Yesterday, May 8, Middleby reported earnings of $1.24 a share, 10 cents a share below Wall Street estimates. Revenue for the first quarter climbed 17.4% from the first quarter of 2018 to $686.8 million, slightly above the $683.01 million Wall Street projection. Gross margin climbed to 37.5% from 36.2%.Today, May 9, the shares closed at $135.24, down 1.36%. The stock is a member of my long-term 50 Best Stocks Portfolio. Middleby is up 180.23% as of the close today since I added it to the portfolio on May 3, 2013.
This wasn’t a bad quarter, but it didn’t knock my socks off either. Revenue was up 17% but most of that came from acquisitions. Organic revenue growth was just about 3%.The core Commercial Foodservice unit, two-thirds of revenue, saw a 3.4% increase in revenue. That’s just about in line with revenue growth at competitors Wellbilt (WBT) and Illinois Tool Works (ITW) of 3.5% and 3%, respectively. Margins in this unit fell by 70 basis points in the quarter although unit profit grew by 17%.
The Residential Kitchen unit continued to show signs of a turnaround with its revenue up 5%. Gross margin climbed 5.5 percentage points, which certainly contributed to a 185% jump in unit profit.
The Food Processing unit continued to be a problem with revenue down 3%. That significantly lagged revenue growth at competitor John Bean (JBT) of 15%. Gross margin improved 5.5 percentage points, helping drive unit profit up 185%.
Frankly, I expect more out of Middleby, which sells for a market premium 23.73 times trailing 12-month earnings per share.The company hasn’t changed its business strategy of acquire, improve, and grow small bolt on companies so I have to wonder if management has hit a dry spell when it comes to identifying good acquisition candidates or if competitors have caught up to Middleby. I remain bullish on the stock but I think it deserves some added scrutiny.