Middleby (MIDD) Beats Q3 Earnings On Acquisition Benefits

Machinery behemoth, The Middleby Corporation (NASDAQ:MIDD) , reported mixed third-quarter 2016 results. Though the company’s top line lagged the Zacks Consensus Estimate, the bottom line surpassed expectations.

The company’s quarterly earnings of $1.33 cents per share surpassed the Zacks Consensus Estimate of $1.25. Also, the bottom line improved from the year-ago tally by 54.7%. The impressive year-over-year growth was primarily backed by higher sales and productive integration initiatives undertaken by the company.

Net sales came in at $574.2 million, up 27.9% year over year. The upside stemmed from higher sales accrued from Middleby’s acquired businesses. Notably, excluding the adverse impact of foreign currency translations, quarterly year-over-year organic sales growth was 1.4%.

However, the top line fell short of the Zacks Consensus Estimate of $598 million.

Segmental Details

Middleby reports its net sales under three heads/segments. The segmental results are briefly discussed below.

Revenues from the Commercial Foodservice Equipment Group totaled $331.6 million, up 14% year over year. The year-over-year improvement was driven by higher sales generated by Follett Corporation. Middleby had closed the acquisition on May 31, 2016. However, organic net sales of the segment inched up by 0.6% year over year.

Revenues from the Food Processing Equipment Group grew 10.8% year over year to $82.2 million. The segment’s organic sales were up 11.2% year over year, eliminating the foreign exchange impact.

Revenues from the Residential Kitchen Equipment Group were $160.5 million, up 91.3% year over year. The remarkable upside was driven by higher sales generated from AGA Rangemaster Group plc and Lynx Grills, Inc. Middleby had successfully acquired the two companies in 2015.

Margins

In the reported quarter, Middleby’s cost of sales jumped 26% year over year to $342.5 million. This represents 59.6% of net sales compared with 60.5% in the year-ago quarter. Gross margin expanded 90 basis points (bps) year over year to 40.4%, on the back of the benefits generated from the company’s integration initiatives.

Selling and distribution expenses came in at $56.6 million, up 27.2% year over year while operating income surged 51.8% to $121.4 million.

Balance Sheet

Middleby exited the third quarter with cash and cash equivalents of $61.8 million compared with $55.5 million recorded at the end of 2015. Long-term debt was $826.5 million compared with $734 million reported at the end of 2015.

Outlook

Middleby believes that higher demand of restaurant chain customers would likely boost sales of Commercial Foodservice Equipment Group segment in the quarters ahead. Fresh product launches of the Viking range and superior customer services are expected to reinforce revenue of the company’s Residential Kitchen Equipment Group. Also, higher demand for novel equipment solutions is estimated to drive revenue of Middleby’s Food Processing Equipment Group moving ahead.

Zacks Rank and Stocks to Consider

Middleby currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks within the industry that warrant a look include:

ACCO Brands Corporation (NYSE:ACCO) currently sports a Zacks Rank #1 and has an average positive earnings surprise of 23.93% over the four trailing quarters.

Applied Industrial Technologies, Inc. (NYSE:AIT) currently carries a Zacks Rank #2 (Buy) and has an average positive earnings surprise of 4.93% over the last four quarters.

AO Smith Corp. (NYSE:AOS) currently carries a Zacks Rank #2 and has an average positive earnings surprise of 5.88% over the trailing four quarters.

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