Q4 2020 Middleby Corp Earnings Call
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Ladies and gentlemen, todays conference is scheduled to begin shortly and you continue to standby. Thank you for your patience.
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Okay.
Welcome to the Middleby fourth quarter, 'twenty and 'twenty conference call.
We will start today's call with comments from management and then open the lines up for questions.
And we would give them instructions on how to get in the queue at that time.
With us today from management, and our Chief Executive Officer, Tim Fitzgerald, Chief Financial Officer, Bryan Mittelman, Chief Operating Officer, David Brewer, Chief Technology, and operations Officer, James Pool, and Chief Commercial Officer, Steve Spittle.
Now I'd like to turn the call over to Mr. Fitzgerald for opening comments. Please go ahead.
Thank you everybody for joining us today on our fourth quarter conference call.
As we begin please note there are slides to accompany this call on our Investor page.
And I'm very pleased to welcome James pool, and steep spittle on the call. This morning.
As recently announced James and Steve have been appointed as officers of the company expanding and greatly enhancing our leadership team.
James and Steve each bring tremendous experience and the foodservice industry, along with a long tenure at Middleby.
They have successfully been leading a number of our core brands, such as turboshaft, Picco Blodgett and Middleby Marshall.
James and Steve <unk> also been executing our key initiatives over the past several years that are critical to our business as we accelerate the pace of technology advancement.
Innovate the customer experience and differentiate and it'll be in the marketplace.
In addition to their officer roles, James and Steve will oversee the portfolio of cooking brands within our commercial foodservice segment.
I'm also very excited to have announced Corey cool to lead our Middleby beverage group.
And the ZIP maloof to lead our residential kitchen equipment business.
Korea, and as you bring a deep food services.
Industry experience.
And our longtime Middleby executives.
Both have successfully led integration efforts across many businesses, we have onboard and through acquisition.
The beverage group and our residential kitchen equipment business has expanded rapidly since their inception and present exciting continued growth opportunities for middleby.
Gordian and <unk> and their new roles join Mark Sullivan, our president and that has been leading the food processing group.
This expanded team provides leadership for each of our business segments and ensuring the continued execution of growth initiatives and bolsters, our efforts to realize synergies across each of our segments.
And I'm very excited about the deep bench of talent that we continue to develop at all levels and across the entire organization.
A broad team of highly capable leaders is working and collaboration as we leverage our strengths and capabilities across all of Middleby.
And I believe our people are our most important asset and provide us a true competitive advantage.
And the Middleby team is stronger than ever.
As I'm sure. Most of you have also seen David Brewer recently announced his plans to retire at the end of this year.
And Dave has provided tremendous leadership to the organization from more than a decade.
David has been a driving force of Middleby, while we have substantially grown our business many times over through business acquisition customer acquisition and product development.
He's been a mentor to many across our company a committed advocate for all of our customers are positive lasting imprint on the culture of the company.
And a true partner and friend through our journey together.
I'm very happy that he will be continuing with us throughout 2021, as we have a very exciting year ahead.
And lastly, I would like to once again, thank our entire middleby team around the world.
The quick actions creativity and dedication of the entire team was on display over the past year.
As we navigated the uncertainty and challenges of Covid and the.
And the efforts and commitment of our team have allowed us to maintain the priority on our customers. While we also delivered the achievements of 2020.
And to this team I'm grateful.
As we look back at 2020, I am proud of what we accomplished financially we ended the year and a great position, we reported record operating cash flows and 2020.
Realized strong profitability across all three of our business segments, and we developed a record backlog providing momentum as we head into 2021.
Despite the impact of Covid, we remain committed to our long term strategy.
As we invested and the reinvention of our business.
We advanced our technology initiatives, particularly particularly in areas such as controls Iot and automation to capture rapidly changing market dynamics with.
We expanded our sales capabilities with the development of digital sales programs improved upon the effectiveness of our sales organization and strengthen the relationships with our strategic channel partners.
And we bolstered our capital structure, enabling us to Reengage, our acquisition strategy and completed acquisitions to further extend our beverage business adds to our portfolio of innovative technologies and expand our global manufacturing capabilities.
We also continued to invest and showrooms for our residential and commercial businesses and just this past week announced the opening of our Middleby innovation kitchen and Dallas.
These innovation centers allow us to engage with designers channel partners and customers as we promote the latest technologies product innovations and integrated solutions, we carry across our entire portfolio of Middleby brands.
And 2020, we also continue to execute execute upon important initiatives to improve our profitability as we emerge from COVID-19.
We progressed manufacturing supply chain and acquisition integration efforts across the business.
This will result in improved profit margins at each of our business segments and the upcoming year.
As we move into 2021, we are optimistic about improving market conditions and the strength of our positioning and each of the business segments.
At commercial foodservice, while the industry has been significantly disrupted it has also proven resilient.
Even though the foodservice industry in 2021 is not expected to recover to 2019 levels. It is anticipated to improve meaningfully from 2020.
Our customers that quickly adapted business models during COVID-19 are making strategic investments and their foodservice operations, leading to new kitchen layouts, and the adoption of new technologies.
We're actively engaged with customers to address rapidly changing needs.
And the many investments we've made leading into 2021 are now more relevant than ever.
And our business, our residential business, new home starts and existing home sales continue to be robust while.
And while increased time spent at home is resulting and kitchen remodels.
This presents a favorable backdrop to our business for the upcoming year.
We're also benefiting from the many new product launches and investments and our sales and service capabilities made over the past several years. All of this has positioned us to capture a growing market share.
And food processing and <unk>.
<unk> restrictions continue to be a challenge to customer demonstrations and the installation of equipment.
This is particularly impactful due to the amount of cross border business we have.
Despite these challenges the engagement with customers and the project pipeline remains strong.
And as Covid restrictions lift opportunities exist for our products and growing market segments, such as cured meats and alternative proteins.
And we are prepared with solutions to meet increased demand for automation and to address labor and employee safety concerns at our customers.
In summary, we are proud of the team that successfully navigated the challenges of the past year and we are confident the actions taken and have successfully positioned us for the year ahead and toward our vision for the future.
I'd like to now turn it over to Bryan for the financial discussion. Thanks, Tim for the fourth quarter, our GAAP earnings per share were <unk> 94.
Adjusted EPS, which excludes amortization expense and non operating pension income as well as other items noted and the reconciliation and the back of our press release was $1 62, which was negatively impacted by <unk> <unk> from acquisitions.
Operationally was a strong quarter for us we generated all time record sales and earnings and the residential segment.
Food processing closed 2020 with their strongest revenue quarter of the year and earnings were at the highest percentage level and three years commercial foodservice grew their top line approximately 15% sequentially over Q3 and nearly the same on EBITDA.
And also our free cash flow exceeded $200 million for the quarter.
I've been especially excited to report one number and particular $500 million.
Actually $504 million.
That represents our free cash flow for all of 2020 being.
And being disciplined about cash flows this quarter running the business for us we have demonstrated our ability to manage costs and cash while also investing driving innovation and providing excellent service to our customers.
Now jumping into revenues and segment performance on a consolidated basis revenues declined 7% or 9% organically as COVID-19 significantly impacted our results across the company, we were able to deliver gross margin of just over 35%, which was in line with Q3.
By the way all March and values I will discuss are on an organic basis, as well, meaning excluding acquisitions and FX impacts.
Total company adjusted EBITDA was $145 million and represented over 20% of revenues.
Which was also generally in line with Q3, we achieved this while continuing to invest around $5 million and technology initiatives quarterly.
Commercial foodservice revenues globally were down under 19% organically and when looking at just North America decline was approximately 90% the international decline was 32%.
And residential we saw revenue up 15% as strong demand persists for a premium appliances and outdoor cooking platform.
This led to gross margins of 30, 37% and adjusted EBITDA of over 20%.
And the quarter.
We did take a charge, which is a component of the impairment shown on the income statement for the sale of our fired Earth tile business, which contributed around $20 million of revenues and 2020. This action will improve profitability of this segment going forward.
And food processing revenues increased approximately 9% sequentially and were almost flat organically compared to the prior year gross margins were 36% and the adjusted EBITDA margin was over 23%.
As is typically the case for the segment Q4 was the strongest quarter of the year.
Interest expense was nearly $23 million. This was our first full quarter with our improved current capital structure in place having issued our convertible notes back in August.
Beyond the 1% coupon and these notes did have $5 million of non cash interest expense attributed to them and Q4.
However, we are to adopt the new GAAP rules, and convertibles accounting and 2021 and as such this noncash interest expense will not be required and our future results.
And one more 'twenty, one item that I want to briefly address the noncash pension benefit that is depicted in the non operating section of our income statement.
And is expected to be at relatively consistent levels and 21 as compared to 'twenty.
Based on current exchange rates.
So as I mentioned earlier for the quarter, we generated strong cash flows $209 million from operations was $70 million and benefit from reduced working capital levels from inventory and other cash management efforts for the past 12 months as I said free cash flow was $504 million a record level for us.
Working capital changes as a result of the pandemic did positively impact cash flows by over $170 million. We do expect some future reversal of this so reported 2021 cash flows will likely be at a lower amount as working capital adjusted to changing revenue levels. Nonetheless, our disciplined.
Remains and this is a key focus area, especially around inventory.
During Q4, we paid down debt by $109 million and over the full year, we have reduced our net debt level by $203 million.
Our total leverage ratio was three one times, while our covenant limit is five five times. We also have over $1 3 billion of current borrowing capacity under our credit agreement.
As with all parts of the business 2020 was a dynamic year from us for.
For us from a treasury perspective, we took deliberate actions to improve our capital structure, we refinanced our bank credit agreement twice once was to expand the facility as we began the year, we increased capacity and benefited from the relatively low rates, we earned given our profitability levels and cash flow generating abilities. The SEC.
And time was when we further enhanced our capital structure and conjunction with the issuance of the convertible notes back in August.
With our banking partners, we're able to put in place the flexibility and availability to continue our strategic priorities.
During the year, we also bought back over $85 million and stock, we made acquisitions and investments with a total value over $100 million, which included $86 million and cash and $16 million and equity issuances.
As we resumed making acquisitions and investments and Q4, we expanded our offerings and Asia and have accelerated new product introductions into this receptive market. We are we also expanded our product offerings of beverage products with the acquisition of Wild Goose filling and we continue to demonstrate our ability to innovate and Bryan <unk>.
<unk> solutions to our customers.
I also find it interesting and how our innovation leads to further innovation by our customers to this point and other personal reflection.
And the past I've talked about my family's favorite middleby products for this quarter I'm being a bit self centered rather than including my voice I will focus on the beverage products did I enjoy from time to time.
By favorite local restaurant like many has added cocktails to their takeout menus help survive during these crazy times.
We have partnered with a local Chicago area Company, Luke plays our cocktails, which utilizes our <unk> products to bring the bottle drinks to markets.
By the way beyond beer and cocktails assessed <unk> amazing product portfolio, and cold brew coffee and record high for both commercial and residential uses.
Craft brewing is another area of growth for us and I've enjoyed some beers offered at pilot project ruling, which utilizes systems from Deutsche beverage technology, which was our first acquisition of 2020.
What is especially unique and innovative about pilot project is that they are a growing incubator they've addressed the barriers to entry to support talented brewers and bringing their new <unk> and sales to market.
Even though while I am the one and joined the outputs My family has not been entirely left out of the equation. We've had discussions about the science of carbonation and the appropriate technique to generate the proper amount of foam on top of a beverage. This may not be part of the typical remote learning curriculum for most kids, but science can be taught and many practical manners.
As our beverage portfolio continues to grow now with wild goose and the fold I have a bunch more customer spots to try and the coming weeks more reports will follow.
So having covered our 2020 business and my ongoing pandemic customer support activities. It's time to look forward to 2021.
And in doing so it is helpful to refer to order and backlog data, which we've shared and the presentation that is available at the investors section of our website.
For commercial foodservice the positive trajectory continues after seeing order rates down 22% and Q3 for Q4 were only down 5% and this upward trend line has persisted into 'twenty one.
The order strength put our year end backlog up 84% from prior year levels at $238 million and.
Accordingly, our revenue expectation for Q1 of 'twenty, one is to see modest sequential growth from Q4, which also implies revenue close to prior year levels.
I would have hoped to guide to being at least flat to prior year, but supply chain risks or having a somewhat dampening impact on our short term expectations and we had some operations with disrupted with recent storms, but we are working to safely recover from that nonetheless, I still have and optimistic viewpoint at this time and <unk>.
Are margins, we do expect to see sequential improvements from Q4 levels and should be at similar levels to prior year profitability in terms of EBITDA percentages.
So wrapping up my thoughts and commercial foodservice it would not be prudent to offer a specific guide on revenue for the full year, but we remain encouraged by recent trends and the midterm outlook considering all the factors benefiting our marketplace. We do expect this could reasonably allow us to reach 2019 profitability levels, meaning delivering above <unk>.
25% as we progressed through 'twenty one in spite of revenues being below 2019 levels. There are many unknowns, but if the positive trends continue and we successfully manage through and overcome the risks this is achievable.
Residential growth continues with Q4 order rates up over 50% from the prior year in terms of revenue, we clearly expect to have double digit growth for the first half of the year, given the many variables and risks, including the strong comparable and I'm not yet comfortable estimating with growth and the back half of the year could be.
Getting a bit more granular Q1 revenues may be down somewhat from Q4 levels and this is primarily due to three factors one the impact of the disposed business to seasonal shifts and product mix, especially in the U K has an impact and lastly, some of our other businesses do see a holiday spike and the <unk>.
Fourth quarter.
And the production environment, we are focused on ensuring employee safety and managing through labor availability matters as well as addressing issues from recent weather impacts and operations.
This all creates some limitations on us in terms of short term margin expansion, but nonetheless, we will be at similar levels, if not slightly above where we have been in the fourth quarter.
And for food processing, we enter 2020 with a record backlog and are pleased given the disruption that impacted this segment during the year two and exited the year at a relatively similar level, we are positioned well for 'twenty, one as conditions evolve.
Q1 revenues will be below Q4 levels as is the seasonal norm, but we do anticipate slight growth over the prior year's first quarter.
Margins are typically rather depressed and the beginning of the year. However, we do expect Q1, 'twenty, one margins to be well above prior year levels and summary modest improvements to start the year with the possibility for a stronger second half.
As I wrap up I want to come back to our people as they make these results happen we have great teams at Middleby, we faced and incredibly difficult year together.
And I know, we're all proud of what we have delivered and we look forward to better times and the hopefully not too distant future and.
And with that we will continue to deliver industry leading results.
Thank you to everyone for working to stay safe while at the same time continuously demonstrating your dedication drive and commitment.
And at closing Shadow today, one of Purdue university's finest graduates and he didn't even pay me to drop that in.
He has a tremendous engineer a passionate leader someone we all trust and a little known secret of pretty decent pretty decent accounts into so.
So Dave and so very appreciative of the time and the interest you have taken Amy and and my family as well to not only ensure my accounting skills are strongest yours, but help me learn the industry and growth Middleby and you've always been someone and I could count on to ensure that we're through them for ice cream after dinner.
And I could go on and on on how great. It has been to work with you to learn from you and to see what you give others your level of the industry Our company our people and more importantly, a family is always inspiring but ive probably taken too long already so I'll close with a simple. Thank you and we'll look forward to a toast with a buttery chardonnay sometime later with that.
Before we turn the call open to questions I will give it over to you David for concluding comments.
Thanks Bryan.
And I will say as most of the people on the call know and appreciate we get very organized and disciplined about preparing for these calls those last comments were a surprise to me. So thank you, Brian and we will talk later.
Take a second and third I do I do appreciate having just a couple of minutes to say a couple of things and as I transition out of the company and stepped down as an officer of the company and I.
I worked for the next 10 months on some strategic opportunities that we have and.
And on a irregular basis, maybe you can be and on this call, but I wanted to take an opportunity to say my appreciation and I'd like to start off by.
And Ah congratulating.
James and Steve for stepping up to and officer role of a global company.
Have clearly demonstrated their capacity their capability and their leadership skills over many years and and.
It could be two bidder leaders to step into this those rules and a.
Very excited from Middleby overall.
And as I've said many times on this call a lot of Middleby people listening on this call. They read the document afterwards, and so I cannot resist extending my appreciation for the hard work.
Of the supply chain and the purchasing and the operations of the engineering and the sales team of Middleby around the world and just an outstanding group of people I Love working with them every week I think I talked to a couple of hundred of them on conference calls and processes and leadership reviews.
And Im always amazed by the capability, we have embedded in our organization.
Clearly, Tim and I have pulled forward some great group presidents, two and achieve and George and Corey Jeremy John.
If you look at their resumes I challenge everybody to look at their Linkedin profiles and.
Be amazed by their capabilities and their.
They're backed up by a group of 30, plus country managers managing directors presidents Gms that are just so capable so diverse out of the box thinkers young aggressive people 30 plus of them around the world just amazing group.
And I have to say, even though Bryan caught me by surprise.
Bryan is just an outstanding CFO, what I love about Bryan as he always he gets his hands dirty.
And get a little corny about his personal interactions with some of our equipment, but he is a get your hands dirty and CFO and the best part about Bryan as you always ask about numbers behind the numbers.
And that deep understanding of the business makes a difference for all of us and as a fellow officer and Martin Lindsay is just outstanding and I know.
He doesn't get the credit that a lot of people should based upon his leadership through Covid was outstanding his leadership around banking relations are amazing and just a great officer of this company and I have to say I. Appreciate the board of directors of Middleby that I've known for 13 years challenging diverse wise humble.
And personally involved and the business from a personal background with their resumes.
Before I get to my last two appreciations and I have to give some credibility.
And anytime you go through a transition you kind of cleaned out your desk.
I was going through my passports and I was looking at.
And the number of countries that I've worked in and.
Got to 70 and stopped counting the other thing and as I have my 25 extended year long work visas and 17 different countries, which was amazing and then you put that on top of.
And I've had the opportunity to work directly for indirectly for around some of the most transitional and transformational Ceos in the industry from Roger and Rico, and Steve Bryan them into the lender family too David Novak, David Gibbs to Joseph Hahn, Sam Sue and China.
So Jose you got one of the most transformational Ceos and the industry.
And I just wanted to say I appreciate Tim Fitzgerald, so with that background and that experienced by half.
And Tim is probably what is the best CEO and the industry. He is a transformational thinker he understands technology.
Understand the customer and understand how to create shareholder value based upon the value of the products, we produce the quality of the products and the interaction with the end user there is no better humble ethical.
Ethical making.
And making people first making other people first CEO in this industry and just and outstanding trend.
Worked together for 13 years side by side, and just an amazing CEO and.
And then my last depreciation is for the analysts on this call.
I've been dealing with analysts for.
For as long as I can remember and Tradeshows.
Investor conferences and earnings calls and your questions. Your tough questions. Your questions behind the questions. Your questions about our competition and your questions about our customers they sharpness and they've made Tim and I and Bryan better leaders.
We are more competitive more capable because of the analyst asking asking us questions during tradeshows walking around.
How do you look at this what are you thinking.
And I really do appreciate the tough questions and the growth that this company has seen and the capability of this company as seen from the analysts asking a tough question. So I wanted to say, thank you to the people and lets call and with that I'm going to turn it right back to the operator for questions.
Thank you to ask a question you and need to press Star then one on your telephone to withdraw your question. Please press the pound key.
Our first question will come from the line of make debris with Baird. Your line is now open.
Thank you and good morning, Dave Congrats to you on a and a fantastic career and.
All the best of luck going forward, and you mentioned, great folks and that'll be listening on our call and congrats to them as well for the weighted manage through 2020 definitely an unprecedented year for the industry.
I guess I guess my first question.
Bryan I appreciate all the context and detail you provided on commercial foodservice and all the other segment the segment and into Q1.
And I'm sort of curious here.
You are you are building backlog and demand is getting better.
So two things one.
Can you maybe parse out how much of this demand improvement is really sort of driven by the end market and how much might simply come from.
And different product initiatives that you guys have had for 2020, I mean, you've introduced a lot of new product per year.
I mean, it's starting to.
Result, and incremental revenues for you and then as you build up this backlog how should we think about your ability to convert.
Backlog are there any issues beyond weather and you mentioned right in terms of supply chain constraints.
Or should we start to see revenue kind of approximate order intake as we get to Q2 and beyond but maybe we can start there.
Yes.
Certainly.
We are seeing.
Adoption of our new products, but I would say, especially as I call. It maybe some of the more headline products that had been annual pages and our decks.
It's a little bit of.
Good news so so news like those are not yet I'll call it driving what we're.
And I'll call short term successes that are in front of us. So I'll say that benefit is still to come and we have a lot of products that are and evaluation and test and really the the revenue contributions are small at this point so.
The order success and the backlog we are having is from things that have been.
And our pipeline I am not going to say that their old products.
Been a result of the innovations over the past year or two but it's about <unk>.
Being able to address the customer needs and again those headline products will be incremental to that as we progress into second quarter and back half.
<unk> of the year.
And now I've lost track of other parts.
And you talked about supply chain challenges and such we are monitoring.
<unk> chain.
And on a daily basis.
I will say Fortunately so.
We feel very good that we havent lost any meaningful customer opportunities.
Because of that thus far and feel good about Q1, however, I am not going to sit here and ignore those factors weather certainly things that are kind of.
And the headlines whether it be component.
Component availability or cost or logistics challenges. So those are real margin comments have contemplated those especially for the next three months out and.
And they are literally on our on our radar every day.
Going forward and.
And we're prepared to to address them and certainly not trying to downplay that.
So I want to make sure that I understand the nature of your comment.
And the way I interpret it.
And I heard is that demand continues to improve thus far and Q1 relative to the fourth quarter. So from an order intake perspective.
My understanding is that you're actually up relative to the prior year.
But you continue to build backlog, which is why youre, saying that youre.
Your revenue might actually be closer to flattish do I have that right.
Yes.
As we look at our order order rates that kind of by quarter on the chart and what we've kind of.
Posted rate Q3.
Order rates from minus 22, our revenue was a little better than that in Q4, we just posted a minus five and order rates and you heard me correctly.
Flipped over to the other side of zero the good side of it now so that's kind of taking us to flat for Q1 and with the backlog as you know the reasons why.
Positive through the first half of the year and then it just.
And all the great things hopefully that are happening and the market rate, whether it's going to get better vaccinations are going to improve and so it just.
And I'm not going to get over my skis for the back half of the year right, but.
And that's why to your point Q1, let's call it in the neighborhood of flat and.
Q2, I Havent done the percentage of our Q2 last year was obviously a dismal numbers. So I started to think about things more sequentially right, but certainly feel like Q2.
It would be at or above Q1 levels as we look at the top line.
That's good color. Thank you for that and then my final question.
And we talked about this in prior calls as well.
And you're sort of looking at your customer mix right.
Curious what the moving pieces here.
<unk> and.
Some of the pizza and fast casual guys versus maybe some of the casual dining and even your institutional exposure, how you kind of see that play out through the year.
Sound better about the casual dining component.
And to me, that's a little surprising right because you've gone through a quarter with a spike in Covid cases that we'd never quite seen before and obviously a lot of the outdoor dining was was closed and areas with cold temperatures. So.
It is a little counter to what <unk>.
Personally expect that added a quarter.
Any color there would be helpful. Thank you.
I'll turn it over to Steve and a second but let me clarify I wouldn't say that I'm <unk>.
Banking on casual dining is being.
Overly strong contributor to the <unk>.
Whereas made positive comments as we lookout and I'm sure Steve will address the areas we've seen.
Strength.
And it really is a continuation from the areas that have been doing well and are accelerating themselves so and thats.
We're going with casual dining and other stuff greatly maybe it's more about.
Probably more so the back half of.
Of the year.
Q2 has good weather months and net and we'll again, we'll see how vaccination, but I think casual dining independence.
Travel entertainment are all upside yet to hit and then I'll turn it over to Steve to kind of talk about what we've been feeling and whats whats coming.
Yeah. Thanks, Thanks Bryan.
Just to build on that again, certainly the <unk> segment is where we've seen obviously, let them pulled in through the back half of this year and I think what's changing recently four for many of these <unk> is really getting back to new builds I mean that obviously was muted last year delayed.
Many of the <unk> or really say, hey, they're going to be back to 19 Newbuild levels. If not ahead of 19 newbuild levels. So I think we're starting to see that and some of our orders to certainly start this year. The other segments again, we've talked about retail and C stores continue to be very strong.
And then yes.
Continued throughout this year again retail is a great pick up I think for US just knowing retail was for middleby relatively new and the last two or three years as a segment and having a dedicated team dedicated products focused on retail so thats, a big benefit as far as the casual.
<unk> segment goes I mean, I do think we've seen them.
Hang in there okay. The ones that have adopted things like virtual brands, but it allowed them to pivot to new revenue streams.
But I agree with Bryan I think it's just a lag behind the other segments hopefully in the back half of the year you start to see again.
And people coming back and in store dining vaccinations, whether it gets better.
And obviously, we could see casual dining really start to pick back up as this year progresses, but it's still the <unk> retail C store pizza segments that I think are driving right now and that certainly continues throughout the year.
That's great. Thank you.
Thanks, Mike.
Thank you. Our next question comes from the line of Todd Brooks with CL King and Associates. Your line is now open.
Hey, good morning, everybody and congrats Dave and also congrats to Stephen James on your promotions as well well deserved.
Thank you.
Youre welcome first question.
Bryan if we could just walk through I mean, the working capital performance was amazing this year.
And you kind of qualitatively talked about.
Some of that benefit unwinding as we do recover here.
But maybe if we could talk about opportunities and learnings from how efficient you got during the pandemic and and how much of that savings generated in 2000 and GT.
Do you see coming back onto the balance sheet and a recovery scenario towards 2019 volumes.
Yes, and a lot of that obviously will be volume dependent and I will say and I do like to think about primarily AAR and.
And inventory right those are the biggest components on our books and drives a lot.
We are we.
We do a good job of managing AAR and.
And we're also fortunate and Ah.
And to have a good credit risk profile.
So this is <unk>.
<unk> view from me and AAR is that it's going to move.
As sales move we've actually been able to bring down DSO.
A little bit through this and we hit a lot of great programs and relations.
That we are able to benefit from with our dealers and distributors and supporting them and again supporting them and managing our risk so again.
And again <unk> is going to move as as sales move generally inventory has been a.
Obviously, a very positive area for us in terms of working capital management.
And so but I do expect to give back some but not all of that next year, maybe I'll say, 75% of it goes back because of <unk>.
Volume, but we have been actively working especially in <unk> to bring down our inventory levels and really be looking at safety stocks and products. We have on hand, and we've talked about sharpening our focus on <unk>.
Product mix as well right and so we have <unk>.
<unk> some products that are lower profit levels and such so all of that ties into the fact that.
Why the full inventory item will not flip.
Back to the balance sheet as as improvements.
And the market happen and admittedly right now and residential.
I would take more inventory.
I had it right but.
<unk>.
<unk>.
I guess I need to admit to not having been prepared for 50% growth there right. But this is a this is a good problem.
We're having and we're continuing to improve our operations and such daily.
Daily So I'm not I guess to stop rambling on a summarized.
It's going to move back and sales move back and inventory, we will be able to drive down lower DIY and especially on the commercial side.
That's great and then just a final question.
It was good to see and the deck.
Summary of deals during the year and the six six acquisitions I.
I guess and can we talk about.
And I don't know if you'll disclose at what kind of incremental revenue from the class of 2020 from an acquisition standpoint and <unk>.
Any commentary about the M&A pipeline as we're entering the back side of the pandemic.
Would be helpful. My sense is the differentiation between.
Offerings from from companies and commercial foodservice or.
Food processing or even residential is is getting to a greater GAAP than we've seen in the past and that should be a competitive advantage for middleby.
Ill.
I'll take the first one and then Bryan can maybe add up the numbers out of the second so.
And certainly acquisitions has always been a core competency of that'll be we worked really hard throughout the year to get our balance sheet.
<unk> hits, the financing and and as you can see and the deck with the cash flow and.
Availability, we are really well positioned to bring the acquisitions back on line and in fact have brought the acquisitions back on line and you could see as you referenced there.
Done quite a bit.
Including.
I think above four at the backend of Covid here so.
We always have a great view.
View of.
I would say strategic pipeline of targets that we have that.
And really add to the long term value of the company and we're actively working out of those and.
Dissipating and that 2021 is going to be.
Back on line.
And really is already back online so we're pretty excited about that.
Pipeline.
And that we've got going into the year more and more we're investing and I would say technology companies that.
Cut across all brands certainly historically, we've always gone after.
Key brands and product categories that are new and complementary to us but really.
We're accelerating things.
And like you've seen with <unk> powerhouse dynamics that really cut across the platform. So excited about the opportunities there.
And in terms of.
The numbers.
We have disclosed some of these when we made the acquisitions and a wild goose as was around 35 and Deutsche show was around 40.
It shows that our score on our product page or United Foodservice was around 10, and so thats $85 million there.
Ram was certainly a smaller one and.
And.
Blue zone as one with more opportunity that was more of investment and we havent quantified that one for folks and the same thing with volume, but when you put the other ones together probably starts getting it to around $90 million.
That's very helpful. Thanks for the questions.
Yep.
Great. Thanks Bryan.
Our next question comes from the line of cerebral and desk with Jefferies. Your line is now open.
Good morning, and welcome Jason Steve and congratulations Steve on your retirement.
And so you talked about getting to 25, EBITDA margins and commercial foodservice and 2020 line. Despite the lower sales in 2019, just given the structurally higher margins could you just update us on how youre thinking about the long term potential for EBITDA margins and the segments.
Yes.
And I'll say, that's an easy question.
Put out the 30% there as is the goal and Thats that still is the goal and still what we're marching towards the hard part of that question is to tell you exactly when and when that hits right and but it's still probably a couple of years out.
Hardest part for me to get more specific on that is.
As the pace of recovery rates.
And so we.
We probably have debates around.
The table here, whether it's two to three years out or so, but hopefully it's in that I'll call. It small single digit range of years to get there we talk to more extensively about margins at some point.
Before COVID-19 and how I'll say, our mature cooking businesses, we're really already at that level and I'll call it or are larger and that kind of the beverage cold type businesses that we had were also there and what were working on was the continued integration and growth at more of them more recently.
Acquired businesses both.
Having them mature from a revenue generating wise as well as taking the cost action. So.
Covid, obviously give us a bit of a step back there, but the goal is still the same goal and is certainly.
Extremely achievable and our views and Theres just became a matter of.
The timing setback here this year and I'll actually say I'll put one more a little bit positive spin on it.
Nothing like a little bit of hardship to cause you to get a little bit more introspective on things. So I think largely get further benefits from all the deep dives and belt tightening we did on the mature side of things for us.
That's helpful. Thank you and and residential demand has obviously got very strong could you just talk about how you're performing relative to the market.
Do you think and market share opportunity is.
Thank you for where you are today and this rate could go.
Yes.
Yes.
So I don't I haven't really talked about market share and the market can be defined quite a bit obviously and the appliance.
Area, we are a very small player and and overall industry, but certainly we're touching on the premium side.
And that being said, we think we have significant opportunity to gain market share over the.
Next several years.
And the efforts that we've had.
Leading into this year really over the last several years I've talked about it a number of times, whether it's new product.
The infrastructure.
We built with sales distribution and service.
And we're talking about the showrooms, which were just really on the front end of.
Leveraging those particularly as we go after the designer market, which is one that really were.
We're just starting to touch upon and make investments there and then.
The sales price is changing is true across all of our business segments, but certainly on residential.
Digital marketing and.
How we.
Access and.
User is evolving and we view.
We're really at a great inflection point certainly we've got a good backdrop at the same time, but we feel pretty good about.
And how we're going to be growing the business over the.
Next several years, what that means in terms of market share that.
That is hard to do.
Measure right now, but I would also say that I think the demand for premium products and high technology products as a trend that's increasing over time, and that's where we're investing and that's where we're well positioned so we feel pretty solid about where we're at and the market right now.
Great. Thanks for taking my questions.
Thank you Sir.
Thank you. Our next question comes from the line of Joe <unk> with BMO. Your line is now open.
Thank you well first I have to congratulate Dave on the Academy Award nomination Nash and you forgot to us. Thank you.
Your mom and dad, and your wife, but Im sure that Youre Youre exit package, probably went up by 10%.
I just wonder are you guys thinking about your during that.
Yes, yes, and when all the <unk> at Analyst day.
Well, Joe He had a special a closing comment for you at the end of the call, but I think you just blew that so yes.
And a number of very positive one and wanted to drill in and taking my time and shop.
I just wonder if you can talk a little more deeply around the strength and the commercial business or kind of what's driving what's driving the backlog just a little more granularity theres been a couple of questions around the edges and I just wondered if we could try to maybe get a little deeper into that.
Can I can I take that one yes go ahead, especially since you are picking up.
So I'd say two things first of all I think Steve did a really good job of talking about the customer and our connectivity with the customer and our.
And our with the customer a lot on new product speed of service and menu mix menu flexibility cost labor and that's really driven by our technology and both individual technology. So I'll put James on the spot here to talk about how technology is getting us in front of the customer and a bunch of different ways both.
From our open kitchen platform to individual pieces of equipment and that.
The way it goes from foodservice over to residential too I think there is a connection of technology and backlog and customer facing capabilities. James Once you talk about technology, Yes, David.
I think I would approach it a little bit differently, but first thing I want to talk about is the new Middleby innovation kitchen that we that we just opened its everybody.
And it Hasnt gone out there yet go to www dot and it'll be dot com <unk> slash M I K.
K to see all about the new Middleby innovation kitchen, which we opened and the Dallas area. It's been about two years and making the idea for US was to have a single point of access for our customers and our channel partners to come and have chef led demonstrations.
To focus our customers and channel partners and all the great innovations that we do day to day at Middleby from baking the fried.
To speed Cook to conveyors.
And.
Automation to.
Iot.
All of those innovations are on display and the.
And it'll be innovation kitchen.
And since we've opened the middleby.
Innovation kitchen, and about the last month and a half we've had nine segments.
Sure.
Innovation kitchen has a very high profile customers I wont give their names, but they represent <unk> C store Pizza go.
<unk> kitchens buying groups dealers casual dining and foodservice consultants and even on premise brewery and so we've had just a tremendous amount of volume and great customer interaction through the there'll be innovation kitchen beyond that automation continues to.
And be a focal point and middleby through our advancements and.
The high level user interface that we are developing also the advancements of the open kitchen.
Which continues to be.
The single platform for customers to really automate their entire restaurants, whether it be hvac's lighting controls whether it be management reporting.
Food safety.
Measurement and has up to equipment connectivity open kitchen, and truly is the only platform and the industry that brings all of that together to allow our customers a single point of.
Basically access to all the data and their kitchen, and so we're continuing to drive.
Innovations on open kitchen automation and among other products such as Pizza, where we continue great innovations such as the world's largest.
Ventas conveyor oven.
Okay and that was.
My next question, but if you guys are going to cut us off exactly at 12 o'clock and maybe I'll, let someone else ask and I can ask another follow up here.
And we'll run a little bit.
But longer Joel so if you've got a follow up there. Please please say okay. Yeah, you guys keep mentioning sort of.
The reinvention of the company and I wondered across antibody antibody. There if you could give us a little set and sense of of where you see this industry and five years and kind of what capabilities you have got to build today to get to.
To that eventuality.
Yes, I mean, it's an evolution and we've been investing heavily in technology as well as sales processes and thats been happening over the last couple of years here, So and we certainly a lot of the things that James went through but we think our customers are starting to pivot period.
And we've just been through and still and with Covid.
It brings a lot of this too.
Two light so.
Automation and the kitchen, how much laborers and kitchen flexibility footprint.
<unk> print.
And really digital which digital goes to the power of data as well as automation right. So I think.
The foodservice industry.
And it's probably been a little bit slower to adapt and many others and I think now is where we see the inflection point of technology really coming into this industry and hence why we've been making these investments for a while I mean this is.
And not new frankly, we've been getting calls talking about how we've been incrementally spending in these areas.
And again.
Buying companies also automation companies Iot companies.
Et cetera and continue.
And best in those platforms, which are embedded in our P&L. So as we're driving profitability. We are taking those dollars and spending and some back on these on these capabilities.
And it goes beyond just.
The footprint of the kitchen and the equipment, we're putting in there, but we've also been thinking about okay. What does that sales process look like.
We are moving.
More and more to ensure that we can educate our customers whether that's true digital sales process, which we've invested heavily and also in the last year.
The our channel partners become incredibly important and more important through that because we really need to have.
Partners that can think about solutions and help us bring solutions to those customers. So that is important and then what you just went through and he has done a tremendous job building a game changing.
Asset for the company with the Middleby.
Innovation kitchen, where we can really have a hands on interactive experience to help our customers.
And <unk> through what the kitchen of the future should should look like and we've got <unk>.
So many solutions.
All in one place so we can really transform that experience so.
This is a journey that we've been on it is.
And the real than it has ever been and we will continue to invest in it and.
And accelerated pace as we go through this year and and certainly.
One of the reasons why Havent, James and Steve.
Part of the team here amongst.
The broader leadership that we have is really making things, making things go faster at middleby. So.
It's a fun time right now and we're seeing a lot of these things come to fruition.
And kind of back to your first question, which is whats driving.
The business is some of this and it is also.
Broad based in nature, I mean, we're doing pretty well in and a number of segments and a lot of it is.
<unk>.
Some of the innovations that we've had over the last couple.
A couple of years so.
We feel pretty good that.
And we're doing well and are the.
The customers, we have always done well with but some of these <unk>.
Products and solutions are also allowed us to step into new market segments, where we've been underpenetrated in the past.
Do you feel like like you are kind of pulling ahead of the competition like now is the critical time to put the foot on the gas or it's just the natural evolution of how the business is going.
Well, we have been trying to differentiate ourselves and we've been committed to it for the last couple of years and again, while we've been making those investments we hope.
And as investments are starting to pay off.
And so that is our objective again really to be differentiated and have unique solutions to our customers.
Really our beyond what what others in the industry might have.
Alright, Thank you very much sorry to take up so much time.
Thanks, Joe.
Thank you. Our next question will come from the line of Jeff Hammond with Keybanc. Your line is now open.
Hey, good afternoon, guys, Dave Best of luck to you.
Thanks.
Just on the.
Just a clarification, Brian and the commercial foodservice margin comment 21 versus <unk> 19, as that is the thought that for full year 'twenty one you'd be at.
19 levels or are you kind of get there on a run rate and the back half.
The hedge answer is.
Get there and the back half but.
The.
I think we can we have a decent chance of doing it overall.
For the year right and the only reason and I I hedge there some is.
The back half of the year and getting that revenue right.
And as hard right now, but that is definitely within within our sites.
Put it like that right.
Okay, great and.
And just as we think about this kind of rebuild and recovery and certainly you guys have introduced a lot of products and there seems to be certainly a focus on technology.
Technology shift and.
But just as you look at maybe more <unk> fast casual doing the newbuild and maybe less independent and just how do we think about margin mix within this kind of a recovery scenario that you're thinking of.
Well I mean.
And I am impressed and what we've been able to do with margins now.
Now and.
And I don't know if you are kind of behind your question, implying like is there lower margin from these these bigger customers right. So our results now speak for themselves and honestly I think things just continue to get better from here as we.
Pull back or add more volume back into.
Into the industry right and.
And I'll go back to what my colleagues here have been talking about.
Innovation and differentiated products.
Deliver value for our customers and net impacts.
What youre seeing now and what I'm talking about coming next rates, where what's driving our success right now isn't commodity it's differentiated and high performing products.
So.
One of the things that we focused on and coming into this year.
Sustainably.
<unk> margins at low levels of business and so I mean, certainly we had opportunities.
With all the acquisitions, we've acquired over the last three years, so don't forget that.
And we got.
We got a slide in the deck there and.
It's quite a few and we've got a.
Pretty core competency of bringing those companies into the fold. So that's been a.
A key element as the organization has grown we've focused on how do we really.
Leverage synergies and capabilities across the company, which helps us.
Also bring up the margins, but then to that last piece the mix of product.
And again as we are investing and technologies.
We're committed to shifting the mix to those.
And those higher end products, which have a higher ROI for our customers, we're trying to deliver more value and those are the three key elements that.
And we've executed on over the last year and.
And we.
And it's always difficult to predict exactly what the margin is going to be but I mean, we're anticipating that's going to show up and in.
In 2021, and it is part of that bridge of.
How do we get the margins to 30%, 30% for this business segment and the long term.
Okay, great. Thanks, so much cash.
Thank you. Our next question comes from the line of Larry de Maria with William Blair. Your line is now open.
Hi, Thanks, and good morning, and good luck to everybody.
I wanted to ask you.
And as mentioned obviously CFS.
CFS orders improving scale and 'twenty one.
First question is just to clarify did.
And the December comp up and can you just give us the.
Comps for January and February and we were up year over year.
I'm not going to get into amongst and we've obviously moved to quarters because of the variability month to month right but.
We are comping positive and <unk>.
<unk> one through the first two months of the year here right.
There is day to day Lumpiness, there is week to week Lumpiness as you get to bigger periods. It starts to smooth out a little more but we have again the trends have continued and 21 and we're on the run the positive side now are and green not red.
Okay. Thank you and then.
And I don't think we talked too much about price cost could you talk about price increase order of magnitude and it is enough to cover it can be a net positive price versus material for the year or do we think we still need to redress and a later date, given what's going on with steel prices and just give us a little discussion about that please.
We did take pricing.
Somewhat I'll call it modest levels.
Not seeing a lot of that in the Q1 outlook just because we do have strong backlog and some of that gets filled that I'll call it old prices.
But.
I do expect there to be further pricing actions taken this year to your point and steel and a lot of other areas and our business are.
And inflationary pressures and.
We will respond to that accordingly, so it certainly.
I would say is not a detriment in Q1, and we're going to take actions to make sure that continues to be the case.
For the full year.
Larry I would just say that administer a real issue for a lot of companies right now Im sure Youre hearing it more and more.
And from some of the other companies you cover but.
Availability of containers shipping costs.
Supply shortages, and then just kind of general inflationary pressures and im repeating a little bit of a bryan so as but thats something that were.
Managing pretty effectively we're keenly aware of and we're being proactive with our thinking about what that means in the second half of the year and I think this is an area.
Thanks to Dave and team that we've got.
Really strong competency that probably doesn't.
Exist at the level that we have today.
At Middleby and.
David do you want to add anything further to no I think that.
And with supply chain and a lot of times you are with any change you think its revolutionary.
But it's actually evolutionary it's been the supply chain team developed 234 years ago, We've got a database.
Suppliers across all of the individual brands that we work off of that we share and then on top of that every week.
<unk> hundred 50 people that go around the world on supply chain and engineering looking at supply chain issues and it's more than just.
Components, we're looking at container availability shipping availability, CT and <unk> availability.
So it's very detailed review and so it really comes back to the competency.
Do you have a process do you have the data and then do you have the people that know what to do and when you look at and it will be across all the brands around the world with the database that we've assembled with the supplier base that we've assembled that can cross cross support.
It's an amazing organization.
Great people and that's been developed over the last four years and so on.
Relative to the situation, we are really set up well.
Okay. Thank you good luck everybody.
Thanks, Larry Thanks, Larry.
Thank you. Our next question will come from the line of Tom <unk> with Jpmorgan. Your line is now open.
Thanks, Good morning, everyone. Thanks for squeezing me in.
And just a follow up festival and that last question how much of the Q4 backlog will be filled that new price.
Yes.
And.
The backlog goes across so many companies, it's really hard to just say that spa.
Specifically.
I don't have a point and time to answer.
On that one for you.
Okay Fair enough and you highlighted alternative protein as a potential bright spot for food processing and can you elaborate on how middleby might participate in that growth.
I am sorry could you repeat the question.
Sure you highlighted alternative protein as a potential bright spots as food processing can you elaborate and how middleby might participate in that growth.
Okay.
So.
It is early stage I mean, just.
To be clear.
By the way.
The mature.
Dried meats, and maturation business, and but I think that's probably more impactful to us this year.
And obviously you see a lot of headline news and including with our <unk> alternative protein coming on more and more significantly investments made there. So when I think that is something that we view as a long term trend. We do believe it is.
Here to stay it is not a significant piece of.
And the food processing equipment.
Equipment today.
We are however, uniquely positioned there it's been something that we've spent time.
Developing products.
But broadly meet.
Number of different applications, there and.
Feel like that's an example of a number of trends that we're going after.
And what positions us that way.
And it is I'd say alternative proteins require kind of a combination of technologies that exist across our protein and bakery product line. So that will be good for us and.
To Echo Tim's comments over the longer term, it's not just about what's being done I'll call. It by.
The new names that are kind of and the headlines every day and it but also how are some of the more well established older line companies.
Thinking about it.
As well and we have been partners with them for a long time so.
So it gives us again, good vibes on this over and over a medium term horizon.
And I've got to say Bryan Thats right on the amazing amount of startup chains that we've talked to you about alternate proteins and it ties we introduce them back to our customers on the food processing side that are developing those early on changes as Tim said, So I think it leads right back to what Jay.
And so was talking about and technology and if you get a chance to the innovation kitchen Youll actually see demonstrations around specifically the question you have so we are well.
<unk> on both the food processing side, and the commercial kitchen equipment technology side.
To be a leader in this area as it emerges.
Yes.
That's very helpful. Thank you I'll pass it on.
Very good.
Thank you our last question will come from the line of work mid Tech, which seaport. Your line is now open.
Hi, guys.
Yes, I think to everyone I'll keep it brief because we were kind of along and the call but.
I wanted to ask one about operating leverage in 2021, and specifically I don't think we've talked at all about any temporary costs that might be coming back.
And that came out in 2020.
Yes.
Many of those costs are back slash.
Coming back in terms of the ones that are I'll call it volume.
Dependent.
And certainly are our travel costs are still low we've talked a lot about the.
And the Middleby innovation kitchen, and there'll be some pivoting I'll call. It from some of our Tradeshow dollars.
And into into that.
Area, So I do feel like I'll call. It our our Q1 structure, which is embedded and the outlook comments I gave really reflect.
The bringing back of what was temporary and the benefit of what was <unk>.
<unk> taken out.
Semi permanently I only say semi permanently.
Two reasons I hope that we continue to have tremendous growth and and with that will come.
And making some adjustments and again, it's not a huge number for us, but we're really.
Think about it a lot because of the impacts of employee safety and technology and that's the.
And the travel side of things right and so we're all certainly embracing technology and how we work with our customers, but nonetheless.
Given the industry were and people do like interacting with our with our equipment and so do expect that too to creep back over over time right.
And hopefully my comments about where we expect 'twenty one margins to be versus 19.
Capture the fact that a lot of those costs stay out and Thats why we will continue to <unk>.
Advance on that margin expansion story.
Okay, great Yeah, I can do the math on the.
And the margin discussion, but maybe more specifically in our commercial foodservice just have you calculated the leverage number.
Is there a leverage level that youre thinking about as the market starts to recover.
At least your sales start to recover.
I'll admit to not knowing exactly how.
You would be referring to are calculating.
Leverage sorry.
So maybe we'll need to take that one for a little bit of.
And of a sidebar.
Okay sounds great. Thank you yes.
Yep. Thanks.
Thank you there are no further questions I will now turn the call back over to management for closing remarks.
Okay, well, thank you very much.
And today for joining us on the call and we look forward to speaking to you next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
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