3 Things to Watch When The Middleby Corporation Reports

A Viking outdoor kitchen. Viking is a subsidiary of the foodservice equipment maker Middleby Corporation. Source: Viking 

Over the past decade, Middleby Corporation (MIDD -2.18%) has cooked up returns of 1,000% for investors. Yep, you heard that correctly: an 11-bagger stock in only 10 years.

If this Elgin, Ill.-based kitchen equipment manufacturer has yet to catch your eye, it's time to add this stock to your watch list -- if just to see what Middleby can cook up next.

With the company set to report earnings on Wednesday, here are a few things investors should keep their eye on.

1. Making money, maintaining momentum
Under the leadership of CEO Selim Bassoul, Middleby's proven adept at balancing both revenue and earnings growth.

The kitchen appliance maker has a big appetite for increasing revenue through acquisitions, for example, but only if its target can be acquired in a manner that will also bolster the bottom line over the subsequent 18 months. In other words, revenue never trumps earnings, and inorganic growth through acquisitions is managed hand in hand with organic growth in the core businesses.

Once again in the second quarter of 2014, Middleby pulled off an impressive balancing act as sales grew 16.8% and earnings jumped 30.3%. Heading into the third-quarter report, here's what analysts are expecting from the company:

Source: Yahoo! Finance.

Beyond revenue and earnings, Middleby's shown impressive growth in operating cash flow. This metric increased 590% (from $10.5 to $72.5 million) year over year during the second quarter, and Bassoul sees this trend continuing through the latter half of 2014.

2. Adding new entrees to the mix
On the expansion front, Middleby continued to tack on new businesses during the third quarter.

First, it announced an acquisition of Concordia Coffee, a manufacturer of self-service coffee and espresso machines for commercial food providers. In broad strokes, Concordia's products are akin to highly advanced Keurig machines designed for restaurants, cafeterias, and coffee shops. According to the press release, Concordia generates $15 million in annual revenue.

Second, Middleby added U-Line, the manufacturer of residential kitchen equipment, to its portfolio of food-related businesses. U-Line's bread-and-butter business is small refrigerator units -- similar to upscale hotel in-room fridges -- and ice makers. U-Line has been operating out of Milwaukee since 1962 and generates annual revenue of approximately $60 million.

The addition of Concordia and U-Line show that Middleby is diversifying its portfolio in new directions while still within the kitchen. From a product perspective, Middleby's growing beyond the industrial oven and stovetop market and into beverages and cooling equipment. And from a customer perspective, it's leaning into the residential and even more consumer-facing markets.

Middleby typically adds scale, distribution, and a broader international customer base to these small businesses. On Thursday's conference call, investors will want to see whether this is the same game plan management has in mind for U-Line and Concordia's businesses.

3. Growing from within
Beyond acquisitions, Middleby has a few internal growth initiatives that investors should pay close attention to in the upcoming quarter.

Two of the most important areas are Middleby's "kitchen of the future" concept and the growth of its upscale Viking brand appliances. During the past quarter, Bassoul suggested that the "kitchen of the future" was a slow-burning initiative thus far, since smaller restaurant chains were ordering but larger ones were slow to adopt the concept.

Meanwhile, the Viking business seems to be humming along as Middleby gobbles up distributors and streamlines its dealer network in an effort to focus on the most attractive outlets.

These two product initiatives present a good deal of upside opportunity for sales and margins. As of the second quarter, Middleby CFO Tim Fitzgerald confirmed that the company is on track to achieve 20% EBITDA margins for Viking, for example. And on the dealer front, Middleby aims to trim down its network to 700 Viking dealers by the end of the year, a reduction of more than 50% from 1,500.

The takeaway for investors
Overall, Middleby seems poised to generate another impressive quarter from a financial and operational perspective. The only caveat will be whether management sticks to its guns or moves the goalposts on the Viking and "kitchen of the future" targets.

Regardless, this food industry trailblazer is well positioned for long-term success as it tacks on new, exciting brands while not losing sight of the industrial equipment business at the red-hot center of the company.