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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to The Brinks Company's First Quarter 2019 Earnings Call. Brink's issued a press release on first quarter results this morning. The company also filed an 8-K that includes the release and the slides that will be used in today's call. For those of you listening by phone, the release and slides are available on the company's Web site at brinks.com. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.
Now, for the company's Safe Harbor statement, this call and the Q&A session will contain forward-looking statements. Actual results could differ materially from the projected or estimated results. Information regarding factors that could cause such differences is available in today's press release and in the company's most recent SEC filings. Information presented and discussed on this call is representative as of today only. Brink's assumes no obligation to update any forward-looking statements. The call is copyrighted and may not be used without written permission from Brink's.
It is now my pleasure to introduce your host, Ed Cunningham, Vice President of Investor Relations & Corporate Communications. Mr. Cunningham, you may begin.
Thanks, Denise, and good morning everyone. Joining me today are CEO, Doug Pertz; and CFO, Ron Domanico. This morning, we reported first quarter results on both the GAAP and non-GAAP basis. The non-GAAP results exclude a number of items, including our Venezuela operations, the impact of Argentina's highly inflationary accounting, reorganization and restructuring costs, items related to acquisitions and dispositions, and costs related to certain accounting compliance matters.
We are also providing our results on a constant currency basis, which eliminates changes in foreign currency exchange rates from the prior year. We believe the non-GAAP results make it easier for investors to assess operating performance between periods. Accordingly, our comments today, including those referring to our guidance, will focus primarily on non-GAAP results. Reconciliations of non-GAAP to GAAP results are provided in the press release, in the appendix to the slides we're using today, and in this morning's 8-K filing, all of which can be found on our Web site. Finally, please note that the page three of the press release provides the details behind our 2019 guidance, including revenue, operating profit, non-controlling interest, income taxes, and adjusted EBITDA.
I will now turn the call over to Doug.
Thanks, Ed. Good morning, everyone, and thanks for joining us. Today we reported strong first quarter results, including a 19% increase in non-GAAP operating profit. These results were heavily driven by continued profit momentum in the U.S. and Mexico, easily offsetting the $10 million profit decline that we expected in Argentina due to currency translation.
In constant currency, operating profit and EPS were up 50% and 59% respectively. First quarter results support our full-year guidance which targets operating profit growth of 20% despite the expected persistence of currency headwinds. Our full-year guidance also includes approximately $20 million to $30 million of increased operating expenses to support our new strategic initiatives and IT expenditures.
As we move through the next three quarters of 2019, we expect organic growth initiatives and acquisition-related synergies to drive profit growth across all segments. We also expect the negative impact of currency translation to diminish over the next three quarters, as inflation-driven price increases should exceed projected devaluation in Argentina. Together these factors support an expected increase of 100 basis points in full-year margin rate to approximately 11%, with an EBITDA margin rate of over 16%.
In a few minutes, I will review our guidance in more detail, along with some cons about our strategies to drive continued organic and acquisition-related growth. I'll also discuss our plans to introduce our next layer of our growth strategy, but I'll summarize our first quarter results first.
First quarter earnings per share increased 16% on an organic revenue growth of 6%. The operating profit growth of 19% reflects a margin rate increase of 100 basis points to 9.4%, and an adjusted EBITDA rose 20% or $22 million to $132 million in the quarter. We achieved these results despite negative currency translation that reduced our earnings by $0.29 per share. While the dollar strengthened against most currencies, most of the unfavorable FX impact was in Argentina, where strong local currency growth was more than offset by the approximate 50% devaluation in the peso that drove a year-over-year operating profit decline of $10 million.
The fact that we reported strong overall earnings growth of 19%, I think is a testament to the successful execution of our strategy. We continue to believe that our true operating performance is probably best illustrated by evaluating our results on a local currency basis. In constant currency, revenue was up 17%. Profit growth was 50%. Adjusted EBITDA was up 42%, and EPS was up 59%.
This strong start to 2019 supports our full-year guidance and keeps us on a track that is well ahead of our initial three-year strategic plan targets. It's clear that our strategy to drive profitable growth, both organically and through acquisitions is working, and we still have great opportunities to accelerate the momentum we've already achieved.
Before turning over to Ron, I want to discuss the U.S. and its efforts to improve margins in our core legacy business and integration of the Dunbar acquisition. Both of these initiatives are going well. Our U.S. business was the single biggest driver in their first quarter, both in terms of revenue and profit growth. It's also our current single greatest opportunity to drive future value creation.
First quarter U.S. revenues grew 53% to $297 million, due primarily to the addition of Dunbar, which is not part of Brink's in last year's first quarter. This year's first quarter revenue in our legacy U.S. business was up 4.5%. U.S. operating profit for the quarter increased more than 200%, half from the acquired Dunbar business and half from our legacy breakthrough initiatives and synergies. This reflects the doubling of our overall U.S. margin rate to 8.1% versus 4.1% last year, which includes a 50-plus percent organic margin rate improvement in our legacy business. Our integration efforts are ahead of schedule, and our U.S. operations are on track to achieve our targeted 2019 exit margin rate of approximately 10%.
Looking ahead, we're on track to deliver at least $45 million of growth; excuse me, a profit growth through cost synergies by 2021 or sooner, and as we disclosed earlier this year, our U.S. business is targeting a margin rate of 13% by the end of 2021 on revenue base that we expect to exceed $1.3 billion. The increase in our U.S. margins to 13% from 6.8% last year will be driven by continued organic improvement from our breakthrough and other initiatives, and supplemented by the Dunbar acquisition synergies.
Now, I'll turn to over to Ron to review our financials.
Thanks, Doug, and good day everyone. Today in the United States is Administrative Assistants Day, and Doug and I want to recognize Kim Harsha and Tracy Wright for their amazing support.
I'll start with our first quarter results beginning on the left side of slide seven. First quarter revenue grew 6%, which included $48 million of organic growth, and $100 million from the acquisitions completed over the last 12 months; most notably, Dunbar in the United States and Rodoban in Brazil. Organic revenue growth in North America was 6%, a 400 basis point improvement from the first quarter of 2018. South America organic revenue continued its double-digit trend growing 12%. Rest of world revenue was flat on an organic basis, and was impacted by the loss of $21 million of revenue from the disposition of our French aviation guarding business in the second quarter of 2018, and negative Forex. Total negative Forex translation reduced revenue by $97 million, driven primarily by the steep devaluation of the Argentine peso, and to a lesser degree, the Brazilian real and the euro.
First quarter operating profit rose 19% to $85 million despite strong currency headwinds. Organic profit growth of $23 million or 32% were driven primarily by the U.S., Mexico, and Argentine. This growth was supplemented by $13 million from the Dunbar and Rodoban acquisitions, generating a 50% constant currency operating profit growth that Doug referenced. Our consolidated operating profit margin was up 100 bps to 9.4%, despite $22 million of negative Translation Forex.
For perspective, it's interesting to note that in the first quarter of 2016, operating profit was $34 million, with over 70% generated by South America and less than 12% from North America. Three years later in the first quarter of 2019, operating profit at $85 million was 2.5 times greater and North America contributed 52%. The operating profit margin of our North America segment increased 370 bps to 10.1%, led by Mexico, which is well ahead of its three-year plan 2019 target of 15%.
Our South American operations are performing well on a local currency basis. Excluding the impact of Forex, constant currency operating profit was up 17%. Led by Argentina and Chile, organic operating profit in the segment grew by 9%. The rest of the world profit margin increased 70 bps to 9.9%. The recovery of our legacy French operations and the continued integration of Temis generated positive profit growth versus the first quarter 2018. Separately, the pending acquisition by Loomis and Prosegurs operations in France may provide opportunities to grow our business in that country. First quarter corporate expenses decreased $4 million.
Lower security costs and currency translation gains are partially offset by higher non-cash equity-based compensation and Strategy 2.0 related marketing and product costs. For the full-year, including $20 million to $30 million of investments in Strategy 2.0 and IT initiatives, we expect corporate expenses to be approximately $130 million, with about $35 million from non-cash share-based compensation, an increase of about $10 million versus 2018.
Now let's discuss Argentina. Argentina is an important business for Brinks, and our management team is doing an exceptional job of operating in a challenging, highly inflationary environment. The bars on top of this slide show the negative impact on reported operating profit in U.S. dollars due to the devaluation of the Argentine peso. The forecasted peso to U.S. dollar exchange rate for 2019 is shown on the top of each bar, and the rate for 2018 is below each bar.
Bar to the bottom of the slide illustrates the year-over-year change in Brink's Argentina operating profit in U.S. dollars. Negative variances are in red and positive variances are in green. In the first quarter 2019 versus the same period last year, the devaluation of the peso had a negative impact of $19 million on reported profit. Inflation-driven price increases, operational improvements, and additional Maco synergies offset about half of this impact, and our reported U.S. dollar operating profit was down by $10 million.
As we move through 2019, we expect the peso to continue to devalue, but the impact of that devaluation should diminish each quarter versus prior year comparisons. For the full-year in Argentina, we expect negative Forex impact of about $55 million to our reported operating profit. For the remaining three quarters of 2019, we expect that our continued local currency momentum will fully offset evaluation. Said differently, we expect Argentina 2019 full-year U.S. dollar operating profit to be approximately $10 million less than it was in 2018.
As you can see on the top of this slide, our guidance includes a 2019 average quarterly exchange rates of the peso which range from ARS 39 in the beginning of the year to ARS 49 at the end of the year. Currently the peso is at ARS 42.4 in line with our expectations.
Let's move to slide nine, free cash flow. Our 2019 free cash flow target is $220 million, up $54 million or 33% from 2018 and quadrupled in 2017. The increase is driven by higher EBITDA and the timing of tax refunds partly offset by acquisition related restructuring costs, higher interest expense and increased capital expenditures related to the Dunbar and Rodoban acquisitions.
Working capital improvement will continue to be a focus. And we've challenged our business leaders to continue the DSO and DPO we started in 2018. We expect total capital expenditures to be approximately $245 million in 2019, up from $207 million last year. This includes $220 million for operating assets and $25 million for smart safes. The $220 million is comprised of $165 million in cash and $55 million for financing leases, primarily for armored vehicles in the United States. The $25 million for smart safes will be spent outside of the U.S. as smart safes in the U.S. are primarily operating leases. We expect total cash CapEx to be $190 million, up from a $155 million in 2018.
Our higher CapEx levels in 2019 are primarily due to Dunbar and Rodoban acquisitions. As we've stated previously, excluding our Strategy 1.0 incremental CapEx for high return breakthrough initiatives, CapEx needed for acquisitions integration and our upfront investment in Strategy 2.0 we expect future ongoing CapEx to be approximately 4.5% of revenue. There's additional detail related to CapEx and interest expense in the appendix of this presentation.
As you can see at the bottom of the slide we're targeting our free cash flow conversion rate as a percentage of income that improved from 37% in 2017 to around 100% in 2019.
Moving on, this slide illustrates our net debt and leverage position, both historically and assuming synergies from completed acquisitions through 2020. If we achieve our 2019 cash flow target, our net debt will be approximately $1.3 billion at the end of 2019, up $100 from December 31, 2010 18 as a result of approximately $150 million invested in acquisitions reduced by cash flow after dividends.
Our pro forma leverage based on trailing 12 month, fully synergized EBITDA through 2020 should be around 2 turns at the end of 2019. To help conceptualize the fully synergize concept, consider that we've made about $1.1 billion in acquisitions since early 2017 and they're generally targeted a post-synergy multiple of about 6 times to 6.5 times. That should result in approximately $180 million of annual EBITDA.
Moving to slide 11, when Doug and I joined the company we were convinced that there was no structural difference between Brink's and the most profitable CIT companies. As a team, we developed and executed a three-year plan to close the gap, and results are exceeding our aggressive expectations. But we have a question whether it makes sense to benchmark our performance against four different CIT companies in four different countries. Today, based on the common characteristics listed on this slide, Brinks is a route-based industrial service company. Our growth rate in both revenue and EBITDA already exceed our route-based peers and far exceeds global CIT companies.
Now, we're focused on closing the margin gap. To explain how, I'll turn it back over to Doug.
Thanks, Ron. We're now into our final year of our three-year strategic plan that we unveiled at our March 2017 Investor Day. Our Strategy 1.0, which is focused on driving organic growth and margin expansion is on track to deliver $310 million of reported operating profit, and $480 million of reported EBITDA in 2019, despite the significant currency translation headwinds that we faced already over the last two years, and which we project to continue this year. With respect now this represents an organic-only EBITDA compounded annual growth rate of around 12%, and we still have a lot of runway for additional organic growth from these strategies well beyond 2019.
Strategy 1.5 is focused on a accretive acquisitions. In 2019, we expect Strategy 1.5 to drive an additional $105 million of profit growth and an incremental $120 million of EBITDA growth from our 10 completed acquisitions to date. It's important to remember that these amounts include only partial cost synergies gained from route density, infrastructure overlap and efficiency improvements. In most cases, it takes two to three years to achieve all the cost synergies from an acquisition and most of our acquisitions were completed less than 18 months ago.
Our largest Dunbar was completed less than eight months ago and we've only own Rodoban for a little over three months. When these acquisitions are fully synergized, we expect to add a total of about $180 million of annual EBITDA. And like 1.0, strategy 1.5 also has a lot of runway for growth through additional accrete of acquisitions. In total, these strategies are expected to deliver $600 million of EBITDA in 2019, representing a compound annual growth rate of approximately 21% over the three-year plan period, well-ahead of our Investor Day 2019 target of $475 million.
We expect strategies 1.0 and 1.5 to continue to drive revenue and profit growth throughout the next strategic plan period as we add new breakthrough in other margin improvement initiatives and accrete of acquisitions. Later this year, we'll disclose the next layer of our plan, which we call strategy 2.0. It's still in development, but I can tell you that we're focused on two broad objectives. The first objective is to increase share within our existing customer base by offering a broader array of high margin, higher value services that expand our presence within the total cash ecosystem, including tech-enabled solutions and increased financial institution outsourcing.
Our second objective is to expand our reach to serve new un-vented and under-vented customers within the total cash ecosystem. Brink's currently serves approximately 100,000 retail locations in the U.S. where we are the market leader. And we estimate that our entire industry provides services to approximately 300,000 to 400,000 U.S. retail locations at best. To put this in a perspective, there are approximately 3.8 million retail locations in the U.S. and the top 100 retailers by revenue account for less than 10% of these locations. This means there are more than 3 million small to medium-size retail locations in the U.S. and that many of them are totally un-vented or underserved by our industry.
We believe there is a huge opportunity to add new growth and new profitability by penetrating this market, and by simultaneously providing new services to our existing customers. For example, we estimate that the Smart Safe and Recyclers, which offer high value total cash management solution, have only penetrated approximately 20% and 5% respectively of the U.S. market. We believe we can develop and offer a new high margin tech enabled solutions to un-vented and underserved retailers with a value proposition that is very compelling compared to currently available alternatives. Ultimately, our 2.0 challenge is to provide a full array of tech-enabled services that can meet the total cash management needs of almost any retailer regardless of size.
To support this strategy, we're investing approximately $20 million this year primarily in operating expenses $20 million this year primarily in operating expenses to fund a variety of product, IT, sales and marketing initiatives to accelerate the development and interruption of our strategy. This includes investment to support our customer-facing app, portal the development and other tech-enabled services. It also includes spending to develop test and pilot new products and to strengthen our global sales and marketing organizations.
Beginning in 2020, we expect to pay back on these investments in the form of higher organic revenue and higher margins. We also expect to spend another $10 million of OpEX this year on IT and related items to implement new internal operating systems to better support and increase productivity as well as to connect with the new customer facing technologies. These costs include the rollout of Oracle, Salesforce, Workday and other systems as well as enhanced cybersecurity.
As I stated upfront, despite the significant negative impact of currency translation, our strong first quarter supports our 2019 full-year guidance. We expect revenue growth of 9% and operating profit growth of 20%. EBITDA is expected to be up approximately 17% to the midpoint of our $600 million range and EPS is expected to grow 21% to $4.20 per share at the midpoint.
Our operating profit guidance is $415 million at the midpoint. This includes $310 million of full-year organic profit growth from our Strategy 1.0 initiatives in the U.S., Brazil, Mexico, France and other several other countries. It also includes another $105 million of profit growth from our Strategy 1.5 acquisitions. Our guidance includes FX rates as of the end of 2018 for all countries except Argentina, where we've maintained our assumption that the Peso to the U.S. dollar exchange rate will average 45 for the year.
Based on these rates, we estimate the negative currency translation impact on 2019 revenue and operating profits will be $190 million and $60 million respectively. And as Ron noted, our guidance includes a year-over-year profit decline in Argentina of approximately $10 million with margin recovery coming in the third quarter.
This closing illustrates the dramatic operating profit, EBITDA and margin increases, we've achieved over the three year strategic plan period, including our 2019 guidance. Even with significant FX headwinds, operating profit is projected to almost double from $216 million in 2016 to about $415 million at the end of 2019 ending in a midpoint. This represents an approximate 24% compound annual growth rate over three years and a marginal rate improvement of approximately 360 basis points to 11%.
Before closing, I wanted to take a moment to note that in a few weeks Brinks will celebrate its 160th year in operation. We're immensely proud of where we've been, but we're also excited about where we're going. Our ongoing strategy and culture evolution is the key to our continued success. Frankly, we're looking to go beyond just incremental change and we're already done that over the last two years and we're going we want to go beyond where our industry is today. We intend to transform the industry by changing who we are and how we service our customers. But the one thing that won't change is the iconic Brinks brand which symbolizes trust, and gives us the following card to expand services within our existing customer base, and to approach new customers with our 2.0 strategy initiatives and beyond.
We also have opportunities there are new industries that have a need for our core services. For example in the fourth quarter of last year, we started providing both cash and secure logistic services to canopy, the largest cannabis company in Canada. In the U.S., where cannabis remains illegal at the federal level millions of dollars of cash are being transported and stored without adequate security and regulatory oversight, posing a significant risk to the public. There are legislative efforts currently underway in the U.S. that would authorize federally chartered banks to service this industry, thus enabling Brink's to provide its cash management services to U.S. based cannabis companies.
Let's be clear, Brink's is not currently servicing the U.S., cannabis industry and we neither endorse nor oppose efforts to legalize cannabis in the U.S., but we strongly support passage of this legislation as a matter of public safety and policy. And as we did in Canada, we stand ready to be the first mover in providing our services in the U.S. The outlook for our business and our industry is healthy. Cash in the U.S., is growing consistently and 5% or more annually, and accounts for 30% of U.S. consumer transactions, more than any other payment method.
In fact, cash accounts were approximately 80% of global consumer transactions, and in the U.S., recent legislation and public opinion have been supportive of efforts to ensure that cash continues to be a payment option for all consumers, especially those 25% to 30% of people in the U.S., who are un-banked to under bank. Even some of the largest retailers including Amazon are stating publicly the importance of accepting cash.
In summary, Brink's is very well-positioned to continue growing both organically and through accretive acquisitions. And with our 2.0 Strategy, we plan to add another layer of high margin growth by offering new tech-enabled solutions to current and prospective customers. And finally, as Brink's continues to evolve, we want our perception among investors to evolve as well. We're closing the margin gap with our most successful competitors. We're on track to deliver 20-plus-percent year-over-year growth over our three-year strategic plan period, and we're confident that we'll continue to deliver similar profit growth levels in 2020 and beyond.
With that, Denise, I'll pass it over to you for questions. Thank you.
Thank you, Mr. Pertz. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And your first question this morning will be from Tobey Sommer of SunTrust. Please go ahead.
Thank you. I was wondering if you could comment on the approximate contribution to revenue growth, if you just look at the business from a volume and price perspective.
You mean overall, Tobey?
Yes, overall for the company as a whole, just kind of in broad strokes how would you break those two down?
Tobey, we don't do that. We often do it by country, which -- but it's awfully harder to do, and we don't really capture it by even region, segment, or overall.
Okay.
So, we can give you…
Okay. If I were to shift the question and ask you to speak about the pricing climate in your major markets, could we go there?
Yes. Yes, we can go that, and we can give us some background in some of the major markets. In the U.S., it continues to be strong. I think it's more relevant question for the fourth quarter, because we generally see price increases in the U.S. at the latter part of the year. And so, basically the answer is the same; we continue to see strong pricing similar to last year and the year prior to that we were implemented in the latter part of last year to continue to carry through, and they're more favorable than our cost increases in general in the U.S. We're seeing similar things in major countries, in Mexico where we're seeing a similar sort of situation with strong pricing. Brazil is probably not as strong as those markets, but we're still gaining price momentum there as well. Argentina, there is pretty good transparency I think that we provided for you in Argentina, and we're seeing right on track with that trend to improve the inflationary-driven prices there over -- the recovery period that we've laid out of about six quarters longer than historical, but that's a result of what we saw particularly in this first quarter of a year-over-year 50% FX hit offset by partial improvements in inflationary pricing, but it's right on track in Argentina. And probably the other major market that we always talk about is France, which we're starting to see at least some relative year-over-year improvement, and we anticipate that improvement would be markedly [ph] better as we go throughout the rest of this year. Did that give you some background?
Yes, it does.
I mean, I think if you look at this quarter on a revenue basis, significant hits as a result of FX, and that's had an impact for the quarter. We anticipate that will improve as we go out through the rest of this year as we stated. And on top of that, year-over-year, I remember there was an impact of in excess of $20 million as a result of the sale, the divestiture of our French guarding business which was in last year's numbers as well.
Thank you. With respect to your acquisition pipeline, how would you describe the large, relatively large acquisition opportunities versus recent quarters?
A leading question, go ahead.
No, the opportunities have been there for a while. As we've said in the past, acquisition activity is very lumpy, especially when most of the sellers are families. So, the timing is contingent on family dynamics that are out of our control. What we do is we have regular interaction with all the core-core and core-adjacent potential acquisitions, and make sure that when the time is right that we're prepared to present a compelling offer that will drive value for our shareholders, but there's -- you know, the pipeline is bigger than it was on Investor Day of 2017, both in number of possible transactions and in absolute enterprise value, and we are actively pursuing them with the discipline that we've demonstrated today.
My last question just has to do with free cash flow normalization. I guess if we exclude acquisitions and what that could mean to CapEx needs, what is the timing of free cash flow normalization and when do you think it starts to emerge, understanding it won't all unfold in one quarter?
Yes. So, Tobey, following on our last question, if we were to stop doing acquisitions, normalization would probably start in 2021, but I just indicated, we are not planning on stopping those. This is kind of hard to budget deals that haven't happened yet, but if nothing else were to happen, you would see that 4.5% of revenue in terms of CapEx kicking in around 2021.
And Tobey, I think that's consistent with what we said in the prior quarters and calls. On page 23, I think it is of the deck in the appendix is a slide that we've used in the past that leads you to, that guides you to this in the timeframe that Ron is talking to the 4.5%, excluding obviously acquisitions, and acquisitions contribute to generally higher CapEx, as we stated, the Dunbar acquisition as an example, over the course of the three-year period of time of the implementation of synergies and integration of Dunbar. We've talked to an intermodal $50 million in CapEx spend over that period of time. It also contributes from a cash flow standpoint to the restructuring charges, the one-time restructuring charges that hit, and both of those negatively impact obviously our short-term free cash flow, which are -- we're seeing in the slides that Ron presented on the cash flow in the presentation that…
Thank you very much.
Pleased to our improvement this year, but on a normalized basis, both of those have materially -- restructuring as well as the reduced CapEx would lead to materially improvements in our free cash flow going forward.
Thank you.
Thank you.
The next question will be from Jamie Clement of Buckingham. Please go ahead.
Good morning, gentlemen.
Good morning, Jamie.
Hi, Jamie.
Guys, if you look at organic revenue growth in North America for the quarter up, give a rough breakdown of how much of that was financial institution versus retail, or if you just want to talk, if you want to talk qualitatively, that's fine.
Yes. So, we'll talk qualitatively and I think I've historically said that with the improvements that we are making in our operations which have maybe taken longer than I personally would like but we are clearly seeing improvements in our operations and our operational excellence and our service levels and so forth that are markedly showing results to our financial institutions. We are highly confident that those will result in additional business in the course of this year and therefore show up latter part of this year and next year with financial institutions. Although I don't think you've seen that in the numbers to date.
Okay. Yes. Because I think actually, Doug, I think when you, shortly after you all joined I think I asked you how long have you, how long your service levels would have to be off the kind of proof to some large financial institutions that Brinks was legit?
Yes.
And I think you said it could take three years so it sounds like you're on track, right?
We're on track for the three years. It certainly doesn't meet my timetable personally but I am very pleased with, I complement our team for continuing to show the improvements in our service levels that we think are now equal to competition. And I think that our financial institution, our largest customers are seeing that those do make a difference and are responding to that and I think we'll make a difference going forward. Financial institutions don't necessarily move that quickly either.
Right, right. Ron, if I can switch to you, as we think about the rest of the year, pace of synergy realization, cadence of the $20 million to $30 million in investment spending, is there anything we need to know about sort of the pace of growth, second quarter, third quarter, fourth quarter, is there are there any timing issues we need to be aware of?
Well, you're talking about the several things now you mentioned revenue first of all, and I think the revenue growth should be improved as we go throughout the year. Obviously is going to still be choppy year-over-year, excuse me, quarter-over-quarter and there is seasonality as we know the second-half of the year particularly the fourth quarter is always is always better. So on the revenue basis; we should see some improvement as we see that going forward. Obviously then there's comps that come in as we start in the latter part of the third quarter and in the fourth quarter for us for Dunbar in the U.S. But the second part of your question really is what about op income?
Yes.
And the growth, the improvements associated with that. And one of things I pointed out in the U.S. that the legacy U.S. business saw tremendous improvement driven by breakthrough in other initiatives. In the first quarter, we should see that we continue to improve as we go forward. So as we've laid out our three-year plan for breakthrough initiatives whether it be in the U.S. and Mexico and other locations and countries, those breakthrough initiatives will continue to improve and drive the improved profitability as we go through the rest of this year throughout the quarter. You'll add to that the synergies; the synergies will improve and grow as we go throughout this year as well. So you build on, those are two big drivers for improved profitability on top of the revenues, so those are margin drivers.
As well on a reported basis not necessarily in an operational basis, as we've said, we anticipate particularly in Argentina that throughout the rest of this year particularly in the second-half, well, see FX year-over-year improvements, and therefore our reported numbers will improve with that major push as well. So that gives us the support and the comfort that we'll see some improved top line, but more importantly better leverage and improvements in our margins for the second-half of this year in particular.
And in terms of the advancement spending, you think it should be relatively even as the quarters go, or is there is there any kind of build or any sort of anticipated spike in one quarter versus another?
No, I think the spikes might only be in line with some of the restructuring charges, that's cash spend, as well as some CapEx spends as we go through, but generally no spikes, it's relatively smooth…
Okay, great. Thank you very much for your time as always.
Thanks, Jamie.
The next question will be from Jeff Kessler of Imperial Capital. Please go ahead.
Yes, thank you. Thank you for taking my question. As you look at the rest of the year, you've put in place now you've put in place now a scenario in which you are going to be increasing your spending by about $20 million I guess $30 million on new projects that will bring in a return. Assuming that that return begins to come in towards the end of the year into next year, what are the types of things that can happen in the second-half of the year? I don't -- I know you don't want to push this needle too far, but what are the types of things that can happen in the second-half of the year that could bring increased profitability to the company above and beyond what you've been talking about today? I'm not looking for a fantasy here, I'm not looking for fantasy here, I'm looking for, I'm looking for things like we haven't talked a lot about some of the cast recycling obviously CompuSafe, a lot of, a lot of other things that might be able to improve, lets just, let's call it improved guidance as you move later on into the year.
Hey, Jeff, let me reiterate a couple of things. One of them is the $20-plus million $10 million spending that we've talked about on the Strategy 2.0 spend strategy, the Strategy 2.0 investment as well as the $10 million in an incremental spend this year on IP, we're spending that throughout the year. So we've already spent a portion of that. We'll continue to build a little bit and spend more. That's in the numbers though that's in our projections. What as I said with Jamie's question a moment ago, we anticipate and we have built into here that that our synergies will continue to build. We just we just launched, we just did the first of this year Rodoban and so we're just starting to see the benefits that were seeing. They are clearly building really dramatically from where it is. We're just in the process now of in the second quarter and it will be in the latter part of the second quarter with the U.S. in terms of the Dunbar integration to start integrating our systems. And therefore that's when we'll start seeing more acceleration of our synergies as a result of the Dunbar acquisition in the latter part of this year.
Again, our breakthrough initiatives, which contributed fairly nicely are right on track in the first quarter of this year, we'll continue to increase as we've put more trucks in place, we get the benefits of those, and we get the benefits of the rest of our breakthrough and other support initiatives to drive our core margins. So all those things have increases in our margins as we move forward. Those are the projections and where we're going forward I think has some potential for some improvements especially depending on where FX goes and it could go one way or the other I guess. But we don't have and I don't want to guide at this point in time that we are going to see an acceleration of our 2.0 benefits into this year. And it's not because I am negative on it, not at all. What I am really saying is we anticipate that that will help guide us to improvements, more support, more growth in 2020 and beyond but we're highly confident that with our breakthrough initiatives and other initiatives that we already have part of our 1.0 with the benefits associated with acquisition and synergies in 1.5 and the improved FX for the rest of this year. That plus some revenue growth will drive us even with the investments of a 2.0.
We are planning an Investor Day in the second-half, and the reason we're not doing it sooner, Jeff, is we don't have the quantification as a lot of these are in pilot right now. And so, we want to be able to accumulate the feedback from these initiatives and have a more comprehensive view that will inform our guidance going forward and look forward to more information on the timing of that Investor Day as the weeks go by.
At the risk of getting too excited about the first quarter, we were very pleased with our first quarter performance being close to that 19% to 20% overall for the year that we provided guidance on even with the significant negative translational impact of FX in Argentina.
Okay, great. The second question is looking at what you are providing now to your customers in terms of both customer facing and if you want to call more, more types of services, you are obviously pushing toward evaluation parameter in which you're not being compared anymore against, let's call it, pure cash in transit competition and you want to be compared against root structure based recurring revenue SasS oriented companies, which obviously are being valued at higher than you. What are the things or the types of services that you think you need to add or at least in from the market if you have them and you haven't really pushed them that far that you need to create that type of aura, to be able to be to get on the to have your IR and PR people talk about, "This is what this company does that is different than the others that were in our old comparison," so that in -- we can be compared against the syntaxes of the world and things like that?
Yes. So Jeff, part of it is, we don't think we're even today, we don't think we should be compared with our competition that are in a different exchange and in a different country and so forth. I think what's most important is what separates is our financial performance so far that should set us apart and should have set us closer to the industrial services companies that we've laid out right. And then, going forward, there will be even more associated with that. So to date, we think if you look on page 11 and you run down that list of the comparisons versus the route-based peers, which I think there is a in the there is a page 21, there's a list of some of the peers like you suggested that we look at, we stack up very handsomely, very nicely versus the financial results around that.
And then, as you then start adding to that, all right, well-paced obviously is a key piece of this, but probably more importantly is things such as strong recurring revenue streams, consistent maintenance of customers and stickiness of those customers. Subscription based pricing that is simple for our customers. That suggests we have customers for a longer period of time. All those things I think will be things to look for. The tech enabled component around this, we think well probably even be better than many of these are route-based or industrial services peers. That is what we anticipate that you'll see going forward in the future. But I'd suggest you take a look at what we're already doing today. If you take a look at our op income what would I say 24% compound annual growth rate over the last three years and we're suggesting with our strategies going forward, we'll at least to do something in that 20-plus-percent range going forward. And compare that versus the peers on page 11. All of those are very strong correlations that suggest we outperform them. Now that we suggest that they clearly outperforms our European peers directly in our space, but this is really more of a direct comparison that we think should be made. That's a value equation, it's a value creation equation and we intend to continue to provide that value to our shareholders.
Great. Thank you very much. Appreciate it.
Thanks, Jeff.
[Operator Instructions] The next question will be from Sam England of Berenberg. Please go ahead.
Morning guys, and first one, could you touch on the trends you saw in labor costs in Q1 and you made market?
Labor cost primarily…
Yes…
-- I guess I presume you're saying in the U.S. in particular?
I mean U.S. is pretty flat as Doug mentioned we see a lot of the price increases and labor increases in the back half of the year. Argentina had negotiated that the regularly scheduled wage increases that happened in three phases typically 50% of the increases in July, 25% in November and 25% in March. This year they had a supplemental to that, but we've had a corresponding improvement in price increases to offset that. You know basically there's been no surprises on wage increases, the U.S. labor market remains tight, but that's also what is enabling the price increases in the last two years that we were unable to get in the three years prior to that. So it's manageable and whenever we're able to cover higher wages in pricing, it's normally a good situation for all involved.
Right, thanks. And then next one, I'm wondering how the Rodoban integration is going and any surprises you found naïve underneath that business?
So it's going better than expected the performance of Rodoban was a positive for us in the first quarter, a lot of times you don't know, so well actually get behind the wheel of an acquisition, and what were finding there is very encouraging. Its going to take his most acquisitions due two to three years before we fully integrate and get all the synergies, but right now Id say were on track and were very pleased.
Okay, great. And then last one for me, just with some of the potential M&A activity that's being talked about in the market in 2019. How do you guys think about the opportunity to entry new geographies outside the once you've already in?
We've always talked about core would be our first priority, but core adjacent. There's something that is a part of strategy, 1.5 and as we complete more core acquisitions by definition that means more of the acquisitions left are core adjacent. So we do look at going into other countries. It's more difficult because there is less synergy as you would expect and because of that the discipline is high and then the premiums that we can pay are by definition lower. So it's harder to get deals done from families and there are the sellers, but we continue to evaluate expansion into other countries on a regular basis.
All right. Thanks very much. That's all for me.
Thanks, Sam.
Thanks, Sam.
And ladies and gentlemen, this will conclude our question-and-answer session and it will also conclude our conference call for today. We thank you for attending the Brinks Company's first quarter 2019 conference call. And at this time, you may disconnect your lines.