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Middleby Corporation Reports 2018 Third Quarter Results

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 third quarter ended September 29, 2018. Net earnings for the third quarter were USD 72.9 million or USD 1.31 diluted earnings per share on net sales of USD 713.3 million as compared to the prior year third quarter net earnings of USD 74.7 million or USD 1.31 diluted earnings per share on net sales of USD 593.0 million. Excluding the impact of restructuring expenses and the dilutive impact of the Taylor acquisition, adjusted earnings per share was USD 1.56 for the third quarter ended September 29, 2018. Excluding the impact of restructuring expenses, adjusted earnings per share was USD 1.36 in the prior year third quarter.

2018 Third Quarter Financial Highlights

  • Net sales increased 20.3 percent in the third quarter over the comparative prior year third quarter. Sales related to recent acquisitions added USD 118.0 million or 19.9 percent, in the third quarter. The impact of foreign exchange rates on foreign sales translated into U.S. Dollars decreased net sales by approximately USD 5.2 million during the third quarter. The adoption of ASC 606 increased net sales by approximately USD 2.6 million during the third quarter. Excluding the impacts of acquisitions, foreign exchange rates and the adoption of ASC 606, sales increased 0.8 percent during the third quarter.
  • Net sales at the company’s Commercial Foodservice Equipment Group increased USD 116.8 million, or 32.9 percent, to USD 471.6 million in the third quarter as compared to USD 354.8 million in the prior year third quarter. During fiscal 2017, the company completed the acquisitions of 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 3.0 percent in the third quarter, or increased 4.1 percent excluding the unfavorable impact of foreign exchange rates.
  • Net sales at the company’s Residential Kitchen Equipment Group increased USD 2.2 million, or 1.5 percent, to USD 153.5 million in the third quarter as compared to USD 151.3 million in the prior year third quarter. Excluding the impact of foreign exchange rates, sales increased 1.8 percent during the third quarter. Excluding the impact of sales declines at the non-core businesses, sales growth for the quarter amounted to 2.7 percent. Sales at Viking increased by approximately 15 percent during the quarter, which was offset by a decline at the AGA Rangemaster business resulting from market conditions in the UK.
  • Net sales at the company’s Food Processing Equipment Group increased USD 1.4 million, or 1.6 percent, to USD 88.3 million in the third quarter as compared to USD 86.9 million in the prior year third quarter. During fiscal 2017, the company completed the acquisition of Scanico. During fiscal 2018, the company completed the acquisitions of Hinds-Bock and Ve.Ma.C. Excluding the impact of these acquisitions, sales decreased 11.9 percent in the third quarter. Excluding the impacts of acquisitions, foreign exchange rates and the adoption of ASC 606, net sales decreased USD 12.4 million, or 14.3 percent.
  • Gross profit in the third quarter increased to USD 261.2 million from USD 228.5 million reflecting the impact of increased sales from acquisitions. The gross margin rate decreased from 38.5 percent to 36.6 percent. The decrease in the gross margin rate for the quarter reflects lower margins at recent acquisitions, including USD 4.6 million of non-cash fair market value adjustments related to purchase accounting for recent acquisitions. Excluding the impact of acquisitions, the gross margin rate would have been 39.1 percent in the third quarter.
  • Operating income amounted to USD 107.7 million in the third quarter as compared to USD 109.4 million in the prior year quarter. Operating income during the 2018 third quarter included USD 12.1 million of restructuring charges as compared to USD 4.2 million in the 2017 third quarter. Restructuring charges in the 2018 third quarter included USD 8.7 million associated with the closure of Grange, a non-core furniture business in France which was acquired in conjunction with AGA Rangemaster. Third quarter charges also included expenses related to integration initiatives with AGA Rangemaster and Taylor.
  • Operating income included USD 31.0 million of non-cash expenses during the third quarter, comprised of USD 9.9 million of depreciation expense, USD 17.6 million of intangible amortization and USD 3.5 million of share based compensation.
  • The provision for income taxes in the third quarter amounted to USD 25.1 million at a 25.6 percent effective rate in comparison to USD 38.1 million at a 33.8 percent effective rate in the prior year quarter. The tax rate in the third quarter was favorably impacted by the reduction in the federal tax rate from 35 percent to 21 percent.
  • Net earnings per share was USD 1.31 in both the 2018 and 2017 third quarters. Net earnings in the current third quarter were reduced by restructuring expenses. The impact of these items reduced earnings per share by USD 0.16 and USD 0.05 in the 2018 and 2017 third quarter periods, respectively. Additionally, the impact of the Taylor acquisition offset by the increased interest costs diluted earnings in the third quarter by USD 6.9 million or USD 0.09 per share. Excluding these items, net earnings per share was USD 1.56 and USD 1.36 in 2018 and 2017 third quarter periods, respectively.
  • Operating cash flows increased to USD 252.0 million during the nine months ended September 29, 2018 as compared to USD 204.9 million in the prior year related to lower cash paid for taxes and working capital needs.
  • Net debt, defined as debt less cash, at the end of 2018 fiscal third quarter amounted to USD 1,881.8 million as compared to USD 939.2 million at the end of fiscal 2017. Third quarter debt reflected the funding of the Taylor acquisition for approximately USD 1.0 billion, as well as for Ve.Ma.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 had solid growth with improving sales to restaurant chains in the domestic market. We continue to develop a pipeline of business opportunities with customers adopting our new technologies. Our kitchen equipment advancements provide operators solutions for labor savings, faster service speed, menu flexibility and space-saving, ventless solutions. International markets remained soft; however we anticipate improving conditions internationally as we end the year and enter 2019. We are starting to see the benefits of our consolidated sales representatives initiative and are pleased with the positive momentum in this area. Having now completed the in-depth training of these representatives, we expect them to continue to strengthen our sales and customer relationships. Our alignment with the most well-respected and proven sales representatives in the industry, who now carry our broad portfolio of leading brands, has positioned Middleby to execute on long-term growth strategies.»

Bassoul continued, «At our Residential Kitchen Equipment Group, Viking continued to grow at double-digit rates. The innovative, new lineup of Viking products introduced under our ownership continues to gain momentum. We continue to make investments to promote the brand and its new, innovative equipment through updated product displays at our dealer partners. Additionally, we are excited to announce the opening of a second Viking showroom in the Architects and Designers Building in New York City. Throughout 2018 we have entertained thousands of guests including dealers, designers, builders and influencers in our award-winning, first showroom located in the Chicago Merchandise Mart. We also recognized solid growth domestically from the Marvel, Lynx, LaCornue, AGA and U-Line brands and are realizing the benefits of our consolidation strategy for sales and distribution of these premium brands. Domestic growth was offset by the AGA Rangemaster businesses which continued to be negatively impacted by challenging market conditions in the UK with the uncertainty of Brexit. Sales also reflect the impact of disruption at non-core businesses, which should lessen as we complete the closure of the Grange furniture business.»

«At the Food Processing Equipment Group, the decline in revenues reflects the absence of large projects at this business segment, particularly impacting the meat processing business. Although we have realized order growth in 2018, the order rate has been lower than anticipated and certain expected projects have been deferred. We do anticipate gradual improvement in upcoming quarters and remain optimistic about current projects in the pipeline and an improved backlog as we enter 2019.»

Bassoul added, «During the third quarter, we also focused on the integration of our acquisition of Taylor. The efforts are well underway and we are pleased with the progress of initiatives to improve profitability. We are excited about the strategic benefits of this acquisition, as it significantly enhances our market position and opportunities in the beverage and frozen dessert categories.»