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Middleby (MIDD) Q3 Earnings & Sales Beat Estimates, Fall Y/Y

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The Middleby Corporation (MIDD - Free Report) reported better-than-expected results for third-quarter 2020, with earnings surpassing estimates by 31.4%. This is the company’s fifth consecutive quarter of impressive results. Also, sales in the third quarter outpaced estimates by 6.3%.

The company’s adjusted earnings in the reported quarter came in at $1.34 per share, beating the Zacks Consensus Estimate of $1.02. However, the bottom line decreased 22.1% from the year-ago quarter figure of $1.72 on weak sales generation and lower margins.

Revenue Picture

In the third quarter, Middleby’s sales were $634.5 million, reflecting a year-over-year decline of 12.4%. Organic revenues in the quarter slid 14.1% year over year mainly on the coronavirus mayhem. Acquired assets boosted sales by 1.1% and movements in foreign currencies had a positive impact of 0.6%.

However, net sales exceeded the Zacks Consensus Estimate of $596.8 million.

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

Sales from the Commercial Foodservice Equipment Group (representing 58.5% of the reported quarter’s net sales) were $371.2 million, down 25.9% year over year. Organic sales in the quarter decreased 27.4% on market-related challenges and the pandemic’s impact. Buyouts and movements in foreign currencies had a positive impact of 1.2% and 0.3%, respectively.

Sales from the Residential Kitchen Equipment Group (representing 24.1% of the reported quarter’s net sales) totaled $152.7 million, up 14% year over year. Organic sales in the quarter increased 11.4%, while buyouts and movements in foreign currencies positively impacted results by 1% and 1.7%, respectively. Business for premium appliance brands was healthy in the quarter.

Sales from the Food Processing Equipment Group (representing 17.4% of the reported quarter’s net sales) summed $110.7 million, increasing 24.1% year over year. Organic sales in the quarter grew 22.4% while buyouts and movements in foreign currencies had a positive impact of 0.9% and 0.8%, respectively.

Margin Profile

In the September-end quarter, Middleby’s cost of sales dropped 9.3% year over year to $411.8 million. It represented 64.9% of sales compared with the year-ago quarter’s 62.7%. Gross profit fell 17.5% year over year to $222.7 million. Gross margin shrunk 220 basis points (bps) to 35.1%.

Selling, general and administrative expenses fell 10.8% year over year to $128.8 million. It represented 20.3% of sales in the reported quarter. Operating income in the July-September quarter decreased 28.6% year over year to $86.7 million. Operating margin fell 310 percentage points year over year to 13.7%.

Net interest expenses and deferred financing amortization totaled $18.4 million, down from the year-ago quarter’s $20.9 million.

Balance Sheet and Cash Flow

Exiting the third quarter, Middleby had cash and cash equivalents of $220.3 million, down 66.1% from the $649.7 million witnessed at the end of the last reported quarter. Long-term debt decreased 23.8% sequentially to $1,809 million.

In the reported quarter, the company generated net cash of $151.4 million from operating activities, reflecting growth of 18.2% from the year-ago quarter. Capital expenditure totaled $7.1 million versus the $12.2 million recorded in third-quarter 2019. Free cash flow increased 24.5% year over year to $144.4 million.

Outlook

In the quarters ahead, Middleby anticipates to benefit from its investments in sales and technological-enhancement initiatives.

For the Commercial Foodservice Equipment Group, the company expects to benefit from increased preferences for beverage systems, ventless products and automated cooking systems. Also, revival in restaurant businesses is a healthy sign.

For the Residential Kitchen Equipment Group, healthy orders driven by revival in new construction, healthy home sales trend and product innovations have been proving beneficial. Also, digital marketing actions, sales initiatives and investments in showrooms will open up opportunities.

For the Food Processing Equipment Group, innovation investment and healthy backlog will likely aid its performance. However, disruptions caused by the pandemic-induced travel restrictions might hurt near-term orders.

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Zacks Rank & Stocks to Consider

With a market capitalization of $5.7 billion, Middleby currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the industry are Altra Industrial Motion Corp. (AIMC - Free Report) , EnPro Industries, Inc. (NPO - Free Report) and Kadant Inc. (KAI - Free Report) . All the stocks presently sport a Zacks Rank #1 (Strong 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 have improved for the current year. Further, the earnings surprise for the last reported quarter was 77.55% for Altra Industrial, 109.38% for EnPro and 32.32% for Kadant.

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