Middleby's Restaurant

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Cue music and chorus: "You can get anything you want, at Alice's Restaurant ..."

Hey, Fools! Remember Middleby's (Nasdaq: MIDD) earnings report? Up until a few minutes ago, this was supposed to be a song, er, column, about Middleby's earnings report from last week -- but I've been overtaken by events.

Very quickly then:

• Middleby posted year-over-year sales growth of 53% in the second quarter, showing the effects of five acquisitions completed over the past year.
• Operating margins held firm at 18.7%, which compares favorably to operating margins in the food service segments of more diversified competitors in the restaurant equipment space, such as Illinois Tool Works (NYSE: ITW), Manitowoc (NYSE: MTW), and United Tech (NYSE: UTX).
• Yet higher income taxes and interest payments, combined with a rising share count, held back earnings-per-share growth to 32% ($0.99 per share).
• The stock promptly proceeded to rise, cresting up 16% through Monday's close.

And just as promptly fell 7% this morning
Why? That's the news of the hour. You know those competitors I mentioned above? Well, I left one off the list ... because Middleby is buying it. Yes, Fools, the long-dreamed-of anschluss of TurboChef (Nasdaq: OVEN) is finally under way. Middleby announced this morning that it will buy the quick-fire oven maker for $200 million, absorbing its customer list headlined by names like Starbucks (Nasdaq: SBUX) and Subway, and its $114 million in annual revenues.

As usual in such deals, Wall Street is miffed, and Middleby shares are tumbling. The "why" for that should be obvious: Middleby's paying 1.8 times sales to acquire an unprofitable company that's burning cash (the opposite of Middleby's business model).

Foolish takeaway
But here's the thing: Middleby has a history of succeeding at such deals. An expert in turning ovens into red-hot profits, it likes to buy companies that are, well, a bit less expert in the process. Then it improves the business, and reaps the benefit. I expect the TurboChef acquisition to work out similarly well.

Meanwhile, Fools who were perhaps just a little too slow to buy Middleby before its earnings report have caught themselves a break. With the shares now slipping, you get another bite at the oven.

Just how hot is Middleby? Read on and find out:

• Middleby Cools Down
• Middleby: Headed for a Cooldown?
• Smokin' Middleby