Middleby Corporation — Form 10-Q summary
Reporting period: Quarter ended July 3, 2021; six-month period compared with the six months ended June 27, 2020. The request metadata says “2020 Q2,” but the filing itself covers 2021 Q2.
Business context and results
Middleby operates Commercial Foodservice Equipment, Food Processing Equipment, and Residential Kitchen Equipment businesses. Management attributed growth primarily to improved market conditions and customer demand compared with periods heavily affected by COVID-19.
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net sales | $808.8 million | $472.0 million | $1,566.8 million | $1,149.4 million |
| Gross profit / margin | $303.7 million / 37.6% | $153.1 million / 32.4% | $579.6 million / 37.0% | $403.3 million / 35.1% |
| Operating income / margin | $136.7 million / 17.0% | $39.1 million / 8.2% | $257.9 million / 16.4% | $144.5 million / 12.5% |
| Net earnings | $120.6 million | $21.2 million | $209.8 million | $94.9 million |
| Diluted EPS | $2.13 | $0.39 | $3.73 | $1.72 |
Material changes and financial position
- Q2 sales rose 71.4%; first-half sales rose 36.3%. Excluding acquisitions, disposition, and foreign exchange, management reported increases of 64.8% and 31.6%, respectively. Commercial Foodservice was the largest segment and led first-half sales growth.
- Gross margin expanded year over year in both periods. Management cited higher volume and improved product mix; favorable foreign exchange also contributed. SG&A increased in dollars but declined as a share of sales, to 20.5% from 23.7% in Q2 and from 22.3% for the first half.
- First-half operating cash flow was $172.4 million, versus $164.8 million. Investing used $24.2 million, including $19.3 million of capital expenditures; financing used $18.7 million. Working capital absorbed cash, including increases of $63.5 million in receivables and $68.0 million in inventory, partly offset by a $41.5 million increase in payables.
- Cash was $395.6 million at July 3, 2021, up from $268.1 million at year-end. Total debt was $1.819 billion, versus $1.730 billion; management said the increase primarily reflected adoption of ASU 2020-06, rather than borrowing activity. The company reported $1.1 billion outstanding under its credit facility and was in compliance with its debt covenants.
- Current assets were $1.526 billion and current liabilities $731.8 million. The filing states that management expected cash, operating cash generation, lender availability, and capital-market access to fund foreseeable requirements.
Outlook, risks, and unusual items
- The filing provides no specific sales or earnings guidance. Management cautioned that interim results are not necessarily indicative of full-year results and cited COVID-19 effects, raw-material availability and costs, competition, customer dependence, international and foreign-exchange exposure, and financing costs among risks.
- The Q2 tax rate was 10.3% and the first-half rate 16.9%, reduced by discrete benefits including a UK tax-rate change and amended U.S. tax returns. Management estimated an approximately 24.5% rate excluding those discrete items.
- After quarter-end, Welbilt terminated its merger agreement with Middleby on July 14, 2021; Middleby received a $110 million termination fee. On July 12, Middleby announced the acquisition of Novy for approximately $270 million.
- Middleby reported no material pending litigation effect expected on its financial condition, results, or cash flows. Restructuring expense was $1.0 million in Q2; the company expected approximately $20 million in annual savings from the initiatives and said they would be substantially complete by fiscal year-end.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied metadata says 2020 Q2, while the filing covers the quarter ended July 3, 2021.
- Assess whether the sharp year-over-year rebound is sustainable given the COVID-affected comparison period, supply-chain and inventory needs, and market conditions.
- Review debt, covenant headroom, floating-rate exposure, and potential dilution or settlement obligations on the $747.5 million convertible notes.
- Verify the subsequent-period accounting and cash impact of the $110 million Welbilt termination fee and the Novy acquisition.
- Evaluate earnings excluding discrete tax benefits and consider the impact of the company’s elevated goodwill and intangible asset balances.