3Q Earnings Update
November 5, 2020
COVID-19 Implemented Actions
COVID-19 UPDATE
In response to the COVID-19 pandemic, we implemented swift actions to protect our employees, ensure uninterrupted service to our customers and aggressively adjust our business and cost structure for a decline in revenues. Our businesses in all three segments support an essential daily requirement, food, and thus have been designated as essential globally. We are proud to continue to support our customers, while adhering to strict employee safety standards at all worldwide operations.
www.middleby.com
We have implemented the following in response to COVID-19:
- Employee Safety- Implemented companywide procedures including mandated mask policies, enhanced workplace sanitation, travel discontinuation, social distancing, staggered shifts and established work-at-home protocols for non-production employees.
- Customer Support- Ensured continued access to customer support, technical service and uninterrupted shipping of service parts and finished goods. Production continued to meet customer demand with minimal disruptions to address employee safety precautions.
- Cost and Profitability Initiatives- Instituted aggressive reduction of all controllable and discretionary costs. This included the adjustment of global office and production workforces in response to near-term reduced demand levels and reduced cash compensation to executives. Increased focus on prioritizing product and customers with highest profitability.
- Supply Chain- Established a task force to identify and mitigate supply chain disruption and ensure continuity of business operations and customer support.
- Liquidity and Cash Flow- Reduced capital expenditures for the remainder of year, enhanced working capital initiatives to drive inventory efficiency and suspended the Middleby share repurchase program. Maintaining investments in key strategic initiatives.
- COVID-19Product Introductions- Developed and launched products addressing COVID-19 needs, including sterilization units for N95 masks, mobile and touchless handwashing stations, plexiglass safety shields for restaurants and retail locations, mobile foodservice stations and hand and cleaning sanitizer produced at our most recent-acquired company Deutsche.
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Financial Results
Q3 2020 FINANCIAL RESULTS
3Q20 | 3Q19 | Change | |
Net Sales | $634.5 | $724.0 | -12.4% |
Gross Profit | 222.7 | 270.0 | -17.5% |
% of Sales | 35.1% | 37.3% | |
Operating Income | 86.7 | 121.3 | -28.5% |
Net Earnings | 60.5 | 82.0 | -26.2% |
Adjusted EBITDA | 126.5 | 157.0 | -19.4% |
% of Sales | 19.9% | 21.7% | |
LTM Bank EBITDA | 563.4 | 678.5 | -17.0% |
as defined in credit | |||
agreement | |||
Operating Cash Flow | 151.4 | 128.2 | 18.1% |
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RESULTS COMMENTARY
- Revenue decline of 14% organically as compared to prior year.
- Organic growth at Residential Kitchen +11% and Food Processing +22%, offset by declines at Commercial Foodservice -27%.
- In spite of challenging market conditions, given our industry-leading margins and focus on cost control, while ensuring sufficient continuity of operations, we generated strong levels of profitability.
- We generated strong Adjusted EBITDA across all segments:
• | Commercial Foodservice | 22.4% |
• | Food Processing | 23.8% |
• | Residential Kitchen | 18.3% |
- Q3 2020 operating cash flow increased 18.1% over the prior year and included the benefit of reduced working capital, driven by reduced inventory levels.
- Our Q3 and LTM operating cash flows were record highs at $151.4 million and $463.9 million, respectfully.
- We expect positive operating cash flows for the remainder of 2020.
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Segment Results
Commercial Foodservice | Residential Kitchen Equipment | Food Processing | |||||||||||||||||
3Q20 | 3Q19 | Change | 3Q20 | 3Q19 | Change | 3Q20 | 3Q19 | Change | |||||||||||
Revenues | 371,223 | 500,990 | -25.9% | Revenues | 152,654 | 133,877 | 14.0% | Revenues | 110,648 | 89,147 | 24.1% | ||||||||
EBITDA | 83,309 | 126,507 | -34.1% | EBITDA | 27,899 | 26,129 | 6.8% | EBITDA | 26,290 | 17,389 | 51.2% | ||||||||
EBITDA as % | 22.4% | 25.3% | EBITDA as % | 18.3% | 19.5% | EBITDA as % | 23.8% | 19.5% | |||||||||||
of Revenues | of Revenues | of Revenues |
Revenue and Growth | Revenue and Growth | Revenue and Growth | ||||||||||||
U.S. | 265,793 | -23.3% | U.S. | 97,318 | 12.0% | U.S. | 82,126 | 43.4% | ||||||
Non-U.S. | 105,430 | -31.7% | Non-U.S. | 55,336 | 17.7% | Non-U.S. | 28,522 | -10.6% | ||||||
Domestic and international revenue declines as a | Domestic and international revenue growth from | Domestic revenue growth was driven across the | ||||||||||||
result of COVID-19; however order rates showed | premium appliance brands given the rise in home | product portfolio and offset by international | ||||||||||||
positive trends in Q3 and into the start of Q4. | improvement projects and new home sales. | revenue declines due to COVID-19. Volatile order | ||||||||||||
Market sectors such as QSR, pizza, healthcare and | Housing market remains resilient during this | rates during the quarter, while maintaining a solid | ||||||||||||
c-stores still reflecting stronger demand. Focused | challenging time. | backlog. | ||||||||||||
efforts on providing solutions for customers to | ||||||||||||||
meet current safety and operational needs | ||||||||||||||
especially with emergence of second wave of | ||||||||||||||
government restrictions. |
www.middleby.com | 4 |
Debt and Liquidity
Q3 2020 LEVERAGE RATIO (IN $000S)
Cash | $220.3 |
Debt* | $1,832.1 |
Net Debt** | $1,785.2 |
LTM EBITDA** | $563.4 |
Total Leverage | 3.17x |
Covenant Limit | 5.50x |
- Excludes approximately $120.5m classified as equity and attributable to conversion feature under US GAAP
- As defined in the credit agreement
10-YEAR FREE CASH FLOW GROWTH (in 000s)
LIQUIDITY COMMENTARY
• Q3 generated all-time record high operation cash flow of $151.4 million, and |
benefited from $54.6 million reduction in inventory |
• Record LTM operating cash flow of $463.9 million as of Q3 2020 |
• During Q3 Middleby completed a convertible notes sale and amended our bank |
credit agreement |
• Issued $747.5 million of five-year convertible notes, with a 1% interest |
coupon |
• Purchased a capped call for $104.7 million to effectively increase the |
conversion price from $128.62 to $207.93, which greatly reduces dilution |
risk (less than 2% dilution projected at $250 share price) |
• Notes proceeds of $400 million were used to pay down outstanding term |
$92
$431
$333 $331
$269 $264
$221 $227
$123 $121 $132
loan borrowings and the bank credit facility has decreased by this amount |
• Total leverage (incurrence) covenant has expanded to 5.5x, allowing the |
company flexibility to continue operational and strategic investments |
• Current borrowing capacity is approximately $1.3 billion |
2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 |
LTM |
www.middleby.com | 5 |
Middleby Segment Summary
THREE INDUSTRY-LEADING FOODSERVICE PLATFORMS
- 100+ highly-respected, leading brands
- Global business infrastructure
- Highly synergistic business segments
- Technology and innovation leader
- Strong track record of profitability and cash flow
- Well positioned for existing and new market trends
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SEGMENT REVENUES
Food
Processing
13.5%
Commercial
67.1%
Residential
19.4%
SALES BY GEOGRAPHIC REGION Asia 8.7%
United | |
States | Europe and |
and Canada | |
Middle East | |
65.7% | |
21.9% | |
Latin | |
America | 6 |
3.7% |
Near-Term Business Conditions-Recent Order Trends
Commercial Food Service
April | May | June | July | August | September | October |
▼65% | ▼55% | ▼39% | ▼17% | ▼31% | ▼18% | ▼2% |
Business in quick-serve, pizza, retail, c-store and healthcare continue to be resilient with increased demand for delivery, drive-through and carry-out. There was a noticeable jump in parts orders for the third quarter as well. Casual dining restaurants have become more versed in carry out and delivery as they face another round of indoor dining restrictions. In the marketplace there continues to be a heightened focus on safety and related solutions. Middleby is well positioned to support new and accelerating trends with Bluezone and other commercial kitchen innovations.
Residential Kitchen
April | May | June | July | August | September | October |
▼53% | ▼35% | ▼9% | ▲28% | ▲59% | ▲46% | ▲45% |
Order improvement has sustained as dealer and retail locations have re-opened and consumers plan for kitchen remodels, reallocating funds earmarked for vacations and other cancelled activities. Many continue working, staying and eating at home which has fueled a consistent demand for both indoor and outdoor residential cooking and refrigeration equipment. Resale inventory is low and sales are exceeding 2019 levels. Permits and new home starts in the U.S. are above prior year levels.
www.middleby.com | 7 |
Trends in the Foodservice Industry
ACCELERATING TRENDS
- Added focus on off-premise (delivery, carry out and drive- through)
- Focus on menu simplification, throughput and space utilization
- Growth in non-traditional foodservice like retail and c-store
- Labor will continue to be a primary challenge
- New foodservice models will continue including modular, ghost and cloud kitchens
- Remote monitoring and automation
- Safety protocols for employees and customers
- Continued demand trends in healthcare and assisted living
MIDDLEBY SOLUTIONS
- Middleby ventless kitchens for non-traditional and space savings
- Development and launch of Open Kitchen
- Middleby modular and ghost kitchens
- Data intelligence and automation solutions
- Middleby advanced controls
- Middleby touchless and automated Pick-Up Cabinets (PUC)
- Focus on integrated solutions for targeted segments including retail, c-stores, healthcare and emerging chains
M I D D L E B Y V E N T L E S SM O D U L A R A U T O M A T E DI O T C O N N E C T E D
S O L U T I O N SP I C K U P C A B I N E T SK I T C H E N
M I D D L E B Y M O D U L A R | V I R A L K I L L A N D F O O D | M I D D L E B Y ' S N E W H I G H - |
A N D G H O S T K I T C H E N S | P R E S E R V A T I O N U N I T S | L E V E L U S E R I N T E R F A C E |
Over the past year Middleby has made significant dedicated investments in R&D to focus on technology
www.middleby.com | initiatives, solutions for industry trends and invested in targeted growth segments. As a result we are well | 8 |
positioned with solutions to address these needs that will accelerate as a result of COVID-19. | ||
Patented, No-Filter Air Purification System
- In demand by existing foodservice customers
- In study proven to destroy 99.9995% of airborne contaminants
- Most innovative and advanced technology available on the market
- Addresses top consumer indoor dining concern
- Core technology recommended by CDC, used by U.S. military
- Modular system, easily scaled for spaces, also built into furniture
- Food preservation system currently used in Viking refrigeration
- Visitwww.bluezone.comfor study and more information
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COVID-19 Restaurant Impacts
Domestic restaurant same store sales have been positive for several months according to reports from MillerPulse.
Multiple industry sources show sustained positive levels and stability, with some customers surpassing 2019 levels.
Restaurants are rapidly adapting to the new the new normal:
- Expanding to-go options, with curbside pick-up and third-party delivery
- Adding or improving mobile and online customer ordering capabilities
- Restaurants in all states offer delivery and carry out, while some are facing another round of dine in restrictions
- Customers are ordering parts and moving forward with planned maintenance schedules
- According to Technomic data, 10% of
restaurants will close in 2020
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MILLERPULSE WEEKLY INDUSTRY SAME STORE SALES, 2020
10.0 | |||||||||
0.0 | |||||||||
% Performance | (10.0) | ||||||||
(20.0) | |||||||||
(30.0) | |||||||||
(40.0) | |||||||||
(50.0) | |||||||||
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 | |
Week |
Source: MillerPulse Week 43 ended 10/26/2020
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Customers Returning to Restaurants
AVERAGE CONSUMER WEEKLY RESTAUANT VISITS | RESTAURANT RESERVATION YOY CHANGE 7-DAY MOVING AVG. | |
Source: Technomic Economic Navigator | Source: OpenTable; Technomic Analysis | |
- Data confirms customers are back to weekly restaurant visit levels of pre-Covid (3+ weekly visits)
- According to Open Table, the restaurant reservation rate continues to rise
- Studies show consumers want to return to their favorite restaurants
www.middleby.com | 11 |
COVID-19 Residential Impacts - Home Sales and Starts
TOTAL EXISTING HOME SALES % CHANGE YEAR OVER YEAR | NEW HOME CONSTRUCTION | |
30.0 | ||||||||||||||||
20.0 | ||||||||||||||||
YoY | 10.0 | |||||||||||||||
0.0 | ||||||||||||||||
Change | ||||||||||||||||
-10.0 | ||||||||||||||||
% | ||||||||||||||||
-20.0 | Source: National Association of Realtors | |||||||||||||||
-30.0 | Dec-19 | Apr-20 | May-20 | |||||||||||||
Jun-19 | Jul-19 | Aug-19 | Sep-19 | Oct-19 | Nov-19 | Jan-20 | Feb-20 | Mar-20 | Jun-20 | Jul-20 | Aug-20 | Sep-20 | ||||
Month |
New permits approved New home starts
Source: United States Census Bureau
Domestic home sales and new home starts and building permits continue improvement since the onset of COVID. Existing home sales continue to improve with limited inventory on the market
- Existing-homesales grew for the fourth consecutive month in September, up 9.4% from August and nearly 21% from the same month in 2019 according to the National Association of Realtors®
- Building permits remain consistent with previous month levels and 2019 rates
- New home starts rose slightly over Aug 2020 and Sept 2019
www.middleby.com | 12 |
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The Middleby Corporation published this content on 05 November 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 05 November 2020 15:46:08 UTC