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Middleby (MIDD) Q3 Earnings & Sales Miss Estimates, Up Y/Y

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The Middleby Corporation (MIDD - Free Report) reported weaker-than-expected results in the third quarter of 2021. Its earnings and sales missed estimates by 7.7% and 2.4%, respectively.

The company’s adjusted earnings in the reported quarter were $1.92 per share, lagging the Zacks Consensus Estimate of $2.08. However, the bottom line improved from the year-ago figure of $1.34 on the back of sales and operating margin improvement.

Revenue Picture

In the third quarter, Middleby’s sales were $817.5 million, reflecting year-over-year growth of 28.8%. The company’s top line missed the Zacks Consensus Estimate of $838 million.

Organic revenues in the reported quarter increased 22.4% year over year on the back of improving market conditions and strengthening consumer demand. Acquired assets boosted sales by 5.1% and movements in foreign currencies had a positive impact of 1.3%.

Backlog was at $1.2 billion at the end of the third quarter of 2021, up from $994.2 million at the end of the previous quarter.

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 62.6% of the reported quarter’s net sales) were $511.5 million, up 37.8% year over year. Organic sales in the reported quarter increased 31.9%. Buyouts and movements in foreign currencies had positive impacts of 4.9% and 1%, respectively.

Sales from the Residential Kitchen Equipment Group (representing 23.7% of the reported quarter’s net sales) totaled $193.4 million, up 26.7% year over year. Organic sales in the quarter under review increased 14.2%. Buyouts and movements in foreign currencies had positive impacts of 9.9% and 2.6%, respectively.

Sales from the Food Processing Equipment Group (representing 13.7% of the reported quarter’s net sales) summed $112.7 million, increasing 1.8% year over year. Organic sales in the quarter grew 1.4% whereas movements in foreign currencies had a positive impact of 0.5%.

The Middleby Corporation Price, Consensus and EPS Surprise

The Middleby Corporation Price, Consensus and EPS Surprise

The Middleby Corporation price-consensus-eps-surprise-chart | The Middleby Corporation Quote

Margin Profile

In the quarter under review, Middleby’s cost of sales increased 25.8% year over year to $517.9 million. It represented 63.4% of sales compared with the year-ago quarter’s 64.9%. Gross profit expanded 34.5% to $299.6 million. Gross margin increased 150 basis points (bps) to 36.6%.

Selling, general and administrative expenses increased 36.2% year over year to $175.4 million. It represented 21.5% of sales in the reported quarter. Operating income in the third quarter increased to $233.5 million from the year-ago figure of $86.7 million. Operating margin expanded 1,490 bps to 28.6%.

Net interest expenses and deferred financing amortization totaled $13.2 million, down 28.2% from the year-ago quarter’s $18.4 million.

Balance Sheet and Cash Flow

Exiting the third quarter, Middleby had cash and cash equivalents of $251.5 million, down 36.4% from the $395.6 million witnessed at the end of the last reported quarter. Long-term debt increased 3.9% sequentially to $1,866 million.

In the first nine months of 2021, the company generated net cash of $346 million from operating activities, reflecting growth of 9.4% from the year-ago period. Capital expenditure totaled $23.7 million compared with t $20.4 million recorded in the first nine months of 2020. Free cash flow increased 9% year over year to $322.4 million.

Outlook

In the quarters ahead, Middleby anticipates benefiting from demand improvements and technological enhancement initiatives. Dealing with high costs and challenges in the supply chain remains a priority.

For the Commercial Foodservice Equipment Group, the company expects to benefit from strengthening demand for its products and solutions.

For the Residential Kitchen Equipment Group, healthy orders, driven by healthy home build rates coupled up with product innovations are likely to be beneficial.

For the Food Processing Equipment Group, solid product offerings and investments in automation will likely aid the performance. Demand in markets, including pet food, dried meats, bacon and alternative proteins, will aid.

Zacks Rank & Stocks to Consider

The company currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the Zacks Industrial Products sector are A. O. Smith Corporation (AOS - Free Report) , Parker-Hannifin Corporation (PH - Free Report) , and Applied Industrial Technologies (AIT - Free Report) . While A. O. Smith currently sports a Zacks Rank #1 (Strong Buy), Parker-Hannifin and Applied Industrial carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

A. O. Smith delivered an earnings surprise of 16.82%, on average, in the trailing four quarters.

Parker-Hannifin delivered an earnings surprise of 14.15%, on average, in the trailing four quarters.

Applied Industrial delivered an earnings surprise of 26.71%, on average, in the trailing four quarters.