The Middleby Corporation — Form 10-Q Summary
Reporting period: Three months ended March 30, 2013, compared with the three months ended March 31, 2012. The request metadata says “2012 Q1,” but the filing is for Q1 2013. The filing describes Middleby’s commercial foodservice, food processing, and residential kitchen equipment businesses.
Financial results
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Net sales | $327.5 million | $228.8 million |
| Gross profit / margin | $121.3 million / 37.0% | $87.5 million / 38.2% |
| Operating income / margin | $42.2 million / 12.9% | $36.7 million / 16.0% |
| Net earnings | $25.9 million | $22.1 million |
| Diluted EPS | $1.39 | $1.20 |
| Operating cash flow | $13.5 million | $10.8 million |
Reported sales rose 43.1%. Management attributed $73.9 million of the $98.7 million increase to acquisitions; excluding acquisitions, sales grew 10.8%. Gross margin declined 1.2 percentage points and operating margin declined 3.1 points, reflecting lower margins at Viking and other recent acquisitions, higher acquisition-related expenses, and Viking integration costs. The effective tax rate was 32.8%, versus 33.7%.
Cash and cash equivalents were $43.8 million at March 30, 2013, versus $34.4 million at December 29, 2012. Total debt rose to $638.4 million from $260.1 million, principally to fund the Viking acquisition. The company had $355.5 million of remaining availability on its $1.0 billion revolving facility, after $9.5 million of letters of credit. Current assets were $490.2 million and current liabilities were $290.0 million.
Segments and material changes
- Commercial Foodservice: Sales of $197.4 million, up 10.7%; operating income was $49.8 million. Excluding Nieco, sales increased 8.6%.
- Food Processing: Sales of $71.4 million, up 41.1%; operating income was $11.5 million. Excluding Baker and Stewart, sales increased 18.6%.
- Residential Kitchen: Sales were $58.7 million, reflecting the Viking acquisition; the segment reported an operating loss of $7.2 million.
Viking was acquired on December 31, 2012, for approximately $380 million. Viking’s stand-alone Q1 sales were $58.7 million and its operating loss was $7.2 million. Middleby recorded $6.8 million of Viking integration expenses, primarily for severance and benefits, product discontinuance, office consolidation, and contract terminations. Viking’s purchase price allocation remained provisional; certain acquired assets were classified as held for sale.
Cash flows, outlook, risks, and contingencies
Investing activities used $381.8 million, primarily for the Viking acquisition, the Stewart acquisition, and $3.9 million of capital expenditures. Financing activities provided $378.4 million, mainly from revolving-credit borrowings. Operating cash flow increased year over year, while working capital absorbed cash, including higher inventory, receivables, and prepaid expenses.
No numerical earnings or sales guidance was provided. Management expected Viking integration initiatives to be substantially complete by fiscal year-end 2013 and said it expected Viking margins to improve as those initiatives take effect. Management stated that cash, operating cash generation, available credit, and access to capital markets should be sufficient for foreseeable needs.
Key risks include acquisition integration and performance, lower acquisition-related margins, variable-rate debt and foreign-exchange exposure, international and market conditions, raw-material availability and cost, customer concentration, and potential goodwill or intangible-asset impairment. The credit facility includes leverage and fixed-charge coverage covenants; Middleby reported compliance at quarter-end. Litigation was not believed likely to materially affect financial condition, results, or cash flows. The company reported $12.1 million of unrecognized tax benefits at year-end 2012, plus accrued interest and penalties; it said approximately $0.8 million might be recognized within 12 months. Acquisition earnouts and other deferred seller payments totaled $8.2 million.
Important facts for investors to verify
- Confirm the reporting period: the filing covers Q1 2013, despite the “2012 Q1” request metadata.
- Assess organic growth and whether Viking, Baker, Stewart, and Nieco deliver expected sales, margins, and integration benefits.
- Track leverage, interest expense, revolver availability, covenant headroom, and refinancing needs before the August 2017 facility maturity.
- Review the final Viking purchase accounting, assets held for sale, integration costs, and any effect on goodwill or intangible-asset impairment tests.
- Monitor working-capital conversion, especially inventory growth and project-related receivables, alongside operating cash flow.