The Middleby Corporation — Form 10-Q Summary
Reporting period: Three months ended April 2, 2022; comparative period ended April 3, 2021. The request metadata says “2021 Q1,” but the filing itself reports first-quarter 2022. The financial statements are unaudited.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $994.7 million | $758.1 million | +31.2% |
| Gross profit / margin | $330.5 million / 33.2% | $275.9 million / 36.4% | Profit +19.8%; margin down 3.2 percentage points |
| Income from operations / margin | $122.6 million / 12.3% | $121.2 million / 16.0% | +1.1%; margin down 3.7 points |
| Net earnings | $85.8 million | $89.3 million | -3.9% |
| Diluted EPS | $1.52 | $1.59 | -4.4% |
| Cash from operations | -$15.3 million | +$59.7 million | Down $75.0 million |
| Cash and cash equivalents | $146.7 million | $180.4 million at Jan. 1, 2022 | Down $33.7 million |
| Total debt | $2.598 billion | $2.414 billion at Jan. 1, 2022 | Up $183.5 million |
Sales increased across all three segments: Commercial Foodservice rose 13.0% to $543.7 million; Food Processing rose 6.6% to $119.9 million; and Residential Kitchen rose 101.4% to $331.1 million. Residential Kitchen’s increase included substantial contributions from acquisitions. Excluding acquisitions and foreign exchange, consolidated sales grew 11.7%.
Cash and cash equivalents plus remaining borrowing capacity of $2.6 billion under the credit facility were available at quarter-end. Current liabilities were $918.4 million and current assets were $1.824 billion. The company reported compliance with all debt covenants.
Changes, drivers, and unusual items
- Revenue growth reflected acquisitions and higher underlying sales. Acquisitions contributed $157.0 million of sales growth; foreign exchange reduced sales by approximately $8.8 million.
- Gross margin declined amid higher raw-material, labor, and logistics costs, acquisition mix, and $14.3 million of acquisition-related inventory step-up charges. SG&A rose to $206.1 million, including acquisition-related costs and $17.7 million of acquisition-related intangible amortization.
- Operating cash flow turned negative largely due to working-capital investment: receivables used $55.3 million and inventory used $88.5 million. Management cited increased sales, acquired-business seasonality, supply-chain precautions, and inventory inflation.
- Financing included $187.8 million of net proceeds under the credit facility and $170.0 million of share repurchases, including $155.2 million under the repurchase program. The company repurchased 862,912 program shares at an average $179.89; 472,423 authorized shares remained.
- Other expense was $4.1 million, versus $1.7 million of other income a year earlier, mainly reflecting foreign-exchange gains and losses. The effective tax rate was 23.7%, down from 24.5%, primarily due to excess tax benefits on share-based awards.
Outlook, risks, and contingencies
The filing provides no quantified earnings or revenue guidance. Management stated that cash, expected operating cash generation, lender availability, and access to credit and capital markets should be sufficient for operations, debt service, capital expenditures, product development, and other needs for the foreseeable future. Management cautioned that interim results are not necessarily indicative of full-year 2022 results.
- Management identified inflation and availability of raw materials, labor and logistics costs, supply-chain disruption, changing market conditions, competition, customer dependence, foreign-exchange exposure, and the COVID-19 pandemic among relevant risks.
- The Russia-Ukraine conflict had no material impact on first-quarter results, according to the company, but Middleby suspended sales into and purchases from Russia. The filing warns that additional disruption could adversely affect results.
- The company said it did not believe pending litigation would materially affect financial condition, results, or cash flows. Acquisition purchase-price allocations remained provisional; the Kamado Joe and Masterbuilt purchase-price adjustment was expected to be finalized in Q2 2022.
- Interest-rate swaps had a reported fair-value asset of approximately $24.0 million. Convertible senior notes had $747.5 million principal and a disclosed fair value of $1.0 billion; no conversions had occurred.
Important facts for investors to verify
- Confirm the reporting-period discrepancy: the filing covers Q1 2022, not Q1 2021.
- Track whether margin pressure from inflation, acquisition mix, and inventory step-up charges persists, and whether the acquired businesses deliver expected growth.
- Monitor working capital and operating cash conversion, especially receivables and inventory, alongside debt growth and share repurchases.
- Review subsequent disclosures on the Kamado Joe and Masterbuilt purchase-price adjustment, provisional acquisition valuations, and the remaining repurchase authorization.
- Assess the effects of supply-chain conditions, Russia-related disruption, foreign exchange, and variable-rate debt as they evolve.