Shares of food-equipment company Middleby (NASDAQ:MIDD) fell 49.1% in March, according to data provided by S&P Global Market Intelligence. The fall marks a miserable month for food-equipment companies, as well as other businesses with exposure to the foodservice industry.
The chart below shows the decline in Middleby's stock in 2020 alongside two of its food-equipment technology peers, Welbilt and John Bean Technologies. It's been a brutal decline in 2020, and investors don't have to look far to see the reason why.
The big move down happened when it became clear that the COVID-19 outbreak was going international from its birthplace in China to create a pandemic around the globe. As such, the social isolation measures necessary to contain the virus are hitting the restaurant and foodservice industry very hard. And if Middleby's customers -- which include the likes of Papa John's, McDonalds, and Burger King, to name a few -- are suffering, Middleby is, as well.
The disappointment in 2020 follows after a difficult year in 2019, and there are many questions around the medium-term outlook for the company. For example, while the impact of the coronavirus is likely to be heavy in the near term, it's far from clear that customers will be interested to return to foodservice outlets for an extended period of time, even after the COVID-19 pandemic is contained.
Moreover, the longer that consumers are eating at home, the more likely it is that there might be some sort of structural shift for a preference toward eating at home rather than dining out -- the last thing Middleby wants to happen.
These questions are particularly significant for Middleby because it's a company that's been been built on a string of acquisitions. It's a great strategy when its end markets are in growth mode but problematic if they start to decline. Indeed, even though Middelby's reported sales increased 8.7% in 2019, they only increased 0.1% after adjusting for acquisitions, foreign exchange, and business closures. Clearly, Middleby didn't enter 2020 with any great sales momentum, anyway.
As with much of the market, Middleby investors will have to wait and see how long the containment measures will be in place, and then hope that its end markets normalize, with some improvement in its organic growth. Patience is required.