The Middleby Corporation (MIDD Quick QuoteMIDD - Free Report) reported better-than-expected results for the second quarter of 2021. Its earnings surpassed estimates by 1.93% and sales beat the same by 0.02%.

The company’s adjusted earnings in the reported quarter were $2.11 per share, beating the Zacks Consensus Estimate of $2.07. Also, the bottom line improved from the year-ago earnings of 55 cents on the back of sales and operating margin improvement.

Revenue Picture

In the second quarter, Middleby’s sales were $808.8 million, reflecting year-over-year growth of 71.4%. Organic revenues in the reported quarter increased 64.8% year over year on the back of improving market conditions and strengthening consumer demand. Acquired assets boosted sales by 2.2% and movements in foreign currencies had a positive impact of 4.4%.

Backlog was at $994.2 million at the end of the second quarter of 2021, up from $522.7 million at the end of 2020.

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 62.9% of the reported quarter’s net sales) were $508.8 million, up 90.2% year over year. Organic sales in the reported quarter increased 80.4%. Buyouts and movements in foreign currencies had positive impacts of 5.8% and 3.9%, respectively.

Sales from the Residential Kitchen Equipment Group (representing 21% of the reported quarter’s net sales) totaled $170 million, up 65.2% year over year. Organic sales in the quarter under review increased 63.1%, while movements in foreign currencies positively impacted results by 7.1%. Divestitures had a negative impact of 5%.

Sales from the Food Processing Equipment Group (representing 16.1% of the reported quarter’s net sales) summed $130 million, increasing 28% year over year. Organic sales in the second quarter grew 25.1%, whereas movements in foreign currencies had a positive impact of 2.9%.

Margin Profile

In the quarter under review, Middleby’s cost of sales increased 58.4% year over year to $505.1 million. It represented 62.5% of sales compared with the year-ago quarter’s 67.6%. Gross profit expanded 98.4% year over year to $303.7 million. Gross margin increased 510 basis points (bps) to 37.6%.

Selling, general and administrative expenses increased 48.2% year over year to $165.7 million. It represented 20.5% of sales in the reported quarter. Operating income in the second quarter increased to $136.7 million in the quarter from the year-ago figure of $39.1 million. Operating margin expanded 860 bps year over year to 16.9%.

Net interest expenses and deferred financing amortization totaled $14.2 million, down 34.6% from the year-ago quarter’s $21.8 million.

Balance Sheet and Cash Flow

Exiting the second quarter, Middleby had cash and cash equivalents of $395.6 million, up 27.9% from the $309.3 million witnessed at the end of the last reported quarter. Long-term debt decreased 0.3% sequentially to $1,795.6 million.

In the first half of 2021, the company generated net cash of $172.4 million from operating activities, reflecting growth of 4.6% from the year-ago period. Capital expenditure totaled $13.4 million versus the $13.3 million recorded in the first half of 2020. Free cash flow increased 5% year over year to $159 million.

Outlook

In the quarters ahead, Middleby anticipates benefitting from demand improvements and technological enhancement initiatives. Dealing with high costs and challenges in the supply chain remain priorities.

For the Commercial Foodservice Equipment Group, the company expects to benefit from increased use of automation in products, ventless technology and IoT for data capturing. Challenges related to the pandemic are concerning.

For the Residential Kitchen Equipment Group, healthy orders, driven by healthy home build rates and remodeling demand. Also, product innovations and the addition of Novy products to the portfolio have been proving beneficial.

For the Food Processing Equipment Group, solid product offerings and a focus on innovation will likely aid the performance. Demand in markets, including pet food, cured meats and alternative proteins, are benefiting.