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Middleby (MIDD) Down 0.9% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Middleby (MIDD - Free Report) . Shares have lost about 0.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Middleby due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Middleby Q4 Earnings & Revenues Surpass Estimates

Middleby reported better-than-expected fourth-quarter 2021 results. Its earnings and sales beat estimates by 1.9% and 1.6%, respectively.

The company’s adjusted earnings in the reported quarter were $2.11 per share, surpassing the Zacks Consensus Estimate of $2.07. The bottom line increased from the year-ago figure of $1.62 on the back of sales and operating margin improvement.

In 2021, the company’s earnings came in at $7.94, an increase of 60.1% on a year-over-year basis.

Revenue Picture

In the fourth quarter, Middleby’s sales were $866.4 million, reflecting year-over-year growth of 18.8%. The company’s top line beat the Zacks Consensus Estimate of $853 million.

Organic revenues in the reported quarter increased 12.6% year over year on the back of improving market conditions. Acquired assets boosted sales by 6.2%, and movements in foreign currencies had a negative impact of 0.1%.

Backlog was at $1.4 billion at the end of the fourth quarter of 2021, up from $1.2 billion 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 61.3% of the reported quarter’s net sales) were $531.3 million, up 24% year over year. Organic sales in the reported quarter increased 18.4%. Buyouts boosted sales by 5.9%, while movements in foreign currencies had a negative impact of 0.2%.

Sales from the Residential Kitchen Equipment Group (representing 24.2% of the reported quarter’s net sales) totaled $209.5 million, up 16.3% year over year. Organic sales in the quarter under review increased 4.1%. Buyouts and movements in foreign currencies had positive impacts of 11.6% and 0.7%, respectively.

Sales from the Food Processing Equipment Group (representing 14.5% of the reported quarter’s net sales) summed $125.6 million, increasing 4% year over year. Organic sales in the quarter grew 4.7%, whereas movements in foreign currencies had a negative impact of 0.7%.

In 2021, the company’s net sales came in at $3,250.8 million, up 29.3% year over year.

Margin Profile

In the fourth quarter, Middleby’s cost of sales increased 16.4% year over year to $550.8 million. It represented 63.6% of sales compared with the year-ago quarter’s 64.9%. Gross profit expanded 23.3% to $315.6 million. Gross margin increased 130 basis points (bps) to 36.4%.

Selling, general and administrative expenses increased 16.8% year over year to $172 million. It represented 19.9% of sales in the reported quarter. Operating income in the fourth quarter increased to $138.6 million from $93.2 million. Operating margin expanded 320 bps to 16%.

Net interest expenses and deferred financing amortization totaled $13.7 million, down 39.6% from the year-ago quarter’s $22.7 million.

Balance Sheet and Cash Flow

Exiting the fourth quarter, Middleby had cash and cash equivalents of $180.4 million, down 28.3% from $251.5 million witnessed at the end of the last reported quarter. Long-term debt increased 27.9% sequentially to $2,387 million.

In 2021, the company generated net cash of $423.4 million from operating activities, reflecting a decline of 19.3% from 2020. Capital expenditure totaled $40.3 million compared with $20.7 million recorded a year ago. Free cash flow decreased 24% to $383.1 million.

Outlook

In the quarters ahead, Middleby anticipates benefiting from strengthening end markets and strong backlog level. However, challenges in the supply chain, cost inflation and labor issues are likely to play spoilsport.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, Middleby has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Middleby has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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