Business context and reporting period
This is Middleby Corporation’s unaudited Form 10-Q for the quarter ended September 28, 2019, with comparisons to the quarter ended September 29, 2018. The request identifies “2018 Q3,” but the supplied filing is for 2019 Q3. Middleby reports Commercial Foodservice, Food Processing, and Residential Kitchen segments.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Net sales | $724.0 million | $713.3 million | $2,171.8 million | $1,966.3 million |
| Gross profit / margin | $270.0 million / 37.3% | $261.2 million / 36.6% | $813.8 million / 37.5% | $723.6 million / 36.8% |
| Operating income / margin | $121.3 million / 16.7% | $107.7 million / 15.1% | $362.0 million / 16.7% | $306.0 million / 15.6% |
| Net earnings | $82.0 million | $72.9 million | $243.2 million | $222.3 million |
| Diluted EPS | $1.47 | $1.31 | $4.37 | $4.00 |
- Quarterly sales increased 1.5%; nine-month sales increased 10.5%. Acquisitions were a major contributor: management attributed $41.7 million of quarterly growth and $240.0 million of nine-month growth to acquisitions.
- For the first nine months, operating cash flow was $229.7 million, compared with $252.0 million a year earlier. Capital expenditures were $33.8 million. Cash ended at $87.2 million.
- Total debt was $1.959 billion, up from $1.892 billion at December 29, 2018. The company had $1.0 billion of remaining availability on its $3.0 billion credit facility. Facility borrowings averaged 3.66%; the facility matures in July 2021. Middleby reported compliance with its debt covenants.
- Current assets were $1.200 billion and current liabilities were $585.2 million. Inventory rose to $614.1 million from $521.8 million at year-end.
Material changes versus comparable periods
- Quarterly sales excluding acquisitions and the closure of a non-core business fell 4.0% year over year; excluding foreign exchange as well, they fell 2.9%. Nine-month sales on the same acquisition- and closure-adjusted basis fell 1.3%, but rose 0.2% after excluding foreign exchange.
- Commercial Foodservice quarterly sales increased 6.2%, largely due to acquisitions; excluding acquisitions and foreign exchange, they rose 0.5%. Food Processing sales increased 0.9% reported, but declined 9.7% excluding acquisitions and foreign exchange. Residential Kitchen sales declined 12.8% reported and 9.6% excluding foreign exchange and the non-core business closure.
- Quarterly operating income and net earnings improved, while nine-month net margin edged down to 11.2% from 11.3%. Nine-month interest expense and financing amortization rose to $63.3 million from $38.4 million, reflecting higher debt and interest costs.
Outlook, commentary, risks and unusual items
- The filing provides no specific revenue or earnings guidance. Management said available cash, operating cash generation, credit-facility capacity and capital-market access should fund operations, debt service, capital expenditures, acquisitions, product development and integration for the foreseeable future.
- Management attributed weaker operating cash flow partly to increased inventory, including purchases ahead of potential tariff-related price increases, efforts to protect order fulfillment, and sales below expectations.
- Restructuring charges were $4.2 million in Q3 and $6.8 million for the nine months, versus $12.1 million and $18.2 million, respectively, in the prior-year periods. Management estimated annual savings of $10–15 million from one initiative and approximately $3 million from another, with savings expected to begin primarily in fiscal 2020; further costs were expected in Q4.
- 2019 acquisitions used $239.0 million of cash in the nine-month period. Several purchase-price allocations remained provisional; the Ss Brewtech and Pacproinc working-capital adjustments were expected to be finalized in Q4. Acquisition earnouts and deferred payments include contingent obligations.
- Risks cited include foreign-exchange and political exposure, competition and pricing, raw-material availability and cost, key-customer dependence, product-market acceptance, and potential goodwill impairment. The company said it did not believe pending litigation would materially affect its financial condition, results or cash flows.
Key facts for investors to verify
- Confirm the intended period: the supplied filing covers Q3 2019, not Q3 2018.
- Assess underlying demand separately from acquisition-driven growth, particularly the declines in Food Processing and Residential Kitchen organic sales.
- Monitor inventory, operating cash conversion, debt levels, interest costs, and the July 2021 credit-facility maturity and covenant headroom.
- Track whether projected restructuring savings materialize and whether acquisition purchase accounting, integration costs, and contingent payments change.