Q4 2022 Middleby Corp Earnings Call
Good day and welcome to the Middleby fourth quarter earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
We'll start the call with management comments, and then open the lineup for questions and instructions on how to get into the queue will be given at that time.
With us today from management are Tim Fitzgerald, Chief Executive Officer, Bryan Mittelman, Chief Financial Officer, James Polk, Chief Technology, and operations Officer, and Steve Spittle, Chief Commercial officer.
Please note today's call is being recorded.
Now I'll turn the conference over to Mr. Fitzgerald. Please go ahead.
Thank you for joining us today on our fourth quarter earnings call. As we begin. Please note there are slides to accompany the call on our investor page of our website.
We are pleased to have finished the year with strong results in the fourth quarter, along with the close to another record year in 2022.
For the year, we surpassed the milestone eclipsing 4 billion in revenues, while adding approximately 140 million to our earnings for the year reporting just over $850 million of EBITDA.
We realized sustainable improvements in profitability over the course of the year as our investments in manufacturing and our initiatives to evolve our product portfolio to focus on innovation is taking hold.
These efforts are offsetting the significant inflationary and supply chain headwinds, we faced throughout the entire year.
And these efforts will continue to provide momentum as we move through 2023.
In 2022, we continue to make critical strategic investments in innovation go to market capabilities and acquisitions strengthening each of our three industry, leading food service businesses and bolstering our competitive positioning in the marketplace.
In 2022, we developed and introduced a record number of new products across our brands and significantly further our company wide technology initiatives pertaining to digital controls.
O T and automation.
2022 we continue to take steps forward our go to market initiatives.
Investing in our innovation kitchens.
Adding to our culinary teams expanding our digital sales capabilities and deepening our strategic channel partnerships with a focus on strengthening engagement and support to our end user customers.
In 2022, we also continued to execute our long standing track record of a smart and strategic acquisitions.
Adding eight new brands to our portfolio.
Further extending offerings with exciting new product innovations and each of our three foodservice segments.
As we close 2022 these efforts have us well positioned to capture rapidly evolving market trends address real world operator challenges at all for the sustainable solutions our customers are looking for.
As we look forward into 2023 economic conditions continue to be uncertain.
We continue to have a positive outlook given the pipeline of new product innovations developing customer opportunities and the competitive positioning in each of our three foodservice businesses.
At our 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 later our latest innovations are in demand and we are engaged with customers to solve challenges in the kitchen like that ever before.
Our recent attendance at the National trade show the largest in our industry. Further reinforced this activity has been after Michelle withdrawn and attendance of over 20000 was ahead of pre COVID-19 levels.
We were heavily engaged with new and existing customers seeking out the latest innovations to transform their foodservice operations.
The longer term backdrop is also favorable with the restaurant industry still in early stages of recovery.
It is estimated that over 100000 food service locations in the U S market closed during the pandemic, while only an approximate 5000 units were added back in 2022.
Leaving a long runway for new store development.
This opportunity is confirmed as we are engaged with many of our chain customers on new store opening plans.
In many segments, such as schools travel and lodging and casual dining.
Still in early stages of recovery with only more recent return to travel.
Creasing in person attendance at work and school at a return in dining out.
We're confident we are well positioned for this long term recovery.
At our food processing business, there is a need for for equipment to increase throughput soft for labor challenges through automation addressed.
Address rising food costs, and reduce energy water and utility costs.
Customers are increasingly looking to address sustainability concerns.
Over the past several years, we've introduced exciting new innovations addressing these customer needs.
We have also made significant strides expanding our automated full line solutions, while also broadening our offerings into new food applications, such as pet food Bacon and alternative protein.
We're seeing the benefits of our strategy through increased partnerships with customers on projects.
<unk> business in new categories.
In our residential business rising interest rates.
Slowing housing market and Destocking of channel inventory at our outdoor grill business, all present headwinds and uncertainty with expected order declines in 2020 three.
Despite these challenges we continue to remain excited for the developing opportunities with our new product launches investments in our showroom and sales capabilities and further development to leverage the strength of our platform.
Our product offering.
Our product offerings position us to capture new market trends, such as growing demand for electric introduction products.
And engagements at our residential showrooms with our culinary designer teams better position us to capture the imagination and market share.
We expect to maintain industry, leading profitability as we navigate the current environment.
And we'll continue to invest as we position for growth in sales and profitability as the market recoveries.
In summary, I am thankful for the effort of our entire Middleby team as we continue to deliver another to continue.
<unk> continued to deliver and another disrupted and challenging year in 2022, and I'm proud of the progress. We have made as we continue to execute our strategy and transform our business does this positioning us for the future.
I'm confident the efforts of our team is adding to our competitive differentiation in the marketplace, which will also progressing towards our longer term financial goals.
Now I'll pass the call over to James to spotlight more Bourbon studying recent product introductions, yeah. Thanks, Tim.
Quarter I discussed a couple of products aimed at electrification in hindsight my comments were well time with current events around banning of gas fired appliances. Middleby has continue to building electric cooking and processing equipment that exceed the demands of the electrification push.
And as I discussed it's just not.
About the electric.
It's about.
Being highly efficient and electric at the same time.
Combi ovens to our next generation of electric cops Middleby is well positioned in the future to deliver products that meet the electrification needs moving forward today I'm going to talk about three new products launching in 2023. The first is connected Joe.
You've heard me talk on prior calls about digital connected charcoal the connected Joe It's a continuation of our digital charcoal strategy. The connected Joe brings digital controls and App control cooking and content to the commodity Joe lineup in the same way that we brought digital and connectivity to the Master Bill.
Series of gravity charcoal grill with the connected control the connected Joe addresses the friction points associated with outdoor grilling and commodity cooking.
Smoking.
Drilling it's never been easier simply load charcoal in the connected Camacho impressed the like button that said the auto ignition system takes care of lighting.
From there the digital controller takes over to precisely regulate the commodities temperature the connected Joe will embolden, the grilling novice and will allow the grilling master time to enjoy their favorite beverage or four.
I mean should this digital control scare off the grilling purest the commodity Joe can also run in a pure manual mode, making this the most versatile and usable motto on the market.
The second new products scheduled to launch in the first half of 2023 is the invoke is our new line of high efficiency electric and gas commercial copies. Our engineering teams are designed to invoke for connectivity and sustainability.
Given that this is an earnings call. We should talk about some numbers. The invoke is built on a half sites combi footprint, while still being a full sized combi capable of fitting full size hotel and she pants. This affords us a 32% size advantage versus competitive Tommy's wall.
Increasing our cooking capacity by 17% this smaller footprint reduces our hood space and load by 13% for vintage comics.
Molar footprint and innovations around steam generation and cleaning.
Makes this a very efficient combi with 38% less power required for operation, which means less copper going into the building and 27% less water during cleaning.
This is our best Combi, yet and by the numbers. This is a best in class Combi delivering on our customer sustainability environmental initiatives. The invoke was designed for them it'll be one touch control and it is open kitchen ready middleby the Iot platform.
And finally, the third feature new product, it's a pitch co smart solstice frac before we talked about the smart solstice prior I'm going to make some background comments about the two most common types of fryers marketed today traditional or full oil quite fryers and rovs.
<unk> or reduced oil volume fryers.
Real brief fryers have become the preferred choice of fryers due to the benefits they deliver by automating oil filtering and oil top off these features lead to reduced oil consumption.
<unk> traditional fryers.
Even with all the benefits of <unk> fryers.
I tend to struggle when it comes to heavy duty, Brian tasks, such as fried chicken and heavily breaded products said differently. If a traditional fryer could deliver the same automation and oil savings as an <unk> fryer, our customers who continue to use traditional fryers to take advantage of their full oil.
Volume the smart solstice is the first and only full oil volume prior to deploy its automated filtering oil top off connectivity, it's smart oil sensing, which measures and reports oil quality and life in real time through them, but it'll be one touch control and open kitchen. These features make.
Smart sources, the best all around prior for a chain customers and really all customers and while our requires more of a film of that the cold zone and filtering process combined to extend oil life beyond the point of an RV fryar as it takes longer for threshold levels October polar compounds tpc's before.
To form in the larger oil volume, thus requiring less oil changes.
Concentration of TPC as determined when an oil should be disposed. Finally, the smart solstice uses the middleby, one touch control and as open kitchen ready.
And before we move over to Brian I would like to mention that we made two acquisitions as we concluded Q4, Mark go beverage systems and Essar mixers. These.
These companies are synergistic with the beverage platform and food processing group, respectively. Marco brings a lineup of well engineered and beautifully designed coffee brewing and dispensing products, along with water dispensing capable of dispensing Hot show and sparkling water. These additions help round out and it'll be it's already robust beverage plot.
Asher mixture spring large scale spiral in planetary and automated mixing lines to our food processing group. These mixtures afford our customers the ability to specify middleby mixtures as part of a middleby full line bakery solution.
Thank you and over to you Brian Thanks James.
I think about 2022.
One word comes Tonight.
Record.
Record sales record earnings record quarter record year.
And we delivered this while attacking the challenges from supply chains logistics inflation labor and the residential market conditions.
Think about records is that they are meant to be broken.
Plan to make that happen in 'twenty three more on that later, but let me start by briefly reviewing our recent performance for fiscal 2022 we generated record revenues of over $4 billion.
Our adjusted EBITDA exceeded $853 million and it was nearly $874 million when considering the impacts from year over year changes in foreign exchange rates.
GAAP earnings per share was $7 95, and 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.
It was $9.10 for.
For the fourth quarter, we generated records in revenue at over $1 billion.
And adjusted EBITDA at over 233, and a half million dollars.
Q4, GAAP earnings per share were $2 45.
With adjusted EPS at $2 57 for.
For the year I'm, sorry for the quarter year over year revenues grew over 19% or 14% organically.
Adjusted EBITDA grew 21% over the prior year, our margins expanded over 100 basis points from Q3 and were 22, 6% or 23, 8% organically by the way all margin values I will discuss hereafter are on an organic basis as well.
Excluding any acquisitions and FX impacts.
Commercial foodservice revenues were up over 19% organically over the prior year.
The adjusted EBITDA margin was over 28%, while we worked through some operational hurdles, we did have a rather favorable sales mix.
In residential we saw an organic revenue decline of 9% versus 2021, the adjusted EBITDA margin was 16%.
And food processing total revenues exceeded a whopping $180 million and increased approximately 29% organically.
Our adjusted EBITDA margin was 29% are full line solutions are resonating with customers.
Even though we delivered record results it was not an easy quarter supply chain and labor matters still impact operations, but we drove volume and dinner best to maximize mix. The results show, where innovation is taking us that we are providing compelling solutions and marching towards our margin goals.
Our operating cash flows were over $159 million.
The working capital impacts from inflation and supply chain challenges, while still present were less impactful this quarter and our free cash flow conversion exceeded 100%, which is the best it has been over the past two years.
Looking forward, we expect that our cash flow generation should return to pre COVID-19 levels, where we had been seeing free cash flow to net income of at least 90% for our fiscal year.
Our total leverage ratio was three eight times, our covenant limit is five five times. So we currently have over $2 $2 billion borrowing capacity. These figures are after giving effect to the nearly $100 million, we deployed in Q4 on acquisitions and stock buybacks.
For the year, we had operating cash flows of nearly $333 million and used $67 million for capital expenditures, thus generating over $265 million of free cash flow.
We invested almost $290 million in acquisitions, and we also deployed 274 million on stock or capital related transactions had we not made these capital transactions our leverage would have been around three turns lower.
While we are exceptionally proud of what we delivered in 'twenty two.
We are fully committed to delivering new profitability records in 2023.
How would we do this the answer may be found in an alley, amongst wizards and with a little help from spells and merger.
In February Orlando is home to two very popular alleys diet Guy in early May.
Made famous by Harry Potter and even more impressive innovation alley at our naphtha trade show Booth.
I was in Florida, with my son, and it turns out he was more interested in one over the other.
The two of US were walking down diagonal Elliott and unseasonably Cold day, where moguls were wearing heavy coats scarves and gloves. However, the line around full reinforces skus ice cream parlor was long and winding scratching down the block as we entered the shop I discovered a secret there treats are not entirely.
We produced they come from a tailor freezer with a special boost from our most recent acquisition <unk>.
<unk> machine that starts out its existence dispensing only two flavors grab your wind if you have one and cast a spell of flavor burst.
Incidentally, our serving 16 flavors.
Our beverage magic does not stop with ice cream is my son student learned at one meal. He was playing with the ice and his drink I asked him why he told me he wanted to chew it.
This brought a huge smile to my face apply the shoe blitt spell in your glass will fill with solids delectable ice exactly what he was looking for.
And as a bonus with its larger surface area. It keeps your drink colder longer too.
But assuming ice is not your thing we've a spell for that to ice stroke will make endless nuggets up here and.
And we know dispensing magic to looking for butter beer, but needed faster and consistently port S. Tap delivers every time.
Or has the brics incur spin of fixed you too quickly dispense perfectly formulated fountain beverages every time, one special word can remove the curse Newton.
Constant flow valves appear and will revolutionize your dispensing.
Or are you looking bigger are you afraid of ghosts, but want to have a restaurant pop out of nowhere the easy combination of Nico solstice Evo will have your grilling and frying needs vet, mostly addressed.
Well my son May now believed that I work with the Ministry of Magic. The truth is that my favorite place to be found is that the mix the ministry of an incredible kitchens.
Jeremy There and you can transform from muggle to culinary Wizard, our talented chefs don't have once they have the one touch control, which may seem like magic. It puts all our spells at your fingertips.
Well it keeps this wonderful culinary world running smoothly, even while we battled those whose names cannot be spoken.
Just like hard works Middleby is led by a soft spoken distinguished gentlemen of Irish descent.
So whether it's <unk> or the mix there is much to learn explore and experience we want to share all our powers with you.
We are using all of our powers to grow in 'twenty three.
While it may seem like magic.
Yes.
We will actually grow because of innovation and excellence in execution in.
In 2023, we look to expand margins for the total company and in two of our three segments as we work towards our medium term targets as a reminder, our annual adjusted EBITDA margin targets are 30% for commercial foodservice and 25% for food processor.
And the residential platform.
I know there is much focus in the market on the challenges residential is facing I will get to that.
It's important to understand that and cross our entire portfolio on a daily basis, we're still tackling supply chain challenges and facing inflationary pressures vapors proving to still be problematic in areas. Nonetheless, we are not slowing down investing in new capabilities and growing.
Our presence in new markets, what will this mean for 'twenty three.
It should be an even greater year. It is just a Q1 will step back from the great fourth quarter, we recently completed keeping.
Keeping in mind that Q4 was exceptional in two segments, we benefited from a favorable product mix and delivery of full line solutions. So I like to think we're now living in a post COVID-19 world seemingly getting back to some pre COVID-19 norms. This means we're back to having some seasonality patterns, where Q4 is.
Usually our peak quarter, and then Q1 is not quite as strong when comparing sequentially over the course of 'twenty three we look to be improving top and bottom line sequentially for all the segments.
Comparing our Q1 'twenty three outlook versus our performance for the first quarter of 'twenty two.
For commercial and food processing, we are looking to see revenue growth and modest margin expansion at both.
What should not be unexpected is that residential will see meaningful revenue declines on a year over year basis.
Call that Q1 of 'twenty two was the resi its highest revenue quarter ever which included over $110 million of outdoor Grill company revenues the.
The decline for 'twenty, three is being driven largely from the impact of retail destocking of grills alone.
With generally challenging conditions around the residential housing market. Nonetheless, our Q1 'twenty three residential revenues are probably down just slightly from Q4.
Overall as twenty-three progresses I reiterate that we currently expect to be delivering sequential growth across the board for the year in total we plan to see organic revenue growth in commercial and food processing with margin expansion.
Supporting this are our backlog levels I won't make you wait for our 10-K filing next week to get to get this info.
As we ended the year, our total backlog was nearly one in a quarter billion dollars for commercial it was over $750 million at food processing was over $310 million.
And residential came in at $175 million, which does help buoy the segment, even though for the total year wrestling will likely be seeing revenue declines in spite of that we look to have decent margins, meaning expected to see them in the mid teens and reminding anyone who has not yet.
Fully understood. This about our operations, we have industry leading margins.
Given customer buying patterns, the destocking impacts will be much less after Q1 as a result on a year over year basis. We currently anticipate seeing growth in the second half for resi.
Looking at 'twenty three for food processing, we are poised for solid growth, we have a very strong backlog and we continue to land large orders as it's typical for this segment. This segment margins start out the year low but build across the year year over year margin should expand.
We plan to seek growth in commercial to our leading technology customers development plans and our backlog are amongst the growth drivers piecing. This all together for the year.
With full year over year growth and margin expansion in two segments and with the resi you've likely seen second half year over year growth. We currently see total company's total company revenues up modestly and growth in EBITDA dollars and margins.
We are delivering what middleby is known for.
Before I close I want to cover one technical area as it will impact our GAAP results when comparing 'twenty three to 'twenty two please.
Please bear with me, while I spend just a little time on the impact of our pension plans and what they will have on our twenty-three GAAP earnings.
Again within our GAAP results, we have a non operating and non cash benefit generated by the accounting for pension plans. This total over $42 million in 2022.
Note that we exclude this from our non-GAAP adjusted earnings the.
The amount is determined at the beginning of the year as part of an actuarial valuation process. This amount is most impacted by interest rates and asset values for 2023. This amount will be much lower at approximately $10 million.
Due to the increase in interest rates and a decline in asset values in the pension plan over the past year.
Given our largest pension plans benefits are frozen we make only a modest amount of cash contributions to the plan each year and that will not change for 2023.
By the way why the P&L will not see as larger benefit in 'twenty three due to the changes I. Just noted we have seen a large benefit on our balance sheet.
The actuarial determined unfunded liability that at the end of 'twenty, one stood at approximately $200 million.
His nearly has been nearly eliminated at the end of 'twenty. Two again this will not impact our cash flows or non-GAAP metrics.
In conclusion two.
92 was an exceptional year.
Twenty-three will be even better.
Being a Chicago and when I think of 'twenty three I automatically think of greatness Ryan Sandberg, Michael Jordan.
I, probably aware their jerseys all year as a reminder, the 'twenty three will be Middleby has the greatest year yet.
And with that we are open for your questions.
Thank you.
To begin our question and answer session to ask a question you May Press Star then one on your touch tone sounds if youre using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our west.
And the first question will be from John Joyner from BMO capital markets. Please go ahead.
Oh, great. Thank you for taking my questions and.
Brian Brian you might want to need to cut back there on the flavor Bruce for a few days.
Justin.
Okay.
But anyway. So the first one your EBITDA margins, I mean, which definitely showed a solid progression throughout the throughout the year in both commercial and processing in and I know that you mentioned modest margin expansion as expected for the commercial business for this year.
With which probably makes the I guess the exit margin rate a bit you know that we had in for Q a bit optimistic for 2023, but.
Is there any more.
Quantification.
Occasion that you can offer around our full year EBITDA margins are kind of by the businesses or particularly commercial.
Yeah.
Look at commercial I.
I would say I start by looking at the second half of the year.
Kind of a combined obviously as you look through the year, we're expanding in.
We're having more pricing come through as we go through each quarter as well as continuing to face.
Face inflation pressures and such so if you look at the back half of the year, probably is closer to like a 27% and.
I did say Q1 will be a step down from Q4, but you know I think we get to that 27% and then you know, we'll we'll build to that level or a little bit better for the year than we did for.
For 'twenty two.
But again it has a it has a building progression from the year.
There's always a you know a peaking in Q4 and again the takeaway is as you look at it on a full year basis, we do expect a 'twenty three to be higher than our than 'twenty. Two I think we're on our path of if you don't marching towards that target we have out there.
Okay excellent and maybe just one more if I could.
Just with regard to overall demand I mean, I get on on the commercial business.
And Tim you kind of talk about some of these end markets that are I guess coming back a bit but.
Any shifts by end markets versus say a quarter ago.
Almost no positive or negative and would you say the commercial customers you know really havent stepped back and are really sticking with the their expansion plans.
Uh huh.
Sure it off here with with Steve, but I mean, I think we've continued to see strong activity levels I think order patterns.
Ben all over the places you've gone through supply chain issues, but I think what's been constant is really kind of the activity that we've got in the market place, particularly with our large change, but as I mentioned also were the comments I mean, there are other segments that you know, we see turning yard that had not been there.
18 months ago, So it's kind of broadening out as time is going on here.
Okay.
Great. Thanks, so much.
And the next question will be from Siri Board did skew with Jefferies. Please go ahead.
Hi, Thanks for taking my question.
It looks like just kind of focusing on raising it looks like you start the year may be down 40% year over year, you're down sequentially is this the right way to think about it and given this decline how do we think about margins for the first quarter.
And then just to follow that up how do we think about some margin offsets kibali and maybe from price cost.
Yeah.
Hum.
You say what did you you called out the revenue number for Q1.
It'd be down 40%.
Yes, I think you know that.
That could be right we did.
<unk> 330, plus last year, Q1, I talked about it being a little bit less than.
Okay.
Yeah.
It kind of 35 to 40 range. If if you do the math so I think that's.
But you know that.
You did capture my comments appropriately.
But just just maybe you know and I think this isn't Brian's comments, what would've framed it up you know the outdoor grills you know probably not surprisingly is driving an outsized decline you know given that we did well north of 100 and.
$10 million in the year, so you're seeing a much larger decline.
As you've got the Destocking of the grill, so that the rest of the platform is that it.
It's not down as much so certainly it's down double digits, but it it's got a weighted you know very heavily towards the girls I mean over more than more than half of it. The majority of the decline is as from the recently acquired grill businesses.
Yeah.
And then can you just talk about the margin expectations in the first quarter and then just the rest of the year. How do you think about volume headwinds, maybe being offset by some price cost or investment in that segment.
Yeah, you know.
With the revenue decline in Q1 kind of Q4 and looking at the impact of a call.
I'll, let you know not having you know.
The leverage that comes with higher revenue levels, our margins will step down in Q1 from Q4, but you know as I said you know build build.
Build from there.
So what we we still expect to be.
For the quarter, obviously, I talked about being in the teens for the year Q1 as you know.
I would say, it's more pressure on it than you know.
The full year, a full year number given you know I talked about revenues growing from there right and so we get more leverage benefits as we work through the year right.
Helping that.
That margin improvement as well.
And if I could just squeeze one more in and out of commercial foodservice, obviously, another very strong quarter of growth can you just talk about the demand you're seeing and can likely three from a domestic versus international perspective.
Commercial.
CRE I think when you think about you know the larger chain customers like again, we've talked about in prior calls one I think it's a it's great that you've really reiterated you a lot of their build plans for 2023 and again most of our big change you had record new store openings.
22, again I've talked about before one of the great things that I think has come from the last couple of years of working through supply chain disruptions, we've gotten a lot closer in terms of understanding you know plans for the upcoming year. So I think we have a very good view.
For this year I will tell you I mean, if you look at where the chains are growing, especially it is in many international markets.
Think of markets like India, Brazil.
Definitely parts of it.
Where do you see a lot of change is actually growing.
Perspective.
It will be positive year over year from a new store build perspective, but I actually do think the international market again going back to some of those key markets is where you will see.
Some pretty substantial new store opening growth.
I think when you think of just some of the other segments not primarily in chains.
I do think Youll see domestic growth yeah, you know kind of more of a general market.
We've put a library work into our consultants I talked about on the prior call, which is driving specifications and schools, you'll be an eye et cetera. So I do think that will show up in the domestic segment.
So I think both are positive for the year by do think again going back to the change you will see some pretty substantial international growth for.
For 2023.
Great Congrats on the quarter and thanks for taking my question.
Okay.
Thank you and our next question is from Tami Zakaria from Jpmorgan. Please go ahead.
Hi, good morning.
So going back to that margin expansion comment for both commercial food and food processing.
So is that primarily driven by going to the driven by price cost.
Finally, turning into a tailwind or would there be some other drivers like mixer or operating leverage.
Like what are your price cost assumptions for this year.
So it's really all of the above I mean, I think a lot of the margin expansion that we've seen across the platform really is driven by our strategic initiatives. So we're definitely involved in the mix of the products I would say that that's number one.
And then really investing in our manufacturing platform.
Platform. So I think you've seen a lot of that coming through.
Price cost has been a headwind and it continues to be a headwind. So I mean, I think you know as we've continued to take pricing you know inflation has continued to come through even in the back half of the year. Obviously some of the commodity items go down, but as you kind of dig through things like electronic controls and.
Other I'll say more specific components. They they've continued to go up so well.
The the way we see it.
That's kind of you know trended here is the gap.
Price cost is closing so I think we.
You saw some progress.
Fourth quarter. So we are still behind the curve where cost is higher than the price. We did take some pricing going into 2023 that will further close that gap. So you know it.
It is a.
Tailwind from the perspective that we're.
We're closing the gap between price and cost, but it'll it'll still probably be a couple of quarters before we get to parity here.
Got it that's very helpful and just a quick follow up on that pricing comment you made can you remind us what.
Incremental pricing action, you're taking across the three segments. This year.
Well, it's a you know we don't we didn't take pricing across the board. We've got 110 brands. So it's it's brand by brand and we've been very thoughtful relative to the cost that they have seen in the market place.
We're seeing them around it also.
Calculating the competitive market position as well.
I'll just also remind we've launched so many new products. So a lot of time to bring products to market that we really didn't have an existing.
Price out there. So that is also a factor kind of as you look at the segments overall, we took.
I'll say mid single.
Single digit price increases in commercial going into the year, it's probably somewhat similar food processing, although a lot of those.
Ah projects that you know that we're.
Kind of quoting.
On a very specific basis, depending on what the customer needs.
Been a lessor.
Last year.
Got it thank you so much.
And the next question will be from Jeff Hammond from Keybanc capital markets. Please go ahead.
Hey, good morning, guys.
Good morning.
Just just on backend rose kitchen, or I guess theres been kind of two issues one that the destocking and weakening in and also this kind of supply chain dynamic just give us a sense of you know when you get line of sight to kind of the supply chain improve mean, and then just around the Destocking I think he you you talked about at your analyst day some.
Some new channel wins and partners and you know you had to get through some some of their destocking and just when do you think are some of those new channel partners would put inflict X.
Yeah. So.
You know, we're going to continue to see the destocking in the first part of the year and it's not only again, our products coming out, but I mean theres inventory of other brands that they've got in the inventory so they're not going to load up on let's say some of our new products until their inventory levels overall so.
But I think the way we think about it as we continue to be impacted by that in the first half of this year. The first core quarter, most significantly because we had a very strong first quarter last year, a grill scatter.
You know over that $100 million of revenue.
And so that drops off.
Significantly not unexpectedly probably to a lesser.
In Q2.
And then you know.
We can't say precisely where.
Inventory in the channel is going to be at that point, but I don't think we feel like we're in a much better situation going into the back half of the year and perhaps could see our growth because inventory levels are reset and we do feel like there's some momentum.
The platform.
Certainly.
There's a number of new products.
And <unk> commented on one of them, which is great wanted to connected Camacho and certainly we've got that.
Market share gains and in great demand there so you know.
We have been having some initial.
Susan.
Loading orders there. So I mean, we're excited about those you know those products. So I think you know as we go through grill season will kind of see what the.
The the you know the demand for those products are but we're we're pretty excited about those.
And just the China supply chain dynamic.
Oh, the Spike Oh, Yeah, I mean, so that's much better.
I mean, certainly we still have lots of supply chain issues out there and you can wake up tomorrow and you could have a new story, but I mean, I think by and large a lot of that you know the issues that we had from the China.
The supply chain, which is not only you know manufacturing some.
Some COVID-19 related but also shipping.
As you remember from last year, we're in a very different situation.
Container availability cost so the domestic freight which has improved as well.
In a much better situation there. So I mean, I think we you know we missed a little bit of the.
<unk> grill season last year because of that some of it I think you know it will be yeah, we do.
Don't see that happening in 2023.
Okay, and then just on the nonoperating side can you just update us on how you're thinking. These these FX losses go away or don't go away and I think you gave an update on interest expense.
At your analyst day, just wanted to kind of level set how you're how you're thinking about it if theres been any change there.
Yep.
On the FX, we are constantly reviewing our approach to manage that and our hedging approach I I do feel like we will see.
See less significantly less variability in it as we are as we work through two.
2023.
And then interest expense.
So you have done some forecasting there I would say based on our current debt levels and.
Current interest rates.
I should say, our current interest rate swaps and probably baking in another you know 50 basis points.
Or increase interest expense stays around where it is for Q4 again, that's based on current state. So if we generate cash and pay down debt and then they could come down but again.
I'm viewing it as you know holding it relatively steady given our swap portfolio. That's in place again subject to M&A activity and our Paydowns, Andrew or buybacks halt all those things. So okay. So so that after <unk> kind of a good run rate to model absent.
Capital, Okay. Thanks exactly yep.
Hey.
Just I'm gonna come in a foreign exchange a little bit to just and I know, Brian what went through it you know pretty detailed but I mean it.
You know I mean.
In local currency I mean, it really was a big impact to us from an operating perspective. This year I mean, it was $28 million of EBITDA, just translated local currency into U S dollars given the strength of the.
Of the dollar relative to two other currencies as compared to.
2021.
So you know I mean, we would've been at.
You know north of $470 million of EBITDA on a like for like.
Basis, So I mean, that's you know.
Now that is now baked into our numbers right of the $850 million of EBITDA.
You know certainly I don't think it's difficult for anybody to predict financial markets. These days, but I mean I think.
That you know of.
Currencies were more stable this year, so that would not be a headwind most likely that we would incur again in 2023.
Okay. Thank you.
Thanks.
And once again, if you have a question. Please press Star then one.
And the next question will be from Brian Macnamara from Canaccord. Please go ahead.
Good morning, Thanks for taking my question for commercial Foodservice demand are you seeing signs of deferred equipment spending whether it was the FERC pre COVID-19 or since starting to come through and if so what is driving that confidence for these customers to step in now with the macro picture a bit murky.
I don't think anything has been deferred.
Going back to earlier comments.
Think about our chain customers.
Really continuing to accelerate new store openings. So we've not seen that slow down I think the only thing that may have been deferred as some of the replacement business that we've talked about on prior calls again, if you think about you know where our Warner has historically come from pre Covid, you're about half hour.
Traditionally do come from your replacement business and that has shifted the last year or two with just so many new store openings with the bigger chains. So that they're focused on new stores. I think has deferred some replacement was first COVID-19 bandwidth to focus on new stores. So if anything was differ I think it's that replacement cycle.
I do think that the new store trend continues for this year are same.
Same level as 22022, and so I do think you see that replacement cycle, maybe kick back in Europe towards the end of this year and certainly into 'twenty four 'twenty five which is obviously exciting.
And I think a big thing there too what's exciting about the replacement cycle, having been deferred.
I think what you're going to see them replace equipment West is obviously, all the new technology and innovation James talked about in the call then and we've talked about with our customers. So I think it sets us up for a great. A couple a couple of next years without within commercial.
Got it and then if I can squeeze another one in nonresidential at least for the publicly traded grill players H. One destocking has been signaled that it should be pretty well understood I guess as it relates to your growth businesses Destocking worse than you had perhaps expected a few months ago.
Oh I don't remember, we expected a few months ago IP portfolio.
I don't think Theres anything here that that is surprising.
To us.
Okay.
Yeah.
And the next question is from Todd Brooks from the Benchmark Company. Please go ahead.
Hey, Thanks for taking my questions first one.
With the capital that you've invested your own production capabilities.
The past 12 months or so.
Where do we feel we are as far as the ability to realize backlogs more efficiently more quickly.
With the investments that were made.
Uh huh.
So I think we've been realizing those benefits.
Again, we've got a lot of brands so there's a hunter.
10 brands, we've made a lot of progress across.
Lots of those different businesses some of them. Some of those are you know we're not just trying to respond to it we've got a lot of backlog, we need to throw a lot of capital. There I mean, these are kind of longer term infrastructure plays as we're thinking about growing platforms.
Invested in our packaging group, we've invested our coffee solutions group, we've invested in our ice.
Platform, a number of our cooking platforms.
Platforms, particularly areas, where we see.
Large market opportunities, where we think we're gonna have longer term organic growth and where we're launching new innovations across the company. So I mean, I think of the investments that we're making.
They certainly help us.
With our backlogs, but they really are longer term strategic initiatives too.
To grow the platform.
And profitability you know certainly there they're going to help us as we go through two.
<unk> 2023.
As you know as well so I mean, I think we've been seeing the benefits.
<unk> gone through the year and we.
We still have I'll say more equipment, that's getting turned down as we speak here you know, particularly in the fabrication areas, we've really tried to automate.
In our factories more and more in fabrication tends to be to be the pinch point.
So we will.
I'll see you kind of get continual gradual improvements in.
You know our production as we go through 2023.
Okay fair enough, so theres not really a step function to revenue growth in 'twenty three that's being blocked by these investments are just a further enhancement as we go through the year with them.
Yeah, I think I think that's correct.
Okay, Great and then.
Two more quick ones, if I can on the food processing side and the demand in the quarter.
Obviously, knowing that we typically get a seasonal build.
Late in the calendar year, but you've talked about more large projects can you just talk about maybe.
Within the backlog a large project mix within that it just trends that you're seeing as you put together.
Recently, a full line production solutions for your clients.
You know as I think about that.
The backlog right and it is up.
I don't know.
If I go back to pre Covid levels.
Not quite 300%, but maybe 250 per sector. So I'd have to go do a little bit of the math.
The predominant driver of that increase is you know large orders right I mean, there's a good chunk of this business I will say that as you know parts and more modest equipment. It is a little bit more.
Off the shelf fish or terms.
And you know weeks or months and such.
But we've talked about you know the.
The larger projects come into the backlog and they stay there longer because they take 12 months to 24 months to deliver so again, we've seen the backlog continued to grow over the past two years and again I.
I would take that increase and say it is you know.
A large percentage of it driven by larger projects.
Okay, great. Thanks Bryan.
Okay.
Ladies and gentlemen, do you have.
The other one.
Yeah.
Sorry. This concludes our question and answer session. So I'd like to turn the conference back over to management for any closing remarks.
Well, we'd just like to thank everybody for being on the call today and look forward to speaking to you at the end of Q1.
Thank you conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
Okay.
[music].