Please ensure Javascript is enabled for purposes of website accessibility

Middleby Cooks Up Another Great Quarter

By Dan Caplinger - May 12, 2016 at 7:10AM

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

Acquisition-led revenue growth led to a big boost in net income.


Image source: Middleby.

Whether you eat out or cook at home, you rely on a well-stocked kitchen for the preparation of the food you eat. Middleby (MIDD -0.78%) has historically focused on the commercial foodservice industry as its primary target audience for its kitchen equipment, but more recently, the company has taken a much bigger step into the residential market as well. Coming into Wednesday's first-quarter financial report, Middleby investors had high expectations that the company's sales would rise from recent acquisitions, but they weren't sure about how much it would be able to sustain its earnings growth. Its results were reassuring on all fronts. Let's look more closely at the latest from Middleby and whether investors can expect even better performance in the future.

Middleby serves up strong growth

Middleby's first-quarter results showed that the kitchen equipment company continues to move forward on a solid path. Revenue jumped 27% to $516.4 million, which was just a small amount higher than what investors had expected to see. Net income grew at an even more impressive 43% rate, finishing at $54.5 million and producing earnings of $0.96 per share. That figure was $0.12 higher than the consensus forecast among those following the stock.

Looking more closely at the results, Middleby once again relied largely on acquisitions to provide the bulk of its revenue growth. The company said that recent purchases added $106.6 million to its top line. Without that impact, sales gains were minimal at less than 1%. Even after adding back $6.4 million in negative impact from the strong U.S. dollar on Middleby's international sales, the equipment maker's organic growth amounted to 2.3% during the quarter.

When you look at Middleby's three main segments, you can see an important difference between the commercial and residential sides of the business. The commercial foodservice equipment unit enjoyed a 6% rise in sales, with three small acquisitions having a positive impact of less than a full percentage point on its results. The food processing equipment group grew its top line at a faster 13% rate, but the Thurne acquisition had a larger impact, and organic sales increases were around 5%.

Yet in the residential kitchen equipment division, conditions were tougher. Major acquisitions of AGA and Lynx helped sales more than double from year-ago levels for the unit. But when you take out those buyouts, organic revenue plunged almost 20%. The company said that declining sales for the U-Line unit and negative fallout from legacy product recalls at Viking hurt the division's overall performance.

CEO Selim Bassoul celebrated the good news and accepted the need for improvement in some areas. "We realized solid sales growth at the Commercial Foodservice Equipment Group," Bassoul said, and "we realized strong incoming order rates at the Food Processing Equipment Group as we see continued demand for our innovative equipment solutions." The CEO admitted ongoing challenges with respect to the Viking recall, which affected products made by previous owners of the business, but overall, the company is optimistic.

Can Middleby keep cooking?

Middleby's focus looking ahead will be on squeezing the most from each of its business units. Redesigns at Viking should lessen any lingering quality-control concerns that consumers might have about recalled products. In Bassoul's words, "Despite this continuing impact, we remain confident about the prospects of the new introductions and anticipate this will support future sales growth."

At the same time, the acquisition of AGA Rangemaster will keep presenting opportunities for further gains. Profit improvement initiatives are aimed at allowing Middleby to achieve overall cost savings targets, and the company expects AGA to hit double-digit percentage levels for EBITDA margin by the second half of 2016.

Long-term investors in Middleby should be pleased with the kitchen equipment manufacturer's progress toward becoming a more diversified company. With efforts rising to tap the huge consumer market while also making sure it continues to serve its commercial base, Middleby has a lot of room to grow.

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
$124.41 (-0.78%) $0.98

*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
317%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/30/2022.

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.