• Revenue: $943 million, a 5% decrease sequentially from Q2 and a 4% decrease versus the prior year.
• Adjusted EBITDA: $213 million with a margin of 22.6%, up 80 basis points from Q2.
• GAAP Earnings Per Share (EPS): $2.11.
• Adjusted EPS: $2.33.
• Commercial Food Service Revenue: Down 4% organically versus the prior year, with an adjusted EBITDA margin of nearly 27.5%.
• Food Processing Revenue: Nearly $170 million, up nearly 1% over the prior year, with an adjusted EBITDA margin of over 24.5%.
• Residential Revenue: Organic decline of 4.5% versus 2023, with an adjusted EBITDA margin of nearly 12%.
• Operating Cash Flow: $157 million for Q3, up nearly 5% over Q2.
• Free Cash Flow: Over $650 million for the past 12 months, with a yield on revenue of nearly 17%.
• Leverage Ratio: Reduced to 2.2 times.

• Warning! GuruFocus has detected 10 Warning Signs with CSV.

Release Date: October 31, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• The Middleby Corp (NASDAQ:MIDD) reported strong operating cash flow with year-to-date cash flow of $447 million, approximately 20% ahead of a record 2023.
• The company has rapidly reduced its leverage from 2.7 times a year ago to just over two times at the end of the third quarter.
• Despite revenue declines, The Middleby Corp (NASDAQ:MIDD) achieved margin expansion compared to the second quarter, demonstrating effective profitability initiatives.
• The company is well-positioned to support industry trends with innovations aimed at driving restaurant efficiencies, saving on food costs, reducing labor, and enhancing speed of service.
• Significant investments have been made in strategic areas such as the multi-billion dollar ice and beverage category, indicating potential for future growth.

Negative Points

• The commercial food service segment faced challenges due to lower restaurant traffic and high food costs, leading to delayed investments and restaurant closures.
• The residential business is impacted by a challenging housing market, with unit volumes down 30% to 40% compared to pre-COVID levels.
• Food processing revenues saw inconsistent order conversion as customers proceeded cautiously due to high food costs and interest rates.
• The company experienced a 5% sequential revenue decrease from Q2 and a 4% decrease compared to the prior year.
• The anticipated recovery in the residential segment is uncertain, with existing home sales continuing to decline against multi-decade lows.

Q & A Highlights

Q: What challenges did Middleby face in the commercial food service segment during the third quarter, and what is needed for growth in this area? A: Timothy Fitzgerald, CEO, explained that the commercial food service segment faced challenges due to lower restaurant traffic and increased food costs, leading to delayed investments and restaurant closures. For growth, there needs to be an improvement in market conditions and execution of customer business plans, which are currently delayed but expected to pick up as conditions improve in 2025.

Q: How did Middleby manage to improve margins in the residential segment despite lower sales, and what is the outlook for 2025? A: Timothy Fitzgerald, CEO, noted that the residential segment's margins improved due to cost management and operational efficiencies. The outlook for 2025 includes a return to pre-COVID volume levels, which would significantly expand profitability. The company is also investing in new products and manufacturing capabilities to support long-term growth.

Q: What is the current state of inventory and channel stocking in the commercial food service segment, and how might this affect 2025? A: Steven Spittle, Chief Compliance Officer, stated that distributors are carrying less inventory due to higher interest rates and improved lead times. This has reduced the traditional year-end inventory bump. As interest rates potentially decrease, dealers may increase inventory levels in 2025, providing a tailwind for the segment.

Q: How is Middleby addressing service capacity challenges in the commercial food segment, and what are the plans for 2025? A: Timothy Fitzgerald, CEO, highlighted that Middleby is focused on expanding its service technician network and providing industry-leading training. The company has increased the number of service agents and is implementing unique programs to enhance service capabilities, positioning itself as a leader in the industry.

Q: What are Middleby's plans for capital deployment, considering the current cash balance and upcoming bond maturity? A: Bryan Mittelman, CFO, explained that Middleby is not accumulating cash solely to pay off the bond maturity. The company is considering various options, including refinancing and using cash for M&A activities. Middleby is also evaluating different ways to utilize cash, including potential shareholder returns, given the current stock valuation.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.