Update Middleby (MIDD)
Given the mood of the market right now, Middleby’s (MIDD) May 12 earnings report was a perfect storm of bad news. The company missed Wall Street earnings estimates for the first quarter by 8 cents a share and revenue fell by 11.5% from the first quarter of 2009.
And nobody wanted to hear a word of explanation. The stock fell on the news by 6.4% on May 13.
In its conference call the company explained the revenue decline. The first quarter of 2009 saw an unusually large lump order from a customer rushing to roll out a new menu. Subtract that lump and revenue actually climbed by 8.6% year to year. Nobody cared.
The quarter was difficult, said CEO Selim Bassoul, but the company started to see improvement in sales and orders. The Food Processing Group saw a big increase in sales as orders deferred in 2009 were finally placed with Middleby as customers increased their capital spending plans for 2010. Order trends for the Commercial Foodservice Group turned positive in the second half of the quarter. Nobody cared.
Why did nobody care?
That’s what happens when a stock climbs by 49% from the February 8 low to the May 12, the day of the earnings announcement. A lot of good news—like improving sales—is baked into the stock and all investors want to hear is the company say that things are even better than they expected.
And that’s what investors didn’t hear in the report or the conference call. Instead the headline takeaway by Reuters was the company’s worry over rising steel costs. The company said it thought it could address the problem by gains in efficiency in its supply chain. But (ready?) Nobody cared.
I’ve been impressed that Middleby has just kept on with its strategy of growing market share in a fragmented sector even during the worst of the Great Recession. On May 4, for example, Middleby acquired PerfectFry, an Alberta maker of ventless countertop frying units from the commercial foodservice industry with about $4 million in annual sales. I’m also impressed with the improvements in operating margins and on the balance sheet.
Given the stock’s huge run off the February 8 bottom, I don’t think the sell off on earnings is especially troubling. I think this is another stock, like Jubak’s Picks Cummins (CMI), Intel (INTC), and Cisco Systems (CSCO), that is set to benefit as customers put in orders to make up for spending that they deferred during the recession. (For more on why you want to own stocks like these now see my post http://jubakpicks.com/2010/04/20/go-for-the-growth-and-where-to-find-it-at-a-reasonable-price/ )
I’m raising my target price just a tad to $67 by November 2010 from the previous $65 by November.
Full disclosure: I own shares of Cisco Systems, Cummins, and Middleby in my personal portfolio.
Update Middleby (MIDD)
Has Middleby (MIDD) finally moved off the back burner?
Middleby’s shares were up 29% from February 8 through March 5, and the relative strength on the stock has moved to 72 for the last three months from 56 over the last six months. (Relative strength measures how a stock’s price performance compares to all other stocks on the market in the period. A relative strength of 72, for example, means the stock has outperformed 72% of all stock during the period.)
The market was anticipating that orders from the commercial food service industry—everything from fast food restaurants to school lunchroom kitchens—will finally first stabilize and then turn upward in 2010.
The company’s earnings report on March 3 vindicated that anticipation.
Update Middleby (MIDD)
On November 10 Middleby (MIDD) reported third quarter earnings of 83 cents a share, four cents a share better than Wall Street projections, but still 19% down from the third quarter of 2008. Revenue fell 7.5% from the third quarter of 2008. At $154 million revenue was about $10 million below the Wall Street consensus.
If you used a magnifying glass, you could find signs of improvement in the revenue number. In the second quarter of 2009 revenue was down 8.6% from the second quarter of 2008. In the third quarter of 2009 the year-to-year decline was just 7.2%.
And in the earnings number too. Gross margin climbed to 40.3% in the quarter from 38.9% in the third quarter of 2008.
Update Middleby (MIDD)
On August 12 Middleby (MIDD) reported second quarter earnings of 74 cents a share. That was 7 cents a share below Wall Street expectations. Revenue also came in light at $159 million versus the $170 million Wall Street had projected.
Middleby has attempted to keep growing its business by acquiring smaller competitors and targeting potential top tier customers with a new sales team.
That strategy is sound in the long run the company operates in a fragmented industry and many of its competitors in the commercial kitchen equipment/cooking unit business are currently stressed by a combination of tighter lending standards and slower business.
But that long term strategy has short-term costs because the company has to keep on spending even its own revenue comes under pressure in the recession.
