Market Overview

The Middleby Corporation Reports Second Quarter Results

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The Middleby Corporation (NASDAQ:MIDD), 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 June 30, 2018. Net earnings
for the second quarter were $84.0 million or $1.51 diluted earnings per
share on net sales of $668.1 million as compared to the prior year
second quarter net earnings of $77.6 million or $1.35 diluted earnings
per share on net sales of $579.3 million.

2018 Second Quarter Financial Highlights

  • Net sales increased 15.3% in the second quarter over the comparative
    prior year period. Sales related to recent acquisitions added $84.1
    million or 14.5%, in the second quarter. The impact of foreign
    exchange rates on foreign sales translated into U.S. Dollars increased
    net sales by approximately $6.7 million during the second quarter. The
    adoption of ASC 606 increased net sales by approximately $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% during the second quarter.
  • Net sales at the company's Commercial Foodservice Equipment Group
    increased $80.3 million, or 24.1%, to $414.1 million in the second
    quarter as compared to $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% in the second
    quarter, or increased 4.3% excluding the benefit of foreign exchange
    rates.
  • Net sales at the company's Residential Kitchen Equipment Group
    increased $7.2 million, or 4.7%, to $160.4 million in the second
    quarter as compared to $153.2 million in the prior year second
    quarter. Excluding the impact of foreign exchange rates, sales
    increased 2.1% during the second quarter. Sales at Viking increased by
    approximately 24% 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
    $1.2 million, or 1.3%, to $93.6 million in the second quarter as
    compared to $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% in the second quarter. Excluding
    the impacts of acquisitions, foreign exchange rates and the adoption
    of ASC 606, net sales decreased $20.2 million, or 21.9%.
  • Gross profit in the second quarter increased to $250.8 million from
    $234.6 million reflecting the impact of increased sales from
    acquisitions. The gross margin rate decreased from 40.5% to 37.5%. 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% in the second quarter.
  • Operating income amounted to $111.3 million in the second quarter as
    compared to $113.5 million in the prior year quarter. Operating income
    during the 2018 second quarter included $4.4 million of restructuring
    charges as compared to $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 $4.5
    million. Additionally, the gain on sale of plant in the amount of
    $12.0 million added to operating income for the 2017 second quarter.
  • Operating income included $20.0 million of non-cash expenses during
    the second quarter, comprised of $8.5 million of depreciation expense,
    $9.8 million of intangible amortization and $1.7 million of share
    based compensation.
  • The provision for income taxes in the second quarter amounted to $26.6
    million at a 24.0% effective rate in comparison to $38.6 million at a
    33.2% effective rate in the prior year quarter. The tax rate in the
    second quarter was favorably impacted by the reduction in the federal
    tax rate from 35% to 21%.
  • Net earnings per share amounted to $1.51 in the second quarter as
    compared to $1.35 in the prior year quarter. The impact of
    restructuring expenses and professional fees reduced earnings per
    share by $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 $146.6 million during the second
    quarter as compared to $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 $1,974.3 million as compared to $939.2 million at
    the end of fiscal 2017. Second quarter debt reflected the funding of
    the Taylor acquisition for approximately $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."

Mr. 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."

Mr. 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."

Conference Call

A conference call will be held at 10 a.m. Central Time on Wednesday,
August 8, 2018 and can be accessed by dialing (888) 391-6937 or (315)
625-3077 and providing conference code 4189566#. The conference call is
also accessible through the Investor Relations section of the company
website at www.middleby.com.
A replay of the conference call will be available two hours after the
conclusion of the call by dialing (855) 859-2056 and entering conference
code 4189566#.

Statements in this press release or otherwise attributable to the
company regarding the company's business which are not historical fact
are forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The
company cautions investors that such statements are estimates of future
performance and are highly dependent upon a variety of important factors
that could cause actual results to differ materially from such
statements. Such factors include variability in financing costs;
quarterly variations in operating results; dependence on key customers;
international exposure; foreign exchange and political risks affecting
international sales; changing market conditions; the impact of
competitive products and pricing; the timely development and market
acceptance of the company's products; the availability and cost of raw
materials; and other risks detailed herein and from time-to-time in the
company's SEC filings.

The Middleby Corporation is a global leader in the foodservice equipment
industry. The company develops, manufactures, markets and services a
broad line of equipment used in the commercial foodservice, food
processing, and residential kitchen equipment industries. The company's
leading equipment brands serving the commercial foodservice industry
include Anets®, Bear Varimixer®, Beech®, Blodgett®, Blodgett Combi®,
Blodgett Range®, Bloomfield®, Britannia®, Carter-Hoffmann®, Celfrost®,
Concordia®, CookTek®, CTX®, Desmon®, Doyon®, Eswood®, frifri®, Firex®,
Follett®, Giga®, Globe®, Goldstein®, Holman®, Houno®, IMC®, Induc®,
Jade®, JoeTap®, Josper®, L2F®, Lang®, Lincat®, MagiKitch'n®, Market
Forge®, Marsal®, Middleby Marshall®, MPC®, Nieco®, Nu-Vu®, PerfectFry®,
Pitco Frialator®, QualServ®, Southbend®, Star®, Sveba Dahlen®, Taylor®,
Toastmaster®, TurboChef®, Wells® and Wunder-Bar®. The company's leading
equipment brands serving the food processing industry include Alkar®,
Armor Inox®, Auto-Bake®, Baker Thermal Solutions®, Burford®, Cozzini®,
CVP Systems®, Danfotech®, Drake®, Emico®, Glimek®, Hinds-Bock®,
Maurer-Atmos®, MP Equipment®, RapidPak®, Scanico®, Spooner Vicars®,
Stewart Systems®, Thurne® and VeMa.C.®. The company's leading equipment
brands serving the residential kitchen industry include AGA®, AGA
Cookshop®, Brigade®, Fired Earth®, Grange®, Heartland®, La Cornue®,
Leisure Sinks®, Lynx®, Marvel®, Mercury®, Rangemaster®, Rayburn®,
Redfyre®, Sedona®, Stanley®, TurboChef®, U-Line® and Viking®.

For more information about The Middleby Corporation and the company
brands, please visit www.middleby.com.

 

THE MIDDLEBY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS

(Amounts in 000's, Except Per Share Information)
(Unaudited)

 

    Three Months Ended     Six Months Ended
2nd Qtr, 2018     2nd Qtr, 2017 2nd Qtr, 2018     2nd Qtr, 2017
Net sales $ 668,128 $ 579,343 $ 1,252,928 $ 1,109,640
Cost of sales 417,369   344,735   790,536   665,582  
 
Gross profit 250,759 234,608 462,392 444,058
 
Selling, general and administrative 135,008 121,632 257,956 236,616
Restructuring expenses 4,441 11,494 6,134 13,219
Gain on sale of plant   (12,042 )   (12,042 )
Income from operations 111,310 113,524 198,302 206,265
 
Interest expense and deferred financing amortization, net 10,404 5,702 19,227 11,507
Net periodic pension benefit (other than service costs) (9,116 ) (8,612 ) (18,821 ) (16,950 )
Other (income) expense, net (542 ) 302   631   2,169  
 
Earnings before income taxes 110,564 116,132 197,265 209,539
 
Provision for income taxes 26,576   38,563   47,857   61,268  
 
Net earnings $ 83,988   $ 77,569   $ 149,408   $ 148,271  
 
Net earnings per share:
 
Basic $ 1.51   $ 1.35   $ 2.69   $ 2.59  
 
Diluted $ 1.51   $ 1.35   $ 2.69   $ 2.59  
 
Weighted average number of shares
 
Basic 55,576   57,299   55,575   57,201  
 
Diluted 55,576   57,299   55,575   57,201  
 

 
THE MIDDLEBY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in 000's, Except Per Share Information)
(Unaudited)

 

    Jun 30, 2018     Dec 30, 2017
ASSETS
 
Cash and cash equivalents $ 92,284 $ 89,654
Accounts receivable, net 400,266 328,421
Inventories, net 493,667 424,639
Prepaid expenses and other 48,890 55,427
Prepaid taxes 45,350   33,748
Total current assets 1,080,457 931,889
 
Property, plant and equipment, net 317,150 281,915
Goodwill 1,824,755 1,264,810
Other intangibles, net 1,292,771 780,426
Long-term deferred tax assets 40,807 44,565
Other assets 46,263   36,108
 

Total assets

$ 4,602,203   $ 3,339,713
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current maturities of long-term debt $ 6,297 $ 5,149
Accounts payable 188,256 146,333
Accrued expenses 361,501   322,171
Total current liabilities 556,054 473,653
 
Long-term debt 2,060,328 1,023,732
Long-term deferred tax liability 102,636 87,815
Accrued pension benefits 309,573 334,511
Other non-current liabilities 72,456 58,854
 
Stockholders' equity 1,501,156   1,361,148
 
Total liabilities and stockholders' equity $ 4,602,203   $ 3,339,713
 

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