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Why Is Middleby (MIDD) Down 3.9% Since Last Earnings Report?

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It has been about a month since the last earnings report for Middleby (MIDD - Free Report) . Shares have lost about 3.9% in that time frame, outperforming 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 Q3 Earnings Miss Estimates, View Encouraging

Middleby reported weaker-than-expected results for third-quarter 2018. However, the quarterly results of the company improved on a year-over-year basis.

Earnings/Revenues 

Quarterly adjusted earnings came in at $1.56 per share, up 14.7% year over year. However, the bottom-line figure missed the Zacks Consensus Estimate by a penny. The company noted that restructuring expenses and higher interest costs weighed over quarterly earnings. Notably, including the impact of these expenses, Middleby’s adjusted earnings remained flat year over year at $1.31 per share in the third quarter.

Net sales in the reported quarter came in at $$713.3 million, up 20.3% year over year. The upswing was driven by the benefits secured from newly-made acquisitions and the Accounting Standards Codification 606 adoption. However, we notice that unfavorable foreign currency-translation impact hurt the company’s revenues in the reported quarter.

Middleby’s third-quarter revenues missed the Zacks Consensus Estimate of $727 million.

Segmental Break-Up

Net sales of the Commercial Foodservice Equipment Group surged 32.9% year over year to $471.6 million in the quarter under review. The Residential Kitchen Equipment Group’s revenues inched up 1.4% year over year to $153.5 million. The Food Processing Equipment Group’s revenues improved 1.6% year over year to $88.2 million.

Costs/Margins

Cost of sales in the third quarter was $452.2 million compared to $364.5 million recorded in the year-ago quarter. Gross profit margin in the quarter came in at 36.6%, shrinking 190 basis points (bps) year over year. Gross margin in the Sep-end quarter dipped primarily due to reduced margins secured from the acquired businesses.

Selling, general and administrative expenses totaled $141.4 million, higher than $114.9 million recorded in the year-ago period. Operating margin came in at 15.1%, contracting 340 bps, year over year.

Balance Sheet/Cash Flow

Middleby exited the third quarter with cash and cash equivalents of $76.6 million, as against $89.7 million recorded at the end of 2017. Long-term debt was $1,955.2 million compared with $1,023.7 million recorded as of Dec 30, 2017.

In the first nine months of 2018, the company’s operating cash flow stood at $252 million, up from $204.9 million recorded in the year-ago period. Capital expenditure was $32.6 million, down 23.3% year over year.

Outlook

Middleby believes the recently-made acquisitions will bolster its revenues and profitability in the upcoming quarters. The company also anticipates that the ongoing restructuring moves and product launches will aid in boosting its competency, going forward.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.11% due to these changes.

VGM Scores

Currently, Middleby has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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 this revision 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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