Elgin / IL. (tmc) The Middleby Corporation, a leading worldwide manufacturer of equipment for the commercial foodservice, food processing and residential kitchen industries, today reported net sales and earnings for the second quarter ended July 1, 2017. Net earnings for the second quarter were USD 77’569’000 or USD 1.35 per share on net sales of USD 579’343’000 as compared to the prior year second quarter net earnings of USD 72’891’000 or USD 1.28 per share on net sales of USD 580’456’000.
2017 Second Quarter Financial Highlights
- Net sales decreased 0.2 percent compared to the prior year second quarter. Sales related to recent acquisitions added USD 29.2 million or 5.0 percent, in the second quarter. The impact of foreign exchange rates on foreign sales translated into U.S. Dollars reduced net sales by approximately USD 10.7 million, or 1.8 percent, during the second quarter. Excluding the impact of foreign exchange and acquisitions, sales decreased 3.4 percent during the second quarter.
- Net sales at the company’s Commercial Foodservice Equipment Group increased by USD 12.8 million, or 4.0 percent, to USD 333.8 million in the second quarter as compared to USD 321.0 million the prior year second quarter. During fiscal 2016, the company completed the acquisition of Follett. Excluding the impact of this acquisition, sales decreased 4.4 percent in the second quarter, or 3.3 percent excluding the impact of foreign exchange.
- Net sales at the company’s Food Processing Equipment Group increased by USD 8.9 million, or 10.7 percent, to USD 92.4 million in the second quarter as compared to USD 83.5 million the prior year second quarter. During fiscal 2017, the company completed the acquisition of Burford. Excluding the impact of this acquisition, sales increased 8.0 percent in the second quarter, or 8.5 percent excluding the impact of foreign exchange.
- Net sales at the company’s Residential Kitchen Equipment Group decreased by USD 22.8 million, or 13.0 percent, to USD 153.2 million in the second quarter as compared to USD 176.0 million in the prior year second quarter. Excluding the impact of foreign exchange, sales decreased 9.1 percent.
- Gross profit in the second quarter increased to USD 234.6 million from USD 233.5 million. The gross margin rate increased to 40.5 percent from 40.2 percent for the second quarter, reflecting improvement in profitability for both the Food Processing Equipment Group and the Residential Kitchen Equipment Group, due to the favorable impact of restructuring initiatives at the AGA group. This increase was offset in part by lower gross margins at the Commercial Foodservice Group reflecting the impact from the acquisition of Follett.
- Operating income increased 9.1 percent in the second quarter to USD 122.1 million from USD 111.9 million in the prior year quarter. Operating income during the second quarter of 2017 included USD 11.5 million of restructuring charges related to cost reduction initiatives associated primarily with AGA, as compared to USD 6.4 million in charges in the second quarter of 2017 related to acquisition integration initiatives at AGA. Additionally, the company realized a USD 12.0 million gain on the sale of a manufacturing facility in connection with relocation to an upgraded facility which will allow for improvement in production efficiencies and consolidation of certain operations. Operating income also included the impact of USD 3.4 million in non-cash expenses associated with the finalization of purchase accounting adjustments during the quarter for the Follett acquisition completed in 2016.
- Non-cash expenses included in operating income during the second quarter of 2017 amounted to USD 20.9 million, including USD 7.4 million of depreciation, USD 10.5 million of intangible amortization and USD 3.0 million of non-cash share based compensation.
- Other expense in the quarter was USD 0.3 million compared to USD 3.8 million of other income in the prior year quarter, consisting mainly of foreign exchange gains and losses.
- The provision for income taxes during the second quarter amounted to USD 38.6 million, at an effective rate of 33.2 percent, as compared to a USD 36.8 million provision at a 33.5 percent effective rate in the prior year quarter.
- Net earnings per share increased 5.5 percent to USD 1.35 in the second quarter as compared to USD 1.28 in the prior year quarter. Net earnings in the current second quarter were reduced by restructuring expenses, non-cash expenses associated with the finalization of purchase accounting adjustments for Follett, offset by the gain on sale of a manufacturing facility. The impact of these items reduced earnings per share by USD 0.04 in the 2017 second quarter period.
- Net debt, defined as debt less cash, at the end of the second quarter amounted to USD 738.4 million as compared to USD 663.6 million at the end of the fiscal 2016. Second quarter debt reflected the funding of the Burford, CVP Systems and Sveba Dahlen acquisitions completed in the current period.
Selim A. Bassoul Chairman and Chief Executive Officer, commented, «At the Commercial Foodservice Equipment Group, sales continued to be slower due to timing of purchases from our major restaurant chain customers. We have an exciting pipeline of new product opportunities with existing and new major restaurant chain customers. These new equipment solutions have a quick and proven payback to the restaurant operator. We have a high level of confidence these opportunities will translate into revenues and future growth, although longer periods of time to finalize programs associated with larger capital investments at those customers has impacted our revenues with those customers during the quarter».
«At the Food Processing Equipment Group, we realized a solid quarter and continue to see development of new food processing facilities in emerging markets and with customers in existing facilities looking to expand production capacities. We have invested heavily in the operations of our industrial bakery brands, including the opening of our world class industrial baking center in Plano, Texas which provides a resource and expertise to our customers».
Bassoul continued, «At our Residential Kitchen Equipment Group, the second quarter sales decline reflects the impact of lower revenues at the AGA Group due to acquisition integration initiatives. In an effort to simplify those businesses and significantly reduce costs, we have eliminated unprofitable products and reduced price discounting for non-core business within that group. At Viking we continued to realize sales declines reflecting the impact of the prior year product recall and legacy issues related to products manufactured during the previous ownership. We continue to have a positive outlook for this brand as the benefit of the comprehensive new product lineup, improved customer service, and significant investments in after-sales service take hold in the marketplace. Since the acquisition by Middleby, Viking has released more award winning products than any time in its history. As a result of these investments, Viking is now leading in consumer product ratings across its product categories».
Bassoul added, «We continue to expand our industry leading profit margins at all three business segments. Through our continued focus on product innovation, pricing discipline and operational excellence we realized record Ebitda margins despite short-term revenue declines. We have ongoing initiatives to integrate recently acquired businesses and remain in the early stages of leveraging synergies in our newly developed residential platform. We remain confident in our commitment and progress toward our longer-term margin expansion goals for the company.
Bassoul further commented, «We were also very pleased to announce three acquisitions during the quarter including, Burford, CVP Systems and Sveba Dahlen. Burford is a leading brand in a broad line of seeding, topping and slicing equipment for the industrial baking industry complementing our existing baking systems offering. CVP Systems is a leader in high speed modified atmosphere packaging systems, complementing both our Food Processing Equipment Group product offerings in meat and bakery equipment. Sveba Dahlen adds two leading brands to our portfolio, which included the Bear Varimixer and Sveba Dahlen brands. Bear Varimixer is a leading brand and innovator in mixing equipment utilized primarily in the foodservice industry. Sveba Dahlen is a long standing and highly respected manufacturer of ovens for the baking industry, significantly expanding Middleby’s offering in this product category and providing increased opportunities to expand and accelerate growth into the retail supermarket customer segment».
