Aramark (ARMK) Q2 2019 Earnings Report, Transcript and Summary

Good morning, and welcome to Aramark's Second Quarter 2019 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. [Operator Instructions] I will now turn the call over to Felise Kissell, Vice President, Investor Relations and Corporate Affairs. Ms. Kissell, please proceed.

Thank you, and welcome to Aramark's conference call to review operating results for the second quarter of fiscal 2019. 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'd 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 and in our earnings slide deck. During this call, we will be making comments that are forward-looking, including our expectations for fiscal 2019. 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 section 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 second quarter includes 3 incremental weeks of AmeriPride results as we lapped the 1-year anniversary of the closing of the deal in January. Also, our results are impacted by accounting rule changes and changes to the definitions of adjusted operating income and adjusted net income, which we began to use in the first quarter. Please refer to the Appendix in the earnings slides materials for detailed reconciliations. With that, I will now turn the call over to Eric.

Thanks, Felise, and good morning, everyone. Let me start by reviewing our second quarter results, and then I'll spend a few minutes talking about where our business stands at the halfway point through fiscal 2019. Then I'll provide an update on how we're strategically positioning the company to drive growth via innovation and focused execution behind our quality brand and product portfolio in a marketplace with substantial opportunity. In the second quarter, we saw solid revenue growth of 3.6% from our legacy business driven by strong performance in international and uniforms. Investments in both new and retained business in the U.S. as well as adverse weather conditions contributed to a modest decline in adjusted operating income of 0.5% on a constant currency basis. Adjusted EPS in the quarter was $0.45, which was unchanged versus prior year on a constant currency basis. In the quarter, we also continued to strengthen the balance sheet, resulting in a leverage ratio of 4.1x, an improvement of 0.6 turns versus prior year. While our results in the quarter were affected by the factors I just mentioned, we're pleased with our progress at the midpoint of the year. Through the first half of 2019, we delivered 4% broad-based revenue growth in the legacy business driven by solid net new performance, consistent mid-90s retention rates and strong base business growth. In the U.S., through the first half, revenues were up 2% on an adjusted basis driven by Sports, Leisure and Corrections as well as our Education and Business & Industry businesses. Our international business delivered double-digit adjusted revenue growth of 11% in the first half with Europe, South America, China and Canada all growing. And our legacy Uniform business grew 3% as we continue to integrate AmeriPride and launched product adjacencies. Adjusted operating income increased 10% in the first half on a constant currency basis with margins up 10 basis points, which resulted in a 9% increase in adjusted EPS on a constant currency basis for the first half of fiscal 2019. Looking forward, we expect 2019 to be another year of consistent progress across key financial metrics. We expect to deliver approximately 3% revenue growth in our legacy business and strong free cash flow of $500 million. We're updating our full year adjusted EPS outlook to reflect a couple of changes: first, the impact of deliberate strategic portfolio actions from our international segment; and second, adverse weather conditions that included an unprecedented winter storm, which impacted Yosemite operations. I'm confident we're taking the right near-term actions that will optimize returns and enable us to focus on new opportunities in the marketplace. As we look to the remainder of 2019, our priorities are: first, to remain laser-focused on creating a great customer experience. And to do that, we remain obsessed about offering quality products, meaningful innovation, continuing to improve our healthy options and ensuring we offer the consumer much-desired convenience. As our overall consumer satisfaction scores continue to rise, we're making additional targeted investments in technology, branding and growth opportunities to drive continuous innovation across the portfolio. The progress we're making with our customer experience is reinforced by recent wins, including Georgia Tech, SAP in Germany and a number of new clients across our portfolio. On the brand front, LifeWorks continues to perform well, and we're scaling our new premium and core brands, Harvest Table and Simple Spoon, as we enhance our culinary offerings and the food experience. This continuous innovation is being driven by insights and analytics that we're applying to every aspect of our operations from how we design our menus to how we deliver our products and services to how we engage our front-line associates. As an example, through our proprietary research, we learned the majority of consumers want to reduce their meat intake and eat more vegetables. We recently launched the Twisted Beet, our first dedicated plant-forward dining concept across higher-end business dining and health care locations. In addition to providing choices that meet dietary and lifestyle preferences, plant-forward options support a healthier climate. Currently, approximately 1/3 of the main dishes we serve in college and university dining halls, hospital cafés and workplace locations are vegan or vegetarian. With technology, we continue to drive more convenience and improve speed of service, removing friction from the order and payment process. We're expanding our in-seat ordering using Apple Business Chat, which was piloted in Major League Baseball last year and expanded to the NBA this season. Our second imperative for the remainder of 2019 is to continue to unlock the value of 2 great companies we acquired just over a year ago. The integrations of both Avendra and AmeriPride are progressing well, and we're on track to capture at least $30 million in synergies this year as we fully integrate our procurement activities while we're driving further reductions in our purchasing costs. In our Uniform business, we're combining supply chain and systems as well as optimizing the plants, warehouses and route structures of the 2 companies while also benefiting from redundant overhead expense reductions. Our third priority is to ensure we continue to strengthen our balance sheet to position the company for future growth and value creation. This year, we plan to make nearly $500 million in debt repayments, and we expect our leverage ratio to be at 3.8x by the end of the year. Finally, all of our priorities are really centered around our shared purpose, which focuses on engaging our employees, empowering healthy living, preserving our planet and building our communities. One key component of that purpose is about making sure we foster a diverse and inclusive workplace. And so we're pleased to once again be recognized as a Best Places to Work by LGBTQ Equality and a Top 50 Employer for equality opportunity. Before I turn the call over to Steve, I'd like to close with why I'm confident that our near-term actions will drive strong performance at Aramark. Through the first half, we have good business momentum as evidenced by our performance through the first half of 2019. As a large and more agile company, we are now better positioned to compete and win than at any time in the company's history with improved operating margins, greater procurement scale and a more competitive multi-brand strategy. Also, our Uniforms business has expanded its product portfolio and its geographic footprint. We're leveraging our strong cash flows to repay debt as we strengthen the balance sheet and continue to improve our financial flexibility. We have an attractive marketplace to compete in that continues to be large and growing, and we benefit from a diversified and resilient business model. So there's no doubt that our clear and focused strategy has made us bigger and faster, stronger and healthier, which positions us for continued growth and value creation going forward. With that, let me turn the call over to Steve for a more detailed review of our second quarter results.

Thanks, Eric. Before reviewing our financial performance, I want to briefly acknowledge the changing of the guard in Investor Relations. Kate Pearlman, whom you all know, will be assuming a new position within Aramark. Kate led IR for us for the better part of the past 3 years, and I'd like to thank her for her work and service to everyone on both sides of this call. I also want to welcome Felise Kissell, who just joined us literally a few weeks ago. Felise is our new Investor Relations and Corporate Affairs leader and comes to us with a distinguished IR and Wall Street career. Many of you know Felise directly or by reputation, and we are very excited to have her join the team. Moving to the results. Legacy business revenue grew 3.6% in the quarter, which was a bit stronger than expected. U.S. FSS grew 1% on an adjusted basis. We did not serve food at the Super Bowl this year, and most of our adverse weather experience from heavy snowstorms in Yosemite and the polar vortex was felt here. This combination was close to a point of headwind on U.S. FSS revenue. International FSS was up 11% on an adjusted basis with growth across essentially all countries via new business wins and high retention rates. Our Uniforms legacy business grew by 3%, and we've now lapped the AmeriPride acquisition. GAAP revenue was impacted by the divestiture of our Healthcare Technologies business. Constant currency second quarter AOI was less than 1% below the prior year. In the first quarter, we began accelerating our planned 2019 productivity and capability investments due to the receipt of a onetime payment, and the accelerated pace of reinvestments continued in the second quarter. We expect to complete all of our planned incremental investments into technology, brands and sales and marketing capabilities by the end of the third quarter. The U.S. FSS segment had a challenging AOI quarter and was down 10% versus prior year, weaker than we expected. Consistent with revenue, the majority of the weather-related AOI impact was felt here, totaling about 200 basis points. The lack of the Super Bowl also contributed somewhat to the AOI decline, as did the deliberate investment pull-forward. The remaining year-over-year change related to the timing of new account startup investments and reinvestment costs from the retention of existing accounts, notably in our Facilities business. With that, we did achieve our anticipated Avendra synergies. International FSS AOI rebounded as expected to 6.5% growth on a constant currency basis despite startup costs associated with revenue growth. Uniform's AOI improved over 21%, benefiting from synergies, base productivity and the modest contribution from 3 weeks of lapping AmeriPride earnings. Beyond these items, second quarter GAAP operating income was impacted by tax-reform-related onetime employee reinvestments, partly offset by lower severance and lower merger-related integration charges. Adjusted earnings per share was $0.45, which is flat to prior year on a constant currency basis. The modestly lower AOI and higher tax rate were offset by lower interest expense and fewer diluted shares outstanding, which were partially driven by earlier share repurchases. The weather impact on earnings per share in the quarter was approximately $0.02 per share. Year-to-date, our free cash flow is about $85 million better than prior year, albeit still seasonably negative. This improvement is primarily from a lack of prior year closing payments for Avendra and AmeriPride, which were partially offset by costs associated with the divestiture of our Healthcare Technologies business and onetime tax reform reinvestments. We continue to make excellent progress in deleveraging as our leverage improved to 4.1x, which is a 0.6 turn decline versus the prior year quarter. Our debt is about $630 million lower than the prior year quarter. Turning now to our expectations for the full year. We still expect legacy revenue growth of approximately 3%. International FSS will finish the year with mid-single-digit growth, which implies a slower second half versus the 11% adjusted growth in the first half due to a couple of specific factors. In the third quarter, we began to proactively exit certain European accounts that are not meeting our return expectations as we're now in a strong position to optimize this portfolio. We also lapped the joint venture reconsolidation in Europe at the end of Q2, which contributed approximately 2 points of growth in the first half. For the U.S. FSS and Uniform segments, adjusted revenue growth in the second half should be comparable to the first half. We are lowering our adjusted earnings per share expectations for the year to $2.20 to $2.30 per share or between 4% and 5%. Our base business is operating as we expected, and we continue to expect to realize at least $30 million in synergies from the integration of AmeriPride and Avendra this year. Our total planned productivity and capability reinvestments remain unchanged, although we do now expect to complete them by the end of the third quarter. However, we don't expect to recover the approximately $0.03 for weather and client investments that occurred in the second quarter. In the second half, we come down about $0.08 from our prior expectations, essentially all of which will be realized in the third quarter. There will be some lingering weather headwind as parts of our Yosemite operations will not open until Memorial Day at the earliest due to ongoing cleanup efforts. Our accelerated reinvestment plans mentioned earlier will pull forward spending from Q4, which will modestly improve our outlook in that quarter. Finally, we expect to incur incremental exit costs in the third quarter from the strategic exit of certain European accounts that will improve our medium-term margins and our long-term returns on capital, as I just mentioned. As a result of these items and proactive actions, we expect our second half constant currency adjusted earnings per share to grow in the high single digits, which is consistent with our first half experience and our full year expected adjusted EPS results as well. For the full year, we do continue to expect profitability margins will improve, though they're going to be partially obscured by the accounting changes on reported revenue. We continue to expect that we'll generate approximately $600 million of cash before the $50 million of HCT reclass spending and the approximately $50 million of Avendra and AmeriPride integration spending. This would result in approximately $500 million in reported free cash flow. We expect that this free cash flow plus the HCT proceeds will allow us to repay close to $500 million of debt and should reduce leverage to about 3.8x by the end of fiscal 2019. We continue to have excellent financial flexibility with no significant maturities due in the next 5 years and approximately 90% of our debt remaining fixed. In closing, while our Q2 and Q3 client actions will have some modest short-term impact, we're confident that we're taking the right steps to improve our long-term financial returns and successfully drive the business. We look forward to completing another very good year of operating performance. Eric?

Thanks, Steve. And Christine, we'll now open the lines to any questions.

[Operator Instructions] Our first question is from Seth Weber of RBC Capital Markets.

I wanted to ask a little bit more about if there's any more color on these portfolio actions, specifically, sorry if I missed it, but to size them. And then just, is this something that we should expect to see kind of a little bit here each quarter going forward? Or are you kind of doing this all at once?

Seth, let me start, and I'll let Steve build on some of the specific math. I think if you really think about the strategic rationale or why we're doing it from a timing perspective, I think it really is a result of the very, very strong international performance that we've seen from our business there. And the action is really isolated to us getting out of kind of what we would call our noncore Facilities business across Europe, so basically going back to do core custodial but to get out of a couple of accounts where we've been, we've stepped beyond that. So I think it's, the timing is really driven by, it's from a position of strength given how well our international business has performed, and we would expect that to be done, as Steve mentioned, I think as we get through the second half of the year.

Yes. And maybe what I would add to that, Seth, is we've tried to be pretty clear that when a window of opportunity presents itself to us, we'll try to do the right thing for the long-term business profitability and returns on capital. There is no doubt a window of opportunity for this particular subset of activity has presented itself to us, and we want to make sure we take advantage of that. We'll get out of, it's probably $30 million to $40 million of annualized revenue across a couple of these accounts. It's money-losing business for us. So while there definitely is a current period cost to get out of it, it will be immediately accretive for us going forward and certainly improve our returns. And we strongly believe it's the right thing for us to do.

It's very helpful. And then just a quick follow-up. Is there any part of the reset guidance here due to any change in the way you're thinking about labor or food inflation and your ability to offset those?

No. I think as Steve mentioned in his prepared comments, the 2 big items driving the reset are the impact of weather in Q2. Some of that, which will play over into Q3, related to our Yosemite operations. And the question you just asked about the strategic portfolio actions in Europe. Those are the 2 drivers.

Yes. Our inflation expectations are unchanged for the year. So we're running somewhere around 3% food inflation across the entity and somewhere closer to 4% on labor inflation across the entity. So it's roughly 3.5% or so for the entire company that is unchanged.

Our next question is from Richard Clarke of Bernstein.

I just wanted to understand the bridge between the $500 million of free cash flow guidance and the $500 million of debt repayment given that you've obviously, you've got to pay dividends as well in that period. Is that at all related to you making any money out of these portfolio actions? Are you going to realize any divestment proceeds? Or is there something else to get to that bridge?

Yes. I'll start with that. We're not selling anything per se. So we're just exiting some contracts to be clear. So there's no proceeds from a divestment standpoint. If I think of, I'll try to answer your first question in 2 parts. So how do you get close to $0.5 billion of debt reduction? Remember, we'll get, take about $200 million of proceeds from the divestiture of HCT that we did in the first quarter. We sold that for $300 million. $200 million of that will go to debt repayment. So we need about $300 million to come from free cash flow. And so if there's about $0.5 billion of free cash flow generated, roughly $100 million or so will go to a dividend and another $100 million to a variety of small deals and miscellaneous things, you're left over with $300 million. So that's the way you get to the $0.5 billion of debt pay down for the year.

Okay. A follow-up, if I may. Just looking at the U.S. organic growth, I guess, even aside from the one-off impacts you mentioned, it still slowed slightly from Q1. You're putting a lot of investment into that, reinvestments, et cetera, onto that project. Are you expecting that to result in an organic growth acceleration over some time period? Or is 2% the right level?

Richard, it's Eric. I don't think 2% is the right level for us long term. I'd say our U.S. growth is something that continues to be a major priority for us. I think if you look at the near term, specifically 2019, net out the weather, I think first half, the U.S. grew about 2%. I think that's consistent with what we would expect the second half U.S. growth to be. But over time, I think we would say that that's an opportunity for us, and we're disappointed that we're seeing that kind of growth and can grow this business and expand margins in our U.S. business going forward.

Our next question is from Andrew Steinerman of JPMorgan.

Steve, you gave a lot of prepared remarks on the guidance. I just thought it might be easier if you were willing to tell us what the implied second half fiscal '19 operating margins were to drive the high single-digit EPS growth that you guided to?

Yes. Listen, we, certainly in the second half, most of the actions that we expect to take are going to come out of what we would call our base business above the weather impact as well as the strategic portfolio piece will come out of the base business. We do expect total company is going to have higher year-over-year profitability margins, just like we did in the first half. I think we printed total margins are up 10% or so in the first half. That's a little bit depressed because of the accounting changes. But I fully expect for the full year, total company profitability will be positive in terms of margin improvement, as it was in the first half of the year.

Our next question is from Toni Kaplan of Morgan Stanley.

You called out the increased reinvestment cost that you're expecting to do and that you did in the quarter. How should we extrapolate that into, I guess, sort of pacing? And what that should mean for future growth?

Yes. Toni, this is Steve. I'll start. So listen, what did we experience in the second quarter if I take the weather aside, right? So there was, let's call it, $5-ish million of weather impact in our North American business in the quarter. So obviously, you still have more than $10 million of AOI pressure year-over-year remaining for the change. That was pretty, or it was split roughly 1/3, 2/3. You had, about 2/3 of that would be related to startup investments in clients. So there was a number of pretty significant pieces of new business that we were onboarding, some of which we had talked about before where baseball, et cetera, we don't actually get any revenue in the quarter, but about 2/3 of that was year-over-year start-up cost investment. And that was a little bit higher than we had anticipated it was going to be, in fairness, at the beginning of the quarter. And then you had about 1/3 of that remaining number that would fall into what I would call retention of existing business where it was good long-term business for us. We had to pay up to keep it. It happened to be in that particular quarter. We'll have to go back and, obviously, find ways to improve the profitability of those accounts as we move forward. And most of that retention action, as I said in my prepared comments, related to a couple of pieces of business in our Facilities segment specifically.

Great. And then I wanted to ask about Education. Growth in the quarter was a little light again for the third straight quarter. Can you just talk about what you're seeing in that vertical from a retention and new business win perspective?

Sure. I think if you look at our Education business through the first half, again, it was up slightly. I would say broadly speaking, and I think this applies to the Education business as well, our retention numbers continue to be pretty strong in that mid-90s percent, very consistent with prior year, I think, through the first half. And I think as we look to the full year forecast, we would expect that to be the same. Actually, our Education retention numbers are a little higher than that mid-90s, but I'd say very consistent retention from what we've seen in the past years for our total business as well as for our Education business.

Our next question is from Gary Bisbee of Bank of America Merrill Lynch.

Eric, you, one line that you said was you believe the company is better positioned to compete and win today than it's ever been given a bunch of the stuff, I guess, really that you talked about at the Investor Day. And yet at the Investor Day, you lowered the medium-term revenue growth target. The U.S. Food business has really never annually, at least in the last 4 years, been above 2.5%, and so never in the high end of the range, the new range. I guess help us understand that. I mean what's the shortfall? I guess the other piece is retention. You're saying it's stable. So it's got to be new business wins, I guess, that's the issue. What can you do to improve that? What's the issue?

Sure, Gary. Well, just a couple of things. First of all, just to maybe articulate my point about we're stronger than we've been in the past, I think the 3.5% growth we delivered last year for the company and the 4% through the first half of this year are indicative of the strength has improved in our top line momentum. I think brand work that we've done, there's no doubt LifeWorks continues to perform well. The work we're doing on Harvest Table and Simple Spoon continues to gain traction. And again, if you think about competing in the marketplace, the fact that this is a company that's improved our margin structure dramatically over the last 3 or 4 years just makes us more competitive. So I think that, along with the strengthening of the balance sheet, to me is indicative of a company that is bigger, faster, stronger and healthier. I think specific to your U.S. growth question, you're right, it is about new business. I think if you look at our base business performance and our retention, those have been very consistent. And I think it is really about kind of what game we want to play. And as you think about the game we've been trying to play, our orientation is about profitable growth. I think you can expect that to continue to be the case, certainly as we look to, continue to look for margin opportunities in our U.S. business, which are also opportunistic, as well as take the actions we need to, relative to strengthening the balance sheet. So from our perspective, there's no doubt if there's one area of our business that is an area of focus for us, it is our U.S. business both on the growth and the margin front. But having said that, I think as you've seen through the first half of the year, I mean, the company performance of 4% top line growth with slight margin expansion, you haven't seen that in other of our peer group in the industry. That's the game we're playing based on the hand we're holding and what we think is important to create long-term shareholder value.

And then the follow-up, just if we think about the guidance reduction in the international actions, the, a quarter ago, you were talking about being in the upper half of the prior range, and you just less than 6 months ago had an Investor Day. There was no talk of any of this portfolio rationalization. So what was, what led you to do it now? I hear you that the business is performing well, but what was, what factors made you say, hey, now is the time to do this. Did something change with those contracts? Or was there anything else?

Yes, Gary. This is Steve. Certainly, as it relates to the why now and the timing, I mean, the window of opportunity presented itself here on this, right? This is, it's a business that's a little bit different than what we would consider our core Facilities business. It's spread across multiple geographies where we don't have a lot of other competitive scale. And so I tried to let people know it's business that certainly doesn't meet any reasonable sort of return expectation. And so just based on contract cycles and negotiations with the client, we had a chance to get ourselves out of it now. There is no doubt we're going to be better off without it for a variety of reasons. And so we felt like it was the right thing to do knowing full well there was a short-term impact to get out of this, for sure. But the window just presented itself to us, and that was not something we had visibility into at Investor Day or any time before that.

Our next question is from Manav Patnaik of Barclays.

Just a follow-up on that. So I think, Eric, you said a lot of what you're getting of are the Facilities business in Europe, and so I was just curious, I think you had stood alone a Facilities business in the U.S. So is that a change of strategy on Facilities overall? Or is this just specific to European country?

No. It's not a shift in strategy at all. I think what we've said is, in Europe, if you really think about our core Facilities business, it's custodial-oriented, and this business we're exiting is noncustodial business. So I think the exit is specific to Europe and specific to the noncore, noncustodial business on Facilities. In the U.S., we continue to invest and continue to make progress as we stood up the Facilities business a couple of years ago.

And maybe just to follow-up, could you just give us an update on where the Facilities business stands? The growth? The traction? Some more color there, please?

Yes. I mean I think the Facilities business, as we've stood it up, has had pockets of success as we continue to build our core capability. As we look to take this business forward, accelerating the growth of that business is a top priority for us, and I think that's where the management team is focused on taking that business going forward. So Steve, you...

Listen, I think I would tell you I think we've clearly benefited from just what you would, why you would do this in the first place, right? Just the focus specifically on Facilities and understanding that market and understanding our capabilities within that, there's no doubt that's benefited us. We know a lot more about what we have and what we want to have. You may or may not recall, Manav, this particular segment of business is actually bigger and had more outsourcing opportunity for us than the Food business facilities broadly. So if we wanted to be serious and relevant long term, we had to focus on it. And I think we're clearly starting to see the benefits around internal best practices, et cetera. And there is certainly no lack of market opportunity, we just need to continue to make sure where we are, really have a right to win, and that's where we're focusing and prospecting in the market.

Our next question is from Shlomo Rosenbaum of Stifel.

Steve, can you talk a little bit about the margin pressure from reinvestment cost to retain business? Is there something stepping up competitively out there? Or why is that a step-up? Can you just give us a little bit more color there?

Certainly, in the second, we get asked this a lot, obviously, and we're very attuned to is something changing directionally in the market. In the second quarter, Shlomo, I don't think anything has changed in terms of what drove our experience in the quarter. There were a couple of very significant contracts in the Facilities sector that we felt like it was important for us to keep. And we knew we were going to have to make an investment on those. I didn't necessarily expect to do it all in the second quarter, in fairness, but that's where it ultimately landed. And so we generally do expect compression when we renew a piece of business in any of our lines of business, that's inherently not that unusual. These happen to be big accounts coming at the same point in time. And yes, there was a little bit of incremental compression, for sure. Facilities does not tend to take a lot of capital associated with it, so it really wasn't a capital-related thing. But we'll, as I said, we'll have to go back and from an operational productivity standpoint over the time, life of these contracts, go call that back.

I also think if you take some of the lumpiness that was there in Q2, if you look at our first half margins again at the company level, we were up 10 basis points. Actually, our North America margins were a little stronger than that. So I think as we look at the health and the cost of doing business, I mean, I don't see any change competitively in the U.S. at this point.

Okay. And then just as a follow-up, can you just bridge the EPS guidance range? It's lower by $0.10. If you actually account for lower stock compensation, it really seems like it's going down by $0.12. Can you just parse it again between weather, investments, exit and any other miscellaneous stuff that you can call out to us?

Yes. Sure. So as it relates to stock-based comp, we do definitely expect to have lower stock-based comp this year than we did last year. We've tried to be clear about that, and that's really a function of what our anticipated payouts on performance share grants are because that obviously inherently becomes somewhat variable for us. But I wouldn't read through any change in stock-based comp to the bottom line, good or bad, because I think reduction in stock-based comp will certainly be offset by increases in cash-based incentive compensation, which we've talked about as well. If I think of what has changed from the prior worldview to this one, we had said kind of higher end of the prior range. We're now setting a range down $0.10. So let's say we've come down about $0.11, $2.36 to $2.25, just for ease of math. We definitely were $0.03 short of where we anticipated to be in the second quarter. $0.02 of that was weather, $0.01 of that was client reinvestment at a higher level than we had anticipated before. So that leaves you to this $0.08 coming out of the second quarter. We'll have another couple of pennies I think come out of our Yosemite Leisure business in the second half of the year just because, mainly in the third quarter because parts of that park have not reopened. So then you're left with probably somewhere in the neighborhood of $0.04 or so exit-related costs based on what we currently think is going to be happening in the European portfolio business. And then there's been a modest change around some of the concert schedules as well in the second half in North America. Some of the higher profile touring concerts have canceled some shows, some of the lead singers are in the hospital, et cetera. So that'll have a modest impact on us as well. So that's how I would reconcile it. $0.03 out of the second, $0.08 of the second half, mainly out of the third quarter, primarily weather carryover and the exit of those international costs being the majority of that.

Our final question is from Stephen Grambling of Goldman Sachs.

I guess two questions. One, which is maybe direct, but with the stock coming under pressure and approaching 52-week lows, does the valuation make you consider other ways to increase shareholder value either through pivoting the strategic balance and margins versus growth and/or pulling other levers that you may have at your disposal?

Stephen, I'll start and let Eric give his perspective. So for the record, nobody is happy with where the share price is, obviously, certainly not the people sitting in this room. There is no doubt from my perspective, the market narrative that's obviously reflected in the current multiple does not reflect from our perspective the company's performance so far this year and it certainly doesn't reflect what we're telling people the company is going to do by the time we get to the end of the year. Having said that, we are always open to ways to improve value, whether that's portfolio, given the actions we just took, as an example of that, and/or what our performance is driving from a market receptivity and expectation standpoint. So we look at portfolio every single year. We will look at portfolio this year. We fully understand the math and the alternatives that are available to us. And we absolutely believe the single best thing we can do in the short term is continue to deliver solid operating results for this organization. And we do think when you step back and think about what we're saying for the full year, 3% revenue growth, improving profitability, high single-digit earnings per share, significant cash flow generation and significant balance sheet improvement, that is not an operating performance just to sneeze at. And so we will continue to drive towards that but always keep our options open around other ways to enhance value.

Yes. And the only one I would add, Stephen, is, again, we are disappointed with where the stock stands. I think as Steve mentioned, through the first half, we're, actually, our operating performance is pretty consistent with I think the way we laid the year out, right? At 4% top line growth, some slight margin expansion, constant currency high single-digit EPS growth. The full year will look pretty similar to that, 3% top line and high single-digit EPS growth. And that, on top of what we've done, I think sets us up to compete in the market. I do think that some of the things we've talked about in the past in terms of the quarter-to-quarter lumpiness that isn't always as visible to our competition sometimes misses maybe the higher-level performance of the business. But I think we're open-minded and certainly focused on maximizing shareholder value.

So maybe one follow-up just so we can maybe get out of the weeds but get some of the color on it. On the U.S. margin front, I appreciate the weather color, but over the past 5 years, you've also had adverse weather and also have had growth in new contracts, yet you didn't see the same kind of margin pressure that you've seen recently. So has something changed in the business model that you can help give us some color on? Or perhaps you can once again break out the margin bridge between the new contract impact, base margins, reinvestment, impact from Avendra and weather?

Well, again, let me just start. I think maybe the best way to evaluate the margins is to lift out of the quarter because that did have so much weather in it and maybe look at the first half. Our first half base North America FSS margins are up about 20 basis points I think is the way to think about it. So that is, I think, pretty consistent with the way we expected the first half of the year to perform. As we look to the full year, and I'll let Steve comment on some of the other specific math questions, we expect our North America FSS business to see margin expansion, again driven by the game we've been playing around driving base productivity and would expect full year margins to be up slightly as well on our North America business as well as at the company level.

Yes. And just for clarity, I'll answer this again. I'm not trying to say the same thing I said before, but just to be clear, in North America specifically, our year-over-year AOI performance was down somewhere $16 million, $17 million on a year-over-year basis. We expected it to be down, albeit not as, not down as far as it ultimately was. About $5 million of that was weather related, again polar vortex and Yosemite. And so the other roughly, of the remaining difference, about 1/3 of that would have been retention compression in the Facilities business, so several million dollars. That was a little bit more than we expected it to be based on the timing of some of the stuff getting finalized. And then 2/3 of that delta would have start-up costs for new business. That also was a little bit more than we thought it was going to be. I think the only, we, that's not a timing surprise because we knew what we were starting up. I think the one comment I would add to that is I would like to see us in this particular category of starting up new business, I think we can do a better job, specifically in North America, we can do a better job starting this stuff up and making sure we get off to a faster start in this business. I think that's a fair observation.

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

Thanks, Christine. Well, thanks again for your time and continued interest in Aramark. Everybody, have a great day. Thanks.

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