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Middleby (MIDD) Displays Bright Prospects, Headwinds Remain

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The Middleby Corporation (MIDD - Free Report) is poised to benefit from strong order growth across all of its segments and sales initiatives in the quarters ahead. In the second quarter of 2021, the company generated sales of $808.8 million, reflecting year-over-year growth of 71.4%, driven by improvement in the demand environment. Also, exiting the second quarter, its backlog level was a solid $994.2 million. Its investment in proprietary antimicrobial technology, along with the launch of Middleby Innovation Kitchens and Evo VentCore, is also a positive.

The company’s acquisition of Imperial Commercial Cooking Equipment (September 2021) is expected to strengthen its product offerings in the commercial kitchen end market. Also, its Novy buyout (July 2021) is likely to boost its product offerings in the residential built-in cooking market. The company’s Wild Goose Filling and United Foodservice Equipment Group buyouts (both in December 2020) have been enhancing its growth opportunities in the canned beverages and foodservice equipment markets, respectively. Acquired assets had a positive contribution of 1.8% and 2.2% to the company’s sales in the first and second quarters of 2021, respectively.

Middleby’s robust liquidity position adds to its strength. In the second quarter, the company’s cash flow from operations was $112.7 million, even with an increase in its working capital of about $33 million. It had healthy cash and cash equivalents of $395.6 million, reflecting a sequential increase of 27.9%. The company’s borrowing capacity was about $2.1 billion at the end of the second quarter.

However, the company has been experiencing escalating costs and expenses along with supply chain issues, which if not controlled might affect its margins and profitability in the quarters ahead. In the second quarter, its cost of goods sold and selling, general & administrative costs recorded an increase of 58.4% and 48.2%, respectively.

Also, softness in the restaurant industry, on account of the lingering impacts of the pandemic, might continue to have a bearing on Middleby’s performance in the near term. It faces stiff competition from several of its peers in the industry like Groen, a subsidiary of Dover Corporation (DOV - Free Report) , Hobart Corporation and Vulcan-Hart, subsidiaries of Illinois Tool Works Inc. (ITW - Free Report) , and Welbilt, Inc. (WBT - Free Report) .