Can Middleby's Stock Rebound On Business Buyouts?

The Middleby Corporation MIDD has been trying to strengthen its business on the back of numerous acquisitions, but the ongoing brand consolidation and restructuring moves have been depressing the company's revenues and profitability.

Middleby recently announced that it has inked a definitive agreement to acquire Taylor Company from UTC Climate, Controls & Security — a business division of United Technologies Corporation UTX. The company noted that this $1-billion buyout deal will aid in strengthening its position in the global commercial foodservice industry, going forward.

Taylor Company makes beverage machines and grilling products. The company generated roughly $315 million revenues and $65 million adjusted earnings before interest, taxes and depreciation in 2017.

Middleby stated that the Taylor buyout will strengthen its presence among foodservice and chain restaurant customers, moving ahead. This transaction is anticipated to bring out roughly $16 million cash tax benefits annually and be accretive to the company's earnings per share within the first 12 months of the deal's closure. Moreover, Middleby targets to secure $15-million synergies from the acquisition.

The company will finance this all-cash deal with its existing revolving credit facility and expects to close it by early third quarter. The agreement is currently subject to regulatory approvals.

Middleby is currently following an acquisition-based growth strategy. In the first quarter, acquisition-related benefits drove the company's sales by $63.9 million. The acquisitions of Sveba Dahlen, QualServ, L2F and Globe (all closed in 2017) are expected to drive revenues of the company's Commercial Foodservice Equipment Group. Also, the Burford, CVP Systems, and Scanico buyouts (all closed in 2017) will likely bolster revenues of its Food Processing Equipment Group. Notably, buyouts made this year, like Josper S.A and Firex Srl, will likely drive the company's top-line results in the quarters ahead.

Sluggish market conditions in the U.K. might continue to dent sales of the company's AGA Rangemaster business, going forward. Moreover, consolidation of premium brands (like Lynx and LaCornue) and ongoing restructuring moves might dampen revenues in the upcoming quarters. In addition, the company believes delay in few large projects will dent its Food Processing Equipment segment's top line, in the near term. Reduced sales volume in the near-term quarters might continue to weigh over the company's margins in the quarters ahead. 

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report