Cue music and chorus: "You can get anything you want, at Alice's Restaurant ..."
Hey, Fools! Remember Middleby's (NASDAQ:MIDD) earnings report? Up until a few minutes ago, this was supposed to be a song, er, column, about Middleby's earnings report from last week -- but I've been overtaken by events.
Very quickly then:
- Middleby posted year-over-year sales growth of 53% in the second quarter, showing the effects of five acquisitions completed over the past year.
- Operating margins held firm at 18.7%, which compares favorably to operating margins in the food service segments of more diversified competitors in the restaurant equipment space, such as Illinois Tool Works (NYSE:ITW), Manitowoc (NYSE:MTW), and United Tech (NYSE:UTX).
- Yet higher income taxes and interest payments, combined with a rising share count, held back earnings-per-share growth to 32% ($0.99 per share).
- The stock promptly proceeded to rise, cresting up 16% through Monday's close.
And just as promptly fell 7% this morning
Why? That's the news of the hour. You know those competitors I mentioned above? Well, I left one off the list ... because Middleby is buying it. Yes, Fools, the long-dreamed-of anschluss of TurboChef (NASDAQ:OVEN) is finally under way. Middleby announced this morning that it will buy the quick-fire oven maker for $200 million, absorbing its customer list headlined by names like Starbucks (NASDAQ:SBUX) and Subway, and its $114 million in annual revenues.
As usual in such deals, Wall Street is miffed, and Middleby shares are tumbling. The "why" for that should be obvious: Middleby's paying 1.8 times sales to acquire an unprofitable company that's burning cash (the opposite of Middleby's business model).
Foolish takeaway
But here's the thing: Middleby has a history of succeeding at such deals. An expert in turning ovens into red-hot profits, it likes to buy companies that are, well, a bit less expert in the process. Then it improves the business, and reaps the benefit. I expect the TurboChef acquisition to work out similarly well.
Meanwhile, Fools who were perhaps just a little too slow to buy Middleby before its earnings report have caught themselves a break. With the shares now slipping, you get another bite at the oven.
Just how hot is Middleby? Read on and find out:
