For a long time, Middleby (MIDD 0.96%) has struggled to reach its full potential. Even though it has done a good job of carving out a lucrative niche in the kitchen equipment industry, it's run into multiple setbacks that have kept it from participating fully in the stock market's gains in recent years. With a long-term strategy, though, Middleby stuck to its guns, and now, investors have reason to celebrate the results.
Coming into Wednesday's second-quarter financial report, Middleby investors were ready for the company to get back to the higher-growth performance that they've seen in past years. Middleby's numbers showed considerable improvement, and a lot of the gains came from the fact that the company's long-struggling Viking unit appears to have turned the corner toward a full recovery.
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How Middleby got moving again
Middleby's second-quarter results showed a nice pickup from recent quarters. Revenue of $668.1 million climbed 15% from year-earlier levels, outpacing the 13% growth rate that most of those following the stock were looking for. Net income was 8% higher at $84 million, and the resulting $1.63 per share in adjusted earnings beat the consensus forecast among investors by $0.06 per share.
Most of the gains that Middleby saw on its top line came from its acquisition activity. Without $84 million in revenue from acquired companies as well as some positive impacts from foreign exchange impacts, sales would actually have fallen by 0.4%. However, even those tepid figures were better than how Middleby did last quarter.
On a segment basis, Middleby looked healthy in two out of three areas. Commercial foodservice equipment saw a 24% rise due largely to acquisitions of commercial food service specialist Taylor, steam-cooking equipment maker Firex, and charcoal-cooking equipment specialist Josper. Yet even on an organic basis, Middleby saw 4% segment sales growth. Meanwhile, in the residential kitchen equipment group, sales were up 5% on 2% organic growth and considerable support from favorable currencies. The company pointed to a 24% surge in Viking sales, which was a nice reversal from the pain the appliance maker has dealt with since even before Middleby acquired the business.
Still, Middleby faced challenges. In the food processing equipment group, net sales were higher by 1%, but absent acquisitions, revenue would have dropped by 20%. Moreover, the extent of acquisition activity reduced Middleby's margins, including a three percentage point drop in gross margin to 37.5%. Lower income tax rates helped cushion the blow to net margin, however.
What's ahead for Middleby?
CEO Selim Bassoul went through all the reasons why Middleby is in good shape. "We are beginning to see the benefits in the marketplace of aligning with the strongest sales representatives in the industry," Bassoul said, "which now carry our complete portfolio of leading brands and expanding pipeline of new product innovations." The CEO also specifically called out Viking as generating positive momentum that's likely to continue into 2019, including a new lineup of products that Middleby is spearheading under the brand.
More generally, the acquisition of Taylor is a milestone event for Middleby. Customers have praised the food service specialist for its purchase of Taylor, and the company thinks that synergies from the merger along with a broadening of scope into areas like frozen desserts, beverages, and grilling will produce further growth. Taylor will also give Middleby access to technology that it hopes to use in other parts of its business, adding to efficiencies throughout Middleby's key segments.
Middleby investors were quite happy about the news, and the stock soared 14% on Wednesday after the morning announcement. With even longtime underperformers like Viking starting to pull their weight for the entire company, Middleby looks to be getting its affairs in order and is poised to take better advantage of its growth opportunities in the near future.
