Q3 2022 Middleby Corp Earnings Call
Thank you for joining us for the Middleby third quarter conference call with US today from management are Tim Fitzgerald, CFO , Bryan Mittelman CFO , James pool, cheap Tuck T Chief Technology Officer, and Steve Spiegel, Chief Commercial officer.
After the company's prepared remarks, there will be a question and answer session and instructions will be given at that time.
Should you need operator assistance during the call. Please press Star then zero and please note. This event is being recorded.
Now I'd like to turn the conference over to Mr. Fitzgerald. Please go ahead Sir.
Oh, great. Thank you and thanks.
Thanks, everybody for joining us today on our third quarter earnings call.
As we begin please note we've posted slides to accompany the call on our Investor page of the website.
We're pleased to have posted another record quarter reporting 14% growth in organic sales and a 23% growth in adjusted EBITDA.
During the quarter, we also reported strong profitability with improvement in EBITDA margins to 26, 5% at our commercial foodservice business.
23, 9% at our food processing segment, and 26% at our residential business when excluding the impact of recent acquisitions.
Apply chain impacts continued to weigh heavily on the quarter, both in terms of disruption to our manufacturing operations and increased cost.
However, our focus on selling of our latest product innovations is favorably impacting the profitability of our sales mix across our businesses.
Pricing actions enacted earlier this year that partly offset the dilutive impact of material cost increases with further pricing benefits expected to be realized in the quarters ahead.
Operationally the significant investments we've made in the past quarters and automated production equipment and facility expansions are delivering benefits a greater capacity production efficiencies and profitability at many of our operations.
These investments also positioned us to support our new product launches and growth initiatives in the quarters ahead.
While economic conditions have become more uncertain in more challenging in the third quarter. We continue to have a positive outlook given the pipeline of new product launches customer opportunities and the competitive positioning for each of our three foodservice businesses.
The commercial foodservice segment, our customers are investing in solutions to evolve their operations and address pervasive challenges of labor speed of service energy and food costs. Our latest innovations are in demand and we are engaged with customers on solutions to solve problems like never before.
The investments we've made in our digital sales capabilities.
<unk> services team.
<unk> partnerships and the Middleby culinary teams are connecting end users with our latest technologies and our Middleby innovation kitchens continued to be a home run success with now over 7000 customers.
Sitting with us in Dallas since the opening during the middle of last year.
This transformation of our sales processes is developing a new pipeline of opportunities moving into next year.
The backdrop is also favorable with the industry in early stages of longer term recovery over 100000, and foodservice locations in the U S market closed during the pandemic with only a projected 5000 units added back in 2022, new.
New openings are projected to accelerate into 2023 and future years, providing a long runway for recovery.
We are engaged with many of our chain customers on store opening plans for next year, while many segments, such as institutional travel and lodging and fast casual or starting to recover with increased activity from a year ago.
At our food processing business demand continues with the need for equipment to increase throughput address the lack of skilled labor through automation.
Address rising food costs, and save on energy and utility costs.
Over the past several years, our teams have made significant strides with an objective to expand our automated full line solutions.
We've done this with the launch of exciting new product innovations and also by completing a number of strategic acquisitions.
Our most recent acquisitions of products out C. P packaging and closely further extend our automated solutions and.
And they had advanced washing technologies and high speed pack packaging to our portfolio.
Our full line and automated solutions are providing customers with a greater payback and this has translated to consistent order growth and a strong pipeline of opportunities ahead.
In our residential business rising interest rates inflation and economic uncertainty have slowed exist.
Existing home sales and new home starts and made for a more challenging condition for the residential segment.
We continue to have a larger than normal backlog recent order demand has weakened and we expect those difficult conditions to remain in the first half of 2023.
Although we are facing difficult market conditions, we remain excited about the opportunities across our residential platform.
The strength of our brands product designs and product innovation is stronger than ever.
Our new showrooms sales and design services teams and culinary staff have been busy as we engage with designers and dealer partners and end users to create greater awareness for the Middleby residential brands.
The work done to leverage the capabilities of our entire platform and realize synergies across the brands present revenue and profit opportunities offsetting some of the headwinds as we move into the year.
In summary, I am proud of our teams that continue to navigate the operating challenges and evolving market dynamics.
While executing on our strategic initiatives as we transform our selling processes and continue to bring.
Industry, leading innovation to market.
Confident these efforts are adding to our competitive differentiation in the marketplace, which.
Which are reflected in the results we have delivered for the year.
And that are also progressing us towards our longer term financial goals.
Now I'll pass the call over to James to spotlight more of our exciting recent product innovations, which are also highlighted in our investor slides.
James Thanks.
Thanks, Tim I'm pleased to talk about two new products from it'll be there couldnt be more dissimilar in design and use but they are both engineered to deliver meaningful environmental and sustainability benefits for our customers as Tim mentioned overviews of these products can be found in our investor deck, the first product and Baker thermal solutions.
Lucian rapid bake oven.
First of its kind for for the food processing side of our business. The rapid bake oven combined direct fired gas combustion hydrogen Benjamin and RF heating to accelerate the baking process. While these technologies have been combined for a decade and products such as turbo chef. It's the first application for high volume baking where size.
Speed throughput and energy matter the technology deployed in this oven makes it ideal for customers producing fruit filled cheese filled and meet Phil no products as the RF energy is able to heat volume metrically, Andy Impingement Air is able to heat.
And bake and rapidly brown the exterior from the outside in.
By using these two independent energy vectors that yield the process that has proven to be 30% to 40% faster than conventional baking technology. This speed produce.
Production rates up to 5000 tons per year.
As it relates to sustainability.
The energy between electric and natural gas for the rack.
With this we've been able to balance the energy required such that the operator can appreciate a 7% to 19% reduction in cost per ton of production, depending on where the oven is deployed and with less dependency on natural gas, we say 57 metric tons of Cotwo equivalent which.
Equates to about 12 cars on the road per year and.
And we now allow the operator to take advantage of renewable and Green energy to power the electric portion of the oven.
Moving from food processing to commercial yields a similar story with Kotex, new high efficiency induction system Helios deduction uses electromagnetic energy coupled with the pan thus, making induction the fastest most precise inefficient way to Cook Cook Tech is one.
Ben the anchor of induction for the commercial foodservice industry produce inductive heating for warming and holding technologies. The Helios features the new middle B, one touch controller, along with the speed knob and a newly designed power supply to optimize this performance.
<unk> control can also measure a pans efficiency to let the operator know when they are using sub standard induction cookware.
<unk>, which is the only American made deduction system on the market and the cookie inefficiency as high as 95%. This means that 95% of the power coming from the wall is going into the food when compared to electric or gas operated hubs Coke tax deduction is approximately 45 and 60.
2% more efficient respectively.
As for the environmental impact of typical circuit for an induction range uses 25 pounds less copper.
Dan a conventional range since the current requirement allows us to run much smaller wire now scale this up and Youre looking to save one to 2 million pounds of copper per year in the United States alone by moving to highly efficient products like Helios and that's the only one piece of the kitchen.
Timing for high efficiency cooking systems, like Helios couldn't be better as more and more of our customers are reporting that utility cost and had an adverse impact on their Q3 returns. This further illustrates the immediate need for new and innovative efficient electric cooking equipment last.
Many of our customers are talking about their successes opening smaller and more efficient restaurant.
Again product like Helios will unlock additional value.
These locations by reducing building cost less copper utility lower amps, HVAC cost no radian heat load and Hood expense less said less CFM and in some cases middleby can supply an entire kitchen.
With products, such as rapid Bacon Helios.
Middleby is delivering on its sustainability promise.
And over to you Brian .
Thanks, James for the third quarter.
Our quarterly revenues were nearly $1 billion and our adjusted EBITDA again, well exceeded $200 million GAAP earnings per share were $1 92.
Adjusted EPS, which excludes amortization expense and non operating pension income as well as other items noted in the reconciliation at the back of our press release was $2 18.
FX impacts are included in these results and were a headwind of 12.
Our revenues of $993 million grew 21, 5% compared to the prior year and over 14% organically.
Adjusted EBITDA of $212 million reflects growth of over 23% compared to the prior year or over 22% on an organic basis here.
Here FX rates negatively impacted EBITDA by nearly $7 million.
Our EBITDA margin was over 21% of revenues.
This was our best quarter of the year in terms of both EBITDA dollars generated and the profitability percentage.
By the way briefly looking forward, we hope to generate even better results in the fourth quarter.
Looking back at our individual segments performances for Q3.
Starting with commercial foodservice revenues globally were up 17% organically over the prior year.
We expanded margins 230 basis points over the prior year and 130 basis points over Q2.
The adjusted organic EBITDA margin grew to a three year high.
Of 26, 5%.
By the way all the margin values I will discuss are on an organic basis, as well, meaning excluding any acquisitions and FX impacts.
In residential we saw organic revenue growth of 2% versus 2021 with adjusted organic EBITDA margins exceeding 20%.
Food processing saw organic revenues up nearly 22% and the adjusted organic EBITDA margin was 24%. This was our strongest quarter ever in terms of revenue and EBITDA dollars.
Also we expanded organic margins over 200 basis points over the prior year and over 400 basis points sequentially.
Best versus Q2.
Operating cash flows were $84 million for the quarter inflationary cost impacts supply chain disruption and higher demand resulted in inventory growth we.
We anticipate working capital investment from the past several quarters will stabilize and begin to reverse in the fourth quarter.
We continue to use cash flows to invest in the business the.
The cash cost of acquisitions was over $131 million in Q3, and Capex were nearly $19 million.
Additionally, capital expenditures for the past nine months represent the highest investments we have made.
These drive operational improvements and help deliver those stronger margins.
Our total leverage ratio came in at a little over three times.
This is after having invested over $450 million this year on acquisitions and capital our stock transactions.
As of quarter end, we continue to have nearly $2 billion of borrowing capacity.
And trying to dissect our performance relatively quickly I offer the following.
We continue to juggle many challenges while still delivering these at or near record level results.
From an operating perspective supply chain issues continue to constrain our ability to produce too.
To produce to meet demand levels.
Inflation continues to impact the cost of goods and labor.
Labor availability only very recently began to improve.
And also COVID-19 still occasionally impacts our manufacturing productivity.
Nonetheless, all of our segments continued to perform very well.
Looking at commercial and food processing, we have delivered better results when looking at Q3 on either a sequential or year over year basis.
We knew the third quarter would be challenging for residential and constrained center outdoor grill customers' ability to inventory more of our product is detrimental impact on our performance as compared to expectations. Nonetheless organically, we delivered growth and consistent profitability is.
Compared to the prior year.
Over the past year over the past quarter I should say I've spent time visiting plants engaging with the investor community and admittedly partaking in my favorite professional activity evaluating customer usage of Middleby equipment.
I also regularly spent time, reflecting on our business and strategizing for the future I find that when engaging my mind and deep thinking having pizza nearby provides relevant inspiration as pizza is the key part of the foundation on which Middleby has been built.
I found two great spots to satisfy my taste buds.
When in New York, I recommend foregoing, a traditional slice and enjoying the grandma style and Sofia pizza shop, their recipe and in Marseille oven create incredible flavors and textures.
Also not to be missed is a west coast take and the Detroit style.
Pi L. A has created the Los Angeles style, which puts our bakers pride oven to great use.
Their menu also won me over with their automobile themed creations the classic little Red corvette will more than satisfy traditionalists, while the impala low rider with moly chicken and roasted pumpkin was exceptional.
I love seeing our customers, but there is plenty to be said for home cooking. So while these pizzas work rate getting back to the Midwest. The best thing I've eaten recently as pancakes off of the chart Griller Griddle expertly prepared by my wife I have to see about getting her added to our culinary team as I am sure that would greatly improve our.
Already tasty future.
And further assessing our future given the trends Tim has discussed and considering all the innovations we continue to deliver to our customers. Our long term outlook is very strong.
In terms of a short term outlook. This is also positive.
A quick take on Q4 is thus far.
Or commercial we have shown a strong improvement in margins for Q3.
When considering the timing of pricing actions and backlog levels supply chain and inflationary factors as well as labor matters Q4 overall will likely.
The revenues relatively similar to Q3 and well ahead of the prior year.
With further expansion of margins, albeit with a more modest sequential improvements than we saw in this quarter versus Q2.
For residential a lot of factors go into evaluating cue far beyond those noted for commercial which certainly apply here as well seasonality patterns and economic conditions will be more impactful to this segment. Nonetheless, we believe that Q4 results will be relatively similar to Q.
Three.
And at food processing with high demand levels are typical seasonality, where the fourth quarter being the strongest one we plan to have stronger results as compared to both Q3 and the prior year, we expect to deliver another record quarter for this segment.
As we think about next year and the longer term I would like to reiterate our medium term EBITDA targets, which are 30% for commercial and 25% for the other two segments. We plan on achieving these over the next two to four years our confidence to reach these levels is based on numerous factors you are already seeing margins X.
Spanned as we make operational improvements execute on go to market strategies improve our product mix deliver innovation to our customers manage supply chain challenge challenges and vigorously manage costs all while also investing in new technologies and capabilities.
All this reiterate our positive outlook for the business for the coming years.
Our residential platform will continue to generate strong levels of profitability, even with a challenging market backdrop.
Being a manufacturer of premium products, our business demonstrates resiliency, we continue to invest in new products and technologies across all our product lines. We are expanding our distribution globally. We are capitalizing on favorable customer preferences, and we are improving our operations, we will deliver growth.
<unk> and improved profits over the long term.
For our commercial our customers are committed to their growth plans, our leading technology solutions address their top challenges our products deliver great value to them, our sales approach and service capabilities make us the vendor of choice, we will continue to manage price cost.
Immix improve operations and grow our platforms, we have been investing in new technologies and are seeing increasing benefits from the growing adoption of them, we will deliver growth and improved profits over the long term.
For food processing customer demand for our full line solutions position us for robust near and long term growth.
As with all our segments innovation service and value are our differentiators, our future is bright here too.
And with Thanksgiving just around the corner as I wrap up I wanted to offer up a few things and thankful for having the privilege to be part of this great organization.
And thank you to our customers and vendors for partnering with us to drive our collective successes.
Thank you to our employees for tirelessly working to drive Middleby forward every day.
I hope everyone has a great holiday season enjoyed with delicious food prepared of course, I'm middleby products.
We are now open to take your questions.
Thank you.
Now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
And at this time, we will pause momentarily for the first question.
Okay.
And our first question today will come from Sandy bore ski with Jefferies. Please go ahead.
Hey, Thanks for taking my question. So can you talk through what you're seeing from an order perspective in commercial foodservice and then how are lead times today, and then any comments on inventory in the channel.
Yeah.
Okay.
Hi, good morning.
Inventory in the channel as you know this has never been a channel with.
I'll say overly robust inventory levels and I'll, let Steve jump in on that in a in a second I think in orders here I mean this is certainly an interesting.
Dynamic and we've commented before that we've we're at extremely high order levels last year, and I think theres a lot of desire for everyone to try and pinpoint what were yesterday's orders to predict precisely tomorrow's revenues and we see a lot of months.
The month and quarter to quarter variability in orders, so I will offer that the important takeaway here.
Is that our customers.
Have changed their order, placing patterns with us we've seen that for the past two years now and they remain committed to all of their growth plans, which is why we feel good about Q.
Q4 into and through all of Q3, I'm, sorry, all of our 2023 I'd say.
Yes, Larry this is Steve, but maybe just some additional context as we think through our various customer base. So I know we spend a lot of time focusing on the bigger chain customers I mean, I think the highlight there as we've talked about on prior calls as youll, they've they've had great year really so far the last couple of quarters and opening new stores.
So that's.
A change certainly compared to pre COVID-19.
I think in many ways, we've gotten closer to those customers through this period and one of the positive byproduct of being closer to them going through the challenges. We all have is there a lot more transparent about plans into the well well into the future like we haven't been before so.
The change, especially I think of committed even more so to their new store openings.
For next year, so I think that positions us very well and the big chain segment. The two other areas I would call out that we probably haven't talked about quite as much as more kind of our dealer channel specifically in the U S and again I think we've gotten closer to them than we ever have before through the last couple of years and you are having more and more of those.
Critical dealers to us through the murk strategically planning for next year many of them would tell you they're busier than ever.
Third area I would highlight which we haven't talked a lot about on prior calls is the activity we have within the consultant community, both domestically and internationally and our scenario from it'll be that we were frankly not very good at three to five years ago and investing in the right people investing in digital solution.
<unk>, so something we track very carefully within our digital community or I'm, sorry within the consultant community is our specifications on projects. If you look at our year over year specifications on projects not only the items, we're getting specified on but a number of projects were specified on youll were up approximately 30% and specification.
<unk> year over year and why that's important is if you're getting specced on project today, that's really leading to the orders that you would see in next year. So that's going to cut across schools P&I health care senior living so.
Just a couple additional I guess areas of context beyond the change that we focus on a fair bet. The last part of your question was around lead times.
We commented in the DAC I think we've made a lot great inroads in expanding capacity in our manufacturing facilities. It's been one of the most critical initiatives in the company throughout the year and I think through the combination again of leveraging our supply chain team, which I think we've done a great job of across the board still very <unk>.
But I think we continue to manage it as well as anybody we've invested a ton in new automation ourselves new capital to talk about and Youre in many areas, it's still challenging but I think we've done a good job of especially the last quarter or two and hiring you are manufacturing employees, which is <unk>.
Obviously tough the other big thing, which I'm proud of from a manufacturing standpoint, when you hire so many employees like we have in a relatively short period of time, it's an easy time, where youre quality can slip I'm really proud I think we've done a great job maintaining quality in our products make sure we're supporting customers, while adding so many <unk>.
So I think lead times have trended better I talked about in the last call I think we will continue to trend back to.
I don't know what the new norm for early times will be certainly back to pre.
Pre COVID-19 levels as we get into next year across the majority of our manufacturing divisions.
Sure.
I think you've got a lot there juries, but I'll just add one more.
Item, but I think as we're thinking about next year to all the comments Steve had.
And a little bit commented on the opening comments, there, but with the change not only go with what they're doing with the new store openings.
Openings, we have been working with them a lot.
We would call Rollouts.
Which is either efficiency improvements or menu items in.
Lot of those programs, we have pretty good visibility, but how confidence too.
That is not in our order book right. So as we kind of think about next year some.
Some of the activity that we would see is based on.
We're out with Rollouts of what's exciting there is a lot of that is tied to that the new product innovations that we've had.
That James highlights.
Every quarter that really been coming out continuously the last several years.
Thanks for that and then just how should we think about margins in residential next year. If volumes are down are there any offsets that lower volume headwind.
Okay.
We've managed through.
Lower.
Volumes in the past you can go back and look at see how.
We performed.
In the depths of Covid, So I mean, certainly.
There are areas of variable spending that we can.
Address.
But.
Yeah.
Without offering.
Specific them hurdles are supposed to give the revenue levels I don't think theres really a.
A great generality I can offer beyond saying, we already we are entering or are in this more challenging period with already very high a very respectable levels of margins and we think within.
All are.
A variety of different scenarios that we certainly expect to maintain.
High levels of profitability.
And a couple of comments.
And maybe just as Brian said I mean, we built the portfolio to be a high margin business in good times and bad times. So I mean, I think you know.
Are we would expect the residential platform is going to have.
<unk> leading margins in <unk>.
Certainly.
Well in the double digit teens, even if there was kind of a significant drop off so I mean, I think it doesn't look that bad even in a really bad times.
We talk a lot about operating initiatives, Steve talked about some of the investments.
They're a commercial that applies to the residential.
As well I'll say there is a number of initiatives that we've had through the year and really the last several years as we kind of think about manufacturing efficiency and product designs, how products come together that that particularly applies at our U.
U K bus.
Business.
Which I think we've had a.
A strategy to really drive margins up much higher.
And so if the revenues dropped there, but I think that'll help us hold hold serve more.
Also the grill business is obviously.
Still early stage with us and we do have significant plans to expand the margins there so thats been.
A drag to the all in reported margins.
But we have been consolidating that platform of the three brands coming together Corrado, Joe Master built chargrill or Theres, a number of synergies from.
Sales to sourcing and manufacturing.
The market so not only within the grill platform itself, but with the within the residential platform. Overall, so I think we're expecting that we'd be making margin improvement as we go into next year on.
The growth platform, so just a.
A few things to highlight that will bolster margins going into next year on residential.
I appreciate the color thanks for taking my questions.
And once again, if you would like to ask a question. Please press Star then one.
And our next question will come from Tami Zakaria with JP Morgan. Please go ahead.
Hi, good morning, Thanks, so much for taking my questions.
So my first question is a follow up to your earlier comment.
You mentioned, you you target, 30% EBITDA for commercial food and 25.
And for the other two over the next two to four years can you help us understand what kind of organic sales growth.
You would need to get there and are these achievable if there is let's see.
Revenue yeah.
Time frame.
I'll jump it so I think.
Certainly I think we don't the way we've thought about it I mean, it is really driven.
Based on.
Yeah.
Launching our product innovation sales mixes a is a big thing is we're kind of transforming.
The mix of products that we have in the ROI to our <unk>.
Customers, although we've made significant investments to which is kind of what we spent a lot of time talking about sales transformation and all of the tools that we've invested in which has been dollars incremental last several years, which we do believe as you know.
Paying off so I mean, I think without.
Say, he kind of a normal growth period.
And then efficiencies that we've been focused on is really some of the drivers to get us there so that doesn't require like outside outsized growth certainly.
See a drop in residential.
That's where the.
Plus initiatives that we have on the margins kind of hold us.
Against the margin drop or help help offset.
I mean, I think our view is that that may be where you know the the four year view versus the two year view comes in between and I think we do have a.
Our bullish view on residential I know it's challenging.
When you look at the.
Let's go to the housing right now, but certainly it's a dynamic world.
As you know quarter to quarter.
But if you look we're still a small part of the overall appliance industry and.
We do have invested long term growth plans. So we do think we will grow.
That platform over a longer period, we think that we'll see some recovery.
A recovery to a longer term period as well. So I mean, I think you would you might you might think that food processing gets there the earliest.
Commercial somewhere in between and we've given ourselves a little bit of breathing room in kind of that range on our residential platform, which also has a.
Some some acquisitions that are.
Our new to that platform and kind of embedded into the margins.
Got it that's very helpful color. Thank you.
And I'm not sure if I missed it but did you comment on what price cost was in the third quarter was it.
Positive and how should we be thinking about price cost in the fourth quarter given some of the input prices have come down and are you seeing any.
We live in and costs as Youre trying to purchase steel parts from let's say your vendors now.
Yes, so supply chain.
Is not the same across the board I would say overall the.
Pressure continued in the third quarter right. So I mean, I think material costs.
<unk>.
A lot of disruption early in the second quarter, if everybody recalls certainly.
With the war you trained.
Taken it to the next level and that continued throughout the second quarter and into the third quarter. So I mean, I think we've been working very hard from a price cost to get ahead of it but I don't think we're we haven't been able to get ahead of it yet because those cost increases continued.
In the third quarter. So I mean, a lot of the margin expansion. We've had has been kind of.
Us.
Holding serve or trying to catch back up to the material costs. So.
I think the good news there is.
Some of the pricing that we have taken isn't still fully reflected in the third quarter. So we've got a.
Little bit benefit to come it's not like it's one inflection point, where on a certain date all the pricing shows up we've got 100 brands. So it all comes into the P&L.
No different.
Points of time, we think that carries a little bit in Q4.
And also into Q1.
And we do anticipate taking some pricing.
Going into next year as well because I mean, I think things like controls.
Electronic components.
And some other categories are still.
At a highly elevated situation so.
There should be some some relief as we go into next year on things like like steel, which will will help but we're still a little bit behind on the price cost equation, but I think our expectation as we kind of move into next year, we'll be catching up.
Got it that's very helpful. Thank you so much.
And our next question will come from Jeff Hammond with Keybanc capital markets. Please go ahead.
Hey, good morning, guys.
Good morning.
Hey, so I wanted to dig in on the Grill business, because I think last quarter. It was more of an issue.
You know Covid lockdowns production in China.
But it seems like it's kind of shifted to your you know your your customers, maybe having too much inventory and doing some destocking. So.
So I just and.
And maybe just speak to how the how the quarter played out for the growth businesses versus expectations.
Yes, so I think coming into certainly as you mentioned last quarter, we couldnt ship and that was kind of more at the height of the grille season, we probably had a little bit of that still at the beginning.
The quarter that's largely.
Ben.
Remedied.
So now it really is.
Kind of where are the retailers and as you mentioned they are destocking. So.
That is definitely affecting the demand.
And what we're seeing of our group business.
I know a lot of that is not them destocking. Our growths. There. It is really what do they have an inventory because as the category overall.
Not going to necessarily load on our grills if they have other.
If they're overstocked and other Bryan So I mean, I think as we think about it I mean that is going to be a period.
You know that we are going to go through.
As we move through the next couple of quarters.
I will tell you we're very excited about the platform though.
And in that period I think what we're seeing is as we go into 2023.
To have on the retailers more floor space.
So a lot of the reasons we bought.
You know that.
The commodity Joe of Astral Bell charged roller there's just a lot of product innovation there that I think is.
Going to be exciting in the marketplace. So I made I think is old inventory comes out.
Kind of we know that we're going to be.
Picking up.
Some do.
As I said floor space going into next year. We also had some new product launches that are going to be coming out early next year. So I think that is also going to.
Drive some end user interest in.
One of the other things is we're kind of at early stages of launching some of these products into our specialty retail dealers. So I mean, I think that's one of the benefits that it'll be brings to the <unk> platform as some of the strength in channels that debt.
They weren't necessarily than before as strong and before particularly with a commodity Joe product. So we're working on that.
Joe has got some unbelievable products, so that lines up really well with some of our.
Brands, such as Viking and.
Lakes in the outdoor segment. So that's got to be you know.
Another piece, so I mean, certainly it's got others that had headwinds we can't necessarily set a mall immediately but those growth drivers, we think will show up as the.
The year progresses, and I think just the kind of the last thing is we are the we view ourselves as the the charcoal.
The leader in <unk>.
<unk> innovation and I think we do believe that that's a longer term.
Term trend as people think about.
Move away from gas and kind of rethink that and go to go to charcoal, particularly with the ease of use the innovation that we've got our products. So.
So that's kind of the backdrop, certainly that'll play out quarter by quarter, but.
We're still pretty excited about where gross goes over the next couple of years here.
Okay, and then just on the core raws kitchen business it looks like Youre seeing.
International softness, but I'm just wondering if you can speak about.
The core North America business is it just holding and working off backlog areas or is the.
You know orders the demand side, you know hanging in or starting to slow just some color there.
Oh.
I'll give kind of a broad.
New.
If <unk> got any other comments, but I mean, it is certainly we're seeing some demand softening across the platform.
The hardest in the U K I mean, I think if you kind of think about what's happening across the world not that.
It's not we're.
We're not seeing that in the U S as well.
There is.
A number of other dynamics with the economy.
Changes with.
Leadership there in the in the government energy costs et cetera. So we've seen that market hit pretty hard we also have the exchange.
Losses were just kind of converting to U S dollars that Brian mentioned, which are pretty significant for that platform.
So that business has come down pretty well.
Largely worked through the backlog there. So we're really even in the current quarter Youre seeing what the U K looks like.
The current market environment, we do believe we are outperforming the market, we track kind of what the.
Market.
Stats are there.
5% to 10% better than what the market is so we think we will continue to outperform and as I mentioned before we had some pretty good profitability initiatives.
As we think about how we built drills.
With the new product launches we have there.
<unk>.
Got a number of brands.
We've got lead times that do extend into next year some of them.
No to the early part of the year and some to middle of the next year, our most premium products actually extend.
Further, but certainly we'll be catching up to some of the backlog that we have as we kind of move into 2023.
Okay. Thanks, a lot appreciate it.
And our next question will come from Todd Brooks with the Benchmark company. Please go ahead.
Hey, guys. Thanks for taking my question just a couple to follow up on if I could.
Commercial foodservice and food processing, just thinking about the backdrop there.
For even accelerated capex trends in 'twenty three.
On the restaurant side hearing more about maybe peak inflationary pressures in the third quarter just reported.
And pricing continuing to catch up with what they've seen on the commodity side, so margins should get better.
But they've learned the lessons of meeting efficiency I guess as you're looking forward and talking to those partners.
There is there is new builds <unk> recovery in the industry, but can we just drill down more into the efficiency and the willingness to invest too.
Unlock that with equipment solutions in those two segments.
Yeah. Thanks, that's a great question.
I would say if you just kind of recap.
The ways, we've engaged customers over I'll call. The last 12 to 18 months the big topics have certainly been how do we help on labor how do we help on food cost how do we help on speed of service. The wrinkle I would say that's more recent nuance to the last couple of quarters as youre thinking about utility cost.
And so I think what's interesting right now so we've talked about on prior calls how we've seen a shift towards orders being more focused on new stores and we have this pent up demand in replacement.
So I think what's interesting as utility cost go up.
We engaged more and more on what is what were easy places. They can go to add piece of equipment that are more energy efficient as an example, so I actually think it will accelerate some of the pent up demand and replacement because if I can go replace any piece of equipment or a multiple.
Pieces or I can add open kitchen to manage my utilities. The payback is so quick right now and the other thing we've been very thoughtful about both especially domestically is theres a number of local jurisdictions that offer great rebates on <unk>.
Energy efficient products I think we have the broadest portfolio of energy efficient products. So it makes it a very easy dialogue for us to connect with the customers say Hey, if you add these couple of products you had open kitchen and I mean, the ROI is quicker than ever. So it's one more I think great case for them to accelerate Capex to go back and do some of the replacement.
But I think it's been put off.
Our cobot if that makes sense. So that's what that's a nuance that I would say has developed the last six months I'm sure only gets accelerated as we go into the winter months and again, it's still on top of helping them solve for labor food cost speed of service.
If you will so very excited about what that leads us to for for next year for sure.
Okay, Great and one follow up Oh, sorry go ahead.
In food processing, I mean, theres much to echo there.
But we are seeing.
Continued.
Engaging with our customers and really large full line solutions, because it's addressing labor it's addressing.
Their efficiency and <unk>.
When you're in an industrial setting.
Small improvements have big payback for our customers.
Medium and even larger improvements have you been larger paybacks for them and so that's why.
The.
The outlook for food processing is very is very strong.
Okay, great. Thanks, and then just a quick follow up out of the deck.
When you were talking about commercial foodservice, you highlighted supply chain frictions, but also staff.
Staffing challenges still hitting you in the third quarter.
Is that is that segment specific or is it just called out specifically there and how do you feel about exit rates on staffing.
Given the environment and given.
Just the demand that you're seeing in commercial foodservice specifically thanks.
Yes.
So I think.
Labor is a constraint across all three platforms, so maybe kind of.
Hitting that.
We've got different divisions and different geographies with.
Different opportunities. So it's not the same across all of our platforms, but certainly it is holding back.
Back Manny.
Manufacturing.
A number of our brands across all.
Through three platforms, we have done.
A R. Our HR teams and just as divisions generally have done a great job of hiring people across the.
The platforms I think we are.
And a better staffing position now kind of as were in the fourth quarter that we've been all year, we still definitely have some challenges out there but we're.
We're in a better position and I think it's a little bit easier to.
Attract and retain right now generally then than it was two quarters ago.
Okay, great. Thanks.
And again, if you'd like to ask a question. Please press Star then one our next question will come from Walter Liptak with Seaport. Please go ahead.
Hey, Thanks, good morning, guys.
Just wanted to try and clarify on the residential part of it so it sounds like the residential in the U S that the orders continue to come in okay.
Just for that.
The orders.
Is that right.
Well.
So I think we're saying that demand is softening right.
Thus far I think we are.
Saying it is harder in the U K and the U S. But certainly it's softened in the us as well we're also.
You said that it would get a a longer a larger backlog and.
The U S that kind of carries us into next year as you look across the brands our premium our most premium brands.
Let's say a lot more new for example.
And some of the more premium Viking products, they have longer lead times, so that kind of cushions us as we as we go into the beginning of next year.
Okay, Great and then with the outdoor part of the business the grill business.
So.
Are you guys thinking that some of the marketing the channel changes that you're making in consolidating those brands.
That you could you could grow that part of the business in 2023.
There's a little bit different dynamics in that outdoor versus.
Versus indoor kitchen.
So look I think we're going to.
We are not going to we're going to shrink in the first in the next couple of quarters here right, because I think theres going to be the retailer.
Destocking, but I think it is.
As we move through the year, we do think some of those growth drivers will be more impactful certainly in the second half of the year as you start thinking about.
Loading in for the following drill season as well as opening up channels.
And floor space that they haven't had before which I think we will we will start to show up in Q2.
Probably accelerate a little bit in Q3, it's hard to say what the.
The front half relative to the back half will be.
With the Crystal ball I mean I think.
For us, it's really the longer term view and knowing that that.
As kind of the backdrop in the world behind this plays out that were.
Well positioned.
Some of those growth drivers are incremental.
And also our kind of share gainers as well.
Okay, Great and then maybe a last one on residential.
It sounds like Youll continue looking for M&A deals in residential.
I wondered if you can give us an idea of you know.
With this air pocket that we've had our valuations coming down at all where does the funnel look like for any sort of residential M&A.
So I mean.
Repeat probably similarly to what I have.
Set for every quarter for about 20 years, or so which is.
E.
<unk>.
Our pipeline is a core competency.
It'll be.
We've added a.
We're 110 roughly.
Phenomenal brands that make up three industry, leading platforms has been a very strategic approach that stance.
The test of time.
There.
There is always lots of great strategic ideas that further strengthen and extend the.
Portfolio.
We bring in a lot more in terms of innovation and technology.
Certainly including.
This year as you kind of think about the companies that are highlighted on this call products out CP packaging colosi last quarter.
With ice show as we continue to extend our beverage. So I think you'll continue to see us do smart strategic deals.
Certainly we go through a different period here, where capital costs have changed.
And outlooks are being reset so.
We're pretty smart about those things in and also disciplined so I think youll.
She has continued to be smart and disciplined but also continue to grow our business.
Okay, Great alright, thank you.
And this will conclude the question and answer session I would like to turn the conference back over to management for any closing remarks.
Okay, well, thank you everybody for joining us on today's call.
We wish everybody a great day and talk to you next quarter.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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