Operator: Our next question comes from Shlomo Rosenbaum with Stifel.
Shlomo Rosenbaum : You’ve been focused a lot on the efforts to improve the cross-sell and you talked about 96% of the routes are selling now. Where do you think you are in terms of making the shift in the culture to a more sales-oriented culture and selling across the base? Do you think like really humming along. You think you’re like 50% there because it’s a significant change from the way that the company had operated for literally decades. And maybe you could talk about where you are now and how long do you think it would take to really be kind of firing on all cylinders?
Kim Scott: So I think we still have work to do. I’m pleased with the way the team has embraced everyone sells culture and mindset that we’re working to create Shlomo. But I think your question is a really important question that we are constantly focused on here because it is a massive cultural shift to move a company to a mindset of growth. And that is the opportunity that we found when we came here. I joined a couple of years ago, it was very clear that, that obsession with growth was not present in this organization. So I think that we’ve made great strives as evidenced by 96% of our routes having sales activity and teammates beyond dedicated sales teammates, helping to sell and grow our business, particularly harvesting the base and capturing share of wallet with existing customers.
But I would tell you that I think that we have a long way to go, which is encouraging because we’re seeing great results well above our historical norms. You can see that reflected in our guidance as we’re projecting 4% to 4.5% growth when historically, this business was growing at a mega 2% or so. And you also know we’re shedding some unprofitable business at the same time. So that growth rate healthier than it appears. So I’m pleased with where we are, but I think we can do so much better. And so we continue to bring tools and resources and really encourage and arm the team with the right, the tools that they need to get out there and grow the business. I’d say I don’t want to gauge it at 50%, but I’d say we are maybe halfway there, maybe, honestly.
And that excites me, so I don’t say that as a criticism. I’d say that is we’re doing a great job. I’m pleased with the progress, and there’s so much more yet to come. But our teammates are responding well. They’re excited. They’re proud to be a part of growing this business. I think they’re recognizing now the latent potential that is untapped that hasn’t been unleashed here, and people are pretty fired up about bringing that to life. So more to come on the culture front.
Shlomo Rosenbaum : Great. And then maybe this 1 is for Rick. Can you talk a little bit more about the sequential margin improvement? Obviously, there’s a pretty good cadence over here. And can you talk about what changed from like June to September? And — is this going to be like a consistent grind forward? Obviously, I understand the TSA and the additional public company costs, but maybe you could talk about if there are some key items that drove that margin expansion? And then maybe if there’s a few other ones that we should be looking towards for the next several quarters and over the year?
Rick Dillon: So from a quarterly progression Q3 to Q4, there were quite a few kind of moving pieces driving that activity. And so you have — in our fourth quarter, you have all types of things around benefits, around customer closeouts around contest that kind of drives that Q4 increase in profitability. And it’s a normal cadence. If you go back and look the last 2, 3 years, we see that normal Q1, Q2, Q3, Q4 glide path. And so we expect to see that going forward in terms of your question about how you should be thinking about it. We, of course, are guiding the quarters. We did include in the earnings release, the quarterly history, so you can go and take a look at that. But the movement from Q3 to Q4 reflects also be having a full quarter of our cost-out actions reflected in our results as well.
Operator: [Operator Instructions]. And our next question will come from Oliver Davies with Redburn Atlantic.
Rick Dillon: Just 1 for me. On margin. Can you just talk about sort of the current cost inflation you’re seeing, I guess, across labor, materials and fleet and sort of how you see that evolving into 2024?
Kim Scott: Sure. I’ll start, and then I’ll kick it over to Rick for some more detail. But from a labor perspective, and we talked a little bit about this in the past. We actually have pretty good predictability around labor. Because we have a unionized workforce. And so the CBA negotiations, the collective bargaining agreement negotiations are very predictable for us and we have history as a guide to determine where we think those negotiations will land and what that will equate to in terms of increased wages. So we anticipate about 5% wage inflation across the 5-year period. 5% on an annualized basis across the 5-year period as we look at our strategic plan, and that’s actually fairly predictable for us and that has played through over the last couple of years.
So that’s what we’re assuming in FY ’24 as we put this guidance forward. We’re seeing muted energy costs. I’ll let Rick kind of touch on that here just in a bit, but we’re seeing muted energy costs and generally a very predictable supply chain forecasting activity because we’re purchasing inventory in advance and then we’re issuing it over a period as we grow new business and amortizing that over a couple of years. So we have pretty good forecasting capabilities as it relates to all of our key cost drivers in the business. And we’re not seeing anything surprising or unusual as we move through kind of building out the FY ’24 plan. Rick, anything that you would want to add there?
Rick Dillon: On the energy costs, as I noted, we did see moderation that’s moderation relative to 2022, which was kind of at some of the peak highs. So when you looked at our energy for 2023, we obviously saw high energy costs in the first half. We saw those costs year-over-year kind of moderate in the back half. the view forward is a bit choppy. And so in our guidance, we’ve assumed we stay elevated. So kind of at that on average for 2023 and our position to take whatever actions we need to should we see another spike. So we haven’t forecasted we continue to get better. which you saw us talking about, you see it actually in the Q4 results. But we kind of took that average cost and assumed. We hold that line during the year. As you — and we monitor energy costs. And on any given week, the forward view is up or down, depending on economic factors.
Operator: Our next question comes from Manav Patnaik with Barclays.
Ronan Kennedy: This is Ronan Kennedy on for Manav. I guess as a follow-up to that, on the assumptions for wage and energy inflation. How would you characterize the macro environment and the demand backdrop now? Anything to call out demand-wise within your key verticals versus in terms of stronger or weaker demand? And then Rick just touched on the expectations for energy, et cetera. What are you assuming from a broader macro-outlook standpoint for ’24?