The Middleby Corporation — Form 10-Q
Period: Quarter ended September 30, 2023, with nine-month results compared with the periods ended October 1, 2022. The request metadata says “2022 Q3,” but the filing itself is for 2023 Q3.
Business context and results
Middleby operates Commercial Foodservice, Food Processing and Residential Kitchen equipment businesses. Unless noted otherwise, amounts below are in millions of dollars.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $980.7 | $992.9 | $3,028.0 | $3,001.1 |
| Gross profit / margin | $375.3 / 38.3% | $365.2 / 36.8% | $1,147.3 / 37.9% | $1,056.5 / 35.2% |
| Operating income / margin | $174.4 / 17.8% | $161.7 / 16.3% | $520.2 / 17.2% | $451.5 / 15.0% |
| Net earnings | $108.7 | $104.4 | $324.6 | $303.4 |
| Diluted EPS | $2.01 | $1.92 | $5.99 | $5.50 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $373.1 | $173.4 |
Q3 sales declined 1.2%; nine-month sales increased 0.9%. For the first nine months, acquisitions added $107.8 million to sales, while sales excluding acquisitions declined 2.7%. Q3 sales excluding acquisitions and foreign exchange declined 4.4%.
Material changes and segment performance
- Commercial Foodservice sales were $634.0 million in Q3, up 2.3%; nine-month sales were $1,893.6 million, up 7.2%. Excluding acquisitions and foreign exchange, nine-month sales rose 4.6%.
- Food Processing sales were $166.7 million in Q3, up 9.5%; nine-month sales were $528.9 million, up 31.2%. Excluding acquisitions and foreign exchange, nine-month sales rose 16.3%.
- Residential Kitchen sales were $180.0 million in Q3, down 18.6%; nine-month sales were $605.5 million, down 27.2%. Management attributed declines to challenging market conditions and elevated channel inventory.
- Consolidated gross margin improved by 1.5 percentage points in Q3 and 2.7 points year to date, primarily from higher volumes and improved product mix. Operating margin also improved.
- Interest expense and deferred financing amortization rose to $31.1 million in Q3 and $92.1 million year to date, reflecting higher interest rates and borrowing levels. SG&A was $196.4 million in Q3 and $615.4 million year to date; restructuring expense was $4.4 million and $11.7 million, respectively.
Cash, debt and liquidity
- Cash was $167.2 million at September 30, 2023, versus $162.0 million at December 31, 2022. Total debt was $2.58 billion, down from $2.72 billion.
- Nine-month operating cash flow was $373.1 million, compared with $173.4 million. Inventory reductions contributed $67.0 million; decreases in accrued expenses and other liabilities and accounts payable partly offset cash generation.
- Investing cash outflow was $139.2 million, including $67.8 million for acquisitions and $69.6 million of capital expenditures. Financing cash outflow was $225.8 million, including $74.5 million of share repurchases and net credit-facility repayments.
- Remaining borrowing capacity under the credit facility was $2.6 billion, and the company reported compliance with its debt covenants. The average credit-facility interest rate, including hedges, was 5.11% at quarter-end. The company stated that available resources should fund operations, debt service and planned expenditures for the foreseeable future.
Outlook, risks and unusual items
The filing provides no numerical earnings or revenue guidance. Management said inflation in wages, logistics, energy, raw materials and components has pressured costs; pricing actions mitigate this with a lag. Supply-chain, labor and logistics constraints persisted for some components, affecting shipments, inventory, backlog and operating cash flow, although some constraints had eased. Higher rates and macroeconomic uncertainty may weigh on customer demand, particularly in Residential Kitchen.
Other disclosed risks include market and competitive conditions, customer concentration, foreign exchange and political exposure, raw-material availability and cost, cybersecurity, product acceptance, acquisition execution and possible goodwill impairment. Management did not believe pending litigation would materially affect financial condition, results or cash flows. No material acquisitions were completed during the nine months, though several individually immaterial acquisitions were made. Contingent consideration liabilities were $60.8 million at September 30, 2023.
Important facts for investors to verify
- Confirm the reporting period: the filing covers Q3 2023, despite the request metadata stating Q3 2022.
- Track Residential Kitchen demand and channel inventory, and whether weakness spreads to other segments.
- Assess whether margin improvements and operating cash flow are sustainable as pricing, input costs and supply constraints evolve.
- Monitor interest costs, floating-rate exposure, debt reduction and the availability of credit-facility capacity.
- Review acquisition performance, earnout obligations, restructuring costs and the company’s share-repurchase activity.