This appliance maker is due to report earnings tomorrow. The forecast is for earnings of $0.75 per share on revenues of $407.98 million.
Middleby Corp. (MIDD)
from Cabot Stock of the Month
Middleby Corp. (MIDD) makes a multitude of ovens and cookers fueled by gas, electricity and wood, including pizza ovens, microwaves, conveyor ovens, induction cookers, fryers, steamers, bread ovens, duck ovens, charbroilers, tortilla warmers, tandooris, shawarma cookers and more.
Middleby also makes dishwashers, refrigerators, freezers, ice machines, mixers, slicers, shredders, drink dispensers, ventilation systems and water-cutting systems, pretty much
everything you’d need to run a restaurant. So it’s no surprise that the company supplies 97 out of the top 100 food service chains in the United States and internationally. It’s the world leader in commercial cooking equipment, but it’s not resting on its laurels.
Middleby is focused on growing in (at least) five ways:
1. Working closely with its customers. The company’s turnkey package includes a completely designed commercial system, with units assembled and put in working order, and the customer’s personnel trained to use the equipment. In 2013, Middleby was recognized as the Supplier Partner of the Year by Brinker International, after installing approximately 1,200 ovens in the company’s Chili’s restaurants.
2. By acquisition. In 2001, Middleby acquired the commercial cooking business of the Maytag Corporation for $95 million, getting the Blodgett, Pitco Frialator and MagiKitch’n brands. In 2008, Middleby acquired TurboChef for about $200 million. And in 2013, Middleby purchased Viking Range for $380 million—its biggest acquisition to date. The company has more than 45 brands in all.
3. Continuous technical development. The company expects to launch 50 new products before the end of 2014.
4. Global expansion, frequently accomplished by acquiring manufacturers in target countries. Most recently, the company’s revenue mix was 73% U.S. and Canada, 13% Europe and Middle East, 8% Asia and 6% Latin America.
5. The residential market, which until now has accounted for less than 5% of the company’s revenues. Last year’s acquisition of Viking has given the company a foot in the door, so to speak, and other residential brands include Jade and TurboChef. But the residential market is very competitive, so Middleby has taken a few lumps as it expands. In particular, margins in the sector are thinner.
MIDD, in general, has been trending upward for years, reflecting growing investor sponsorship of a company with growing revenues and earnings. In late February, the release of an excellent fourth-quarter report saw the stock surge higher, on heavy volume, topping at 102. But in May, the release of a disappointing first-quarter report (revenues were up 14%, beating analysts’ estimates, but earnings growth was just 7%, falling short of estimates) saw a lot of those recent buyers head for the exits, pushing the stock down to 72 (a 30% correction in 11 weeks).
And now, two months later, following a three-for-one stock split on June 27, the stock is testing that low, building what I anticipate will be a double bottom.
Roy Ward says that Middleby’s sales will rise 10% in the year ahead while earnings per share should increase at least 15%. He says you can buy as high as 84.87 and hold on until the stock hits 133.77 (which you can expect within two years). That’s a gain of 82%.
I say the chart provides a decent opportunity for entry here, and that the second-quarter earnings report, due August 6, may provide the spark that enables the stock to resume its long uptrend—particularly if there are encouraging developments in the residential sector. BUY.
Timothy Lutts, Cabot Stock of the Month, www.cabot.net, 978-745-5532, July 29, 2014