Toni Kaplan: Perfect. Thank you.
Operator: Our next question comes from Shlomo Rosenbaum with Stifel. Your line is open.
Shlomo Rosenbaum: Hi, good morning. Thank you for taking my questions. My first question, I just want to talk – ask you a little bit more detail on the pricing catch up in education and correction space. Is – is the effort that you made over the last couple of quarters in terms of the contract renewals, is that really going to fully catch us up to the inflationary pressures that you saw or is there any further efforts that are going to be needed next year? And then I have a follow-up on that for junk part of the business.
John Zillmer: Yes, I think we’re going to be – I think we’re very close to being caught up in both of those businesses. We’ll continue to work to improve in pricing across the enterprise, not just those businesses as we continue to see the need for price recovery and as inflation continues to be somewhat persistent on the food side. So we’re going to be very diligent about making sure that we continue an elevated pricing strategy to recover those costs going forward, and – but I think we’re in very good shape particularly compared to where we were last year when inflation was running 10% to 12% in those businesses and we were not able to price for it. So I’d say we’re largely caught up and we’ll continue to work to improve across the enterprise and get even better.
Shlomo Rosenbaum: Okay, great. Thank you. And then just a follow-up, you mentioned in passing the strategic positioning the mix of hospitality, I know there’s been no changes in the marketplace for that business since you bought it. Maybe you could talk to us a little bit about the strategic repositioning and whether you think that business can get back to kind of the strong growth rates it had before you bought it?
John Zillmer: Yes, we think first of all the addressable market is very significant and we have work through developing kind of a new additional service model to what next level was initially providing, so we’re expanding the range of services and the capabilities and focusing really on the Senior Living business as well, which is multiple billions of dollars in terms of addressable market and opportunity largely self op. And so we think that represents a very significant growth potential. There is still growth potential in the core business that next level operated and was doing so well at. So we’ll continue to look at both sides of the business, both Senior Living as well as Skilled Nursing, and we’ll bring a balanced approach to growing that part of the business.
Shlomo Rosenbaum: Thank you.
Operator: Our next question comes from Josh Chan with UBS. Your line is open.
Josh Chan: Hi. Good morning, John, Tom. I – I guess you mentioned food clear. Could you talk to the shape of food inflation that you expect through the year? What’s baked into guidance? And how does that kind of shape through the year?
John Zillmer: Yes. We’ve baked an assumption of approximately 5% to 6% of food inflation globally, now it’s different by market. It’s 5.5% in the U.S. for the overall inflation rate for our expectations it’s a little less in Canada, a little higher in Europe, and a little lower in Asia. So we do it on a blended basis based on the size of the organization, call it somewhere in the range of 5% to 6%, and that’s what’s – that’s what built into our assumptions and built into our planning models for the year and built into our negotiation discussions with our clients and customers. And, so that is based very specifically on individual market baskets by product for instance. We expect meat to be up 5.9% in 2024. We expect fruits and vegetables to be 7.1%.
So we have – and then kitchen supplies down at 1%, right? So we’ve got a very detailed market basket of products by business unit that we buy and that we monitor for our locations on a monthly basis. So that’s the overall assumption. And if inflation continues to moderate and we see a lowering of those expectations, we’ll keep the street informed as to what we’re seeing and when – and as to how we see it affecting our balance of the year.
Josh Chan: Okay. That’s – that’s really helpful color. Appreciate that, John. And then I guess circling back on the on the, normalized margin improvement that Tom mentioned earlier. It is definitely understandable that this year will be an outsized year of improvement because of the price inflation catch up. I guess, how do you think about 25 being outsized years because items such as contract maturity, supply chain, they seem to be relatively normal course, so – so how should we think about margin improvement beyond this year?
John Zillmer: Yes, I think, Tom will jump in here as well, but I think you’ll see continued margin improvement and an outsized performance in ‘24, ‘25, and ‘26. As we continue to see the – the normalization of these phenomenon that you’ve just described. New business maturity we will have ramped the business for ‘24 and ‘25 or in this business sold over the course of the last couple of years. The price recovery lag or price inflation lag will be largely done in ‘24. We’ll continue to see drivers of outsized margin performance in supply chain throughout the cycle. So we’ll continue to get better in ‘24, ‘25 and ‘26 as we add scale and improve supply chain economics. We expect SG&A over that time period also be managed at below growth rates in the business. So – so they’re all drivers to outsize margin performance and we see that model playing out consistently. Tom, do you?
Tom Ondrof: Yes. No, same thing – I think all five of those factors play into ‘24 and create the outsized AOI growth, many – most of those still play into ‘25, maybe the new business hitting that cruising speed sort of drops off as a factor into ‘26. We’ve included this in the slide, so it is our overall view of how these things play out over the midterm, but we’re getting down to the core where growth begets supply chain leverage, which begets overhead leverage, and we continue to manage the middle of the page as we move into that sort of 20 bps long term sustainable model but over the next two to three years, it’s going to be more than that.
