Middleby Corporation — Form 10-Q Summary
Period: Quarter ended October 1, 2022; nine months ended October 1, 2022, compared with the corresponding 2021 periods. The request metadata says “2021 Q3,” but the filing itself is for 2022 Q3. Financial statements are unaudited.
Financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $992.9M | $817.5M | $3,001.1M | $2,384.4M |
| Gross profit | $365.2M | $299.6M | $1,056.5M | $879.2M |
| Gross margin | 36.8% | 36.6% | 35.2% | 36.9% |
| Operating income | $161.7M | $233.5M | $451.5M | $491.4M |
| Net earnings | $104.4M | $176.0M | $303.4M | $385.8M |
| Diluted EPS | $1.92 | $3.09 | $5.50 | $6.83 |
Revenue rose 21.5% in Q3 and 25.9% year to date. Excluding acquisitions and foreign exchange, sales increased 14.2% in Q3 and 13.1% year to date. Net earnings and EPS fell despite sales growth. The 2021 comparison included a $110M Welbilt merger termination fee; excluding this unusual fee, the year-over-year operating income comparison is less unfavorable. For the first nine months of 2022, gross margin declined 1.7 percentage points, reflecting inflation in materials, labor and logistics, acquisition-related inventory step-up charges, and mix. Q3 gross margin increased 0.2 points year over year.
Segment sales
| Segment | Q3 2022 sales | Q3 year-over-year change | Nine-month 2022 sales | Nine-month year-over-year change |
|---|---|---|---|---|
| Commercial Foodservice | $623.7M | +21.9% | $1,777.0M | +18.4% |
| Food Processing | $148.2M | +31.6% | $392.1M | +10.4% |
| Residential Kitchen | $221.0M | +14.3% | $832.1M | +57.7% |
Residential Kitchen’s reported growth included substantial acquisition contributions; organic, currency-adjusted sales grew 2.3% in Q3 and 9.5% year to date. Q3 organic, currency-adjusted growth was 17.0% in Commercial Foodservice and 21.7% in Food Processing.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $173.4M, down from $346.0M. Inventory increased $214.0M, driven by acquired-business seasonality, supply-chain protection and inflation.
- Capital expenditures were $50.9M; operating cash flow less capital expenditures was approximately $122.5M. Investing cash outflow was $257.9M, including $206.3M for acquisitions.
- Cash was $144.9M at October 1, 2022, versus $180.4M at January 1, 2022. Current assets were $1,950.5M and current liabilities $937.8M.
- Total debt was $2,738.0M, up from $2,414.3M at year-end 2021. The company reported $2.5B of remaining capacity under its credit facility and said it was in compliance with debt covenants.
- Interest expense and deferred financing amortization rose to $62.6M for the nine months, from $43.5M, primarily due to higher borrowing levels and interest rates. Management said available capital resources were sufficient for foreseeable needs.
Management commentary, outlook and risks
Management reported improved activity in most end markets, but noted softer recent demand in parts of the residential business. Supply constraints, elevated input costs, labor and logistics inflation, and longer lead times continued to affect operations, margins, inventory and operating cash flow. The company said pricing and productivity initiatives were partly mitigating cost pressures and expected input costs to remain elevated for some time. It expected cash flows to improve as inventory is managed to fulfill backlog and future demand. No specific financial guidance or quantified forecast was provided.
The Russia-Ukraine conflict contributed to transportation costs and supply-chain challenges. Middleby suspended sales into and purchases from Russia; management said the conflict had not materially affected results through the period, but future effects were uncertain. Other disclosed risks include inflation, interest rates, foreign exchange, supply and raw-material availability, competition, customer concentration, international exposure, and the uncertain effects of COVID-19 and related market conditions. The company reported no pending litigation it believed would materially affect its financial condition, results or cash flows.
Other notable items: the company acquired several businesses during 2022, none individually material; acquisition purchase-price allocations remained provisional. It repurchased $239.7M of shares during the nine months. The Inflation Reduction Act provisions were not expected by management to materially affect results. Disclosure controls were concluded effective as of period-end.
Most important facts for investors to verify
- How much reported sales growth reflects acquisitions and pricing versus underlying volume, particularly in Residential Kitchen.
- Whether gross margins recover as inflation, acquisition-related charges and product mix evolve.
- Whether inventory and working-capital needs moderate enough to restore operating cash flow.
- Debt costs and refinancing exposure as variable rates change, including the effectiveness and maturities of interest-rate swaps.
- Whether supply-chain, geopolitical and end-market risks alter backlog conversion or residential demand.
- The 2022 Q3 period in the filing versus the “2021 Q3” period stated in the request metadata.