Middleby Corporation: Reports Q4 and Full Year Results

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 fourth quarter and full fiscal year ended December 28, 2019. Net earnings for the fourth quarter were USD 109.0 million or USD 1.96 diluted earnings per share on net sales of USD 787.6 million as compared to the prior year fourth quarter net earnings of USD 94.8 million or USD 1.70 diluted earnings per share on net sales of USD 756.7 million. Net earnings in the current and prior year fourth quarters were negatively impacted by restructuring expenses and in 2019 by associated facility consolidation related expenses. Excluding these items, as well as other non-cash items, and a gain on a litigation settlement in the current year, adjusted net earnings per share were USD 2.00 and USD 1.87 in the 2019 and 2018 fourth quarter periods.

Net earnings for the fiscal year ended December 28, 2019 were USD 352.2 million or USD 6.33 diluted earnings per share on net sales of USD 2,959.4 million as compared to the prior year net earnings of USD 317.2 million or USD 5.70 diluted earnings per share on net sales of USD 2,722.9 million. Net earnings in the current and prior year were negatively impacted by restructuring expenses and associated facility consolidation related expenses. Excluding these items, in addition to other non-cash items, a gain on a litigation settlement in the current year and the transition costs associated with the retirement of the former Chairman and CEO in the current year, adjusted net earnings per share were USD 7.02 and USD 6.35 in 2019 and 2018.

2019 Fourth Quarter and Full Year Financial Highlights

• Net sales increased 4.1 percent in the fourth quarter and 8.7 percent for the full fiscal year of 2019 over the comparative prior year periods. Sales related to recent acquisitions added 5.1 percent in the fourth quarter and 10.2 percent for the year. The impact of foreign exchange rates on foreign sales translated into U.S. Dollars decreased net sales by approximately 0.5 percent during the fourth quarter and decreased net sales by 1.3 percent during the full fiscal year. Excluding the impacts of acquisitions, closure of a non-core business and foreign exchange rates, sales decreased 0.4 percent in the fourth quarter and increased 0.1 percent for the full fiscal year 2019.
• Net sales at the company’s Commercial Foodservice Equipment Group increased 5.9 percent in the fourth quarter and 14.7 percent for the full fiscal year of 2019 over the comparative prior year periods. During fiscal 2018, the company completed the acquisitions of Firex, Josper, Taylor and Crown. During fiscal 2019, the company completed the acquisitions of Evo, Cooking Solutions Group, Powerhouse Dynamics, Ss Brewtech and Synesso. Excluding the impacts of acquisitions and foreign exchange, sales increased 0.4 percent in the fourth quarter and 1.6 percent for the full year.
• Net sales at the company’s Residential Kitchen Equipment Group increased 0.2 percent in the fourth quarter and decreased 4.9 percent for the full fiscal year of 2019 over comparative prior year periods. During fiscal 2019, the company completed the acquisition of Brava. Excluding the impacts of the acquisition, closure of a non-core business and foreign exchange rates, sales decreased 0.6 percent during the fourth quarter and decreased 2.0 percent for the full year.
• Net sales at the company’s Food Processing Equipment Group increased 2.0 percent in the fourth quarter and 2.9 percent for the full fiscal year of 2019 over the comparative prior year periods. During fiscal 2018, the company completed the acquisitions of Hinds-Bock, Ve.Ma.C and M-TEK. During fiscal 2019, the company completed the acquisition of Pacproinc. Excluding the impacts of acquisitions and foreign exchange rates, sales decreased 3.9 percent in the fourth quarter and decreased 3.3 percent for the full year.
• Gross profit in the fourth quarter increased to USD 289.7 million from USD 280.6 million and the gross margin rate decreased from 37.1 percent to 36.8 percent. For the full fiscal year of 2019, gross profit increased to USD 1,103.5 million from USD 1,004.1 million and the gross margin rate increased from 36.9 percent to 37.3 percent. The decrease in gross margin rate for the quarter was primarily due to the unfavorable impact of foreign exchange rates and lower margins at recent acquisitions. Excluding the impact of acquisitions and foreign exchange, the gross margin rate would have been 37.5 percent in the fourth quarter and 37.9 percent in the full year of 2019, which both represent increases over the corresponding prior year periods.
• The provision for income taxes in the fourth quarter amounted to USD 32.2 million at a 22.8 percent effective rate in comparison to USD 33.4 million at a 26.0 percent effective rate in the prior year quarter. For the full fiscal year of 2019, the provision for income taxes amounted to USD 110.4 million at a 23.9 percent effective rate in comparison to USD 106.4 million at a 25.1 percent effective rate in the prior year. The tax rate was favorably impacted by tax adjustments for a refund of foreign taxes, enacted tax rate changes in several foreign jurisdictions and adjustments for the finalization of 2018 tax returns.
• Operating cash flows during the fourth quarter increased to USD 147.7 million from USD 116.9 million in the prior year period. Operating cash flows during the full fiscal year increased to USD 377.4 million from USD 368.9 million in the prior year.
• Net debt, defined as debt less cash, at the end of the 2019 fiscal fourth quarter amounted to USD 1,778.6 million as compared to USD 1,872.1 million at the end of the third quarter and USD 1,820.4 million at the end of fiscal 2018. During the year, the company invested USD 281.3 million to fund 2019 acquisitions.

Timothy FitzGerald, Chief Executive Officer, commented, «Although we faced challenging market conditions in 2019, we are pleased with our accomplishments throughout the year. We continued to focus efforts on increasing profitability and realized margin expansion across the segments despite the impact of tariff cost increases. We are committed to long-term revenue expansion through the development of products focused on growing industry trends, investing in transformational technology initiatives and enhancing our sales and marketing capabilities. We also continued to execute our long-standing core acquisition strategy, completing eight acquisitions and broadening our portfolio with twelve new brands in the past year. These additions support strategic expansion in key growth areas including beverage, ventless solutions, automation, and IoT and controls technologies, while also enhancing our core cooking platforms.»

FitzGerald continued, «In the Commercial Foodservice Segment lower spending at our restaurant chain customers from reduced domestic location openings proved to be a continuing headwind. The impact of the coronavirus will bring an added uncertainty impacting the first half of 2020. In the near term, we remain focused on targeted profit enhancement initiatives including facility consolidation, acquisition integrations, supply chain initiatives and other opportunities to leverage the portfolio. Despite the near term challenges, we are positioned to take advantage of current trends and longer term growth opportunities in areas such as food delivery, specialty beverage, ventless cooking and ghost kitchens, with unique and comprehensive products and solutions. Our ongoing investments in the development of our technology capabilities related to controls, IoT, automation and data intelligence, which will add to our differentiated advantage. These technology-related initiatives represented an increased financial investment of more than USD 12 million in 2019. We are seeing significant interest in our recently launched Open Kitchen IoT solution and are in the process of adding new chain customers on this platform. We are also excited to be launching our new Middleby control, which will provide an intuitive and enhanced user experience on our most advanced products. We anticipate these investments will pay dividends as foodservice operators look for solutions to capture revenue opportunities associated with growing customer trends and to address issues of labor, facility costs, food safety and energy management.»

«In the residential appliance market, ongoing industry purchasing trends remained slower domestically to finish the year, and the UK market continued to be impacted by Brexit. While this led to reduced demand, we did report modest growth at certain brands, including Viking, as we realized the benefits of market share gains and new product launches. We are optimistic about early indicators pointing to improved market conditions that will translate to revenue growth as we progress into the later part of the year,» FitzGerald said. «Investments continued in sales and marketing efforts with two new residential showrooms opening soon, adding to our current locations in New York City and Chicago. Our Southern California location is scheduled to open in the coming weeks with our Dallas facility debuting in the second quarter. New products launched over the past year are winning market acceptance such as Viking column refrigeration, U-Line and Marvel under counter bar and ice centers, AGA-brand euro-styled ranges and our Viking designer series ranges. We anticipate these new introductions will gain momentum as we progress through the year.»

«We were also very excited to announce the addition of Brava to our residential platform late last year. This state-of-the-art oven provides consumers an automated chef-driven cooking experience with its cloud-connected advanced controls. The menu-driven control simplifies and perfects the cooking experience by precisely regulating the frequency and intensity of the patented cooking-with-light technology, which prepares food up to four times faster without preheating. The Brava acquisition brings unique capabilities to Middleby, providing an opportunity to extend features such as the cloud-based smart-control, integrated digital marketing and light-cooking technology to other brands.»

«At the Food Processing Equipment Group, order rates significantly improved late in the year as we began to convert the pipeline of customer opportunities including orders in targeted, new market categories such as pet food, cured and dried meats, bacon and alternative protein. Over the past year we made significant investments in new product innovations addressing these categories and are pleased to see growing interest as we enter 2020. We are well-positioned with a much improved backlog as we closed out 2019 and are confident it will translate into sales and profitability growth for the upcoming year.»