Elgin / IL. (tmc) The Middleby Corporation, a leading worldwide manufacturer of equipment for the commercial foodservice, food processing, and residential kitchen industries, reported net sales and earnings for the second quarter ended June 30, 2018. Net earnings for the second quarter were USD 84.0 million or USD 1.51 diluted earnings per share on net sales of USD 668.1 million as compared to the prior year second quarter net earnings of USD 77.6 million or USD 1.35 diluted earnings per share on net sales of USD 579.3 million.
2018 Second Quarter Financial Highlights
- Net sales increased 15.3 percent in the second quarter over the comparative prior year period. Sales related to recent acquisitions added USD 84.1 million or 14.5 percent, in the second quarter. The impact of foreign exchange rates on foreign sales translated into U.S. Dollars increased net sales by approximately USD 6.7 million during the second quarter. The adoption of ASC 606 increased net sales by approximately USD 0.4 million during the second quarter. Excluding the impacts of acquisitions, foreign exchange rates and the adoption of ASC 606, sales decreased 0.4 percent during the second quarter.
- Net sales at the company’s Commercial Foodservice Equipment Group increased USD 80.3 million, or 24.1 percent, to USD 414.1 million in the second quarter as compared to USD 333.8 million in the prior year second quarter. During fiscal 2017, the company completed the acquisitions of Sveba Dahlen, QualServ, L2F and Globe. During fiscal 2018, the company completed the acquisitions of Josper, Firex, and Taylor. Excluding the impact of these acquisitions, sales increased 5.0 percent in the second quarter, or increased 4.3 percent excluding the benefit of foreign exchange rates.
- Net sales at the company’s Residential Kitchen Equipment Group increased USD 7.2 million, or 4.7 percent, to USD 160.4 million in the second quarter as compared to USD 153.2 million in the prior year second quarter. Excluding the impact of foreign exchange rates, sales increased 2.1 percent during the second quarter. Sales at Viking increased by approximately 24 percent during the quarter. Additionally, the consolidating of distribution of our premium brands through company owned operations and terminating certain third party distributors generated modest growth domestically. This was more than offset by lower sales at AGA and non-core brands.
- Net sales at the company’s Food Processing Equipment Group increased USD 1.2 million, or 1.3 percent, to USD 93.6 million in the second quarter as compared to USD 92.4 million in the prior year second quarter. During fiscal 2017, the company completed the acquisitions of Burford, CVP Systems, and Scanico. During fiscal 2018, the company completed the acquisitions of Hinds-Bock and Ve.Ma.C. Excluding the impact of these acquisitions, sales decreased 20.8 percent in the second quarter. Excluding the impacts of acquisitions, foreign exchange rates and the adoption of ASC 606, net sales decreased USD 20.2 million, or 21.9 percent.
- Gross profit in the second quarter increased to USD 250.8 million from USD 234.6 million reflecting the impact of increased sales from acquisitions. The gross margin rate decreased from 40.5 percent to 37.5 percent. The decrease in the gross margin rate for the quarter reflects lower margins at recent acquisitions. Additionally, the gross margin rate was impacted by lower volumes and unfavorable product mix at the Food Processing Equipment Group. Excluding the impact of acquisitions, the gross margin rate would have been 39.2 percent in the second quarter.
- Operating income amounted to USD 111.3 million in the second quarter as compared to USD 113.5 million in the prior year quarter. Operating income during the 2018 second quarter included USD 4.4 million of restructuring charges as compared to USD 11.5 million in the 2017 second quarter. Professional fees increased in the 2018 second quarter related to Taylor transaction costs and legal costs of approximately USD 4.5 million. Additionally, the gain on sale of plant in the amount of USD 12.0 million added to operating income for the 2017 second quarter.
- Operating income included USD 20.0 million of non-cash expenses during the second quarter, comprised of USD 8.5 million of depreciation expense, USD 9.8 million of intangible amortization and USD 1.7 million of share based compensation.
- The provision for income taxes in the second quarter amounted to USD 26.6 million at a 24.0 percent effective rate in comparison to USD 38.6 million at a 33.2 percent effective rate in the prior year quarter. The tax rate in the second quarter was favourably impacted by the reduction in the federal tax rate from 35 percent to 21 percent.
- Net earnings per share amounted to USD 1.51 in the second quarter as compared to USD 1.35 in the prior year quarter. The impact of restructuring expenses and professional fees reduced earnings per share by USD 0.12 in the 2018 second quarter period. In the second quarter of 2017, restructuring expenses and the gain on sale of a manufacturing facility resulted in no net impact to earnings per share.
- Operating cash flows increased to USD 146.6 million during the second quarter as compared to USD 86.0 million in the prior year quarter related to lower cash paid for taxes and working capital needs.
- Net debt, defined as debt less cash, at the end of 2018 fiscal second quarter amounted to USD 1,974.3 million as compared to USD 939.2 million at the end of fiscal 2017. Second quarter debt reflected the funding of the Taylor acquisition for approximately USD 1.0 billion, as well as for V.eMa.C, Firex, and Josper acquisitions completed in the second quarter.
Selim A. Bassoul, Chairman and Chief Executive Officer, commented, «At the Commercial Foodservice Equipment Group, we are seeing the efforts of the initiatives implemented over the past year realized with solid sales growth in the quarter. We remain excited about the strategic changes in our sales organization that were completed in the first quarter of 2018. We are beginning to see the benefits in the marketplace of aligning with the strongest sales representatives in the industry, which now carry our complete portfolio of leading brands and expanding pipeline of new product innovations. We added several new customers and reported sales growth amongst our major restaurant chain accounts, with continued adoption of our new technologies. As a result, we anticipate improving sales trends as we progress through the remainder of the year.»
Bassoul continued, «At our Residential Kitchen Equipment Group, we are very pleased to gain momentum at Viking which we expect will continue throughout 2018 and into 2019. We are well positioned with the exciting new lineup of Viking products introduced under Middleby’s ownership. The on-going investments in new product displays at our dealer partners are continuing to generate positive response in the marketplace. We are also seeing the benefits of our long-term strategy to consolidate the sales and distribution organizations for our premium brands, including Viking, Marvel, Lynx, LaCornue and AGA, through company owned operations. As anticipated, the transitional impact of the changes were largely completed this quarter, and we recognized modest growth in brands other than Viking domestically in the second quarter. The AGA businesses continue to be adversely impacted by challenging market conditions in the UK with the growing uncertainty of Brexit. Restructuring actions are on-going at non-core residential businesses as we focus on profit improvements at those entities amidst a decline in revenues.»
«At the Food Processing Equipment Group, we have suffered from continued headwinds as several anticipated orders had not yet materialized. The decline in revenues reflects the significance of large projects on this business segment, which has historically resulted in quarterly sales volatility. We are optimistic that the improvement seen in recent orders will lead to growth in upcoming quarters for this segment.»
Bassoul added, «We are excited to have completed the milestone acquisition of Taylor in the second quarter. The acquisition is highly strategic for Middleby and significantly bolsters our overall position as an industry leader in commercial foodservice. Taylor’s leading positions in beverage, frozen dessert and grilling broadens our presence in these categories. Along with our other recent acquisitions, we are well positioned for growth as customers continue to invest in and expand their beverage offerings. We have received very positive feedback from our customers and believe there are substantial growth opportunities, which should be further enhanced by technology synergies amongst Taylor and our existing related businesses.»
«In addition to Taylor, we were pleased to announce the acquisition and addition of several other new brands to the portfolio this quarter. Firex is a leader in steam cooking equipment, as is Josper in charcoal cooking equipment. They further extend our portfolio of leading cooking brands and product innovation in the commercial foodservice industry. In both cases, these companies are well positioned to benefit from growing foodservice trends related to steam, sous-vide, and charcoal cooking. JoeTap, a leader in nitro-brew and cold-brew coffee dispensing equipment, further adds to our beverage and coffee platform. Cold-brew and nitro-brew are quickly gaining momentum and we have seen significant interest in these products from our existing customers.»
