Is The Middleby Corporation Destined for Greatness?

Let's see what the numbers say about Middleby (MIDD).

Jul 12, 2014 at 11:00AM

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Middleby (NASDAQ:MIDD) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Middleby's story, and we'll be grading the quality of that story in several ways:

  • Growth: are profits, margins, and free cash flow all increasing?
  • Valuation: is share price growing in line with earnings per share?
  • Opportunities: is return on equity increasing while debt to equity declines?
  • Dividends: are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at Middleby's key statistics:

MIDD Total Return Price Chart

MIDD Total Return Price data by YCharts

Passing Criteria

Three-Year* Change 


Revenue growth > 30%



Improving profit margin



Free cash flow growth > Net income growth

20.4% vs. 109.9%


Improving EPS



Stock growth (+ 15%) < EPS growth

170.4% vs. 104.6%


Source: YCharts. * Period begins at end of Q1 2011.

MIDD Return on Equity (TTM) Chart

MIDD Return on Equity (TTM) data by YCharts

Passing Criteria

Three-Year* Change


Improving return on equity



Declining debt to equity



Source: YCharts. * Period begins at end of Q1 2011.

How we got here and where we're going
Middleby puts together a respectable performance by earning four out of seven passing grades, but its fundamentals fall somewhat short of the strength its share price growth might indicate. While Middleby has done a good job improving its bottom line at a faster pace than its revenue, both metrics fall short of the company's soaring share price -- and while lagging free cash flow hasn't fallen too far behind net income yet, it could become concerning if the gap continues to widen. How can Middleby -- which is our CEO's greatest investment -- boost its free cash flow and its net income to pull closer to an elusive perfect score? Let's dig deeper to find out.

Middleby hasn't had a very good year since its late-February pop on strong fourth-quarter results. In fact, shares have given up nearly all of the gains they booked to that point, as February's report has thus far been Middleby's high-water mark. The worst came after first-quarter earnings disappointed Wall Street on the bottom line in May, but Middleby has since recovered as investors choose to look to the future.

Or are they looking to the "kitchen of the future," which is Middleby's current organic-growth initiative? This efficiency-boosting system has gained a foothold in virtually all of Brinker International's (NYSE:EAT) 1500-plus Chili's locations, and should become the core product in Middleby's lineup within the next two years as it's rolled out to other restaurants. The impact on Brinker's bottom line, while subtle, is apparent -- after a peak and decline in its earnings  in 2011, Brinker has enjoyed years of steady bottom-line growth, with trailing 12-month net income up 17% since early 2012 despite a modest 2% improvement in trailing 12-month revenue.

Middleby's current woes stem largely from weaker-than-expected margins, which have been blamed on its spate of recent acquisitions, which have expanded sales but have cost Middleby time and money to integrate. However, Middleby has proven adept at acquisitions over the years, as it's bought out 33 companies since 2005, but has not suffered any drop in margins despite quadrupling sales during that time frame. While it wasn't up to Wall Street's standards in the latest quarter, Middleby's profit margin has actually expanded over the past few years, as we've already seen.

Going forward, Middleby will almost certainly benefit from increased competition in the fast-casual and casual segments of the restaurant industry, and from the growing international presence of many major American franchises, most of which happen to be key Middleby customers. Yum! Brands (NYSE:YUM) has been a long-term purchaser of Middleby ovens, and a year ago the company's Chinese subsidiary awarded Middleby its first-ever "Bridge Builder Award" for its role in Yum!'s rapid Chinese expansion. Middleby continues to develop new products as well, with those introduced in the past four years now comprising roughly 20% of revenue.

Putting the pieces together
Today, Middleby has some of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

You can't afford to miss this
"Made in China" -- an all too familiar phrase. But not for much longer: There's a radical new technology out there, one that's already being employed by the U.S. Air Force, BMW and even Nike. Respected publications like The Economist have compared this disruptive invention to the steam engine and the printing press; Business Insider calls it "the next trillion dollar industry." Watch The Motley Fool's shocking video presentation to learn about the next great wave of technological innovation, one that will bring an end to "Made In China" for good. Click here!

Alex Planes has no position in any stocks mentioned. The Motley Fool recommends Middleby. The Motley Fool owns shares of Middleby. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information