Can Middleby's (MIDD) Stock Rebound On Business Buyouts?

The Middleby Corporation (NASDAQ:MIDD) has been trying to strengthen its business on the back of numerous acquisitions, but the ongoing brand consolidation and restructuring moves have been depressing the company’s revenues and profitability.

Acquisition Story

Middleby recently announced that it has inked a definitive agreement to acquire Taylor Company from UTC Climate, Controls & Security — a business division of United Technologies Corporation (NYSE:UTX) . The company noted that this $1-billion buyout deal will aid in strengthening its position in the global commercial foodservice industry, going forward.

Taylor Company provides state-of-the-art ice cream and soft-serve dispensing equipment, frozen drink machines, beverage solutions and automated double-sided grills in the market. The company generated roughly $315 million revenues and $65 million adjusted earnings before interest, taxes and depreciation in 2017.

Middleby stated that the Taylor buyout will strengthen its presence among foodservice and chain restaurant customers, moving ahead. This transaction is anticipated to bring out roughly $16 million cash tax benefits annually and be accretive to the company’s earnings per share within the first 12 months of the deal’s closure. Moreover, Middleby targets to secure $15-million synergies from the acquisition.

The company will finance this all-cash deal with its existing revolving credit facility and expects to close it by early third quarter. The agreement is currently subject to regulatory approvals.

Middleby is currently following an acquisition-based growth strategy. In the first quarter, acquisition-related benefits drove the company's sales by $63.9 million. The acquisitions of Sveba Dahlen, QualServ, L2F and Globe (all closed in 2017) are expected to drive revenues of the company's Commercial Foodservice Equipment Group. Also, the Burford, CVP Systems, and Scanico buyouts (all closed in 2017) will likely bolster revenues of its Food Processing Equipment Group. Notably, buyouts made this year, like Josper S.A and Firex Srl, will likely drive the company's top-line results in the quarters ahead.

Existing Concerns

Over the past month, Middleby’s shares have lost 18%, underperforming 2.7% growth recorded by the industry.

Eliminating the impact of Accounting Standards Codification 606, favorable foreign exchange and acquisitions, revenues of this Zacks Rank #5 (Strong Sell) company fell 7.2% year over year in the first quarter. Sluggish market conditions in the U.K. might continue to dent sales of the company’s AGA Rangemaster business, going forward. Moreover, consolidation of premium brands (like Lynx and LaCornue) and ongoing restructuring moves might dampen revenues in the upcoming quarters. In addition, the company believes delay in few large projects will dent its Food Processing Equipment segment’s top line, in the near term. Reduced sales volume in the near-term quarters might continue to weigh over the company’s margins in the quarters ahead.

Over the past 30 days, the Zacks Consensus Estimate for the company’s earnings in 2018 moved 6.6% south to $6.06 for 2018 and $6.61 in 2019. Moreover, per our estimates, the company’s earnings are expected to edge down 1.6% year over year in 2018.

Stocks to Consider

Two better-ranked stocks in the industry are listed below:

Applied Industrial Technologies, Inc. (NYSE:AIT) sports a Zacks Rank of 1 (Strong Buy). The company’s earnings per share (EPS) are predicted to grow 12%, in the next three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here.

Graco Inc. (NYSE:GGG) also flaunts a Zacks Rank of 1. The company’s EPS is estimated to rise 10.33%, over the next three to five years.

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