John Zillmer: No, not at all, Neil, thank you.
Operator: Thank you. And our next question comes from the line of Heather Balsky with Bank of America. Your line is now open. Our next question comes from Shlomo Rosenbaum.
Shlomo Rosenbaum: Hi, thank you.
Operator: Our next question comes from Shlomo Rosenbaum with Stifel. Your line is now open.
Shlomo Rosenbaum: Hi, thank you very much for taking my questions. Tom, may and — John, maybe you could give a little bit more detail into the growth in FSS International. Maybe break it apart a little bit into new business growth. You said you’re not so focused on COVID recovery, but seems like there was some kind of COVID recovery over there. Can you just give us some of the components maybe like you did for the overall business? And is there something in particular where you’re winning a lot more business internationally that might be driving above — much above average growth well into the future? How should we think about that?
Tom Ondrof: Yes. Well, the quarter was obviously heavily impacted by Merlin internationally compared to first quarter last year. That remind me, John, the opening was early summer, so it would’ve been third —
John Zillmer: Right.
Tom Ondrof: Early third quarter last year. So first and second quarter, have a bump for international because of the size of that that account win. But again, they’ve also maintained very consistent growth levels throughout the years and have benefited from that. And then also have had — they’re a little higher B&I mix in international business than the U.S. And so that recovery post Labor Day in the first quarter also helped them a bit more than the U.S.
Shlomo Rosenbaum: Okay. Great. And can you talk about the trends in retention just by business unit a little bit more. Is there any — are there any nuances or change from last quarter? And are there any specifics you can give us? Because I know that was — John, that was a big focus of yours coming in, in terms of strategically improving the services to improve the retention in the business?
John Zillmer: Yes. I would say that retention rates are very high across the Board, both domestically and internationally all businesses performing extraordinarily well, well above our targeted range. And so we’re very pleased with the current results year-to-date and continue to drive towards those very high numbers. We’re consistently setting the target at 96 plus and we are really on target to achieve those numbers again this year.
Operator: Our next question comes from the line of Heather Balsky with Bank of America. Your line is open.
Heather Balsky: Hi, thank you for taking my question. My first question is just with regards to your long-term outlook and the business exit and how to think about margins? And is there an impact there? And also taking into account what you’re seeing in FX and inflation, it would be great to just touch on that again.
Tom Ondrof: Yes. Are you talking about the impact of AIM on — specifically on the —
Heather Balsky: Yes, yes.
Tom Ondrof: Math-wise, I think it was about 20 basis points for the company. So that would probably be the impact as we move into the 2024/2025. In terms of inflation outlook, John?
John Zillmer: Yes, I think we’re — we have an expectation that inflation will continue to moderate over the balance of this year, but still running at fairly high levels from both the food and labor rate perspective. So our units are working very hard to continue to recover those cost increases, looking at opportunities for service changes, menu changes and the like, just managing actively the P&L. And so we’re — our expectation is that it will be here for the next couple of quarters. We’re going to work very hard to offset it. And so far, we’ve been able to minimize the impact from a P&L perspective. You see things like the price of eggs and everybody responds to those headlines. If you can imagine, eggs are a big component of collegiate education, and it’s a significantly higher cost than expected, but our units are finding a way to work around it.
And that’s the expectation we have. And we’ll find the appropriate mechanisms to go ahead and offset those cost increases as we move forward.
Heather Balsky: Thank you.
Tom Ondrof: Heather, you asked about —
Heather Balsky: Go ahead. Sorry.
Tom Ondrof: FX, Heather, you asked about that. I think we expect it to soften a little bit as the year goes on, the first quarter being a heavier impact than the second half of the year is the current expectation.
Heather Balsky: Okay. And you mentioned earlier in the Q&A about — on inflation that there’s a little bit of an education piece now, just given the disconnects between food costs and food inflation and big headline around CPI. I guess, how — can you talk a little bit more about how those conversations are going? Are you seeing more resistant? Like have you been getting the price increases that you want through?
John Zillmer: Yes. I would say that generally, we’re getting the price increases that we need. You’ve got timing issues that affect some of the businesses with respect to when they can achieve pricing, some regulatory in nature, state — state-oriented purchasing contracts that require certain pricing on certain dates, particularly in the Corrections business. You see some of that in the K-12 sector as well. And delayed pricing in collegiate hospitality as Board rates were negotiated literally the year before. So there are some of those kinds of timing impacts in terms of when you’re able to actually achieve the price that you need. But one of the things that we do is we provide our frontline managers with very detailed tools that talked — that they can use as talking points with their customers and clients related to what the real cost of food is on a food away-from-home perspective, what they’re dealing with from an actual cost perspective.
So they have those tools that are provided to them on a monthly basis, so they can use in those pricing discussions and negotiations. And they also use those as tools to help them manage the menu mix, if you will, going forward. So there are active discussions all the time. Pricing is one of those things that we’re consistently doing. And we call it hand-to-hand combat. It’s basically you’re in there negotiating consistently to go ahead and achieve the results that you need to achieve.
Operator: Thank you. And our next question comes from Leo Carrington with Citi. Your line is now open.
