管理層發言
Good morning, and welcome to Aramark's Second Quarter Fiscal 2026 Earnings Results Conference Call. My name is Kevin, and I'll be your operator for today's call. Operator provided instructions at this time, I would like to inform you that this conference is being recorded for rebroadcast. Operator provided instructions. I will now turn the call over to Felise Kissell, Senior Vice President, Investor Relations and Corporate Development. Ms. Kissell, please proceed.
Thank you, and welcome to Aramark's earnings conference call and webcast. This morning, we'll be hearing from our CEO, John Zillmer; as well as our CFO, Jim Tarangelo. As always, there are accompanying slides for this call that can be viewed through the webcast and are also available on the IR website for easy access. Our notice regarding forward-looking statements is included in our press release. 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 SEC filings. We will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in our press release and IR website. So with that, I will now turn the call over to John.
Good morning, everyone, and welcome to our fiscal second quarter earnings call. Thank you for joining us. Our financial results underscore the continued momentum occurring at the company, driven by our unwavering focus on growth through delivering hospitality excellence. Jim and I will review the key contributors to the quarter's outperformance and our confidence in achieving the outlook for fiscal '26. We entered the second half of the year with exceptionally strong business trends, including, first, a client retention rate exceeding 98% across the company; second, organic revenue growth at record levels in both FSS U.S. and international; third, new client wins that have already reached an unprecedented total of $1 billion this fiscal year-to-date; and lastly, we're very excited about our entry into the hyperscale AI data center market, where we believe Aramark is uniquely positioned to deliver an integrated suite of capabilities, as we execute on our newly awarded multiyear engagement with a top global hyperscaler to provide comprehensive hospitality and facility services across multiple AI data center locations. This client is expected to become the largest in our portfolio. We see significant runway for additional growth with this client and other hyperscalers. In the second quarter, Aramark's organic revenue grew 12% to $4.8 billion, including an estimated 3% benefit from the calendar shift. As a reminder, the calendar shift will ultimately have no bearing on the full year results. Our strong revenue performance was due to broad-based net new business and base business growth across sectors and geographies. Throughout the organization, our client-led growth strategies consistently offer a differentiated guest experience while providing operational rigor, unparalleled supply chain capabilities and advanced technology solutions. Moving to the business segments. FSS U.S. organic revenue increased 12% to $3.4 billion and would have increased approximately 8% without the calendar shift benefit, which occurred primarily in education, with Collegiate Hospitality also experiencing growth in residential meal plans associated with higher student enrollment. Revenue growth in the second quarter for the U.S. was additionally driven by Sports & Entertainment, which had a strong opening day for Major League Baseball with increased plan attendance and record per capita spending. Sports & Entertainment also participated in several marquee events, including the World Baseball Classic and the NCAA basketball tournament. Workplace Experience sustained double-digit growth as a result of significant new business contributions, exceptionally high retention rates and elevated catering demand. Refreshments expanded its client base building incremental route density across several key geographic areas, including Central New York, the Southeast, and the Pacific Northwest while increasing the average size of new wins by 15%. And Healthcare completed the successful launch of Penn Medicine, which is now fully operational and, as reviewed on the last earnings call, the team is set to mobilize RWJ Barnabas Health this summer. During the quarter, FSS U.S. achieved several notable client wins, including Suffolk University and the University of Wisconsin Oshkosh in Collegiate Hospitality, which will fully launch in the new academic year; Toyota in Workplace Experience where we recently began operations at their North American headquarters; the Oklahoma Department of Corrections as an example of our expanding presence in state-run correctional facilities; and Stone Mountain destinations, the most visited attraction in Georgia, where we start offering food and beverage, lodging, retail, tours and camping next month ahead of the peak summer tourist season. As hyperscale AI data center development accelerates and demand for support services grows in tandem, we launched Aramark Nexus, a new platform delivering integrated hospitality and workforce support services in large-scale, complex and often operating environments, where we believe we have proven expertise and an established competitive advantage. We've been selected by a top global hyperscaler to support thousands of workers providing employee housing, dining and hospitality hubs with modern lifestyle amenities and entertainment, transportation to and from construction sites and full housekeeping and guest services, delivered through a unified management structure. Our engagement is underway and set to begin this fiscal year. We expect this new suite of services to generate margins above the company average and achieve attractive investment returns. The significant growth opportunity currently is not reflected in our fiscal '26 financial outlook, but we will provide updates as we launch, grow and scale the business. As I mentioned earlier, we see substantial growth potential in hyperscale data and operation centers. The International segment achieved another quarter of consistent compounded growth, with organic revenue increasing 13% to $1.4 billion, inclusive of an estimated 1% benefit from the calendar shift. This exceptional revenue performance was broad-based across every region, attributed to double-digit growth in Europe and Canada and high single-digit growth in emerging markets. Business momentum was led by Sports & Entertainment, Education, Extractive Services and Business and Industry, highlighting the depth of our in-country expertise and strong cross-border collaboration. All countries within our International portfolio are driving favorable net new business, underpinned by an extensive sales pipeline. Second quarter new client awards range from an increased presence in festivals such as Brockwell Live in the U.K., serving hundreds of thousands of visitors, to the new T-Mobile Arena in the Czech Republic scheduled to host its first event later this fall, and a leading hospital in China, a leading institution in clinical care and medical education. Now to global supply chain. We continue to see rapid PPO expansion in multiple categories, including sizable growth in golf and spa destinations within the U.S. and internationally across the hospitality industry. Inflation continues to track in line with our expectations throughout all regions. Aramark remains resilient amidst geopolitical uncertainty, including the recent volatility occurring in the energy markets. The significant scale of our food service agreements provides efficient cost flexibility and enables us to remain proactive in managing strategic pricing and sourcing actions. Bottom line, we believe the organization is well equipped to navigate a broader macro backdrop. Before handing the call over to Jim, I want to reinforce the message we've been sharing with our teams across the country. We are executing our growth strategies with focus and discipline. Our ambitions for Aramark have never been higher, and we are consistently setting new milestones. We're proud of the performance the teams have delivered, and we remain fully committed to working together to build on this continued momentum and drive the business to even greater levels of success. Jim, I'll now turn the call over to you.
Thanks, John, and good morning, everyone. We've made great progress across our key operating metrics during the first half of fiscal '26, delivering strong financial performance. Our results in the second quarter reflected continued momentum in driving both top and bottom line results from strategies that have not only advanced the current state of the business but that we believe have also positioned us for sustained success. As we move into the second half of fiscal '26, we remain focused on disciplined execution of our growth efforts across the organization with a mindset of creating significant shareholder value. As John reviewed, we reported organic revenue growth in the second quarter of more than 12% versus the prior year period, led by broad-based net new business, higher like-for-like volumes and the favorable impact of the calendar shift, which was approximately 3%. For the first half of fiscal '26, organic revenue growth was 8.5%, with a calendar shift having no effect on the first half growth results. Regarding second quarter profit growth, operating income was $220 million, up 26% versus the prior year. Adjusted operating income was $258 million, up 24% on a constant currency basis and AOI margins increased 50 basis points. The strong profit growth was a result of higher revenue, productivity gains in food and labor supported by our technology capabilities, supply chain efficiencies and disciplined above-unit cost management. The calendar shift also benefited AOI in the quarter by an estimated $25 million or 12%. Turning to the business segments. The U.S. reported AOI growth of 27% compared to the same period last year. Growth was driven by increased revenue levels, technology-enabled productivity gains in food and labor, supply chain efficiencies and disciplined above-unit cost management. The calendar shift also benefited AOI growth by approximately 13%. Once again, the International segment had double-digit AOI growth in the quarter, increasing 12% on a constant currency basis. This performance reflected higher base business volume, new business margins and strengthened supply chain economics, which more than offset some in-country investments during the quarter to support significant growth. Turning to the remainder of the income statement. Interest expense was $82 million in the quarter, and the adjusted tax rate was 25.3%. Our quarterly performance resulted in GAAP EPS of $0.38 and adjusted EPS of $0.49, an increase of 40% compared to the prior year period on a constant currency basis. The calendar shift benefited adjusted EPS growth in the quarter by approximately 20%. With respect to cash flow, we generated a significant cash inflow in the quarter from the contribution of higher earnings and favorable working capital. Net cash provided by operating activities in the second quarter was $400 million, an increase of $144 million or 56% compared to the prior year period, and free cash flow was $305 million, which improved by $164 million or 116% year-over-year. The strong free cash flow in the quarter enabled us to proactively repay $55 million of term loans. We also continued to repurchase shares under our current share repurchase program. To date, we have repurchased approximately $194 million of Aramark stock. We remain disciplined in our capital allocation priorities as we are committed to reaching a leverage ratio below 3x by the end of the fiscal year. At quarter end, the company had more than $1.4 billion in cash availability. And finally, let me wrap up with our performance expectations for the remainder of fiscal '26. We are extremely pleased with our year-to-date financial results and the positive trends occurring in the business, including a strong revenue trajectory from the net new business and continued base business expansion. As a result, we have updated our fiscal '26 outlook for organic revenue growth to the high end of our 7% to 9% range, and we are reaffirming our expectations for AOI growth to be up 12% to 17% and adjusted EPS growth between 20% and 25%. We continue to expect accelerated AOI margin expansion this fiscal year, consistent with our expectations, capitalizing on the company's multiple operating levers while mobilizing a record level of new business openings. As John mentioned, the outlook for fiscal '26 does not currently reflect the multiyear engagement with a top global hyperscaler that is currently underway. In summary, we are seeing strong momentum throughout the company as our teams continue to execute our growth strategies, led by extensive new business wins and high client retention rates. We also believe our entry into the hyperscale data center market further advances the company's growth opportunities. These positive trends in the business are translating into strong revenue and profitability, positioning the company well for continued success this year. We are confident in our ability to build on this momentum into fiscal '27. As John always says, we wouldn't be where we are today without our teams around the world, and we thank them for all their efforts. We could not be more excited about the future. Thank you, everyone. Operator, we will now open the call for questions.
分析師問答
Operator provided instructions. Our first question comes from Jaafar Mestari with BNP Paribas.
I had two questions, please. Firstly, on your $1 billion of signings to date. We don't have the exact context for where you were at the same stage last year, but it certainly looks strong. You ended the year at $1.6 billion last year. If you look at the fabric of what you counted in this $1 billion, would you say that the timeline over which these signings are expected to ramp up is fully comparable to historical signings? It's a big number. So just wondering if, to some extent, there are some longer projects in there, things that would ramp up over '27, '28, for example. And then on your guidance updates, small upgrades to where you see organic growth, no change to where you see adjusted EBIT and EPS for the full year. It's a very, very small delta, but effectively, you're implying 5 basis points lower margins, if my math is correct? Am I mistaken here? Or are you accounting for contract start-ups or just some caution because another year of record signings would mean another year of high incentive compensation for our sales teams eventually?
Okay. Jim, I can take it. Go ahead Jim.
Yes. So I'll start, John, you can chime in. So yes, in terms of the pacing so far, we are certainly ahead of schedule with the $1 billion of signings. As you noted last year, the total was $1.6 billion. So we are ahead of where we expected to be at this point. And with those signings, we signed a number of large accounts this year and are opening RWJ Barnabas and Stone Mountain and the Oklahoma Department of Corrections. So very large accounts, which are opening this year. So one of the good things is we signed a lot of large accounts and we're opening many of those accounts in the second half of the year. And that leads to your second question on margin. So thanks for the success we've seen in selling, we're opening a record level of new business this year. And we're still covering those start-up costs and expect to achieve the 30 to 40 basis points of margin improvement that we've been generating. Those margins will scale up as they normally do, and we'll continue to provide tailwinds into fiscal '27.
Yes. And I would just add that I think the scale-up of that new business, obviously, is very important to us. We haven't included in the projection in the second half of the year any revenues and/or profitability from the hyperscale ramp-up, which will take place beginning very soon. And so there will be some impact from that that hasn't been projected into the forecast. So I think all in all, we do expect continued margin acceleration through the balance of the year. And we think it was prudent to go ahead and be slightly conservative, but we have very strong expectations for the business going forward.
Our next question comes from Ian Zaffino with Oppenheimer.
Really nice quarter here. It seems like these are some of the best results, really trajectory of the business that you've delivered since effectively covering the stock, it's been a while here. It seems like you're firing on all cylinders. Is that kind of the right and accurate read? Maybe talk about the sustainability of kind of what we're seeing now into future quarters?
Thank you very much, Ian. Absolutely. We believe in the sustainability of the business. We think we have a very strong leadership team delivering across the board in all geographies and just see continued momentum throughout the business. We have worked very hard to build the organization. It's delivering on those commitments and on those results. And so yes, I do believe we're operating on all cylinders. That does not mean that we don't have opportunities for continued improvement and continued growth in the organization. I think the company is very disciplined and focused on that. And we are proud of where we are, but want to get better every day. I do think that this quarter, it was very important to us. We believe in the growth narrative that we have been describing over the last several quarters and what you're seeing is it coming to fruition and us delivering on those expectations. So we're confident in our ability to maintain this trajectory and to continue into '27 and beyond.
Okay. And then if I could just drill down on Nexus a little bit. I know you have some agreements and confidentiality stuff going on here. But can you maybe give us an idea of maybe a little bit more of the economics here as far as will you be doing or overseeing any of the construction? I'm just trying to think about it from a CapEx perspective. And then also, can you talk about maybe your market position here, your competitive advantage, and maybe also what margins might look like in this business vis-a-vis your other businesses? I know there's a lot there, but any color you could give me would be helpful.
I'll start off and Jim can add to this as well. First of all, yes, we are under a confidentiality agreement with this customer. And so we can't disclose the terms of the agreement. I think what we've talked about is the fact that they'll be above company average margins, and we expect very strong financial returns. I would characterize this as a capital-light business for us. We are not investing in the construction process as partners in this engagement. And so that will limit our capital requirement for it. We won't be overseeing the actual construction, but we'd be overseeing all the activities that support the workforce doing the work. So it's very comprehensive and from hospitality with lodging, entertainment, food, support services—you name it—we'll be doing it. And it's a one-stop solution for the company buying these services. That's what's attractive to them. This unique set of capabilities is what we deliver in the national parks. It's what we deliver in extractive services in the mines in Chile and the remote camps in Canada. So it's something we're very good at and have strong management disciplines and capabilities around it. So as you know, there are hundreds of these kinds of projects under consideration in the U.S. alone and many more globally. And so we see it as a very significant addition to the total addressable market that is uniquely positioned against the capabilities that we have. So we like the growth trajectory coming from it. We're investing significant resources and talent in the execution of this, and that's also why this company selected us because they saw the commitment we were willing to make to it right upfront. So it's exciting, and we'll be able to talk more and disclose more as the summer goes on. But I would say at the simplest or lowest possible level, it is going to be accretive to margins and going to be accretive to earnings significantly.
Our next question comes from Andrew Steinerman with JPMorgan.
I just want to go back to the quarter, the second fiscal quarter organic revenue growth. Could you just give us a sense of quantity of how much net new and base growth contributed to the quarter, which drove the kind of upside to budgeted figures?
Sure. Andrew. Yes, for Q2, specifically the contribution from new was about 5%. Base business was about 4%. That was comprised of 3% pricing and about 1% volume. So that totals to 9%. And then as we mentioned, there was a 3% benefit from the 53rd week, which got you to the 12%. Year-to-date, I would say similar, more like 4.5% on the new business. I would say a combination of—in terms of exceeding expectations, a little bit on the new as we mentioned opening more than we expected in-year and then good base business performance, particularly in sports. We talked about a great successful opening of the baseball season. The season did open a little bit earlier this year with a few more games in Q2 than Q3, but those are the main drivers.
Our next question comes from Yehuda Silverman on for Toni Kaplan with Morgan Stanley.
This is Yehuda Silverman on for Tony. Just wanted to focus on retention a little bit. 98% extremely high following a similar path to last year so far, can you talk about what particular is driving your customers to remain for longer? And are you seeing any difference in terms of contract duration and in your cost and deal structure with new renewals?
First of all, I think it's performance related. We are retaining more business because our customers recognize the value that Aramark brings to their operations. And that's always when you retain customers, it's generally because you're doing a good job. And so we are hyper focused on that discipline on making sure that we're delivering on our customers' expectations, and that's leading to these higher retention levels that occurred both last year and are occurring this year. So we feel very good about that discipline. I would say no difference in terms of tenure of contracts. Those contracts that have expiration dates are coming up as they normally would. We continue to try to proactively retain that business and renew those contracts. But I would say, in general, the trends we're seeing in the retention rate are basically aligned to our improved performance overall and our continued discipline around customer relationship management and it's really driving the results.
Great. And just one quick follow-up on facilities. You've highlighted the commitment to sales opportunities within Business & Industry and Education. Can you talk about how these have gone so far and when we could expect this to meaningfully show?
Sure. Absolutely. There is a significant commitment to selling facility services in the B&I marketplace and in higher education. We continue to be very successful in that regard. Our B&I sales for facilities are generally focused on large institutions and providing services to the food production industry and others. We are not doing facility services, white collar building cleaning. This is not a janitorial company; this is a fully integrated suite of facility services that we bring to large customers. And we've had very good results across the board in all the verticals that we serve. So it's a business we're very committed to, and we'll continue to invest in it.
Our next question comes from Andrew Wittmann with Baird.
I wanted to continue to go on more Nexus questions, I guess. But I mean, just for clarity, did I hear you say that you believe that this contract could be the largest in the company? And are you saying that for this customer specifically or for this idea of these types of services to data centers? And just related to that, I'm curious as to—now that you've got this contract, why you didn't put it in guidance? Does it start timing? Is it something else? Those things would I think be helpful for us to understand.
Good question, Andy. This marketplace, obviously, is very, very large. And each of these data center locations represents a potential value in the hundreds of millions of dollars over the life of the contract. And so this first contract with this particular hyperscaler is initially for multiple locations and will scale up to being several hundred million dollars on an annualized basis. So yes, this particular contract will be the largest in the company's portfolio when it's fully ramped. And the reason for really not including it, again, is we're still understanding the ramp-up period in terms of when employment starts in the location, when the housing begins. And so there's two different time frames, two different locations and a couple of different entry points and start points. So we're making significant progress. The work is already beginning. The team is already engaged, but we're still working through the scale up in terms of how rapidly we can begin to recognize revenues coming from the employment and the delivery of services to those customers. So that's really all there is. It's just a question of how fast does it scale up and when do we have definitive information that we can provide.
That's really helpful. I'm going to keep going on this a little bit more. Just for all of our benefits, what is the duration of a typical site on one of these things? And maybe for context here, once the center is built, do you anticipate maintaining some level of base revenue, recognizing that revenue is going to be down significantly if you're not having to transport a lot of people and house them and just be kind of normal day-to-day. But I was wondering, is there an opportunity there? Is that part of this? Is that material at all? Any of those thoughts would be helpful as well, I think.
Yes. Well, obviously, during the construction phase, that's where the real revenue production will take place. These are multiple-year developments; the timeframe for building these is variable depending on the size and the complexity of the operation. So it's multiple years; it could be three to five depending upon the size and scale and the timing of construction. So they do have a shelf life, if you will. But our anticipation is that as we expand our share of this market and our capabilities in this market and our relationship with these customers is that we'll be moving from one location to the next as they begin to move on to their next opportunity and their next construction site. So we see it as kind of a rolling process here moving forward, starting with these first two and moving on to other opportunities as that process continues. There will be opportunities to serve the location for normal services, whether it be refreshment services or Workplace Experience or Food Service and the like on a continuing basis for a smaller number of employees. But the real revenue and profit opportunity is in the construction phase on these particular sites. We'll ramp these and then we'll rotate on to new opportunities. As I said, there are several hundred of these projects on the board across the United States, some estimates as high as 700. So it remains to be seen how many actually get built, but in the meantime, there is a lot of opportunity for us to pursue and significant profitability for us to earn.
Our next question comes from Faiza Alwy with Deutsche Bank.
So following up around the same line of questioning. Are you anticipating sort of just—you talked about the ramp-up in revenues and cost. I'm curious given that you talked about an asset-light model, are you expecting costs to come before the revenues roll in? And if you could talk about the timing of that? Or is it going to be more of a one-to-one situation where you incur the costs when you start getting the revenues?
I would say—I'll let Jim talk a little bit about the accounting of it, but generally, these contracts will be cost reimbursable. And so it's the costs that we incur to start up. While there won't be any customers initially, we'll be ramping to serve those people either lodging and/or working on site that will incur operating costs in the early stages. So Jim, do you want to talk about the accounting of this?
Yes. I'll keep it pretty high level again, for competitive reasons. But yes, our model does not entail investing significant capital for housing or lodging on our balance sheet per se. So with that, it's not a situation where there is significant cost in advance of the revenues ramping up. So again, the way we've structured it is more aligned with our costs ramping up in line with the revenues and services that we are providing. So it's a situation where there are not significant start-up costs. It reaches the targeted margins very quickly. And as John mentioned, those margins are above average for the company. It's very light capital, so low capital investment. And generally, the working capital is favorable as well.
Okay. Wonderful. That's very helpful. I guess I'm curious, like there are some companies out there that are in a similar line of business, but are taking on sort of more CapEx and it's a more asset-heavy approach. I'm curious, competitively, what are you hearing from your customers? Is there a reason for them to prefer companies that are willing to take on that CapEx investment? Or are they neutral? And just give us some context around that piece.
I would say, first of all, that's a philosophical decision for the potential client to make. And we would not necessarily be opposed to investing if the client desired it and we could earn appropriate returns attached to that investment. But it's not the way we've engaged to date and it's not anticipated that it would be a significant requirement going forward for these projects. They are so significant and require so much capital and there's such a degree of uncertainty in terms of the ramp-up schedules, construction schedules, permitting—all those things that go into the development process—that the capital investment is not a significant consideration for those clients. Their cost of capital is lower, and frankly, the investment that they're making is very significant. So the housing is a drop in the bucket compared to the actual total cost of building a hyperscale data center. I think we're positioned well, and we believe that clients prefer a one-stop shop solution that reduces complexity. We're going to build it, and we're very excited about it.
Our next question comes from Curtis Nagle with Bank of America.
Can you touch on the sports event calendar for the remainder of fiscal '26? Any upcoming events that would meaningfully impact revenue or profit? Or would you say that growth is more dependent on adding new stadiums and teams? And then finally, is the World Cup still expected to be a neutral event for the company?
So as I mentioned, the second quarter did benefit from the MLB schedule starting early. We also had strong per caps and good performance with the opening of that baseball season. We did have the World Baseball Classic in Q2 as well, so that maybe contributed about 1% to the second quarter growth. In terms of FIFA, as we've mentioned, we see that relatively neutral versus the prior year as there will be less concentrated events as we roll out those games—the games operating across Aramark stadiums are fewer.
And then if I can squeeze in another one. Can you touch on the enhanced tech capabilities that are driving productivity. What are these key initiatives behind this? How are they tracking versus expectations? And what inning would you say that you're in on these productivity benefits?
We've targeted our tech and our AI really at the most impactful areas for the organization and the performance, targeting food and labor in particular, and price. With respect to food, we've talked in the past about the Culinary Copilot tool that optimizes our menu planning, factoring in contractual requirements, consumer preferences and the optimal cost structure. Going forward, we're implementing a tool called LaborIQ, which is an insights-based dashboard that facilitates our general managers at the frontline to essentially plan and optimize labor better. As an example, it allows us to fill roles and manage labor scheduling across Aramark employees and reduces reliance on agency labor. As this tool makes it easier to find Aramark employees to fill shifts, it helps our GMs to staff labor based on peak and nonpeak times. So it's a tool that's rolling out very rapidly across the U.S. at this point. We're seeing favorable trends in labor and favorable trends in labor productivity as we continue to roll this tool out.
Our next question comes from Jasper Bibb with Truist Securities.
Maybe I'll follow up on Nexus, too. I think you said the $100 million-plus earlier with multiple projects. I just wanted to ask if we could break it down to a typical kind of data center construction project, and how much revenue you can expect per location? I think some of these larger ones might have like 1,000-plus people on site building these things. So it sounds like a lot of opportunity there. Just any more detail on the scope of kind of a normal site and the drivers of the revenue opportunity there from all the services you're providing would be helpful.
The size and scale can vary rather dramatically. Some locations have thousands of employees, up to 9,000 or 10,000. So yes, they can vary significantly site to site. There's no single average data center site. Each contract will look different based on size, scale, location and the degree of complexity—whether it's a remote site or an urban site, and what kind of workforce needs to be brought to bear. So it's very difficult to give you an average. The best data we can give you is related to the sites that we have currently under agreement. For those, we see the revenues for those to be well over $100 million each annually and over the life of the contract, several hundred million dollars in terms of size and scale. I apologize for not being more definitive; we're under an NDA. We have a customer who we are committed to protecting confidentiality for, and there's a competitive environment where we want to maintain first-mover advantage. As the business ramps and the results become clear in our results, it will be more transparent for investors to see. But this first opportunity represents many hundreds of millions of dollars of opportunity over the course of the particular contract.
That's helpful. Maybe one on the pivot to higher education. I think in the past month or so, you picked up a new contract at Texas State, also impacted by some restructuring at the University of Kentucky. I guess, how did you do from a net new perspective so far in the selling season? I think you're not all the way through that. So are there potentially some more opportunities that could come through for Fall 2026 on the new business front?
I would say we're positioned for another record net new performance in the aggregate for the company and in the respective businesses—very positive results. As you said, Texas State was also an award that we had. The University of Kentucky was a disappointment for us, but I will say we saw the opportunity to rebid Kentucky as an opportunity to improve the overall financial returns for that contract, which frankly has been the worst performing contract we've had since it was sold. We saw the opportunity to potentially grow the relationship by taking on either health care facilities and keeping the current agreement for higher education, but failing that, we saw the opportunity to improve returns for the company and to redeploy the capital to higher-return opportunities, and that's precisely what happened. We never like to lose, but ultimately the financial returns for the company are better as a result of not moving forward in that relationship and having to commit significantly greater sums of capital and operating it on very thin margins. So on a total basis, net new, again, we've had extraordinary results year-to-date and expect to achieve another record net new performance this year.
Our next question comes from Josh Chan with UBS.
Maybe a broader question on kind of customer inquiry levels on some of these new businesses that you have won in terms of Nexus, but also in health care, are you seeing similar types of customers inquiring about your services in these types of offerings since you have announced them? How have those been trending?
Yes. We see momentum. The short answer is yes. We see momentum in the health care space, particularly with the successful opening and scaling up of Penn as well as the anticipated opening of RWJ Barnabas. So we do have significant momentum in the health care space, and we're very pleased with that. And yes, the announcement of Nexus and the award of the initial contract has opened the door to a number of other opportunities that we're currently engaged in and evaluating, none of which I'm prepared to disclose right now.
Sure, sure. That sounds great. And then on the pricing discussions with your customers that we set annually, could you just talk about posture and what might be a reasonable outcome in terms of those pricing discussions?
So I'll start with inflation. We're seeing total inflation come in, in line with our expectations at about 3.5% or so. And as we've talked about, we don't price for profit; we essentially price to mitigate inflation. And so the discussions we're having are in that range of 3.5% to 4% on the contractual base portion of the business. As you know, about two-thirds of the business is dynamic pricing that is more rapidly adjusted to inflation expectations. But inflation is coming in line with expectations. We have tools at our disposal to counter inflation should it escalate in the second half of the year.
Next question comes from Karl Green with RBC Capital Markets.
Just a couple of questions on U.S. organic growth. Firstly, just in Sports & Entertainment, the higher per-cap spending, I just wondered if you could indicate if there is any limit to how high you can push that in terms of price elasticity? Or is it still kind of powering along at levels you've seen over the last 12 to 18 months? And then on B&I, within that segment in the U.S., clearly, new business and very— you described it as exceptionally high client retention rates are doing the heaviest of lifting there for the double-digit growth. But could you just talk a little bit more about how like-for-like volumes are trending there just in terms of higher participation rates, your expanded formats, etc., just to give us a sense of how robust that like-for-like volume position is, please?
Yes, I'll kick it off. On Sports & Entertainment, a good quarter in sports. Sports, leisure and correction is growing at about 7% underlying, a really great start to the MLB season. I'd say base business growth and volumes more or less in line with what I mentioned earlier—3% to 4% for the company is what we're seeing in sports. We obviously have to be sensitive to pricing there and make sure we're providing experience and economics that are good with the team and appropriate. Within B&I, again, we grew over 20% year-to-date—a really strong outlook. The new business at the end of the day, I think, is the main driver there, along with the exceptional retention levels. We had a nice performance with premium catering in the quarter benefiting from the partnership we did with Daniel Boulud. And then refreshment services and micro markets also fall into the B&I segment as well and that business is growing at a similar level. We've seen nice geographic expansion in the West Coast and in the New York area, in particular, and continue to enhance and increase the route density of that business as well as some of the drivers with a strong performance there.
Our next question comes from Neil Tyler with Rothschild & Co Redburn.
Just one left for me really. I wanted to go back to the topic of inflation and ask you about learnings that you take from perhaps 2022 and 2023 in terms of identifying areas in the customer suite of friction that might create opportunities and whether there's how you expect those to manifest over the next year or two?
We have a number of levers at our disposal. As I mentioned, we generally try to have pricing in line with inflation on that contractual-based portion of the business where the pricing is locked in a little bit longer. We have a number of operating levers. We can substitute our menu. The tool I mentioned earlier, LaborIQ, allows us to flex and optimize our staffing levels. So those are some of the other tools we have at our disposal to counter inflation. It's a very flexible business model. I think the organization is well equipped based on the experience we had a few years ago. It's a topic of all of our operating reviews. Our supply chain team does a nice job mitigating inflation. We tend to have longer-term contracts given our scale. And as part of all the business reviews that we have, we're always talking about the inflation outlook and what we are doing to mitigate that impact.
In terms of where the new growth opportunities from first-time outsourcing might be created by a higher inflation environment, it's not just the inflation environment, it's the total macro environment. That's why you're seeing higher levels of outsourcing in health care, because they're challenged not only with overall inflation but also with pressure from reduced reimbursements. There is overall cost pressure that's been building for a number of years. More and more institutions have recognized that they are disadvantaged and are looking to outsource. That's one reason you're seeing significant outsourcing from people like Penn and RWJ Barnabas to systemize the outsourcing approach to reduce costs in the long run—from product cost to operations, administration and efficiency. Integrating all those services helps manage total employment levels and deliver the right outcomes for patients. So there is significant opportunity there, particularly in health care, and we see that manifesting in other segments as well.
Next question comes from A.J. Nanda with Citi.
One question for me, please. Compass Group at its earnings call alluded to adverse weather conditions impacting their business to some extent in the U.S. during the month of February and March. Did you see any such impact on your business? And if yes, can you kind of quantify that?
We had a little trouble hearing you. Could you just repeat that question, please? Sure. So we did have an unusual amount of snow and ice, particularly in the Northeast and a little bit in the South in the quarter, which did have an impact on our higher-ed and K-12 business. I'd say maybe $15 million to $20 million of revenue and a few million of AOI. Despite the weather-related impacts, we still achieved the targets that we had communicated.
That was in the second quarter. Yes, that will be something we're lapping next year.
Our last question comes from Stephanie Moore with Jefferies.
Great. I wanted to touch a little bit on what you might be seeing from just a base standpoint and general customer health. Clearly, it's not embedded in your results at all, but I think there's some questioning or skepticism out there about the overall health of the consumer just given higher fuel prices and the like. So just curious and maybe the aspects of your business where you would be more sensitive to discretionary income by the consumer. If you've seen anything in the last couple of months that could suggest any kind of pulling back of activity would be helpful.
As a matter of fact, we are still seeing strong consumer demand in those consumer-sensitive businesses that we operate. When you think about us, consider Sports & Entertainment. That's clearly an area where there is potential sensitivity, but we're seeing very strong results both in per-capita spending as well as in attendance. We're seeing strong reservation capacity in the national parks, significant consumer demand—those businesses are generally sensitive to consumer behavior, but we have strong reservations and the outlook is very good for those businesses as well. So the short answer is we're not really seeing a consumer impact yet in those businesses. We see the consumer as being very resilient at this point and not seeing it impact our business to date. Historically, this business has been very resilient in times of higher inflation. Generally, we're serving people where they work, where they're getting medical care, where they're studying. People are going to continue to consume in those environments, and we're not seeing a significant impact as a result of a change in consumer behavior at this stage.
Understood. And then just a follow-up. You touched a little bit about this, but clearly really strong new wins in performance. Can you kind of maybe speak to the competitive environment—how you would frame some of your increased wins from your own actions over the last several years, which have been very favorable, but at the same time, maybe due to any kind of competitive changes as well where you're able to capture some incremental share. So any way to frame that would be helpful.
I would say we are continuing to enjoy significant success in all the markets where we operate, both domestically and internationally, and across all the different businesses. I think it's a result of the investment that we've continued to make in the growth algorithm and the growth initiatives inside the organization. The competitive environment has always been robust; we've always had competitors interested in growth as well. But we've been able to maintain a solid growth rate. I think it is a result of our increased investment in growth, our performance across the services we provide, the unique proposals that we develop for prospective customers and the quality of the capabilities that we bring to bear. First-time outsourcing represents a significant proportion of our new wins, and we're also maintaining the competitive dynamic against large competitors as well as regional competitors. We're being very successful, diligent and focused on growth, and right now we continue to win a disproportionate number of opportunities.
I'm not showing any further questions. I'd like to turn the call back over to Mr. Zillmer for any further remarks.
Perfect. Thank you very much. Again, thank you all for your support of the company and participating this morning. We are extraordinarily excited about the results that we've delivered and about the prospects for the balance of fiscal '26 and '27. We're executing our growth strategies with focus and discipline. As I said earlier, our ambitions for Aramark have never been higher, and we are consistently setting new milestones. We expect to continue to do that. We believe that we have all the capabilities and the best team in the industry, and we're going to make that happen. So thank you very much.
Thank you for participating. This does conclude today's presentation. You may now disconnect, and have a wonderful day.