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Middleby's Liquidity & Cost-Saving Moves to Aid Amid Pandemic

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We have issued an updated research report on The Middleby Corporation (MIDD - Free Report) on Jun 18.

The company presently has a market capitalization of $4.5 billion and a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

There are a number of factors that are influencing Middleby’s near-term prospects. A brief discussion on important factors is discussed below:

Factors Favoring Middleby

Liquidity Position: The company believes that a healthy liquidity position will help it effectively deal with the difficult environment.

Exiting first-quarter 2020, the company had $381 million of cash and cash equivalents. Also, its cash flow from operations grew 156.9% and its free cash flow expanded 201.2% from the year-ago figures.

Inorganic Activities: The company has been investing in acquisitions over time. It acquired Cooking Solutions Group, Powerhouse Dynamics, Synesso, Evo and Ss Brewtech in 2019. The buyouts were added to Middleby’s Commercial Foodservice Equipment Group. Also, the company acquired and added Pacproinc to the Food Processing Equipment Group as well as Brava to its Residential Kitchen Equipment Group in 2019.

In January 2020, Middleby strengthened its restaurant automation platform with RAM Fry Dispensers acquisition. Also, the company added Deutsche Beverage to its portfolio in March 2020. The buyout has been benefiting the beverage platform.

It is worth noting here that acquired assets positively impacted the company’s sales by 5.2% in first-quarter 2020.

Multiple Tailwinds: In the wake of the coronavirus outbreak, Middleby initiated certain cost-saving measures — including adjustment of the workforce, lowering of discretionary expenses and avoiding unnecessary investments. These actions are likely to aid margins.

Also, it noted that the effective supply-chain initiatives, efforts to expand product offerings and solid backlog for Food Processing Equipment Group might be beneficial.

Factors Working Against Middleby

Share Price Performance and Pandemic Woes: Market sentiments have been against the company for quite some time now. Its stock price has decreased 25.9% in the past six months compared with the industry’s decline of 13.6%.

The company is wary about the adverse impacts of the pandemic on its segmental operations. For 2020, it expects that lower opening of restaurants and weak demand will hamper performances of the Commercial Foodservice Equipment Group. Moreover, the Food Processing Equipment Group might suffer from the pandemic’s impact on sales mix, while softness in the U.S. and U.K. markets, and lower demand might hurt the Residential Kitchen Equipment Group.

Middleby’s earnings estimates have been lowered in the past 60 days. The Zacks Consensus Estimate is pegged at 39 cents for the second quarter, reflecting a decline of 62.1% from the 60-day-ago period. Likewise, estimates of $3.93 for 2020 and $5.11 for 2021 reflect a fall of 2.2% and 13.2% from the respective 60-day-ago figure.

The Middleby Corporation Price and Consensus


The Middleby Corporation Price and Consensus

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

Leverage: High debts and related financial obligations can be concerning for Middleby. At the end of first-quarter 2020, the company’s long-term debts were $2,177.2 million, reflecting an increase of 16.4% from the fourth quarter of 2019. Also, the metric increased 22.2% (CAGR) in the last three years (2017-2019).

The company’s long-term debt-to-capital ratio was 0.54% compared with the industry’s 0.50x.

Woes Related to International Presence & Peers: Midleby carries out its manufacturing and distribution activities in multiple countries, including Latin America, Europe and Asia. International diversification has exposed the company to macroeconomic challenges, unfavorable movements in foreign currencies, local competitive pressure and geopolitical issues.

Forex woes adversely impacted the company’s first-quarter sales by 0.6% year over year.

Three companies that compete with Middleby are Illinois Tool Works Inc. (ITW - Free Report) , Dover Corporation (DOV - Free Report) and John Bean Technologies Corporation (JBT - Free Report) .

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