The Middleby Corporation (NASDAQ:MIDD), a leading worldwide manufacturer of equipment for the commercial foodservice, food processing and residential kitchen industries, today reported net sales and earnings for the third quarter ended October 1, 2016. Net earnings for the third quarter were $75,851,000 or $1.33 per share on net sales of $574,224,000 as compared to the prior year third quarter net earnings of $48,825,000 or $0.86 per share on net sales of $449,004,000.
2016 Third Quarter Financial Highlights
Net sales increased 27.9% compared to the prior year third quarter. Sales related to recent acquisitions added $124.6 million or 27.8%, in the third quarter. The impact of foreign exchange rates on foreign sales translated into U.S. Dollars reduced net sales by approximately $5.4 million or 1.2%, during the third quarter. Excluding the impact of foreign exchange, organic sales growth increased 1.4% during the third quarter.
Net sales at the company’s Commercial Foodservice Equipment Group increased by $40.7 million, or 14.0%, to $331.6 million in the third quarter as compared to $290.9 million in the prior year third quarter. Excluding the impact of the Follett acquisition completed in 2016, sales decreased 1.1% in the third quarter. Excluding the impact of the foreign exchange, organic net sales increased 0.6%.
Net sales at the company’s Food Processing Equipment Group increased by $8.0 million, or 10.8%, to $82.2 million in the third quarter as compared to $74.2 million the prior year third quarter. Excluding the impact of foreign exchange, organic net sales increased 11.2% at the Food Processing Equipment Group.
Net sales at the company’s Residential Kitchen Equipment Group increased by $76.6 million, or 91.3%, to $160.5 million in the third quarter as compared to $83.9 million in the prior year third quarter. During fiscal 2015, the company completed the acquisitions of AGA and Lynx. Excluding the impact of these acquisitions, sales decreased by 4.9% in the third quarter, or 4.8% excluding the impact of foreign exchange.
Gross profit in the third quarter increased to $231.7 million from $177.2 million, reflecting the impact of increased sales from acquisitions. The gross margin rate increased to 40.4% from 39.5%. Improved margins reflected efficiency gains, including benefits from integration initiatives.
Operating income increased 51.8% in the third quarter to $121.4 million from $80.0 million in the prior year quarter. Operating income during the 2016 third quarter included $1.1 million of restructuring charges related to acquisition integration initiatives associated with AGA, as compared to $5.7 million of charges associated with restructuring initiatives related to Viking. In addition, the prior year third quarter included $7.3 million in transaction expenses related to the acquisition of AGA.
Non-cash expenses included in operating income during the third quarter of 2016 amounted to $18.2 million, including $6.9 million of depreciation, $5.1 million of intangible amortization and $6.2 million of non-cash share based compensation.
Other expense in the quarter was $3.2 million compared to $1.9 million in the prior year quarter, consisting mainly of foreign exchange gains and losses.
The provision for income taxes during the third quarter amounted to $36.0 million, at an effective rate of 32.2%, as compared to a $25.0 million provision at a 33.9% effective rate in the prior year quarter.
Net earnings per share increased 54.7% to $1.33 in the third quarter as compared to $0.86 in the prior year quarter. Net earnings in the current and prior year third quarter were reduced by restructuring expenses and AGA transaction expenses. The impact of these items reduced earnings per share by $0.01 and $0.15 in the 2016 and 2015 third quarter periods, respectively.
Net debt at the end of the third quarter amounted to $771.5 million as compared to $710.5 million at the end of the fiscal 2015 and $842.3 million at the end of the 2016 second quarter. Net debt includes the funding of the Follett acquisition completed on May 31, 2016.
Selim A. Bassoul Chairman and Chief Executive Officer, commented, “At the Commercial Foodservice Equipment Group, continued strong sales increases in the international markets were offset by a decline in sales domestically, reflecting slower general market conditions in the U.S. and delayed purchases from several restaurant chains in comparison to a comparatively strong 2015. Despite the third quarter sales results, we continue to see strong development activity with our restaurant chain customers adopting our innovative equipment solutions and anticipate improved sales growth in the fourth quarter at this segment.”
“We continued to realize strong sales growth in the third quarter at the Food Processing Equipment Group. Incoming order rates also continued to be solid as we realized continued demand for our innovative equipment solutions as customers remain focused on increasing production capacities and improving efficiencies in their operations. We continue to further progress toward our profitability initiatives at this segment and realized EBITDA margins in excess of 25% during the quarter.” said Mr. Bassoul.
Mr. Bassoul continued, “At our Residential Kitchen Equipment Group, the third quarter organic sales decline reflects the impact of lower revenues at AGA, which was acquired late in the third quarter of 2015 and was impacted largely by timing of shipments. Excluding AGA, sales in the segment declined by 2% reflecting the continuing residual impact of the prior year product recall at Viking related to products manufactured during the previous ownership. This impact continued to lessen in the quarter reflecting increasing traction of the new Viking product launches and benefits from substantial investments made in quality, customer service and after sales service.”
Mr. Bassoul added, “We continue to focus on our profit improvement initiatives at the recent acquisition of AGA Rangemaster Group and its related portfolio of premium residential brands, including AGA, Rangemaster, La Cornue, Marvel, Mercury, Falcon, Rayburn, Stanley, Grange and Fired Earth. We realized improvement in EBITDA margins which expanded during the third quarter to in excess of 15% and we anticipate will continue to improve as we realize the further benefits of continuing integration initiatives.”
Conference Call
A conference call will be held at 10:00 a.m. Central time on November 9, 2016 and can be accessed by dialing (888) 391-6937 or (315) 625-3077 and entering conference code 12968038#. The conference call is also accessible through the Investor Relations section of the company website at www.middleby.com. A replay of the conference call will be available two hours after the conclusion of the call by dialing (855) 859-2056 or (404) 537-3406 and entering conference code 12968038#.
The Middleby Corporation is a global leader in the foodservice equipment industry. The company develops, manufactures, markets and services a broad line of equipment used in the commercial foodservice, food processing, and residential kitchen equipment industries. The company’s leading equipment brands serving the commercial foodservice industry include Anets®, Beech®, Blodgett®, Blodgett Combi®, Blodgett Range®, Bloomfield®, Britannia®, Carter-Hoffmann®, Celfrost®, Concordia®, CookTek®, CTX®, Desmon®, Doyon®, Eswood®, frifri®, Follett®, Giga®, Goldstein® , Holman®, Houno®, IMC®, Induc®, Jade®, Lang®, Lincat®, MagiKitch’n®, Market Forge®, Marsal®, Middleby Marshall®, MPC®, Nieco®, Nu-Vu®, PerfectFry®, Pitco Frialator®, Southbend®, Star®, Toastmaster®, TurboChef® and Wells® and Wunder-Bar®. The company’s leading equipment brands serving the food processing industry include Alkar®, Armor Inox®, Auto-Bake®, Baker Thermal Solutions®, Cozzini®, Danfotech®, Drake®, Maurer-Atmos®, MP Equipment®, RapidPak®, Spooner Vicars®, Stewart Systems® and Thurne®. The company’s leading equipment brands serving the residential kitchen industry include AGA®, AGA Cookshop®, Brigade®, Falcon®, Fired Earth®, Grange®, Heartland®, La Cornue®, Leisure Sinks®, Lynx®, Marvel®, Mercury®, Rangemaster®, Rayburn®, Redfyre®, Sedona®, Stanley®, TurboChef®, U-Line® and Viking®.
For more information about The Middleby Corporation and the company brands, please visit www.middleby.com.
