What happened
After a disappointing year, stock in commercial cooking and processing equipment company The Middleby Corporation (MIDD 2.31%) rose 10% in November. The reason? On the third-quarter results presentation on Nov. 7, CEO Selim Bassoul served notice that the company's revenue outlook was improving, providing for "continued margin expansion for Middleby as we enter into 2018."
Actor Gerard Depardieu and his AGA cooker -- a Middleby Brand. Image source: The Middleby Corporation
So what
Bassoul's commentary is pretty much what investors wanted to hear as revenue growth in the first nine months of 2017 has been lackluster. Net sales are up just 1.9% in the first nine months compared to the same period last year. However, Middleby has long been a highly acquisitive company so it's a good idea to back out acquisitions and foreign exchange from its sales growth figures.
For example, here's a look at sales growth excluding acquisitions and foreign exchange movements. For reference, the commercial foodservice equipment group generates nearly two-thirds of profit, with residential kitchen equipment around 20% and food processing equipment around 15%.
|
The Middleby Corporation |
Q1 17 |
Q2 17 |
Q3 17 |
|---|---|---|---|
|
Commercial Foodservice Equipment Group |
(2.6%) |
(3.3%) |
0.5% |
|
Food Processing Equipment Group |
(0.9%) |
8.5% |
(5.2%) |
|
Residential Kitchen Equipment Group |
(5.9%) |
(9.1%) |
(6%) |
|
Total |
(3.4%) |
(3.4%) |
(2.1%) |
Data source: The Middleby Corporation presentations. Sales growth excluding acquisitions and foreign exchange.
In discussing the third-quarter results Bassoul claimed sales in the commercial foodservice group were at a slow pace because of the "timing of purchases from our major restaurant chain customers." Meanwhile, the lower sales in the residential kitchen equipment group were put down to "acquisition integration initiatives," and the food processing equipment group was "impacted by delays of several anticipated larger orders."
Now what
As ever with highly acquisitive companies the question is whether its underlying growth rate can be sustained as the acquisitions are integrated over time. So far in 2017, Middleby's growth has stumbled and management has given a litany of reasons why. However, the good news is management is indicating that better conditions will occur in 2018. Now it's time to deliver.
