How Much Hotter Can Middleby's Growth Get?

Middleby CEO Selim Bassoul stands on top of his world. Source: Middleby.

Some of the best-performing stocks hide in plain sight, with business models that are simple and boring yet have great potential for growth and profit. One great example of this phenomenon is Middleby (MIDD 0.54%), which is the company behind the commercial ovens that you'll find at a wide variety of restaurants across the globe. Focusing on the global restaurant industry has been a huge growth driver for Middleby, but the company's foray into the consumer side of the business and expansion to offer refrigeration appliances as well as ovens has even greater potential to boost Middleby's size and future prospects. As investors prepare for the company's fourth-quarter financial report, some wonder if Middleby can keep growing at its impressive past rate. Let's take an early look at what Middleby is likely to tell investors this quarter and what's ahead for the company in the coming year.

Stats on Middleby

Source: Yahoo! Finance.

Will Middleby earnings heat up or cool down?
In recent months, investors have held firm on their expectations about Middleby earnings, making no changes to their short-term or long-term views on the company's fundamentals. The stock, though, has continued its ascent, rising 16% since mid-November.

Source: Middleby.

Middleby's third-quarter report back in November certainly inspired shareholder confidence in the company. Middleby saw sales climb 12% to $404.3 million, with much stronger earnings growth of 46% stemming from improved margins and streamlined operations. By reaping the benefits of integrating synergy-creating initiatives from the businesses it has acquired, Middleby continues to boost its bottom line. Moreover, the company saw healthy growth in all of its segments, with Commercial Foodservice remaining the key driver but Food Processing and Residential also adding to overall sales gains.

Source: Middleby.

Yet Middleby has much more ambitious growth plans in store for the long run. CEO Selim Bassoul has made his "Kitchen of the Future" a key mission for the company, and currently, 25 restaurant chains are testing out the concept. Middleby's purchase of Viking more than two years ago gave the company an entry into the residential appliances market, but it also offered a chance for Middleby to focus more on refrigeration and cooling equipment, adding a vital component to its product line. More recently, Middleby's buyout of Desmon Food Service Equipment expanded its reach in the commercial freezer and chilling market, while also offering further residential-market exposure as well.

Most recently, Middleby announced that it intends to add high-speed slicing equipment to its product mix, with the purchase of the slicing business unit from U.K.-based Marel. By adding the company's Thurne brand to its Food Processing segment, Middleby hopes to flesh out what Bassoul called "complete total line solutions that we offer to the food processing industries."

The key question for Middleby is whether favorable trends in the restaurant industry will continue. Bassoul has a strong belief that commercial restaurant operations will become increasingly automated, giving the Kitchen of the Future concept a huge competitive advantage. Yet the restaurant industry has been at the epicenter of recent activism among low-income workers about fair pay, and as a result, restaurants might have a tough time taking actions that would replace those workers with machines no matter how economically efficient it might be to do so.

CEO Selim Bassoul speaks with The Motley Fool's Tom Gardner.

Moreover, Bassoul has established himself as the mastermind behind Middleby's business. Especially with the company moving toward the refrigeration side of the industry, Bassoul's guidance will be crucial in finding the right direction forward. As long as he remains with the company, his vision will provide huge upward momentum, but any threat of a departure could send the stock plunging as investors would then worry about Middleby's strategy for the future.

In the Middleby report, you can expect to hear a lot about individual initiatives, but be sure to remember to put them into the bigger-picture context of the food-equipment company's long-term strategy. If Middleby can keep tapping into the rising middle class worldwide by penetrating high-growth areas like emerging markets, then it stands a good chance to keep growing at its current pace well into the future.