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Middleby Corp. Message Board

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  • Eggplant101 Eggplant101 May 8, 2008 11:50 AM Flag

    conference call

    Did he just say that 50% of March quarter earnings came from acquisitions since 1 year ago? Am I getting that right? If I have heard this correctly, then there is cause for worry . . .

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    • I just listened to the call. Yes, I believe the CFO did say that. However, although on the surface it seems a cause for concern, MIDD correctly foresaw the weakness coming in US markets and placed their bets on foreign acquisitions. It was a very unusual call and I have to admit that Selim sounded a bit emotional and testy. I don't blame him really for his irritation about the "guidance game". This is a silly "gotcha" game that analysts like to play with companies. The most important things I got out of the conference were:

      1. Yes, 20% EPS growth is more reasonable going forward than 25%. (Probably negative).
      2. Unlike its competitors, MIDD acts more like a "consultant" working with its customers to solve operational problems instead of "pushing product" (whether they need it or not). This is classic "relationship building" and studies over the years have proven this is generally more effective at growing sales than other more conventional methods. (Positive)
      3. It's still unclear how much of potential new orders will be delayed vs cancelled. Saleem was very clear that the US market is under stress and that his customers are facing major uncertainty. The issue will be is this temporary and if so, how long will it last. (Neutral)
      4. Selim correctly pointed out that there has not been a decline in restaurant sales in over 25 years. That doesn't mean however we can't have one. Again, I have to believe that MIDD is better positioned to weather this downturn than its competitors. (Positive)
      5. Debt levels are becoming a bit of concern to me. However, CFO said that margins at companies acquired will be raised from 5% currently to 15% by the end of 2009. (Positive)
      6. Regarding energy consewrvation (a major concern for customers) Selim pointed out that MIDD began energy conservation testing on its equipment as far back as 2000 and is well ahead of its competition in that regard. High commodity costs (cheese, corn, beef, etc) are taking a heavy toll on MIDD customers and they are doing everything they can to identify better efficiencies in food processing systems. (Positive).

      I have never heard Selim this irritable. However, it became clear to me over the course of the call that he is extremely committed to making this work. He is very passionate about the excellence of the company and I do believe he has the skills to guide MIDD through these tough times. At the end of the call he wanted us all to focus on where MIDD will be in 3 years, not next quarter. I know this is difficult for many traders who can't look beyond next month when evaluating stocks. Patience is the key here.

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