Middleby's Acquired Assets Aid Despite International Woes

We have issued an updated research report on The Middleby Corporation MIDD on Aug 14.

The maker of cooking, warming, food preparation and packaging equipment has many tailwinds and headwinds impacting its performance.

A brief discussion of the various factors has been mentioned below:

Middleby has a diversified business structure, with its three business segment — including Commercial Foodservice Equipment Group, Food Processing Equipment Group and Residential Kitchen Equipment Group — engaged in serving customers in commercial, industrial processing and residential markets. In second-quarter 2019, sales for Commercial Foodservice Equipment Group rose 23.9% while that for Food Processing Equipment Group expanded 4.5%.

For 2019, Commercial Foodservice Equipment Group is likely to gain from focus on innovation, increasing adoption of automated products and ventless cooking equipment. Also, flourishing business with major restaurant chains and acquired assets will be boons. Residential Kitchen Equipment Group will benefit from its Viking business and focus on product introductions. For Food Processing Equipment Group, innovation and launch of products will benefit results.

In addition, Middleby’s acquisitive nature has been boon over time. Buyouts of Hinds-Bock, Ve.Ma.C, Firex, Josper, Taylor, M-TEK, Crown Food Service Equipment and EVO were made in 2018. Also, the company acquired Standex International Corporation's SXI Cooking Solutions Group in April 2019. Further, Powerhouse Dynamics was bought in April 2019. In June 2019, the company acquired Ss Brewtech while bought Packaging Progressions in July. Notably, acquired assets boosted Middleby’s sales by 14.7%.

In addition to the above-mentioned tailwinds, the company’s continuous focus on supply chain along with investments in broadening its product portfolio, technologies and manufacturing capabilities is likely to further improve profitability and production efficiencies.

On the flip side, rising costs of sales have been concerning Middleby over time. Material cost inflations due to tariffs are seen as prime reasons for costs inflation. Also, high debts, with roughly $1,992 million at the end of the second quarter of 2019, are concerns for the company. A highly leveraged balance sheet increases financial obligations and hurts profitability.

Hurdles from forex woes add to the company’s problems. In second-quarter 2019, unfavorable movements in foreign currencies had a negative impact of 1.6% on its revenues. Also, the company believes that hurdles in Europe, the U.K. and China markets will be dragging for Commercial Foodservice Equipment Group in 2019. Further, issues related to the meat processing line of operations will continue hurting Food Processing Equipment Group. Uncertainties related to the international business, mainly in the U.K., remain a concern for Residential Kitchen Equipment Group.

The company faces competition from other players in the industry, including Dover Corporation DOV and Illinois Tool Works Inc. ITW.

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