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Middleby's Taylor Buyout to Aid Commercial Foodservice Trade

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The Middleby Corporation (MIDD - Free Report) yesterday announced that it has successfully completed $1-billion buyout of Taylor Company from UTC Climate, Controls & Security — the business division of United Technologies Corporation (UTX - Free Report) . The buyout, originally announced on May 18, will fortify Middleby’s position in the global commercial foodservice industry.

Taylor provides state-of-the-art ice cream and soft-serve dispensing equipment, frozen drink machines, beverage solutions and automated double-sided grills. It generated roughly $315 million revenues and $65 million adjusted earnings before interest, taxes and depreciation in 2017.

Details of Buyout

Middleby financed the all-cash deal with its existing revolving credit facility. It anticipates that Taylor’s addition to its portfolio is likely to strengthen its existing product offerings — including automated cooking solutions — as well as enhance its overall technological expertise.

Furthermore, Middleby anticipates this buyout to yield annual cash tax benefit of $16 million (the net present value of which is $150 million) as well as prove accretive to earnings per share within the first 12 months from the completion of the deal. Moreover, the company targets securing synergies of at least $15 million from the acquisition.

The acquired assets will be integrated with Middleby’s Commercial Foodservice Equipment Group. This segment accounted for roughly 61.5% of the company’s total revenues in first-quarter 2018. Types of equipment in this segment, primarily cooking equipment for restaurants and institutional kitchens, are sold under brands like Combi, Lang, MPC, PrefectFry, CookTek, Southbend and Wells.

Snapshot of Middleby’s Inorganic Initiatives

We believe that the above-mentioned transaction is consistent with Middleby’s policy of acquiring meaningful businesses to gain access to new customers, regions and product lines.

Prior to this buyout, the company acquired Washington-based Hinds-Bock Corporation in February 2018. This acquisition has been strengthening its existing businesses in food processing and industrial baking markets. In March 2018, the company added Italy-based Ve.Ma.C. to its portfolio, thereby enhancing its product offerings in the food processing market. In April 2018, it acquired Firex Srl, JoeTap and Josper S.A. While Firex Srl and JoeTap are anticipated to boost the company’s commercial foodservice business, Josper S.A. buyout is likely to add value to residential and commercial foodservice businesses.

In the first quarter of 2018, Middleby’s acquired assets generated revenues of approximately $63.9 million.

Zacks Rank & Key Picks

Despite efforts on improving its business portfolio via meaningful acquisitions, ongoing brand consolidation and restructuring moves have been depressing Middleby’s revenues and profitability. These aspects, as well as adversaries from the delay in large projects in the Food Processing Equipment segment, might be concerning. With a market capitalization of nearly $5.8 billion, the company currently carries a Zacks Rank #5 (Strong Sell).

The company’s Zacks Consensus Estimate is pegged at $6.00 per share for 2018 and $6.56 per share for 2019, reflecting a decline of 7.6% and 7.3% from the respective 60-day-ago tallies. Also, estimates for 2018 reflect a year-over-year decline of 2.6%.

The Middleby Corporation Price and Consensus

The Middleby Corporation Price and Consensus | The Middleby Corporation Quote

In the last three months, shares of Middleby lost 14.9%, against 7.1% fall recorded by the industry.

Some better-ranked stocks worth considering in the industry are Graco Inc. (GGG - Free Report) and Twin Disc, Incorporated (TWIN - Free Report) . Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the last 60 days, earnings estimates for both the stocks have improved for both the current year and the next year. Also, average positive earnings surprise for last four quarters has been 12.81% for Graco and 250.43% for Twin Disc.

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