The Middleby Corporation — Form 10-Q Summary
Period: The filing covers the three months ended April 3, 2021, compared with the three months ended March 28, 2020. The request metadata says “2020 Q1,” but the filing itself reports first-quarter 2021 results. Filed May 13, 2021.
Financial performance
| Metric | Q1 2021 | Comparable 2020 period | Change |
|---|---|---|---|
| Net sales | $758.1 million | $677.5 million | Up 11.9% |
| Gross profit / margin | $275.9 million / 36.4% | $250.2 million / 36.9% | Margin down 0.5 percentage point |
| Operating income / margin | $121.2 million / 16.0% | $105.4 million / 15.6% | Margin up 0.4 percentage point |
| Net earnings | $89.3 million | $73.8 million | Up 21.0% |
| Diluted EPS | $1.59 | $1.33 | Up 19.5% |
| Operating cash flow | $59.7 million | $87.1 million | Down $27.4 million |
| Cash and cash equivalents | $309.3 million | $268.1 million at Jan. 2, 2021 | Up $41.2 million |
| Total debt | $1.822 billion | $1.730 billion at Jan. 2, 2021 | Up $92.5 million |
Investing activities used $7.0 million, including $8.7 million of capital expenditures, partly offset by $3.4 million in asset-sale proceeds. Financing activities used $8.3 million. Current assets were $1.393 billion and current liabilities were $714.4 million at quarter-end.
Business trends and changes
- Sales growth excluding acquisitions, a disposition and foreign exchange was 8.4%. Acquisitions contributed $18.6 million and favorable foreign exchange added approximately $11.1 million to reported sales.
- Commercial Foodservice sales rose 8.6% to $481.2 million; Food Processing rose 7.9% to $112.5 million; and Residential Kitchen rose 26.4% to $164.4 million. Excluding foreign exchange and acquisition/disposition effects, growth was strongest in Residential Kitchen, at 28.7%.
- Higher sales volumes supported gross profit growth, but consolidated gross margin declined. Commercial Foodservice margin fell to 36.4% from 37.3%; Food Processing improved to 34.8% from 34.6%; Residential Kitchen declined to 37.0% from 37.5%.
- SG&A increased to $155.0 million from $143.9 million, while declining as a share of sales to 20.4% from 21.2%. Higher incentive and stock compensation costs and acquisition-related expenses were partly offset by lower controllable costs.
- Operating cash flow fell year over year, including a $66.7 million increase in receivables and a $33.3 million increase in inventory as sales and demand improved. Accounts payable increased $31.7 million.
Debt, liquidity and notable items
- Management said available cash, operating cash generation, lender capacity and capital-market access should be sufficient for foreseeable operating, debt-service and investment needs. The company reported compliance with all borrowing covenants.
- The $3.1 billion Credit Facility matures January 31, 2025. Credit Facility borrowings and term debt totaled approximately $1.086 billion; $2.3 million of letters of credit reduced facility availability. The average Credit Facility rate, including hedging, was 3.32% at quarter-end.
- The $747.5 million principal amount of 1.00% convertible notes matures September 1, 2025. Adoption of ASU 2020-06 increased the notes’ carrying amount by $98.4 million and contributed to the reported increase in debt; it was an accounting change, not new borrowing. The notes’ disclosed fair value was $1.1 billion.
- Interest-rate swaps had a reported net liability fair value of $34.4 million. The company also reported a $0.7 million loss on foreign-exchange forward and option contracts.
- A $1.05 million gain on sale of a plant benefited operating income. Restructuring costs were $0.8 million; management expected approximately $20 million of annual savings from the related initiatives, which were expected to be substantially complete by fiscal year-end 2021.
Outlook, risks and contingencies
- The filing provides no quantitative earnings or revenue guidance. Management cautioned that interim results are not necessarily indicative of full-year results.
- Management cited COVID-19 effects, particularly in European and Latin American markets, while reporting improved domestic demand and strong demand for premium residential appliances. It also identified raw-material availability and cost, supply-chain considerations, foreign exchange, competition, customer concentration and market conditions among risks.
- On April 20, 2021, Middleby agreed to acquire Welbilt in an all-stock merger at a fixed exchange ratio of 0.1240 Middleby shares per Welbilt share. On closing, Middleby shareholders were expected to own approximately 76% of the combined company and Welbilt shareholders 24%. Closing remained subject to shareholder, regulatory and other customary conditions; financing is not a closing condition.
- The filing warns of possible merger delays or failure, integration and execution risks, business disruption, and potential termination fees. Under specified circumstances, Middleby may owe Welbilt $140 million or $160 million; Welbilt may owe Middleby $110 million in a specified termination scenario.
- Middleby stated that pending litigation was not expected to have a material effect on financial condition, results or cash flows. The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the reporting-period discrepancy between the request metadata (“2020 Q1”) and the filing’s actual period ended April 3, 2021.
- Track organic sales, segment margins and whether recent demand and gross-margin trends persist.
- Assess cash conversion and working-capital needs, particularly receivables and inventory, alongside debt and available revolving-credit capacity.
- Review the Welbilt merger’s approvals, closing timeline, dilution, potential termination fees and integration risks.
- Monitor COVID-19 and supply-chain impacts, raw-material costs, currency exposure, interest-rate hedging and covenant compliance.