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Middbely (MIDD) Grows on Acquisitions Amid Margin Pressure
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On Nov 12, we updated a research report on machinery behemoth The Middleby Corporation (MIDD - Free Report) . The company is gaining from strategic acquisitions and the ASC 606 adoption. However, restructuring expenses, lower profits secured from acquired businesses and a weakening AGA business remain causes of concern.
Let’s dig deeper into the fundamental factors influencing the stock.
Gaining From Business Buyouts
Middleby’s revenues improved 11.3% in the first nine months of 2018. The company noted that solid sales secured from acquisitions have been primarily boosting its top-line results, of late. In this context, strategic buyouts of QualServ, L2F, Globe, Josper, Firex, Taylor, Scanico, Hinds-Bock and Ve.Ma.C are worth mentioning. Notably, Middlely expects that the Taylor acquisition (closed this June) will significantly improve its business opportunities in the frozen desert and beverage categories. Moreover, the M-TEK Corporation buyout (closed this October) is expected to strengthen the company’s business footprint in the global industrial food-processing market.
In addition to the newly-made business buyouts, Accounting Standards Codification (ASC) 606 adoption, sales representative consolidation moves, as well as innovation investments are expected to drive the company’s revenues in the quarters ahead. Notably, per our estimates, the company’s year-over-year sales growth rate is currently pegged at 17.2% and 9.6% for 2018 and 2019, respectively.
Over the past year, this Zacks Rank #3 (Hold) stock has rallied 7.9%, as against the 0.4% loss recorded by the industry.
Middleby believes improving sales performance will bolster its bottom-line performances in the quarters ahead. Further, reduction of the Federal tax rate from 35% to 21% last December will likely support the upside.
Existing Troubles
A weakening margin has become a major cause of worry for Middleby.
The above graph shows that the company’s gross margin has shrunk significantly over the past year. The company noted that reduced margins secured from acquired businesses are mainly resulting in the downside. In addition, an aggregate acquisition stance is aggravating the company’s debt burden and escalating its interest cost. Middleby noted that rising interest expenses, as well as costs associated with the company’s restructuring moves are depressing its operating margins. We fear that weaker margins may weigh over Middleby’s earnings performances in the quarters ahead.
Additionally, the prevailing AGA Rangemaster business challenges (on account of unfavorable U.K. business conditions), soft Commercial Foodservice Equipment’s business in the international end-markets and absence of big project wins within the Food Processing Equipment business may dampen Middleby’s revenues in the near future. We also notice that a stronger U.S. dollar is currently affecting the company’s overseas revenues. Notably, unfavorable foreign currently translation impact impacted Middleby’s third-quarter revenues by nearly $5.2 million.
Also, over the past year, on an EV/EBITDA (TTM) basis, Middleby looks overvalued compared to the industry with the respective tally of 16.4x and 11.0x. Notably, the stock is currently trading slightly higher than the median EV/EBITDA (TTM) multiple for the same time frame.
DXP Enterprises, Inc. (DXPE - Free Report) also carries a Zacks Rank of 1. The company generated an average positive earnings surprise of 112.62% in the trailing four quarters.
Currently, Applied Industrial Technologies, Inc. (AIT - Free Report) holds a Zacks Rank #2 (Buy). The company came up with an average positive earnings surprise of 11.67% during the same time frame.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Image: Bigstock
Middbely (MIDD) Grows on Acquisitions Amid Margin Pressure
On Nov 12, we updated a research report on machinery behemoth The Middleby Corporation (MIDD - Free Report) . The company is gaining from strategic acquisitions and the ASC 606 adoption. However, restructuring expenses, lower profits secured from acquired businesses and a weakening AGA business remain causes of concern.
Let’s dig deeper into the fundamental factors influencing the stock.
Gaining From Business Buyouts
Middleby’s revenues improved 11.3% in the first nine months of 2018. The company noted that solid sales secured from acquisitions have been primarily boosting its top-line results, of late. In this context, strategic buyouts of QualServ, L2F, Globe, Josper, Firex, Taylor, Scanico, Hinds-Bock and Ve.Ma.C are worth mentioning. Notably, Middlely expects that the Taylor acquisition (closed this June) will significantly improve its business opportunities in the frozen desert and beverage categories. Moreover, the M-TEK Corporation buyout (closed this October) is expected to strengthen the company’s business footprint in the global industrial food-processing market.
In addition to the newly-made business buyouts, Accounting Standards Codification (ASC) 606 adoption, sales representative consolidation moves, as well as innovation investments are expected to drive the company’s revenues in the quarters ahead. Notably, per our estimates, the company’s year-over-year sales growth rate is currently pegged at 17.2% and 9.6% for 2018 and 2019, respectively.
Over the past year, this Zacks Rank #3 (Hold) stock has rallied 7.9%, as against the 0.4% loss recorded by the industry.
Middleby believes improving sales performance will bolster its bottom-line performances in the quarters ahead. Further, reduction of the Federal tax rate from 35% to 21% last December will likely support the upside.
Existing Troubles
A weakening margin has become a major cause of worry for Middleby.
The above graph shows that the company’s gross margin has shrunk significantly over the past year. The company noted that reduced margins secured from acquired businesses are mainly resulting in the downside. In addition, an aggregate acquisition stance is aggravating the company’s debt burden and escalating its interest cost. Middleby noted that rising interest expenses, as well as costs associated with the company’s restructuring moves are depressing its operating margins. We fear that weaker margins may weigh over Middleby’s earnings performances in the quarters ahead.
Additionally, the prevailing AGA Rangemaster business challenges (on account of unfavorable U.K. business conditions), soft Commercial Foodservice Equipment’s business in the international end-markets and absence of big project wins within the Food Processing Equipment business may dampen Middleby’s revenues in the near future. We also notice that a stronger U.S. dollar is currently affecting the company’s overseas revenues. Notably, unfavorable foreign currently translation impact impacted Middleby’s third-quarter revenues by nearly $5.2 million.
Also, over the past year, on an EV/EBITDA (TTM) basis, Middleby looks overvalued compared to the industry with the respective tally of 16.4x and 11.0x. Notably, the stock is currently trading slightly higher than the median EV/EBITDA (TTM) multiple for the same time frame.
Stocks to Consider
Some better-ranked stocks in the Zacks Industrial Products sector are listed below:
Atkore International Group Inc. (ATKR - Free Report) sports a Zacks Rank #1 (Strong Buy), at present. The company generated an average positive earnings surprise of 24.46% in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.
DXP Enterprises, Inc. (DXPE - Free Report) also carries a Zacks Rank of 1. The company generated an average positive earnings surprise of 112.62% in the trailing four quarters.
Currently, Applied Industrial Technologies, Inc. (AIT - Free Report) holds a Zacks Rank #2 (Buy). The company came up with an average positive earnings surprise of 11.67% during the same time frame.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>