Middleby Corporation: Reports Q1-2020 Results

Elgin / IL. (tmc) The Middleby Corporation, a leading worldwide manufacturer of equipment for the commercial foodservice, food processing, and residential kitchen industries, reported net earnings for the 2020 first quarter of USD 73.8 million or USD 1.33 diluted earnings per share on net sales of USD 677.5 million.

Covid-19 Update

«In response to the Covid-19 pandemic, we have implemented swift actions to protect our employees, ensure uninterrupted service to our customers and aggressively adjust our business and cost structure for an expected revenue decline,» said Middleby Chief Executive Officer Tim FitzGerald. «Our businesses across all three segments support the foodservice industry and have been designated as essential in most global locations. We are proud to continue to support our customers, while adhering to strict employee safety standards at all worldwide operations.»

The company has taken the following measures in response to Covid-19

• Employee Safety – Implemented companywide procedures including enhanced workplace sanitation, travel discontinuation, social distancing, staggered shifts and work-at-home protocols for most non-production employees.
• Customer Support – Ensured continued access to customer support, technical service and minimal interruption to the shipping of service parts and finished goods. Production continued to meet customer demand.
• Cost Initiatives – Initiated an aggressive reduction of all controllable and discretionary costs. This included the adjustment of global office and production workforces in response to near-term decreased demand levels and reduced cash compensation to executives.
• Supply Chain – Established a task force to identify and mitigate supply chain disruption risk and ensure continuity of business operations and customer support.
• Liquidity and Cash Flow – Reduced capital expenditures for the remainder of year, enhanced working capital reduction initiatives, deferred near-term acquisition and business development related investments, and discontinued the Middleby share repurchase program.
• Covid-19 Product Introductions – Developed and launched products addressing Covid-19 needs, including sterilization units for N95 masks, mobile and touchless handwashing stations, plexiglass safety shields for restaurants and retail locations, mobile foodservice stations, and hand and cleaning sanitizer produced at our most recent acquired company Deutche.

«We are deeply thankful for the commitment of our dedicated employees worldwide. They responded quickly and made the necessary adjustments required in the current business environment. We are also proud that we are able to provide consistent support to our customers in the foodservice industry,» FitzGerald continued.

2020 First Quarter Financial Results

• Net sales decreased 1.4 percent in the first quarter of 2020 over the comparative prior year period. Excluding the impacts of acquisitions and foreign exchange rates, sales decreased 5.9 percent in the first quarter, reflecting the impact of Covid-19. Recent acquisitions contributed 5.2 percent of an increase to the first quarter, while the impact of foreign exchange rates on foreign sales translated into U.S. Dollars decreased net sales by approximately 0.6 percent.
• A decline in net sales at our Commercial Foodservice Group reflects the impact of Covid-19, initially affecting our business in China, but also impacting shipments in North America with a temporary production shutdown late in the quarter for employee safety. Residential sales reflect weakness in the UK market associated with Brexit and Covid-19. A reconciliation of reported net sales by segment is as follows:

		Commercial Foodservice			Residential Kitchen			Food Processing			Total Company
Reported Net Sales Growth		(3.1	)%		(4.9	)%		12.8	%		(1.4	)%
Acquisitions		6.1	%		0.7	%		7.6	%		5.2	%
Foreign Exchange Rates		(0.6	)%		(0.6	)%		(0.9	)%		(0.6	)%
Organic Net Sales Growth (1) (2)		(8.7	)%		(5.0	)%		6.1	%		(5.9	)%

1. Organic net sales growth defined as total sales growth excluding impact of acquisitions and foreign exchange rates
2. Totals may be impacted by rounding

• Adjusted Ebitda was consistent year over year at USD 137.8 million, as lower corporate expenses, were offset by the impact of lower revenues and continued R+D investments across all three business segments. Margins at the Residential Kitchen business were diluted by the recent Brava acquisition.
• Operating cash inflows during the first quarter increased to USD 87.1 million in comparison to USD 33.9 million in the prior year period.
• Cash balances at the end of the quarter were increased to USD 381.0 million to provide liquidity protection during the global pandemic. Net debt, defined as debt less cash, at the end of the 2020 fiscal first quarter amounted to USD 1,818.0 million as compared to USD 1,778.6 million at the end of fiscal 2019.
• The company repurchased USD 69.7 million of Middleby common shares in the quarter, prior to being discontinued in response to the Covid-19 pandemic.
• On January 31, the company entered into an amended five-year, USD 3.5 billion senior secured credit agreement. Under this agreement, the company may generally borrow up to a leverage ratio, based on net debt to pro-forma Ebitda as defined therein, of 4.0:1, and which may be adjusted up to 4.5:1 in connection with certain acquisitions. As of the end of the first quarter, the trailing twelve month bank agreement pro-forma Ebitda was USD 682.6 million and the leverage ratio was 2.76:1.

Near-Term Outlook and Commentary

«Our restaurant customers have been significantly impacted due to restrictions on foodservice establishments and shelter at home orders,» commented FitzGerald. «Accordingly, in our Commercial Foodservice segment we have seen an approximate 65 percent decline of incoming orders in April compared to 2019 orders. While the continuing impact remains unpredictable, the restaurant industry has reported sales improvements every week during the month of April, from the sharp decline beginning in mid-March. We anticipate new restaurant openings will be severely impacted for the remainder of the year, but historically most of our sales in this segment are equipment replacement and upgrades in conjunction with new menu initiatives or operational improvements. During this crisis, our foodservice customers have focused on their delivery, drive-through and carry-out business. We are able to support these customers with innovative products and technology solutions to address workplace safety, evolving business needs and continued operating essentials. Our strategic investments over the past year have well-positioned us for current industry trends, which we expect to accelerate as our foodservice customers adopt a new work environment.»

«At our Residential Kitchen businesses, in both the U.S. and UK markets, the impact of Covid-19 included significant closures of our residential dealers’ retail sales locations and substantial decline in traffic resulting from shelter at home orders. The decline in incoming order rates for the month of April amounted to approximately 53 percent. Although demand will continue to be adversely impacted and uncertain, we may see a positive benefit as dealer retail locations will begin to re-open in May.»

«The Food Processing Group, entered the year with a record backlog of approximately USD 138 million, which continued to outpace revenue growth and grew to approximately USD 152 million to end the first quarter. This existing backlog provides stability within this business segment for the upcoming quarters. The impact of Covid-19 was reflected in April incoming orders, which declined by approximately 28 percent as our customers focused on immediate issues and risks to their business and employees. End-user demand for our food processing customers has shifted from restaurants to retail grocery stores, impacting sales mix, although overall industry demand continues to be relatively stable. Sales of certain food items, such as hot dogs and other meat products in our core equipment markets, have experienced recent increased demand. While the disruption caused by Covid-19 may continue to impact near-term purchasing decisions, we are well-positioned to support the demand for large scale equipment solutions in this industry. Operators continue to look for improvements in food and employee safety, labor and finished product costs, as well as addressing capacity expansion and production efficiencies.»

FitzGerald concluded, «We have taken swift and aggressive measures to adjust to near-term market conditions, which we anticipate will improve as we progress through the balance of the year. During this time our focus remains on the safety of our employees, the supporting of our customers and maintaining profitability margins and cash flow. We are confident in our ability to navigate through this period of uncertainty. We will continue to leverage our industry-leading capabilities within our broad portfolio of brands, supplying product innovation to a diversified customer base. This will continue to enhance our strong financial position moving forward.»