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DATE

Thursday, Nov. 6, 2025, at 8:30 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Timothy J. FitzGerald
  • Chief Financial Officer — Bryan E. Mittelman
  • Chief Commercial Officer — Steven P. Spittle

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RISKS

  • Non-cash Impairment — The company recorded a $79 million non-cash impairment charge for the Residential Kitchen segment in Q3 2025 as part of its ongoing strategic review.
  • Tariff Impacts — CFO Mittelman said, "The adverse net impact to EBITDA in Q3 was approximately $12 million, and we estimate that the Q4 impact will be $5 million to $10 million."
  • Interest Expense Increase — CFO Mittelman stated that, following the September 1 convertible note maturity, "our interest expense will be higher in Q4, estimated at $28 million to $30 million."
  • QSR Customer Weakness — Ongoing softness at several large QSR customers is putting pressure on Commercial Foodservice growth, with management specifically identifying it as a continuing revenue challenge into early next year.

TAKEAWAYS

  • Strategic Portfolio Actions -- The company is conducting a strategic review of the Residential Kitchen segment and has announced a planned spin-off of the Food Processing business by mid-2026, stating both actions aim to "maximize shareholder value."
  • Impairment Charge -- A $79 million non-cash impairment was recognized for the Residential Kitchen segment in Q3 2025 as part of this review.
  • Revenue -- Total revenue was $980 million, exceeding the upper end of guidance and supported by all three segments meeting or surpassing expectations.
  • Adjusted EBITDA -- Adjusted EBITDA reached $196 million, above guidance and attributed to prior strategic investments.
  • Adjusted EPS -- Adjusted earnings per share were $2.37, exceeding the top end of the guidance range, with a positive $0.15 impact from stock compensation on adjusted EPS.
  • Commercial Foodservice Segment Performance -- Segment revenue totaled $606 million with 1.6% organic growth and nearly 27% EBITDA margin, which would have exceeded 28% absent tariff effects.
  • Residential Segment Performance -- Segment revenue was nearly $175 million with EBITDA margin slightly below 10%, pressured by over 150 basis points due to tariffs and impacted by temporary shipment delays from operational consolidation.
  • Food Processing Segment Performance -- Revenue exceeded $201 million and organic EBITDA margin was 21%, affected by tariffs and geographic mix, with strong order rates reported in the period.
  • Tariff Impacts -- Tariffs reduced consolidated EBITDA by approximately $12 million, with Q4 impact estimated at $5 million to $10 million and management expecting to "fully offset tariff impacts as we begin 2026."
  • Cash Flow -- free cash flow was over $156 million.
  • Leverage -- The leverage ratio per credit agreement stood at 2.3 times at quarter-end.
  • Share Repurchase -- Year to date, the company has repurchased over 3.5 million shares for $500 million at an average price of $144.55, reducing share count by 6.4% in 2025.
  • Q4 2025 Guidance -- The company projects revenue of $990 million to $1,020 million for Q4, adjusted EBITDA of $200 million to $210 million for Q4, and adjusted EPS of $2.19 to $2.34 for Q4, assuming 50.4 million shares outstanding.
  • Full-Year 2025 Guidance -- Expected total revenue of $3.85 billion to $3.89 billion, adjusted EBITDA of $779 million to $789 million, and adjusted EPS of $8.99 to $9.14.
  • Food Processing Spin Timeline -- Spin-off is on track, with financial statement audit completion expected by March 2026 and transaction anticipated effective in May 2026.
  • Operational Investments -- Management noted new facilities, innovation centers in major markets, and significant tactical supply chain adjustments, such as shifting production out of China for the residential grill business and leveraging Nogales, Mexico, to address tariffs and enhance efficiency.

SUMMARY

Middleby (MIDD 5.04%) management committed to a 2026 Food Processing spin-off and disclosed a $79 million non-cash impairment in Q3 2025 tied to the strategic review of the Residential Kitchen segment, signifying major portfolio transformation. The company reported revenue, adjusted EBITDA, and adjusted EPS all above guidance, attributing outperformance to prior investments and operational initiatives despite continuing market and tariff headwinds. Tariffs impacted EBITDA by approximately $12 million and are projected to reduce Q4 EBITDA by $5 million to $10 million, but pricing and supply chain efforts are expected to neutralize these effects in 2026. Share count was reduced by 6.4% during 2025 through aggressive share repurchases, representing a deployment of capital beyond current free cash flow. Interest expense is expected to rise by $28 million to $30 million in Q4 due to revolving credit facility usage after the convertible note maturity, and the company maintained a leverage ratio of 2.3 times at quarter-end.

  • CEO FitzGerald stated, "We are taking deliberate steps to close that gap [of perceived undervaluation]," referencing both share repurchases and restructuring.
  • Residential business growth in premium indoor brands was offset by tariff-related headwinds and shipment delays. While operational consolidation and the launch of a new Greenville, Michigan facility are expected to enhance long-term margins.
  • Commercial Foodservice returned to organic sales growth for the first time since 2023, but ongoing weakness among large QSR customers is expected to remain a challenge into early 2026, according to explicit management guidance.
  • Food Processing demonstrated a strengthening order rate and backlog, particularly in protein and automation. Management indicated that Q4 should be the segment’s strongest revenue quarter of the year, in line with typical seasonality.
  • Management reported successful operational initiatives—such as new product launches, channel education efforts, relocation of production out of China, and investments in automation—which are positioned to support future growth and margin improvement.
  • Pricing actions and supply chain shifts in each segment are intended to fully offset ongoing tariff costs as the company moves into 2026.

INDUSTRY GLOSSARY

  • QSR: Quick Service Restaurant; refers to fast-food chains, a key customer segment in commercial foodservice equipment markets.
  • EBITDA Margin: Earnings Before Interest, Taxes, Depreciation, and Amortization divided by revenue; a measure of operating profitability used frequently in capital equipment industries.
  • Backlog: Aggregate value of unfulfilled orders, commonly analyzed to gauge demand visibility in industrial equipment sectors.

Full Conference Call Transcript

Timothy J. FitzGerald: Good morning, and thank you for joining today's call. I'll begin this morning with an overview of the announced strategic review of our Residential Kitchen business before discussing highlights of the third quarter and for each of our business segments. As part of our efforts to drive long-term shareholder value, we've been undertaking a strategic review of our overall business portfolio. We continue to believe that our shares are significantly undervalued, and we are taking deliberate steps to close that gap, including with a planned spin-off of our food processing business targeted for completion in 2026, and also through our significant share repurchasing activities.

As we further continue to evaluate opportunities to unlock the value at each of our three industry-leading segments, we have embarked on a review of options to maximize the value of our residential kitchen business. This includes an evaluation of a range of options, one of which is a potential separation of our residential kitchen business. During the quarter, in connection with that review, we recorded a non-cash impairment charge of $79 million. This is an accounting-driven valuation adjustment and does not reflect any change in our confidence in the segment's underlying strength. In fact, we believe our residential business is positioned better than ever.

With a portfolio of iconic brands, we have invested in new state-of-the-art manufacturing centers of excellence, we are introducing new products with exciting features, and we have strengthened our team across the platform. While the residential market remains challenging, our business is positioned to benefit from a recovery. We intend to pursue options that will maximize shareholder value while benefiting our customers and employees. Please note, we will not be making any further comments on the status of this strategic review on the call. As for the third quarter, we are pleased with our results, which once again demonstrate the strength of our business and our team's disciplined execution.

Total revenue of $980 million exceeded the top end of our guidance range. Each of our three segments met or surpassed expectations. This top-line performance drove adjusted EBITDA of $196 million and adjusted EPS of $2.37, both exceeding the upper end of our guidance. These results reflect the benefits of our strategic investments over the past several years, expanding our go-to-market strategy, strengthening local sales support, advancing digital marketing, and enhancing after-sales service capabilities. We continue to invest in innovative technologies that help customers address labor and training challenges and operate more efficiently. Our ice and beverage platform remains a core area of opportunity and is expected to be a meaningful growth driver in the years ahead.

While broader market conditions remain mixed, our long-term strategic focus has positioned The Middleby Corporation to capture outsized growth when markets normalize. At our Commercial Foodservice segment, we returned to positive organic growth in sales for the first time since 2023. Growth was driven by the general market, institutional customers, and with emerging restaurant chains, offset in part by ongoing softness among large QSR customers facing lower traffic and cost pressures. We are encouraged by the traction we're seeing from investments made with key U.S. channel partners. By partnering and educating our dealer base on the performance advantages of our technologies, we are capturing market share and outpacing overall industry growth in this area.

We're particularly excited about the growing pipeline of opportunities for our ice and beverage solutions. At the Residential segment, we continue to make significant progress both strategically and operationally. During the quarter, we saw healthy growth with our premium indoor brands. This growth was offset by tariff-related headwinds impacting our outdoor product sales. Additionally, we experienced temporary shipment delays tied to the consolidation of operations, actions that will ultimately drive greater efficiency and profitability across the portfolio. A major milestone was the opening of our new state-of-the-art facility in Greenville, Michigan, which serves as a center of excellence for all our residential refrigeration brands.

This facility will enable scaling of manufacturing, engineering, and logistics, resulting in enhanced customer service and long-term margin benefits. In food processing, improving international markets offset continued softness in the U.S. During the quarter, we realized a strong order rate which inflected positive after a soft start to the year as customers resumed deferred capital projects. Our ability to deliver comprehensive full-line solutions positions us to capture these opportunities. We also expanded our global network of innovation centers with the opening of the Middleby Innovation Center in Venice, Italy, a flagship hub for the food processing group focused on accelerating customer collaboration and technology development.

This new innovation center is unique for the industry and it will transform how we engage with our customers for years to come. Our strong financial results and conviction in The Middleby Corporation's future underpin our capital allocation priorities. We expect to continue repurchasing shares using the substantial cash flow we generate. This reflects our belief that The Middleby Corporation's current share price undervalues the long-term earnings potential of our company. By investing in share repurchases today, we are positioned to drive sustained shareholder value as our end markets recover. Parallel, we will continue to evaluate strategic alternatives across our portfolio to ensure we are optimizing The Middleby Corporation's overall value creation potential.

Now looking beyond near-term conditions, our competitive advantages are compounding. We have an unmatched portfolio of brands, we have the industry's strongest innovation pipeline, we're making targeted strategic investments in new and growing addressable markets such as ice and beverage, and we are leading in next-generation automation and IoT capabilities that position us ahead of competitors for the years ahead. Most importantly, we have a world-class team around the globe whose commitment and execution continue to drive our success. While we're navigating some market volatility, The Middleby Corporation is stronger today than at any point in our history. The foundation we've built positions us exceptionally well to capitalize on market fully normalize.

With that, now I'll turn it over to Bryan E. Mittelman to discuss our financial performance in greater detail and guidance for the fourth quarter.

Bryan E. Mittelman: Thanks, Tim. Looking back at the third quarter, we were pleased to see revenue, adjusted EBITDA, and adjusted EPS performance all exceeding the guidance we initiated last quarter. Adjusted EPS was positively impacted by 15¢ related to stock comp. For commercial food service, despite market conditions that continue to be challenging, we delivered 1.6% organic revenue growth. Positive impacts were seen from general market, institutional, and fast-casual customer segments. We delivered $606 million of revenue and a solid EBITDA margin of nearly 27%. This would have exceeded 28% if not for tariff impacts. Customer engagement and interest in our leading technologies remain strong, especially in beverage dispense and ice products.

At residential, on a year-over-year basis, we saw growth across our premium indoor businesses. Tariff impacts had a rather detrimental impact on outdoor products revenues and also pressured margins. Revenues were nearly $175 million and our EBITDA margin was slightly below 10%. The cost impact of tariffs was a drag of more than 150 basis points on margin. At food processing, Q3 revenues exceeded $201 million and our organic EBITDA margin was 21%. This would have been nearly 22% if not for tariff impacts. Margins were further impacted by geographic mix.

The Q3 performance exhibited some of the short-term lumpiness that can sometimes be seen in this business, ahead of what will be a rather strong Q4, especially across our brands serving the protein space and in automation solutions. We are experiencing a strengthening order rate and growing backlog. On a consolidated basis, total company adjusted EBITDA for Q3 was over $196 million and adjusted EPS was $2.37. As noted in our earnings release today, we recorded impairment charges of $79 million during the quarter to write down the book value of the residential segment to its estimated fair market value.

Regarding tariffs, the adverse net impact to EBITDA in Q3 was approximately $12 million, and we estimate that the Q4 impact will be $5 million to $10 million. This continues to be a subject where tariffs continue to be subject to where tariffs finally land and is also subject to risks, particularly in key supply chain markets of China and India, which continue to be especially volatile. The benefits of pricing and operational actions we have taken are expected to fully offset tariff impacts as we begin 2026. Q3 operating cash flow exceeded $176 million, up 12.5% year over year, and free cash flow was over $156 million.

Our leverage ratio per our credit agreement at quarter's end was 2.3 times. Please recall that on September 1, convertible notes matured. Accordingly, borrowings on our revolving credit facility have increased, and our interest expense will be higher in Q4, estimated at $28 million to $30 million. Regarding capital allocation, earlier this year, we communicated the decision to deploy the vast majority of our free cash flow to share repurchases. Year to date, our free cash flow is $365 million, yet we have used $500 million to repurchase over 3.5 million shares at an average price of $144.55 per share. We've reduced our share count by 6.4% during 2025.

Looking ahead to the coming quarters, we will continue to be opportunistic as we have excess capital to deploy. We will do so while maintaining the financial needed for strategic growth investments. Regarding today's updated outlook for the remainder of the year, I offer the following perspectives. At commercial food service, we are seeing pressure at a few of our largest QSR customers, which is concerning delivering sequential revenue growth. For food processing, with improving order activity, the fourth quarter will be the strongest of the year, as is the normal pattern for this unit.

Lastly, in the residential segment, I characterize market conditions as fairly stable, and for Q4, will also be our strongest revenue quarter of the year, forecasting a typical yet modest seasonal step-up in revenues. So for Q4, we expect to achieve the following: Total company revenue of $990 million to $1,020 million. And by segment, this is comprised of commercial food service at $570 million to $580 million, residential kitchen at $180 million to $190 million, and food processing at $240 million to $250 million. Adjusted EBITDA is forecasted to be between $200 million and $210 million. And adjusted EPS is projected to be in the range of $2.19 to $2.34, assuming approximately 50.4 million weighted average shares outstanding.

Then for the full year, we expect to achieve the following: Total revenues of $3,850 million to $3,890 million, adjusted EBITDA of $779 million to $789 million, and adjusted EPS of $8.99 to $9.14 based on the sum of four individual quarters. Please refer to slide seven of the presentation we have posted online at our website for all those details. We will provide guidance for 2026 in conjunction with our release of fourth quarter results. I will conclude my comments with a quick update on the food processing spin-off. We remain confident in our ability to execute the necessary actions to have a successful transaction.

Activities to ensure the spin company will be operating effectively, efficiently, and independently at inception remain on track. I reiterate what I noted last quarter, and that we expect to complete the spin-off in 2026, and more specific information about timelines and business matters will be later in the year. In the meantime, I do note that as part of the registration process with the SEC, we'll first need to complete the 2025 financial statements audit. This will happen by March 2026 and will be quickly followed by a filing of a registration statement. Potential transaction effectiveness then is currently anticipated in May 2026. That concludes our prepared remarks, and we are now ready to take your questions.

Operator: You may withdraw yourself from the queue at any time by pressing star 2. Move first to Mircea Dobre with Baird. Your line is open.

Mircea Dobre: Thank you for taking the question, and good morning, everyone.

Timothy J. FitzGerald: Morning, Mircea.

Mircea Dobre: So I guess there is a whole lot to talk about here, and maybe where I would start is with a question on just a strategic evaluation of the company more broadly. You've obviously told us that residential is now part of this review process. I understand you don't want to comment further, but the way I interpret your statement, Tim, is to suggest that there's more to it than just the spin of processing. Maybe strategic evaluation of residential, is there something going on in commercial food service as well that maybe you're working on or that shareholders need to be aware of? And then for food processing specifically, appreciate the timeline.

I'm curious as to how you're thinking about the management team that will be running this business. Anything that you can share with us procedurally in terms of the things that you have accomplished thus far in anticipation of this spin? Thank you.

Timothy J. FitzGerald: Yes, I'll take the second one first. So as Bryan just kind of mentioned in his remarks, we have made significant progress, I'll say, in separating and standing up the company. So we feel like we are on track. I know that we've made kind of limited announcements thus far, but we do anticipate in the fourth quarter that we'd start shedding light on some of the things that we've already accomplished and the plans going forward, kind of along with maybe a little bit more details around the timeline of execution of the spin in the first half of next year.

So we do feel like we are in good shape and have line of sight of separating the companies and remain excited about that. Yeah, I mean, I think the, you know, as I said in my comments and said probably for a long time, and we, you know, we have three industry-leading portfolios. So we think they're best in class, have highest margins, and they're well-positioned with a lot of the strategic investments that we've made in each of those portfolios.

So really, as we've kind of undergone this exercise, which started, you know, last year, is really how do we maximize the value of those portfolios for the long term, make sure they all reach their full potential, and we think there's a lot of shareholder value creation there. So it's really a continuation of that process and kind of our long-term vision for each of those segments. So, I mean, that you know, you should read anything into commercial. Of course, it's our core business. It's a phenomenal business.

I think as we kind of go through this process, that will allow us to ensure that we've got greater focus, you know, on that segment, in each of those segments. So yeah, I think the strategic review aligns with, you know, the journey that we've been on in each of those platforms for a long period of time.

Mircea Dobre: Okay. That's helpful. Then my follow-up on commercial food service, I'm looking at the fourth quarter guidance, and if I'm doing the math right, it seems to be an implied organic decline of somewhere around mid-single digit on a year-over-year basis and the business down sequentially. And from a seasonal standpoint, this is a departure from what we normally see in a fourth quarter being down, call it, mid-single digits sequentially. So I guess I'm curious as to what's driving that. It sounds like QSR is driving that. But the point here is that while we're looking at Q3, we saw a bit of a recovery. That's not carrying into Q4. So was Q3 unique in any way?

Was there some demand pull forward or stocking or anything of the sort? And how do you assess the broader trends in this business, especially as we start thinking about 2026? Is that going to be yet another year of erosion based on what you know thus far? Or is there any reason to be more optimistic? Thank you.

Timothy J. FitzGerald: I think Bryan can comment on the numbers. I'll start off and then kick it to Steve. I mean, the markets are volatile. Right? Like, so I mean, I think as we mentioned in the comments, like, we are seeing strength in certain areas, and we're performing well in those areas. So the general market with our dealers, I think we're doing well there. Some of that is because of the investments that we've made over time. Other areas of growth, the emerging chains, retail, but QSR has been tougher, right? Like I mean, I think you can look across the segment and what's been reported over the course of the year, not just this quarter with traffic, etcetera.

So that we feel we're very well positioned in the QSR segment. I think our relationships are stronger, the pipeline of opportunities, the products that we've got approved were a meaningful part of what we think is the future plans that they have for, I'll say, operational efficiencies and then new development. But, you know, because of the market backdrop, you see different purchasing patterns across those chains. Right? So I think that's what we've been challenged with and create some, you know, volatility from quarter to quarter, but it does give us optimism as we go into next year because of how we are positioned.

And I think some of the things that we see them executing on strategically today are benefits, I think, that they will see in their business next year. We're kind of part of those plans. So I'll say that's kind of a broader comment. And, Steve, I think once you...

Steven P. Spittle: Yeah. Mircea, I would just add on a couple of thoughts to comment on what Tim just said. Again, I think the chains, the QSR specifically, as Tim said, obviously have been challenged the last really twelve to eighteen months. And, as Tim said, I think the relationships that we have there continue to be strong. And I think as traffic in that space continues to be tough, it remains obviously challenged for the fourth quarter and probably into early next year. I think the positive is what you're seeing in the third quarter is investments we've made in other segments beyond just the QSR space that are starting to come through the dealer segment, which Tim talked about.

But I also want to highlight as we think about emerging chains, there's a lot of focus in the U.S. There's a lot of focus internationally as well for us. It's a completely new white space, but I feel like we're very under in, and we've made a lot of investments in our people. In our innovation kitchens, we've opened in Europe both now in Munich and in Spain. And I think there's so many emerging chains in those spaces that probably many of us in the U.S. have not heard of. That are big opportunities for us.

So I think as we think about how next year unfolds, I think the dealer business, the emerging chain business, a lot of the fast-casual space is very positive next year. And I think even though the QSR space remains challenged, I do think you're starting to see some of the QSRs even this quarter as they've reported start to see some trend in the right direction. So I think QSRs as we get into next year to answer the question trend better, but I also think there's so much underlying demand in the other segments that we're just starting to see our investments pay off.

And so I think that's why we feel good about next year even though fourth quarter with the QSRs remains somewhat challenged.

Mircea Dobre: Alright. Good luck, guys.

Timothy J. FitzGerald: Thanks, Mircea.

Operator: Move next to Saree Boroditsky with Jefferies. Your line is open.

James K. Pool: Good morning. This is James on for Saree. Thank you for taking questions. I guess sticking with the commercial food service here, you just talked about, like, QSR traffic remains a headwind. And, like, based on the data that's kind of weakening further, as the latest data available. And in this backdrop, like, what are the, like, non-traffic levers that can still drive sales among QSRs? Or is traffic the sole driver here? And how many periods of, like, traffic recovery would you need to see before chains kind of step up investment here?

Steven P. Spittle: Yeah, James. This is Steve again. Good question. I do think traffic is certainly a major driver, and I think as traffic starts to inflect, I think that's when you start to see the QSRs pick back up, whether it's on new store openings or investment in the kitchen. I think one of the trends that we have spoken about that we're really seeing in the QSR space is as they are challenged on, I would say, traditional traffic through the restaurant, they're all looking at how do I drive additional day parts. A big trend there has been around beverage.

And I think you're seeing it in the QSR space, concepts that you would never expect to have a premium beverage offering in their portfolio are moving towards that. And that is 100% to drive, you know, new day parts if breakfast is challenged, how do I get people coming in, you know, in the afternoon between, you know, lunch and dinner as an example. That is very well, we're very well positioned from that front because there's really no other company that can offer a full beverage solution that goes anywhere from ice to dispense, coffee, beer, water.

And so if you're incorporating a new beverage platform as a QSR, to be able to go to one company that can give you the whole solution and support from a global standpoint is, we think, a very powerful proposition for our customers. But, like, that's how I think the QSRs are trying to overcome the traffic challenges is by looking at additional day parts for traffic.

James K. Pool: Got it. That's very helpful. And I guess on the guidance here, can you kind of please walk us through the contribution by each segment for 4Q? How you think about it?

Timothy J. FitzGerald: You know, we provided the level of guidance that, you know, we're going to provide, you know, for now. So I don't have specific numbers, you know, for each segment. But I think if you do the math, I mean, there's not going to be significant deviations from where we've been currently.

James K. Pool: Got it. Thank you.

Operator: We'll move next to Tami Zakaria with JPMorgan. Your line is open.

Al McGuire: Hey. This is Al McGuire on for Tami. Thanks for taking my questions. So my first one is on the tariff front. I was wondering if you're taking any incremental pricing for the latest section 232 tariff announced back in, I think it was August. And if there's any additional color on how you know, the customer reception on pricing has been in the industry, across the board, that'd be much appreciated. Thanks.

Steven P. Spittle: Yeah. Good morning. This is Steve. Maybe I'll take the first pass and pass it around. Specific in commercial food service, again, our approach when tariffs first broke in, in the beginning of the year was to take a little bit more of a wait-and-see approach before we went and announcing massive potential price increases as so many of our competitors did. So I think we tried to be very thoughtful to get as many facts and data to support your pricing initiatives to offset the tariffs. So we did announce and execute a July 1 price increase within commercial that has, as this year back half of the year has unfolded, obviously, you know, comes through more and more.

We've additionally spent a lot of time focused on operational initiatives, whether in sourcing more and more into the U.S. or leveraging capabilities we have in facilities like Nogales, Mexico, where we have some in-house manufacturing coupled with supply chain, just our overall supply chain leverage that we have from a broad base. So as this fourth quarter finishes up, we have expected to be covering the tariff impact from a cost standpoint through pricing and those other initiatives by the end of the year. And as you go through the other two platforms, residential is slightly more impacted than food processing just because of the grill platform and the China space.

Food processing does not source as many components from the China space as well. So that's why they're a little bit less impacted. But really still across all three platforms, have said since the middle of this year that our expectation was to be neutral in terms of covering the tariff cost impact through pricing, supply chain initiatives, and operational initiatives, and we remain on target to do so.

Al McGuire: Understood. And just a quick follow-up. I think FP, you know, seems to be seeing some improved market dynamics, realizing solid order growth in the quarter. But I was wondering if you could, I guess, share some additional color on what the key drivers were for improved conversion of some of those larger projects that are out there. Thanks.

Bryan E. Mittelman: This is Bryan. I will address that one. You know, as I noted, it's skewing a little bit more to the protein side of things as well as, you know, automation and washing type of solutions we have, I'll call it adjacencies to just handling the proteins. You know, you may also understand that, you know, we tend to be a little bit more exposed to red meats and dry cured meats and the like, and we're just seeing some greater investments coming together there. Having said that, there's a little bit of signs of some improvements on the bakery side as well.

I will say we've seen good strength in snacks and are very happy with the performance that we're seeing from acquisitions made over the past year that address positive trends and things related to tortilla chips and prepared cakes and the like. But again, it's seeing further investments and I think some of our customers' confidence in, you know, the protein markets that we serve. Also benefiting some in poultry, too. Obviously, exposure there is not significant, and that is an area we've noted for a desire for growth and expanding our capabilities.

Al McGuire: Understood. Thanks. I'll pass it on.

Operator: We'll take our next question from Jeff Hammond with KeyBanc Capital Markets. Your line is open.

Jeffrey David Hammond: Hey, Jeff.

Timothy J. FitzGerald: Hey, Jeff.

Jeffrey David Hammond: I guess just on Res Kitchen, just I think when you did the food processing spin, you got a lot of questions on, you know, why not Res Kitchen. And just, you know, from your view, what's changed to kind of revisit that? And then just on the grill business, around tariffs, you know, just what are you doing or thinking about to structurally change your footprint, you know, going forward to kind of, you know, manage those that tariff issue?

Timothy J. FitzGerald: Yes. So we did start moving some of our production from China to other parts of Asia and elsewhere. So that was something that we mentioned last quarter. So that actually is underway and being executed in the fourth quarter. So that will better position the platform going into next year. The slight reduction also kind of announced in tariffs here recently in China does help that platform as well. So we pick up a bit on the bottom line, but it also better positions us on the top line from a pricing standpoint going forward. Part of the outdoor platform is manufactured in the U.S. as well, kind of on the premium end of things with the Lynx grill.

And certainly, we're to evaluate opportunities to onshore some of the products there.

Jeffrey David Hammond: Okay.

Timothy J. FitzGerald: Yeah. I'm sorry. So, Jeff, your first question. I mean, I think, you know, that's been an ongoing review of the portfolio. I'll say I'll probably be repetitive with the comments I made earlier. Like I think we were looking at the portfolio holistically even as of last year that kind of led us to, you know, the sequence of activities and announcements, which is, you know, led to most recently the announced review of residential.

Jeffrey David Hammond: Okay. That's helpful. And then just on food processing, margins have stepped down quite a bit year to year, and I think you mentioned mix and tariff, and maybe you can spike that out a little more. But as you look at the pipeline and you look at maybe some of the income orders, how are you thinking about, you know, margins as we go into 4Q and as we go into 2026 in the spin?

Bryan E. Mittelman: Yes. Jeff, this is Bryan. And as I go through my comments here, I am thinking of things on an organic basis because obviously there's always an impact, I'll say, improving the operations once we've acquired them. So in terms of, I'll say, the year-over-year margin pressure because that's really what we're seeing, I think Q3 and Q4 are pretty close together even with a little less operating leverage that comes through in Q3, given the volumes and also how there's a fair amount of our factories are in Europe that have different, I'll call it, patterns in the third quarter.

So we did note, I'll say, in the neighborhood of 100 basis points of impacts from tariffs that we'll continue to try and work through, you know, on a cost-wise perspective. But there are also, you know, I'll call it, market dynamics at play that are driving a pricing impact as well. So that would be the other factor I would say. As we look into Q4 with the improving revenues and trends, we do expect the fourth quarter to be better than the third quarter, and as we take more of that medium-term outlook.

As we do have larger orders and we're selling on return and the great benefits that we bring our customers, that does tend to be margin enhancing for us. There are actions we've been taking on pricing, whether it's on the parts and service side of the business or also making sure we're being responsive in how we manage pricing on the contract. So I think again, given the actions we're taking, given the improving orders and backlogs, that should drive a positive margin trend as we think about may come in '26 versus '25.

Timothy J. FitzGerald: I think just from a spin standpoint, I mean, I think we're inflecting right now. So I mean, I think it's a good we've got some momentum building as we go through the latter part of the year and the first half of next year. The pipeline has been strong, and now I think now as orders convert, that puts us in a pretty strong position. And I think typically, you know, it's going to be the biggest driver with margins. And I think then, you know, as Steve kind of talked about, we'll have overcome some of the tariff challenges as well.

So I mean, I think we feel like it's a pretty good setup for the first half of next year as we start to execute on the spin.

Jeffrey David Hammond: Okay. Thanks a lot.

Operator: We'll move next to Timothy W. Thein with Raymond James. Your line is open.

Timothy W. Thein: Thank you. Good morning. I've got two if I may, on the commercial business. The first just thinking back to the framework we talked about a couple of years ago with respect to kind of what's going to drive EBITDA or what can drive EBITDA margins in that commercial business. Sales mix was one of the big levers that we saw. And, obviously, you know, you fast forward and the volumes quite haven't come through probably like we expected. But I'm just curious if you kind of revisit that and think through that, you know, technology and automation was highlighted earlier. So presumably, that's, you know, continues to be an emphasis.

But I'm curious how that how kind of that has developed in terms of as a catalyst to support margins, but also the emphasis and the strength in ice and beverage. I'm just curious. I'm assuming that would be additive or kind of supportive of that sale. But, you know, not sure given that's, you know, given the growth in that channel, is that a fair assumption, i.e., it is favorable to mix? So we'll start with that one, please.

Timothy J. FitzGerald: Yes. So you are correct. That has been part of the strategy to expand our margins, right? So as we went through, I'll say, kind of post-COVID, we've cut a lot of SKUs that were lower margin. We've launched a lot of new products. Those new products we still expect to be part a big part of the future yet to be seen. Although we've, you know, certainly we've gotten traction and there's been announcements of wins that are out there. We see that as continuing to be a building pipeline, you know, both to drive automation and efficiency in the kitchen in our core cooking categories as well as new market share gains.

In categories that we've not been, which is the ice and beverage, and we think those are both attractive margins will be margin accretive over time. Ice and beverage is still it's relatively large now, but it's still a new part of The Middleby Corporation, and it's got slightly lower margins than the hot side, but they're kind of mid-twenties. So they're very, you know, attractive and expanding, and as a lot of the new products that James has highlighted on calls come out, you know, we think those are going to be pretty attractive, you know, margins kind of as we go forward.

As you kind of think about the immediacy, right, like we're, I'll say, holding serve as we're going through all these tariff challenges as well. Right? Like, those are not, you know, insignificant. So there's a lot of puts and takes as we kind of go through, you know, the current period, but I think we're well positioned for the next several years as a lot of these new product initiatives, I'll say, come online with, you know, with our customers, which we feel pretty confident with.

Timothy W. Thein: Got it. Okay. And then can you update us on the backlog of that business and where, I don't know, where the end of the third quarter, where you're expecting to end the year and just thinking if that's supportive of kind of the earlier discussion as, you know, whether or not '26 could be a growth year. Just maybe put that order backlog in the context of, you know, where you normally operate into fiscal year. Thank you.

Timothy J. FitzGerald: I mean, backlog is pretty short in that business. So I mean, I think we really look at kind of the pipeline of opportunities and, you know, how we're pretty close with the customers, both our dealer partners and the chains. So backlog's really not the, you know, the measurement for the commercial business.

Timothy W. Thein: Okay. Thank you.

Operator: We will take a follow-up from Mircea Dobre with Baird. Your line is open.

Mircea Dobre: Hey. Thanks for taking the follow-up. And I just want to go back to commercial food service. And, you know, you talk about some areas of growth. You talk about international, for instance, as being an area of growth. There are portions of your business, however, that are challenged. And I guess, you know, I am wondering as you're conducting these reviews, and you think about growth through the cycle as it were, how do you separate what is cyclical in compressing the growth in this segment versus what may be more structural in nature? And how do you think about adjusting the portfolio?

Do you have the right portfolio in this segment to ensure a return to more sustainable long-term growth? And if the answer is no, that adjustments are needed, you know, what are some of the things that you're contemplating in this regard?

Steven P. Spittle: Yeah. Mircea, this is Steve. I'll take a first crack at it. I think about it in the portfolio in two ways. So I'd say, okay. What is the core part of the portfolio that are, again, the core brands that have been part of the portfolio for the last fifteen to twenty years, I don't know if it's the cyclical growth, but just the core growth that has, you know, kind of built The Middleby Corporation commercial food service to where it is today.

It's like, I think you have that core platform that I think as we, you know, work through these, you know, macro backdrops that we've had to navigate, whether COVID or supply chain tariffs, I do think will support, you know, sustainable, you know, quarter over quarter growth. I then think, as we have expanded the portfolio into the new categories that are going to drive growth beyond the core, I think that's where the secret sauce is going to come from. And I think that's what has not been unlocked yet.

And I think those are, again, are all the categories that we keep talking about around beverage, ice, your automation, and we're such early days I feel like, you know, in those platforms. But so I think that we do have the right portfolio because, again, I think we are uniquely positioned that we're the only company that has both of those pieces to it, but the core business and I think the right pieces from products from technologies that support, you know, exponential growth in years to come. So I don't know if it's quite answering your question, but I think the answer is yes. We have the right portfolio.

I think we've appropriately added over the last five years throughout all this disruption the right products to the portfolio for when, you know, things really, you know, get going after, hopefully, the macro backdrop is a little bit more favorable.

Timothy J. FitzGerald: But I'll just yeah. I mean, I'll maybe round that out, and it's a little bit repetitive. But, I mean, I think a lot of the things that we've talked about with innovation and new investments are around categories that we do think are the longer-term growth drivers in food service. Right? So in cooking, you've heard us, we focus on ventless, we focus on electrification. We see the industry moving to digital, right? So we've invested in a control platform across our portfolio. We've combined that with IoT, we think we've got long-term significant benefits, right? And that actually cuts across our core cooking portfolio.

So we are trying to position where we see the long-term trends and growth and then expanding into the faster-growing categories. That is why we selected ice and beverage, and you can see those trends with our customers. So we've kind of been very specific in the areas that we've invested in and emphasized and shifted to. So I mean, I think that's why we feel the portfolio is well-positioned and will continue to evolve that thinking, and I think it's a good question. We've always got to go back and review the portfolio in its entirety.

But I mean, I think the big levers and themes, those are the areas that we've gone, and I think that's why we've got a very unique portfolio that is very well-positioned as we kind of go through the next three to five years.

Mircea Dobre: Alright. Thank you for that.

Operator: And it does appear that there are no further questions at this time. I would now like to hand it back to management for any additional or closing remarks.

Timothy J. FitzGerald: Thank you, everybody, for joining today's call. We appreciate it, and we will speak to you next quarter.

Operator: This does conclude today's program. Thank you for your participation. You may disconnect at any time and have a wonderful afternoon.