Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Middleby Corp (MIDD, Financial) reported strong profitability despite revenue declines compared to 2023, with margin expansion in both commercial foodservice and food processing businesses.
- The company achieved record operating cash flow for both the quarter and the first half of 2024, indicating strong cash flow generation.
- Order growth was realized across all three business segments compared to the prior year, showing positive trends in order activity.
- The company is making significant investments in strategic and operational initiatives, positioning itself for future growth.
- The Middleby Corp (MIDD) continues to launch industry-leading new product innovations across all business segments, enhancing its competitive position.
Negative Points
- Revenue for Q2 2024 declined compared to the prior year, indicating challenges in maintaining top-line growth.
- The residential business continues to navigate a disrupted housing market, which remains at near all-time lows, impacting performance.
- High interest rates and inflation are presenting a challenging macroeconomic backdrop, affecting consumer behavior and business operations.
- New store openings for chain customers have slowed compared to original expectations, impacting commercial foodservice growth.
- The company faces longer lead times for permitting and construction in the commercial foodservice segment, delaying project completions.
Q & A Highlights
Q: Great to hear that things seem to be getting better on the order front. I want to start with Food processing. And the strength that you're talking about here in terms of having record orders and the way you're kind of talking about revenue year-over-year in the back half really kind of stood out to me. So I'd love to hear a little bit more about what's driving this. I do wonder if you perceive this to be kind of a cyclical inflection within some of your key markets here. I know like poultry, maybe bacon struggled a little bit, maybe that's getting better, so I'd love to hear about that? Or is this just something that's idiosyncratic to the things that you've been doing on the new product front? And related to this, Bryan, how should we think about margin if you're going to be seeing that kind of growth in the back half for food processing?
A: Bryan Mittelman - Chief Financial Officer: Yes. Thanks, Mig. Things are overall good in food processing, right? But we compete in about 15, I'll say, full-line solution areas. So there are a variety of stories in there. I know you asked about protein, but let me briefly touch on bakery, and then I will pivot over to protein. Bakery overall has been, I'll say, steady after a really strong year. Last year, buns continue to do really well for us. Bread might be slightly weaker. But overall, still performing pretty darn steadily again after a really strong year last year. And then thinking about the meat side of things, meat costs have been going up and such. Things have been improving in poultry for us. We have been performing strong there. And as we look about at, I'll say, like the red meat and pork side of things, I think we view those improving over time, right? It takes a little bit more time, I'll say, for the supply to react there just given the cycles involved with developing the inputs there. So poultry has been rebounding is probably our strongest now. Hot dogs as such, have been also recovering and doing well in in parts of the world. So -- and I think as you look at our overall order trends, it really does get after beyond the impacts of individual product segments that are full line solutions and our ability to solve problems and drive efficiency and deliver on all those metrics, many of which James noted, are coming through. On the margin side, we made tremendous progress last year. And I think we will have some progress this year. Certainly, we're generally at our target levels overall as I think about multiple quarters, not just one particular quarter. We hadn't -- and I got the question a bunch in the last quarter too, about upping the targets. As we look at market dynamics and such, I think we will continue to expand a little bit as we progress through the year. But again, given all those dynamics are not necessarily expecting large jumps over what is already, I'll say, pretty healthy in market-leading performance.
Q: If I may, one follow-up then on Commercial Foodservice. You talked about orders getting better but your messaging, as I understood, is a little bit mixed in terms of what's going on with customers and end market trends. So I guess, from your perspective, the improvement in orders, is this just a function of some of the channel destocking running its course and we're starting to comp against prior period destock? Or is this -- is there something else going on here in terms of end market momentum that we need to understand?
A: Steven Spittle - Chief Commercial Officer: Yes, this is Steve. So it is a function, to some extent, of I'll call it a period of normalization of orders, right? We had to work through inventory that we've talked about being in the channel. We believe that is largely behind us. You do see orders more lining up with when demand is needed, right, with our shorter lead times, with our backlog coming down, customers and our dealers are ordering, I would say, more in real time versus what they have in the past. So I think you see that lining up. I still think you see our chain customers ordering to fulfill new store demand, even though it has ebbed and flowed and there's been some push out just with a slower start to the year for some of the chains still working through permitting issues, labor issues that they're facing. So you see new store openings push out a bit, but the chains have really still committed to their overall pipeline over the next 6, 12, 18 months, which we're encouraged by. I still think you have the dealer channel, which Tim talked about briefly in his opening comments, they're strengthening backlog with their end-user customers, has been positive. And I think you're starting to see that come through a bit. I do believe that actually comes through the back half of the year, the timing of how that comes through is maybe a little bit up in the air as we go through the back half of the year, but I think the encouraging point is that the backlog that our dealer channel partners have in our communication with them is certainly stronger than it was at the beginning of this year and certainly stronger than it was the back half of last year.
Q: First off, Lamb Weston is an important supplier to QSRs. They gave some pretty negative guidance last week. McDonald's call earlier this week was all focused on getting value right to combat traffic weakness. So with QSRs and restaurants overall, obviously, a large portion of your commercial foodservice business. How should we think about any potential impact or hesitation from these customers to invest in the equipment you offer when this traffic is challenged? And can you remind us how long order lead times are typically in that business?
A: Steven Spittle - Chief Commercial Officer: Yes, Brian, again, Steve. Good question. I would say, in spite of some of the challenges we've seen within a couple of the QSRs to start the year, the challenges that they still face in their restaurants have not gone away. In many cases, they actually brings them even more and more to the forefront. So all the challenges we've talked about, whether it's around the cost of labor, which is more challenging than ever, utility costs, fee of service, consistency of product, focus on the profitability of their franchisees. Those are all still extremely relevant, and those all still point to solutions the Middleby can offer. So even in spite of some of those challenges that you're referencing, I would say the discussions and the pipeline of products that we have with our -- in this case, QSR customers remains very strong. I'd also say, even though QSR are a big part of our overall end user segment, you see strength in other segments like fast casual right now. There's a lot of successes in those segments. And those are a lot of customers that I think have been a little bit earlier to adopt some of the new technologies in our pipeline. So I guess my point overall is there's been some ebbs and plus start the year with the QSRs, no question. Just a reminder, those QSRs remain committed to new store
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
