It's a cliche to say "It doesn't get much better than this," so I'll apologize for that in advance.
But after reviewing the third-quarter earnings report issued by Motley Fool Hidden Gems recommendation Middleby (NASDAQ:MIDD) Monday evening, I can't help but conclude that invoking the cliche is both accurate and appropriate. Middleby stuck analyst estimates in the oven and set it to self-clean, outperforming the consensus estimate of $0.98 in profits per diluted share by a whopping 21%. Middleby also toasted the high range of estimates, beating it by 14%. And to complete the burn cycle, Middleby turned up the gas on sales, outperforming analyst predictions of $78.9 million by 2.5%.
Because the oven manufacturer didn't publish a cash flow statement with its earnings release and has not yet filed its Form 10-Q with the SEC, we cannot yet say how well it did in generating actual cash to back up those accounting profits. But early indications are good. In preparing my "wish list" on the day before the earnings release, I summarized what Foolish investors hoped to see out of Middleby, highlighting three points:
- Working down the heavy debt load that Middleby took on last year as part of a savvy move to reduce its share count by 20%, and doing so at a bargain price;
- Improving the supply chain by drawing down inventory; and
- Improving collections by reducing accounts receivable (A/R) numbers.
Here, we've got a two-out-of-three-ain't-bad situation. Middleby paid back $17.2 million of its debt over the last three months, reducing its total debt load to $104.1 million and long-term debt in particular to $91.7 million. The company took its inventory strongly in hand, dropping it 9% from the second quarter. Although inventory rose 3% year over year, that's a far slower rate of increase than the company's 14% year-over-year increase in sales.
Really, the only caveat to Middleby's otherwise flawless results is found on the company's accounts receivable line. A/R rose 21% year over year, outpacing the 14.6% sales growth. And sales declined 4% against the second quarter, yet A/R rose 6%.
We'll therefore want to keep this line item yellow-flagged in coming quarters. But in light of the company's otherwise outstanding results, on pretty much any item you could name, the A/R issue remains a small quibble. We've checked this oven, and it's burning just fine.
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Fool contributor Rich Smith does not own shares of Middleby.
