Please ensure Javascript is enabled for purposes of website accessibility

Why Middleby Rose 10% in November

By Lee Samaha - Dec 8, 2017 at 7:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The cooking equipment company has had a difficult year, but conditions look set to improve in 2018.

What happened

After a disappointing year, stock in commercial cooking and processing equipment company The Middleby Corporation (MIDD 2.14%) 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." 

Acclaimed actor Gerard Depardieu standing in front of an AGA cooker.

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. 

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Middleby. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Middleby Corporation Stock Quote
The Middleby Corporation
MIDD
$160.30 (2.14%) $3.36

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
403%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.