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Middleby (MIDD) Q3 Earnings Surpass Estimates, Sales Lag

Zacks Equity Research

The Middleby Corporation MIDD reported better-than-expected results for the third quarter of 2019, with earnings surpassing estimates by 5.52%. This came in after the company recorded weak results — with a negative earnings surprise of 3.95% — in the second quarter of 2019. However, sales in the third quarter lagged estimates by 5.02%.

The company’s adjusted earnings in the reported quarter were $1.72 per share, surpassing the Zacks Consensus Estimate of $1.63. Also, the bottom line rose 4.2% from the year-ago quarter figure of $1.65 on benefits from acquired assets and growth in margins.

Revenue Picture

In the quarter under review, Middleby’s sales were $724 million, reflecting year-over-year growth of 1.5%. Organic revenues in the quarter declined 2.9% year over year. Acquired assets grew sales by 5.8% while unfavorable movements in foreign currencies had a negative impact of 1.1%. Closure of non-core business had a negative 0.3% impact.

However, its net sales lagged the Zacks Consensus Estimate of $762 million.

The company reports net sales under three segments. A brief discussion of those segments is provided below:

Sales from Commercial Foodservice Equipment Group (representing 69.2% of the reported quarter’s net sales) were $501 million, increasing 6.2% year over year. Sales, excluding the impact of forex woes and buyouts, grew 0.5% in the quarter.

Sales from Residential Kitchen Equipment Group (representing 18.5% of the reported quarter’s net sales) totaled $133.9 million, decreasing 12.8% year over year. Sales (excluding the impact of forex woes and buyouts) in the quarter declined 9.6%.

Sales from Food Processing Equipment Group (representing 12.3% of the reported quarter’s net sales) were $89.1 million, increasing 1% year over year. Excluding the impact of forex woes and buyouts, sales decreased 9.7% year over year.

Margins in Detail

In the quarter under review, Middleby’s cost of sales rose 0.4% year over year to $454 million. It represented 62.7% of sales compared with 63.4% in the year-ago quarter. Gross profit grew 3.4% year over year to $270 million. Gross margin rose 70 basis points (bps) to 37.3%.

Selling, general and administrative expenses increased 2.2% year over year to $144.5 million. It represented 20% of sales in the reported quarter. Operating income in the quarter under review improved 12.7% year over year to $121.3 million. Operating margin rose 170 bps year over year to 16.8%.

Net interest expenses and deferred financing amortization totaled $20.8 million, up from $19.1 million in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the third quarter, Middleby had cash and cash equivalents of $87.2 million, up 6.7% from $81.7 million at the end of the last reported quarter. Long-term debt decreased 1.8% sequentially to $1,955.9 million.

In the quarter, the company generated net cash of $128.2 million from operating activities, increasing 21.6% from $105.4 million generated in the year-ago quarter.

Outlook

In the quarters ahead, Middleby anticipates gaining from the focus on product innovation, improving selling techniques, solid offerings to customers and growth markets. Also, various profitability actions will be beneficial.

For Commercial Foodservice Equipment Group, the company expects expansion in international businesses, technologically-advanced products and solutions, effective marketing initiatives, and the increasing adoption of ventless cooking equipment to be beneficial. Also, acquired assets will be boon. However, Brexit-related issues and weak spending by restaurant chains might play spoilsport.

For Residential Kitchen Equipment Group, Middleby anticipates gaining from Viking products as well as focus on product introductions and residential showrooms.

For Food Processing Equipment Group, innovation investment and product launches will likely aid its performance, while issues related to the meat processing line of operations might be concerning.

The Middleby Corporation Price, Consensus and EPS Surprise

 

The Middleby Corporation Price, Consensus and EPS Surprise

The Middleby Corporation price-consensus-eps-surprise-chart | The Middleby Corporation Quote

Zacks Rank & Stocks to Consider

With a market capitalization of approximately $6.9 billion, Middleby currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the industry are Tennant Company TNC, Dover Corporation DOV and Brady Corporation BRC. While Tennant currently sports a Zacks Rank #1 (Strong Buy), Dover and Brady carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for these companies improved for the current year. Further, positive earnings surprises for the last reported quarter were 40% for Tennant, 4.58% for Dover and 11.48% for Brady.

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