On Mar 6, Zacks Investment Research downgraded The Middleby Corporation (MIDD - Analyst Report) to a Zacks Rank #2 (Buy) due to the high costs associated with acquisitions.
Why the Downgrade?
Middleby recently reported strong results for the fourth quarter of 2013, beating the Zacks Consensus Estimate for earnings as well as revenues. Earnings in the quarter came in at $2.62 per share, up 29% year over year, whereas, revenues increased 29% year over year to $377.4 million. The revenue growth was primarily led by contribution from the company’s acquisitions.
Middleby has been growing on acquisitions for quite some time. In the last reported quarter, the company acquired Automatic Bar Controls, Wunder-Bar and Celfrost. Subsequent to quarter-end, the company acquired Market Forge Industries. These acquisitions are expected to contribute significantly to the company’s results in the upcoming quarters. However, the company has been experiencing a rise in costs related to the acquisitions. In the fourth quarter, Middleby recorded a respective increase of $11.0 million and $7.0 million in selling and distribution and general and administrative expenses, related to the acquisitions. This hampered the company’s margins.
Additionally, the company’s organic growth has been noteworthy in the past quarter. In the fourth quarter, excluding the acquisitions, sales increased 8.6% year over year.
Following the results, the Zacks Consensus Estimate for earnings per share increased 3.5% to $10.17 for 2014 while the same for 2015 increased 16.1% to $11.95 over the past 30 days, reflecting year-over-year growth of 23.8% and 17.5%, respectively.
With the advent of latest technologies, Middleby predicts a healthy market share gain in the near future leveraging its goodwill. The company offers a wide range of products to its target markets and is constantly innovating to thwart competition.
Based in Elgin, Ill., Middleby provides cooking, warming, food preparation and packaging equipment to the commercial, industrial processing and residential markets.
Other Stocks to Consider
Middleby currently has a market capitalization of $5.5 billion. Other stocks worth a watch in the industry include DXP Enterprises, Inc. (DXPE - Snapshot Report) , Kadant Inc. (KAI - Snapshot Report) and Graco Inc. (GGG - Snapshot Report) . While DXP Enterprises and Kadant hold a Zacks Rank #1 (Strong Buy), Graco carries a Zacks Rank #2.