Cue music and chorus: "You can get anything you want, at Alice's Restaurant ..."
Hey, Fools! Remember Middleby's
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
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).
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:
Fool contributor Rich Smith owns shares of Middleby. He intends to buy more thanks to today's price break, but per The Motley Fool's disclosure policy, will not do so for at least 10 days after publication of this column. Middleby is a Motley Fool Hidden Gems recommendation. Starbucks is an Inside Value selection and a Stock Advisor pick. The Fool owns shares of Starbucks.