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Aramark (NYSE:ARMK)
Q1 2020 Earnings Call
Feb 4, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Aramark's First Quarter 2020 Earnings Results Conference Call. My name is Paulette, and I will be your operator for today's call. [Operator Instructions]

Rich Kotzker, Associate Vice President, Capital Markets and Investor Relations, will kick off today's call. He is handing in for Felise Kissell, who is unfortunately under the weather. Mr. Kotzker, please proceed.

Rich Kotzker -- Associate Vice President, Capital Markets and Investor Relations

Thank you, and welcome to Aramark's first quarter fiscal 2020 earnings conference call and webcast. This morning, we will have the pleasure of hearing from our Chief Executive Officer, John Zillmer; as well as our new Chief Financial Officer, Tom Ondrof, who we're excited to have join us at Aramark just about four weeks ago. As a reminder, our notice regarding forward-looking statements is included in our press release this morning, which can be found on our website 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 SEC filings.

Additionally, we will be discussing certain non-GAAP financial measures, year-over-year GAAP results including the impact of the divestiture of the Healthcare Technologies business that was completed in the first quarter last year, as well as some miscellaneous unusual organizational items. A reconciliation of these items to US GAAP can be found in this morning's press release as well as on our website.

With that, I will now turn the call over to John.

John J. Zillmer -- Chief Executive Officer

Thank you, Rich, and good morning, everyone. I look forward to spending time with you today to share and update on the progress we are making across the company to accelerate revenue growth and unlock the economic potential of the business.

As I continue my visits with our operations leaders and client partners, I'm more encouraged than ever about Aramark's strong DNA. There is a unified commitment to service, quality, and innovation that is amplified by the integrity and passion of our team. This powerful mindset gives me confidence in our dynamic path forward as we create long-term value for the company and all of our stakeholders.

I'm very pleased to welcome Tom Ondrof to the team as Aramark's new CFO appointed about four weeks ago. We're extremely fortunate to have Tom, a highly seasoned foodservice and hospitality industry veteran, who has not only a financial expert, but also provides valued insights as a former Chief Development Officer and Chief Strategy Officer. In a few minutes, Tom will share his initial observations from our financial results, along with his immediate priorities.

I also want to take this opportunity to thank Steve Bramlage for his numerous contributions during his five-year tenure with Aramark, as well as for providing his expertise and guidance during this transition period, we wish Steve all the best.

Turning to our financial performance. The quarter materialized as expected and reflects the early actions of our reinvestment for accelerated revenue growth. While we saw organic revenue growth across all segments, there is ample opportunity ahead to drive additional performance. As we work to elevate the company's hospitality culture and drive future growth across the business, we have realigned resources, specifically in the areas of client retention, sales, marketing, finance and human resources to more directly support our field organization, who serve our clients and end customers.

Marc Bruno, a respected leader at Aramark, who has been with the company 26-years after rising through the ranks has been promoted to Chief Operating Officer, US Food and Facilities, as someone who originally hired Marc Aramark, I'm very confident in his ability to inspire the teams and drive performance. In addition, Gary Crompton has returned to Aramark as President of Business Dining. Gary is a highly respected industry leader with more than two decades of prior experience with Aramark, including serving as President of Business Dining and Healthcare Hospitality. I firmly believe our leadership changes that also include the recent appointment of John Orobono to oversee our Global Supply Chain and Group Purchasing Organization. As I mentioned on our last earnings call, combined with the talented teams already in place, create favorable catalysts for the business.

We've already begun to recognize John's influence on our supply chain strategies as we implement customized and differentiated experiences for clients to complement our productivity and product quality enhancement initiatives. John and the team are actively strengthening and leveraging our global spend pools, conducting comprehensive reviews of targeted product categories, refining our broadline distribution programs and extending our procurement scale in innovative forms including beyond our traditional touch points.

We have commenced our reinvestment in the business, funded by the approximately $35 million and further synergy capture for the Avendra and AmeriPride integrations. Our spend to-date includes more field-based resources for new account sales efforts and client retention, as well as establishing resources to actively pursue adjacent business opportunities that further serve our clients' needs. We anticipate continuing to realign resources and add where necessary throughout the balance of the year, particularly in the second quarter to ensure we're well-positioned for the opportunities ahead.

As part of our work to reignite the hospitality mindset across the portfolio, we are actively creating customized dining experiences that meet our clients' partners unique needs and preferences. I'm very pleased with the early progress of this approach that has already resulted in several new and expanded relationships.

I continue to be confident in the company's long-term prospects, in just a few short months, we have mobilized several key components of our focus plan to unlock the economic potential of the business. This approach is quickly being adopted by our sales and operations leaders. In fact, a few weeks ago, I participated in our Global Sales Meeting, the excitement, the energy and commitment of the team reinforce my enthusiasm in the extensive runway we have ahead.

Before I turn it over to Tom, some of you have asked about our business in China, given what all of us are seeing unfold with the coronavirus. First and foremost, we are focused on ensuring the safety of our employees and the clients we serve. Broadly speaking, China represents about 2% of our total company business, primarily in Healthcare, with minimal presence in the Wuhan region. We are monitoring the situation daily and we're in constant contact with our Chinese leadership team.

Now, I'd like to turn the call over to Tom to share his initial observations and insights on the company's financial performance.

Thomas G. Ondrof -- Executive Vice President and Chief Financial Officer

Thank you, John. I'm excited to be here, and I have the chance to work with you. While I've only been a part of the company for a short time, it's already clear that there is a great deal of talent within the organization and a genuine enthusiasm for the future prospects of Aramark. I look forward to partnering with John, the Board and our business teams to position resources to best serve our clients, drive disciplined revenue growth and strengthen our capital structure for added financial flexibility.

As John mentioned, the quarter materialized as expected and reflects the early actions of the commitment to reinvest in the hospitality culture and support future revenue growth. In the first quarter, organic revenue grew 1.6%, compared to the prior year, with increases delivered across all segments. US Food and Facilities posted a 0.9% increase in organic revenue, backed by solid base business growth in Healthcare and Sports, Leisure and Corrections, partially offset by negative net new business in Education.

Reiterating John's point earlier, there is ample opportunity in the year ahead to drive top-line performance. International grew organic revenue a healthy 3.2%, despite the unfavorable impact of the strategic exit of non-core custodial accounts in Europe late last year, with notable performance also delivered in South America overcoming to social unrest in Chile. Uniform showed balance in the quarter, growing organic revenue of 2.5% from pricing and volume increases, while also remaining focused on increasing adjacency services for the additional -- for additional resource -- revenue opportunities.

Turning to adjusted operating income. In the quarter, constant currency AOI was down 2%, compared to the prior year. AOI in US Food and Facilities declined 11% on a constant currency basis, primarily as a result of actions to accelerate growth, negative net new business in Education and an increase in medical insurance claim costs and lower income from possessory interest versus the prior year. International grew constant currency AOI 43%, due to the strategic exit of the non-core facilities accounts in Europe, as well as the timing of incentive based compensation in the prior year. Uniforms increased constant currency AOI by 2% over the prior year as productivity improvements in operations and the anticipated synergies from AmeriPride were partially offset by investment in salesforce, resources and training.

Adjusted EPS was $0.62 for the quarter, which was flat to the prior year on a constant currency basis. This was a result of the slight decrease in constant currency AOI just outlined, offset by the benefit of reduced interest expense and a lower adjusted effective tax rate in the quarter. And free cash flow of negative $405 million was $88 million less than the same period last year, due primarily to the timing of incentive based compensation payments, compared to the prior year and special contributions to employee retirement plans this year. These outflows were partially offset by slightly lower quarter-over-quarter capital expenditures. A reminder that free cash flow is historically negative in the first quarter due to the seasonality of the business.

The capital structure continues to strengthen and is an area of focus and opportunity. The company reduced its net debt position by $221 million in the quarter and the leverage ratio remained at 4.2 times. And finally, with an as expected first quarter behind us, the outlook for fiscal 2020 on a 52-week basis provided during the last earnings call remains unchanged.

Earlier, John asked me to share my immediate priorities. So let me wrap up with that before turning the call back over to him. Over the next few quarters, I plan to focus my time on five areas. Number one, growth. I will support the investment to increase sales resources across all business lines and lean on my previous experience to help reinforce the sales process and implement reporting tools to drive accountability and increase close rates on new business.

Number two, ownership and retention. I'll work with John and the senior operating teams to continue to identify opportunities to invest in field-level hospitality, like culinary resources, training, merchandising and marketing programs, and help implement the appropriate level of decentralization to promote account ownership by unit managers and improve client retention.

Number three, procurement. I look forward to working with John Orobono and his team to identify ways to grow the Avendra business, bringing value and savings to Aramark's clients and GPO customers.

Number four, G&A. While I believe that a company can't cut its way to greatness, I will work with the businesses and corporate teams to ensure that G&A dollars are invested in the right places and we are fit for purpose to best support our field associates and clients.

And lastly, free cash flow. I will look to review and implement a series of tests and working capital initiatives to improve free cash flow, reduce debt and provide financial flexibility to support client investment opportunities and enable us to execute a disciplined strategic M&A program. While appreciating the immediate work ahead of us, I'm confident that we will over time execute on John's vision to provide great service to our customers and position Aramark for sustained excellence. I look forward to spending time with many of you in the coming months. John?

John J. Zillmer -- Chief Executive Officer

Thanks, Tom. I appreciate your insightful perspective and know that your financial and industry expertise will be an invaluable asset to us as we propel the company forward.

And before we have the opportunity to take your questions. I also want to thank our associates across the globe for their extraordinary focus on serving our customers and growing the business, and to offer my congratulations to the Kansas City Chiefs, our customer for a great season and their Super Bowl win on Sunday.

And now, we'd like to go ahead and take your questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Ian Zaffino from Oppenheimer. Please go ahead.

Ian Zaffino -- Oppenheimer -- Analyst

Hi. Great. Thank you very much. [Technical Issues] maybe you could also -- maybe brought in the conversation and talk about some of the experiences you've had? [Technical Issues] or maybe just talk about your best practices you will bring to Aramark? Thanks.

John J. Zillmer -- Chief Executive Officer

Ian, we're very sorry, your question cut out several times. Could you -- would you mind repeating it?

Ian Zaffino -- Oppenheimer -- Analyst

Yes, sorry. The question was for Tom. Tom, maybe you could talk about the five areas you focused on. Maybe touch about your experiences that you had at your last shops. How you're kind of lead those into what you're doing at Aramark in those five areas you will focus on or maybe just talk about some best practices that you've, you know, that you could bring to the table? Thanks.

Thomas G. Ondrof -- Executive Vice President and Chief Financial Officer

Ian, I mean, it's -- A, it's great to be here. I sort of bring in 25-years of experience to the business. John was very persuasive in laying out his vision to me. He is a tough guy to say no to. So it's great to be back in the industry. And Aramark has such a great history. So I was excited by John's vision and the chance to help the company sort of reset its priorities and take a more balanced approach to running the business. I did layout the priorities that I have, so the -- not want to really repeat those. I think, I would mention that they were listed in a specific priority, growth is going to come first, we are very focused on that. In John's initial few months his priority has been there and I think everything else sort of falls from there.

So in terms of best practice, you've got to be able to grow the business, you've got to create momentum from the top of the P&L, and then have it work its way down. So that will certainly be the priority. And we won't lose, I think, some really good things have been put in place here, some good disciplines, a good cost culture, but I think again it's just trying to bring the balance back to the forward-looking execution of the business.

Ian Zaffino -- Oppenheimer -- Analyst

Okay. Thanks. And then just a question for John, just more broadly speaking. How do you feel about your brand line up? What you have? What you may need to add or maybe some areas that you might need to add in? Or are you kind of happy with what you had or what Aramark has? Thanks.

John J. Zillmer -- Chief Executive Officer

Yes. Thank you. Well, first of all, I'm very confident in our ability to compete as one Aramark, that as an organization we have the capability, the technology and the branded concepts that our customers want and where we don't have a brand that serves a particular needs, we'll develop and implement one appropriately for each individual customer. I've always had a firm belief that customized solutions are the solution set that best serves the needs of our clients and our customers. And so I don't have an out-of-the-box solution for any customer in any part of this industry. I think we have an higher education, we have Harvest Table, we have Simple Spoon and B&I, we have LifeWorks, we have a number of premium brands we can bring to bear when that serves the clients' interests and we can also compete as one Aramark against the vast majority of our customers and clients.

I also believe that we will do whatever is necessary to compete aggressively to win new business and we will partner with branded concepts, we will partner with restaurant operators, we will partner with prospective organizations in a way that serves our client's best interests.

Operator

And our next question comes from Kevin McVeigh from Credit Suisse. Please go ahead.

Kevin McVeigh -- Credit Suisse -- Analyst

Great. Thank you. Hey, John or Tom, the growth initiative is super helpful. Can you give us a sense, it may be hard, but just the kind of current trajectories 2% to 4% type organic longer term. What can that ultimately become and how much of it is kind of close rate versus retention, because it looks like two kind of the first two are revenue, the second two are kind of cost and just any thoughts on that organic growth longer term and what that could mean from a margin perspective?

Thomas G. Ondrof -- Executive Vice President and Chief Financial Officer

I think the higher is the initial answer right now not to be...

Kevin McVeigh -- Credit Suisse -- Analyst

Right. Yes. No, no, I get it.

Thomas G. Ondrof -- Executive Vice President and Chief Financial Officer

Yes. It's hard to say really at the moment. I think the overall industry, I know you've looked through sort of the market structure, the global opportunity across all the business lines, the geographies that Aramark serves. There is a ton of opportunity. So the growth rate should be higher. What can it be mid-single digits, I think, is probably the goal over the course of time. I think that's quite doable, but there is work to be done to do it, Right now, I talked about fit for purpose, and I don't think we're there yet. And it will take time and you can't put salespeople in today and expect them to make an impact tomorrow, but we will get there.

In terms of the margin impact, we will be disciplined about that growth. Again, the market opportunities are great enough that and there is enough available market out there that we don't have to, it has been -- as it has been said many times over the years in this industry just beat each other up. So we'll be disciplined and thoughtful with our growth. And so I think the margin will progress and I think that, that should be the goal. If we can't strike a balanced approach to growing the top and the bottom line then we're not really doing our job.

John J. Zillmer -- Chief Executive Officer

Yes. And I would add just a couple of comments, Kevin. I think, as we said, historically, and we want to improve our retention rate and we want to grow the base business, as well as sell new accounts and all three elements are important for that growth trajectory. And we have opportunities to improve the level of service to our customers to help grow the base business, so we have increased our mix share in the accounts that we already serve. So we increased participation rates and increased check averages, which leads to further growth. We believe that we are kind of at the historic level of retention inside the company right now, and we think we have opportunity to improve it. So adding 100 basis points to retention would dramatically alter the trajectory of the business going forward and we think we have that opportunity. And as Tom said, the improved closure rates in the business as we sell new accounts. So we've got three levers, we're working against all three of them.

Kevin McVeigh -- Credit Suisse -- Analyst

Yes. Awesome. Okay. I'll hop back and thank you so much.

John J. Zillmer -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Andrew Steinerman from JP Morgan. Please go ahead.

Andrew Steinerman -- JPMorgan -- Analyst

Hi. It's Andrew. I want to know if organic revenue growth should progress throughout the year, particularly, thinking about second quarter. As I look at Slide 7, it doesn't have that little graph that was in the last slide deck that sort of had aligned up into the right to give you a sense of quarterly cadence?

Thomas G. Ondrof -- Executive Vice President and Chief Financial Officer

I hate to, Andrew, get into sort of quarter-by-quarter detail. We think talked historically about it progressing throughout the year. I think we still feel confident about that. If start to finish, so to speak. So we fully expect to have good solid momentum going into fiscal '21. But within the second, third and fourth quarters, we see a progression.

John J. Zillmer -- Chief Executive Officer

Yes, Andrew...

Andrew Steinerman -- JPMorgan -- Analyst

[Speech Overlap] go ahead. Go ahead, John. I'm sorry.

John J. Zillmer -- Chief Executive Officer

Sorry. I was just going to add, you have the seasonality, kind of, occurring in the business. You have the ramp-up of the national parks and the sports and entertainment business that occurs in third quarter and fourth quarter, and second quarter and third quarter especially on the sports side. So, it's hard to really kind of delineate the quarter-over-quarter growth. As you know, the selling season and higher education tends to be in the spring. So it's too early to make a call on what the sales hit rate will be and what the closure rate will be. So working very aggressively to move those numbers and we'll have better visibility here in probably the next quarter.

Andrew Steinerman -- JPMorgan -- Analyst

And the drag from the custodial purging contracts in Europe is now fully in the numbers as of first quarter, right?

John J. Zillmer -- Chief Executive Officer

Yes. That's correct.

Andrew Steinerman -- JPMorgan -- Analyst

Okay. Thank you.

Operator

Our next question comes from Toni Kaplan from Morgan Stanley. Please go ahead.

Toni Kaplan -- Morgan Stanley -- Analyst

Thank you. This is for Tom. Just a follow-up on I think the first question that was asked, but just given your prior experience at one of Aramark's main foodservices competitors. Just curious on any initial thoughts on noticeable differences between the two organizations? And I guess, what do you think will help the Aramark accelerate growth closer to what that competitor has been doing historically?

Thomas G. Ondrof -- Executive Vice President and Chief Financial Officer

Yes. Well, Compass is a great business. Aramark is a great business. So that's probably as close as I'll get to a comparison. What I know is there's no structural difference between the companies. They're similar but different, I think roughly 25% of Compass' business is in lines of service or geographies that Aramark's not in and the same works sort of the other way. So the comparisons are a little different. But I understand the need or people's desire for benchmarks. But our goal and our focus is really going to be on being the best we can be and I know that sounds like a cliche. But we want to grow the top-line at an accelerated rate. We want to progress the margin and we want to deliver free cash flow increases.

If we do that, we're going to deliver for our shareholders regardless of what any of our competition does. So that's really our focus. We'll look up one day and sort of see where we are in a comparison way, but that's -- it's not what we're after. We are after servicing our clients and servicing our shareholders and doing that with all the experiences that John and I have and a really, really solid management team has that's in place and that John's putting in place.

Toni Kaplan -- Morgan Stanley -- Analyst

That's helpful. And then as my follow-up, do you anticipate any changes to the company's capital allocation policy, is M&A more or less of a focus? And I guess, how are you thinking about the current buyback authorization, and if any thoughts around capital allocation would be helpful?

Thomas G. Ondrof -- Executive Vice President and Chief Financial Officer

Sure. A bit early to sort of definitively opine on it. But I do know in a general sense that our first priority with free cash flow is going to be to reinvest in the business and take the opportunities we can to support growth. M&A on a disciplined and strategic sort of tuck-in basis would be the second. And then if -- and then -- and reducing debt, of course. So once those three things are sort of evaluated then we'd looked at other options for the cash. But I'll get a little deeper into that as I go and certainly give a clearer view on the set priorities as we get into the year.

Toni Kaplan -- Morgan Stanley -- Analyst

Thank you.

Operator

Our next question comes from Gary Bisbee from Bank of America. Please go ahead.

Jay Hanna -- Bank of America Merrill -- Analyst

Hey, guys. This is actually Jay Hanna on for Gary today.

John J. Zillmer -- Chief Executive Officer

Hi, Jay.

Jay Hanna -- Bank of America Merrill -- Analyst

I'm just wondering quickly on the GPO, what's the longer term roadmap there? Is that going to be an M&A focus or I guess, internal growth, what's the longer term plan?

John J. Zillmer -- Chief Executive Officer

Yes. I think -- this is John. I think you hit on both elements. We're going to work very hard to grow the purchase spend by selling those services to third parties and to continue to expand our relationship with our partners in that business. So there is definitely an organic opportunity there. We'll also look to bolt-on acquisitions and GPO space that will increase our spend pool and there are various opportunities to do that. We'll primarily be focused on serving both the needs of our existing business, as well and really getting the synergies out of that combination of our purchase spend as core Aramark and the GPO spend as well. So we still have plenty of earnings improvement opportunity on both sides.

Jay Hanna -- Bank of America Merrill -- Analyst

Okay. Great. And then for that $30 million to $40 million incremental spend this year. Did I hear you say that was primarily going to occur in Q2 or like what's the cadence for the remainder of the year?

John J. Zillmer -- Chief Executive Officer

Yes, we have -- basically we've already begun investing. We've begun hiring salespeople throughout the businesses, targeted on those businesses that we believe have the best growth characteristics and our best opportunities. Uniform Services has made significant hires over the course of the year already. And we'll continue to bring on additional people primarily focused on adjacent opportunities, first aid, restroom services and the like, bringing those sales managers on first, because those represent significant margin opportunities and we have a great base of business to sell against in our existing customers and potential new customers.

So we'll be spending that -- we've already begun spending those resources. We've added resources in the various growth organizations and we'll continue to ramp up through the balance of the year. It's our belief that we'll spend that entire amount at some point during the year, but it really depends on the quality of the people that we're able to recruit, developing and hire. And the cadence will really be determined by that, by the availability of quality candidates.

Thomas G. Ondrof -- Executive Vice President and Chief Financial Officer

And I might just add on the sales side and sort of a growth expectation there. The different lines of business all have different sales cycles. And so, we try to -- I know John has tried to add across those different sales cycles. So for instance Uniform's, Refreshment Services, sort of B&I have shorter sales cycles, a lot of contract, so to speak and so the impact could be felt a little sooner from those hires. Healthcare, education certainly, the parks, sports entertainment, they have long multi-year sales cycles. But if you don't start doing the work, building the relationships today, you'll never grow the business. So there's some investments that will payoff more in the near-term, others that will be multi-year payoffs.

Jay Hanna -- Bank of America Merrill -- Analyst

That makes sense. Thank you.

Operator

Our next question comes from Manav Patnaik from Barclays. Please go ahead.

Greg Bardi -- Barclays -- Analyst

Hi. This is actually Greg calling on for Manav. I just wanted to dig in on the Uniform business a bit more. I think last quarter, it may have been a little early to talk about it and maybe some of the commentary already about investments give some indication on how you're thinking about that business. But just hoping to get some color on how you're thinking about Aramark's competitive positioning there and opportunity going forward?

John J. Zillmer -- Chief Executive Officer

Yes. Sure, this is John. First of all, I will tell you that I spent -- I've spent a significant amount of time inside the Uniform business over the course of the last four months. I've been extraordinarily impressed by our operating team and the strategies they have laid out for the organization, the opportunities that they have in front of them in terms of improving the growth rate and improving margin. As I said in our last call, my primary focus is going to be on looking at ways to improve the operating results in that business and looking at the strategic investment opportunities that we have inside of Uniform Services.

The Board has not taken up any discussion with respect to strategic alternatives and I don't anticipate doing that in the near-term. I'm really focused on improving the core business. It operates at a very good margin and we've got a great team running against it. They have worked very hard to realize the synergies of AmeriPride and are undergoing significant strategic implementations with respect to the route accountability system, which will have dramatic impacts with respect to, I think, our ability to operate and report on the business. And so we're really focused on those efforts right now. But I will tell you, the time that I've spent with the Burbank team was extraordinary and really, really like the business, and I think, that they're really focused on the right things.

Greg Bardi -- Barclays -- Analyst

Very helpful. And then maybe on the foodservices side, just curious also to get your perspective on the facilities side, because that's, I guess, a piece that has kind of differing views among the big catering players on how active to be in that space. So just hoping to get your view on how facilities fits with the core foodservices offering? Thanks.

John J. Zillmer -- Chief Executive Officer

Yes. You bet. First of all, we have two different facilities businesses. On the Healthcare side, the facilities business is integrated along with our foodservice operations, because it's truly an integrated system sale. And so that business is aligned in that organization and very focused on serving the total needs of the Healthcare system and the Healthcare customer.

And then in the other businesses facilities is stood up as a stand-alone business providing services to a wide range of customers both in higher education and business dining. We like the business, operates at good margins. We've got a very strong team working against that business. We see it as an opportunity to continue to grow. We've got some very strong technical capabilities and a very strong portfolio of existing customers. We also have significant opportunity. There are -- it is a very large segment and we have a very specific business unit focused on growing that segment. So we like it, we're not going to shy away from it and we have people really focused on doing the right things in that business.

Operator

And our next question comes from Seth Weber from RBC Capital Markets. Please go ahead.

Seth Weber -- RBC Capital Markets -- Analyst

Hey, good morning. Maybe a similar question, but on the Educational business, can you just talk about the headwinds that you're seeing there? And what the plan is just to kind of turn that business more positive? And when -- I know it's kind of a long cycle business, but how are you thinking about the turn that could happen in Education? Thanks.

John J. Zillmer -- Chief Executive Officer

Yes. That's absolutely true. It is a long cycle selling business and we are very focused on that selling season right now, as you would guess. We think that -- first of all, we're number one in that business, we have a very strong position and we think we have certainly a right to win. I think that business was affected by the decisions over the last few years to cut resources and decentralize resources. So we have appropriately moved resources back into the business to be focused on serving those unique customers and developing a portfolio of solutions that really serves the higher education marketplace more effectively. So I think the down streaming of those resources, the repositioning of them, if you will, into higher education will help to accelerate that change.

We've got a very aggressive team of sales leaders in that marketplace and a good operating -- and good operating leadership. And there are a couple of fundamental issues inside of higher education that I think all companies will struggle with over a period of time like lower enrollments in certain universities and that's a headwind that we will need to work through.

We have a number of customized programs developed to improve the Meal Plan take up by freshmen and the readoption of Meal Plans by upperclassman focused on new marketing initiatives to go ahead and have an impact on that as well. So we're -- it's not a single solution kind of change. It is approaching the marketplace with multiple solutions and I think that will have a very significant impact in the very near-term on that business unit.

Seth Weber -- RBC Capital Markets -- Analyst

Okay. So you think that could -- we could see a positive turn by the end of fiscal '20?

John J. Zillmer -- Chief Executive Officer

Absolutely. I think we can absolutely see a positive turn in our new account acquisition rate and our retention rates whether that will translate immediately to top-line sales growth in this fiscal year is an open question. Remember, when you sell a new account, you're opening it in the fall. So you'll have one period of new business implemented in this fiscal year. So you'll see a turn in the success, but not necessary an improvement in the numbers until we get into next year.

Seth Weber -- RBC Capital Markets -- Analyst

Okay. And then if I could just get a clarification, John. In your prepared remarks, I think, you used the term going after business aggressively, doing whatever it takes kind of thing. I mean, I just want to understand where pricing kind of comes in, in your -- in that framework. I understand there are a lot of initiatives to help margin, but is pricing going to be a lever that you used to go after new business? Thanks.

John J. Zillmer -- Chief Executive Officer

Well, I'll answer it this way. We're going to compete on a very disciplined basis and we are not going to use price as a lever to sell new accounts. We're going to provide services to our customers that are designed to fit their needs and expectations. And we will do it on a basis that is accretive to margins and to grow the business appropriately and on a balanced basis. We are not going to lower our financial expectations to sell new accounts.

Seth Weber -- RBC Capital Markets -- Analyst

Perfect. Okay. Thank you very much.

Operator

Our next question comes from Hamzah Mazari from Jefferies. Please go ahead.

Hamzah Mazari -- Jefferies -- Analyst

Good morning. Thank you. My first question is just around, how are you thinking about timeframe for the turnaround on organic growth? Is it five years? Is it three years? And as part of that, I know you talked a lot about net new business, retention, adding salespeople. But are you comfortable that there's nothing structural in your product or any heavy lifting that you have to undo from sort of prior management teams, investments and standardization, technology and etc?

John J. Zillmer -- Chief Executive Officer

Yeah. We'll both answer that.

Thomas G. Ondrof -- Executive Vice President and Chief Financial Officer

Yes.

John J. Zillmer -- Chief Executive Officer

Tom, you go ahead.

Thomas G. Ondrof -- Executive Vice President and Chief Financial Officer

Well, again, as I mentioned before, I don't think there's anything structural. It's sort of an execution. It's an approach to selling new business. It's a resource to selling new business, making it a priority, making retention a priority. But in terms of a client offer, just the hospitality culture, the focus on serving and satisfying the customer and client, that's all there. I don't believe it's going to take additional capex in any category either for clients or within the business to grow. This is just about a prioritization and a reinvestment in feet on the street and then letting, as I mentioned before, those businesses grow. But they'll all be at a different pace based on the lifecycle or the sales cycle. So probably to answer your question, it's going to be less than five years but more than one quarter.

John J. Zillmer -- Chief Executive Officer

Yes. I would say, very well placed, maybe less than five years and more than one quarter. I think, we definitely have a strong pathway and trajectory toward significantly improving the organic growth rate in a -- what I would characterize the medium-term. The -- we have expectations to improve the growth rate this year and then to continue to improve it next year. As we've made these strategic investments in new selling resources, we expect that many of them will be productive this year and some of the businesses and that the longer cycle sales will begin to really have an impact in 2021 particularly in higher education.

So I don't see this as a multi-year effort. I also don't see it as a multi-year investment requirement. We believe that we will -- we have the resources that we need to operate the business going forward that we can make these -- we've made this strategic investment this year and we can add these resources and really have an impact on the business across all three of those growth paradigms, if you will, but base business growth, retention and new account sales. So we see this as a strategy that will accelerate going into the end of this year and will continue going into next year as well.

Hamzah Mazari -- Jefferies -- Analyst

That's very helpful. My follow-up question on Uniform. You talked about sort of no strategic options at this stage and at the same time you talked about investing in adjacencies in that business and turning it around. First of all, maybe talk about, is there any synergy in Uniform and the foodservice business. I guess you are the only company that owns the Uniform asset?

And then, two, is the Uniform business turnaround, too. So are you executing on two separate turnarounds or is the Uniform business just investing in first aid a little bit?

John J. Zillmer -- Chief Executive Officer

Yes. I would not characterize the Uniform business as a turnaround business. I would say, it's a business that performs very well in the marketplace that operates in that there are some differences in the structure of the business between us and our competitors that we're working to close, both through technology implementations and as -- and by scaling up the organization through the AmeriPride acquisition. The route accounting system is one area where that acquisition we believe will pay very significant dividends. So I see it as a business that has significant improvement potential, not as a turnaround business. They operate very effectively given the assets that they have and given the resources that they have.

So the strategic investments in Uniforms is really about creating additional runway, adding the adjacency services like first aid, we've already built that business very significantly in a very short period of time. It comes at very good margins. It is very accretive and so the investment in those sales managers we think will drive very significant returns in that business. So, again, I don't see it as a turnaround, I see it as significant improvement potential.

Thomas G. Ondrof -- Executive Vice President and Chief Financial Officer

And I think I'd add that while it doesn't have the sort of traditional synergy definition or overlap with the other side of the business, it's a very familiar business to me. I am -- I have not been exposed to it in my career and walking in, it feels very familiar, it's a B2B business, it operates very similarly to the food and service side from a contract standpoint, from a business relationship standpoint, retention, all those things are very familiar. So I think for both John and I, it's not a very difficult business to manage. It's got an excellent operating and management team. And as John said, it's got good financial metrics. So I'm excited to get into it a bit more.

Operator

And our next question comes from Andrew Wittmann from Baird. Please go ahead.

Andrew Wittmann -- Robert W. Baird -- Analyst

Great. Thank you for taking my questions. I'm going to keep going on Uniforms a little bit here. Some of your competitors have cited some concerns about some softness in their end markets that have held them back that made them a little bit more optimistic on their own guidance. I was wondering, if you guys have seen any pockets of weakness either by end market or geographically that would be notable?

John J. Zillmer -- Chief Executive Officer

I would tell you I don't see that as I look at the business. I think, in general, they are experiencing good growth across all the geographies. And I don't see any particular segment weakness. We do serve -- we have significant customers in the automotive sector, we have significant customers across such a wide variety of customers and clients. I think we're somewhat insulated from any specific industries' downturn if you will or softness. But I would tell you from both the geographic perspective and a customer perspective, we're confident in the trajectory for that business this year.

Andrew Wittmann -- Robert W. Baird -- Analyst

Great. And then just a follow-up question here. I just want to try to get a sense of your goals for the margin profile. I mean, a few years ago company called G&K Services was generating operating margins in the 12% range before they got taken out by Cintas. That was on less than $1 billion of revenue. You guys are obviously more than twice the size of that. Is the move to 12% or beyond, is that the right way to think about what your business is capable of or how can you put the margin potential in context for us as you effectuate your plan?

John J. Zillmer -- Chief Executive Officer

Yes. I think it's -- certainly we aspire to that level of margin attainment and I think that over a period of time it is attainable, particularly, as we scale up the adjacencies. The real difference between us and Cintas historically has been the fact that we're unionized and they're not, the fact that they've got a business that was built by building plants to specification as opposed to buy acquisition, which is the way we built the company. So we have a different footprint, different plant structure that gives us a slightly lower margin profile.

But, again, the buildout of the services capabilities, the adding of the adjacency services, the improvement of the route accounting system, it gives us significant headroom in terms of margin improvement potential. And so that's what we're focused on. As I mentioned on our last call, I've run multiple distribution businesses. I've spent significant time inside the Uniform company and I'm very confident in our ability to have a significant impact on the margin potential in that business.

Andrew Wittmann -- Robert W. Baird -- Analyst

Great. Thanks.

Operator

Our next question comes from Shlomo Rosenbaum from Stifel. Please go ahead.

Shlomo Rosenbaum -- Stifel -- Analyst

Hi. Good morning. Thank you for taking my questions. Hey, John, I just wanted to ask you, it is a long-cycle business and you noted a number of things that are changes that are going on right now that will -- should impact the business more positively as time goes on. The ones I'm noticing are through hiring and then kind of the routing system that you're talking about in Uniforms. Are there other ones that you want to highlight that are already going on, but people can't really -- you don't see the impact immediately, but it's one of those things that as you put it into motion, the impact on numbers will become more apparent over time?

John J. Zillmer -- Chief Executive Officer

Yes. I think that's a great question and I think really the actions that we've taken to-date have all been focused on creating that long-term growth potential opportunity, probably, the most significant actions we've taken to-date has been to reresource the businesses by taking the organizations that had been centralized into a center of excellence and focus on multiple businesses and down streaming them back into the markets that they serve. So we've taken resources out of the center, given them to business dining, giving them to Healthcare giving them to higher education. We put people back into the businesses that they know and love. So they can focus on that in those individual markets and have really deep intimate understanding and deep impact on those businesses, and I think, that will have a significant result over a period of time as those leaders and those sales leaders have the opportunity to reengage with customers in a much more intimate way.

So very much behind the scenes. I think, also, the strengthening of the leadership group, the reintroduction of Gary Crompton into business dining, Marc's promotion. Those are all, I think, terrific elements of contributing to the growth culture in the company and the focus on new account sales and customer relationships and that will have a significant impact over a longer period of time.

Shlomo Rosenbaum -- Stifel -- Analyst

Great. And then on Compass' call, they talked a little bit about weakness in B&I sector in Europe. Is that something that you guys are noticing as well or is there anything on a macro perspective besides, obviously, stuff going on in China that you want to call out on this call that people should be aware of?

John J. Zillmer -- Chief Executive Officer

Yes. I don't -- we're not seeing that. Our International results are actually very strong. We don't break it down obviously by country and by segments. But we're not seeing that softness in the European results.

Shlomo Rosenbaum -- Stifel -- Analyst

Okay. Great. Thank you so much.

John J. Zillmer -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Stephen Grambling from Goldman Sachs. Please go ahead.

Stephen Grambling -- Goldman Sachs -- Analyst

Good morning. Just have a couple of quick follow-ups. You talk to the synergy capture benefits in the quarter, can you just elaborate on the magnitude of the capture, maybe what's left, as you think about the two acquisitions, AmeriPride and Avendra? And then perhaps talk to integration costs that may be expected going forward?

John J. Zillmer -- Chief Executive Officer

Certainly. First of all, we projected the synergies for the total year to be approximately $35 million between the two integration -- between the two acquisitions. We see that materializing as expected. I don't see any real gaps in that realization and either -- on either organization seeing significant progress in Avendra and AmeriPride. We did not calculate as part of the AmeriPride acquisition the value or the benefit associated with the implementation of the route accounting system across the enterprise and we're beginning to really see that that can be very significant tangible synergy benefit, but haven't really quantified it yet as we've adopted it in a couple of our former Aramark facilities and are piloting and testing it, and really satisfied and happy with the results that we're seeing. So as we get further along in those tests we will be able to quantify that theoretical benefit by that implementation. But we're already seeing very positive impacts from it.

Stephen Grambling -- Goldman Sachs -- Analyst

That's great. And then maybe another follow-up, on the cash flow side, capex this quarter looked a bit lower than typical and lower than the prior-year period. Can you just talk to the trajectory of your capex spend and it sounds like most of the investments that you're making are going to be much more P&L focused and investing in sales folks versus client contracts, but we've seen some of the peers start to inch that up? So if you have any thoughts around client contract investments and how you think about evaluating those versus other opportunities? Thanks.

John J. Zillmer -- Chief Executive Officer

Sure. The two different categories of capital, if you will, to secure contracts, gain contracts, we don't particularly differentiate, its cash out, its cash to win new business and so we look for acceptable returns for that investment. And we'll continue to -- in any given quarter capex can be a bit lumpy, based on the opportunities. Hopefully, we are looking at a great fourth quarter and then install of Education business and that would be a requirement of capex more than likely.

So in terms of progression, I think, it's best to look at sort of the full year, year-on-year and at the moment, we're looking at the pipeline that we've got. We're again optimistic that the opportunities are there and the capex will trend toward historical norms and then into next year as well.

Stephen Grambling -- Goldman Sachs -- Analyst

That's helpful. Thanks so much. Best of luck this year.

John J. Zillmer -- Chief Executive Officer

Thank you.

Operator

I will now turn the call back over to Mr. Zillmer for closing remarks.

John J. Zillmer -- Chief Executive Officer

Terrific. Again, thanks everybody for joining us this morning. We look forward to conversations at the end of next quarter. We're very pleased with the state of the organization and I am very pleased to have Tom sitting by my side here as we move forward and looking forward to just a great results through the balance of the year. So thank you very much.

Operator

[Operator Closing Remarks]

Duration: 55 minutes

Call participants:

Rich Kotzker -- Associate Vice President, Capital Markets and Investor Relations

John J. Zillmer -- Chief Executive Officer

Thomas G. Ondrof -- Executive Vice President and Chief Financial Officer

Ian Zaffino -- Oppenheimer -- Analyst

Kevin McVeigh -- Credit Suisse -- Analyst

Andrew Steinerman -- JPMorgan -- Analyst

Toni Kaplan -- Morgan Stanley -- Analyst

Jay Hanna -- Bank of America Merrill -- Analyst

Greg Bardi -- Barclays -- Analyst

Seth Weber -- RBC Capital Markets -- Analyst

Hamzah Mazari -- Jefferies -- Analyst

Andrew Wittmann -- Robert W. Baird -- Analyst

Shlomo Rosenbaum -- Stifel -- Analyst

Stephen Grambling -- Goldman Sachs -- Analyst

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