Middleby Corporation — FY2023 Form 10-K
Reporting period: Fiscal year ended December 30, 2023 (52 weeks), compared with the year ended December 31, 2022. Although the request metadata refers to 2022 Q4, the supplied filing is the FY2023 annual report, not a 2022 quarterly filing. Amounts below are in U.S. dollars.
Business context and performance
Middleby designs, manufactures and services equipment across three segments: Commercial Foodservice, Food Processing and Residential Kitchen. FY2023 revenue was essentially flat overall, as growth in the first two segments was offset by a steep decline in Residential Kitchen.
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net sales | $4,036.6 million | $4,032.9 million | +0.1% |
| Gross profit / margin | $1,534.1 million / 38.0% | $1,446.6 million / 35.9% | Margin +2.1 percentage points |
| Operating income / margin | $634.9 million / 15.7% | $639.6 million / 15.9% | Income −0.7% |
| Net earnings | $400.9 million | $436.6 million | −8.2% |
| Diluted EPS | $7.41 | $7.95 | −6.8% |
| Cash provided by operations | $628.8 million | $332.6 million | +$296.2 million |
Segments and material changes
- Commercial Foodservice: Sales of $2,521.5 million, up 5.3%. Excluding acquisitions and foreign exchange, sales rose 2.7%; management cited higher shipments, improved mix, pricing and better conditions in some international markets.
- Food Processing: Sales of $720.6 million, up 22.1%. Excluding acquisitions and foreign exchange, sales rose 10.7%, with growth in protein products domestically and bakery products internationally.
- Residential Kitchen: Sales of $794.5 million, down 24.2%; down 24.7% excluding acquisitions and foreign exchange. The filing attributes the decline to challenging market conditions and elevated inventory in distribution channels.
- Reported consolidated sales included a $121.3 million contribution from acquisitions and a $12.3 million favorable currency impact; excluding acquisitions and foreign exchange, sales declined 3.2%.
- Gross margin improved from FY2022, which was affected by acquisition-related inventory step-up charges, higher input and logistics costs. FY2023 operating income included a $78.1 million non-cash trademark impairment, primarily for Kamado Joe, Masterbuilt and Char-Griller brands.
Cash flow, debt and liquidity
- Cash and cash equivalents were $247.5 million at year-end, versus $162.0 million a year earlier. Total debt was $2.425 billion, down from $2.722 billion; net repayments under the credit facility were $308.3 million.
- Operating cash flow was $628.8 million. Inventory declined $157.9 million, supporting cash generation, partly offset by decreases in accrued expenses and other liabilities of $110.7 million and accounts payable of $49.4 million.
- Investing cash outflow was $155.7 million, including $68.8 million for acquisitions and $85.2 million for capital expenditures. Financing cash outflow was $390.9 million, including share repurchases.
- The credit facility had $2.8 billion of remaining borrowing capacity, and the company reported compliance with all debt covenants. Management said available resources and expected operating cash flows should be sufficient for foreseeable needs.
- Debt includes $747.5 million principal of 1.00% convertible notes due September 2025 and credit-facility borrowings maturing October 2026. The company identifies higher interest rates and potential conversion-related cash needs or dilution as risks.
Outlook, commentary and risks
- The filing provides no specific revenue, earnings or margin guidance. Management said it remains focused on profitability and its long-term strategy, while monitoring costs and supply-chain, labor and logistics constraints.
- Management reported continuing inflation in wages, logistics, energy, raw materials and components, and noted that higher rates and macroeconomic uncertainty may weigh on demand, particularly in Residential Kitchen. Some key-component supply constraints persisted, though certain disruptions had improved.
- Residential Kitchen restructuring actions are expected to generate approximately $12 million in annual savings; the initiatives were expected to be substantially complete by the end of FY2024.
- Backlog fell year over year in all segments: Commercial Foodservice $395.2 million versus $750.9 million; Food Processing $250.4 million versus $317.1 million; Residential Kitchen $112.1 million versus $175.0 million. The filing cautions backlog is not necessarily indicative of future business.
- Key risks include economic and residential-market weakness, customer demand and channel inventory, competition, commodity and supply disruptions, foreign exchange, interest rates and leverage, acquisition integration, cybersecurity, and potential impairment of goodwill and intangible assets. Goodwill was $2.49 billion and indefinite-lived intangibles were $1.32 billion at year-end.
- Routine litigation is disclosed; management did not expect pending matters to materially affect financial condition, results or cash flows. The company reported no known cybersecurity incident that had materially affected or was reasonably likely to affect it.
Important facts for investors to verify
- Whether Residential Kitchen demand and channel inventories recover, and whether the impaired brands’ forecasts and valuation assumptions prove reasonable.
- Whether the FY2023 cash-flow improvement is sustainable, given its reliance in part on inventory reduction and working-capital movements.
- Debt repayment and refinancing plans for the 2025 convertible notes and 2026 credit-facility maturities, including potential cash settlement or dilution upon conversion.
- Progress in realizing the expected restructuring savings and integrating recent acquisitions.
- Segment backlog conversion, especially the timing of Food Processing orders expected to be filled by the end of FY2025.
The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded disclosure controls and internal controls were effective, excluding specified recently acquired businesses from the internal-control assessment.