?

Eric Foss -- Chairman, President and Chief Executive Officer

I think if you take a look at 2018, it's a business that performed pretty well for us. Mid-single-digit growth and grew to profitability. I think the deeper we get into that and the more specialized we get, again, you'll see us run a play similar to what we've run on food. I know one of the things the team has and will continue to do is to look at all of our contract types, and to make sure that we've got the appropriate return criteria up against that. I think we're pleased with the progress we made after we stood up that business and kind of set strategy for facilities on its course. We'll continue to operate that business and move it forward as we move into 2019.

Operator

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

Shlomo Rosenbaum -- Stifel Nicolaus -- Analyst

Thank you for taking my questions. I just wanted to ask you a little bit about organic growth. It's just shy of 3%. You guys have had, at least on the commentary, it seems like you guys are weighting a good amount of business. It's broad-based. There's a lot of momentum. When is it going to translate on a regular basis this being a little bit of a faster revenue growth? Why didn't we see that kind of conversion in this quarter?

Eric Foss -- Chairman, President and Chief Executive Officer

Let me make a couple of comments on revenue. First of all, we did have a record year, and I think if you look at the 3.5% full-year growth rate, it's a number that we feel pretty good with, and certainly was above our greater than 3% commitment for the year. I think from my perspective, I feel as good about revenue as I sit here today as I ever have since I've been at Aramark.

Again, I want to make sure that you're grounded relative to the marketplace growth. I think if you look back over the last 5 years, 10 years, 20 years, pick your timeframe, you'll see that the industry and the big 3, if you want to take the big 3, grow at kind square foot a 3% to 4% clip. That's the growth rate in the industry. I think that's consistent with our performance in 2018. And so, again, from our perspective, there is a lot to like about the growth trajectory of the business and the growth opportunities in the marketplace.

Steve Bramlage, Jr. -- Executive Vice President and Chief Financial Officer

I would just add back to how are we trying to create the greatest amount of shareholder value? Our approach is balanced. It will remain balanced. We tend not to focus exclusively on any single metric, and so we believe that consistently growing revenue with an out-weighted effort against growing margin even faster, and improving the balance sheet, and driving better cash flow is the right hand for us to play at this point in time. I think you should expect us to continue to drive a balanced progression and a balanced set of improvement across all of our metrics.

Shlomo Rosenbaum -- Stifel Nicolaus -- Analyst

Okay. For my follow-up, I just want to ask a little bit about the growth of the acquisitions themselves. If you back into the 10-Qs and you subtract the actual from the pro forma, it would seem like the combination of both of the acquisitions had would have generated about $196 million in revenue in 3Q17, $180 in 2Q17. Running it around the $185 million to $185 level, can you bridge the gap over there? Are you losing some revenue on the AmeriPride side due to acquisition? Are customers moving away a little bit over there? Can you just bridge those numbers for me?

Steve Bramlage, Jr. -- Executive Vice President and Chief Financial Officer

Well, I will make some broad commentary around that. I think as it relates to both of the acquisitions, I think largely from a revenue standpoint we're pretty much where we expected to be. We had actually, as it related to AmeriPride, since that's the bigger number, obviously, we had expected to have a little more loss of legacy AmeriPride share than we have experienced thus far. We're ahead of where we thought we would be on the AmeriPride side of things, generally. I think we're very, very pleased on the Avendra side with the stickiness of their business.

So I don't believe there has been any material or frankly immaterial deviation from what we expected so far the revenue performance of those two deals to do. The timing matters a little bit because we don't clean quarters in our first quarter or second quarter if you're trying to do some kind of a year-over-year comparison. But I think we're right where we thought we would be, probably a touch ahead specifically on the AmeriPride revenue experience thus far.

Eric Foss -- Chairman, President and Chief Executive Officer

Yeah, I would say specific to AmeriPride, which is the bigger revenue number, that number has grown in line each and every quarter, if not faster than our base uniform business. I think to Steve's point, we actually have seen less client loss than we had pro forma'ed in the acquisition. I think we're very encouraged by the revenue performance of both of those acquisitions.

Shlomo Rosenbaum -- Stifel Nicolaus -- Analyst

Great. Thank you.

Operator

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

Eric Foss -- Chairman, President and Chief Executive Officer

Christine, thank you very much. Again, as we close the call, I'd like first of all to invite all of you for our upcoming investor day, which will be on December 11th. We'll discuss, as I mentioned earlier, our strategic imperatives, showcase what we're doing on our brand strategy, and some new innovative menu offerings, as well as discuss the financial outlook for the next three years. As always, thanks for joining us today. Have a great day, and we'll look forward to seeing you December 11th. Thank you.

Operator

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

Duration: 53 minutes

Call participants:

Eric Foss -- Chairman, President and Chief Executive Officer

Kate Pearlman -- Vice President of Investor Relations

Steve Bramlage, Jr. -- Executive Vice President and Chief Financial Officer

Andrew Steinerman -- J.P. Morgan -- Analyst

Hamzah Mazari -- Macquarie Research -- Analyst

Gary Bisbee -- Bank of America Merrill Lynch -- Analyst

Stephen Grambling -- Goldman Sachs -- Analyst

Toni Kaplan -- Morgan Stanley -- Analyst

Manav Patnaik -- Barclays Capital -- Analyst

Shlomo Rosenbaum -- Stifel Nicolaus -- Analyst

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