# MIDDLEBY Corp: Form 10-Q for the period ended Mar 30, 2024

- Company: [MIDDLEBY Corp](/companies/midd.md) (CIK 769520)
- Form: 10-Q
- Filed: 2024-05-09
- Accepted by EDGAR: May 9, 2024, 20:53 ET
- Period: 2024-03-30
- Accession: 0000769520-24-000018
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/769520/000076952024000018/midd-20240330.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/769520/000076952024000018/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-12-31 to 2024-03-30 | $926.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-12-31 to 2024-03-30 | $580.6m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-12-31 to 2024-03-30 | $346.4m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-12-31 to 2024-03-30 | $206.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-12-31 to 2024-03-30 | $137.1m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-12-31 to 2024-03-30 | $28.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-12-31 to 2024-03-30 | $86.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-12-31 to 2024-03-30 | $1.59 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-12-31 to 2024-03-30 | $1.61 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-12-31 to 2024-03-30 | 54,394,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-12-31 to 2024-03-30 | $140.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-12-31 to 2024-03-30 | $13.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2023-12-31 to 2024-03-30 | $17.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-03-30 | $341.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-30 | $2.02bn | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-30 | $6.93bn | us-gaap:Assets |
| Current liabilities | at 2024-03-30 | $840.9m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2024-03-30 | $2.37bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-03-30 | $44.5m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-03-30 | $3.31bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 19,086 characters.

### Special Notes Regarding Forward-Looking Statements

This report contains forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. The company cautions readers that these projections are based upon future results or events and are highly dependent upon a variety of important factors which could cause such results or events to differ materially from any forward-looking statements which may be deemed to have been made in this report, or which are otherwise made by or on behalf of the company. Such factors include, but are not limited to, volatility in earnings resulting from goodwill impairment losses which may occur irregularly and in varying amounts; variability in financing costs and interest rates; quarterly variations in operating results; dependence on key customers; international exposure; foreign exchange and political risks affecting international sales; unfavorable tax law changes and tax authority rulings; ability to protect trademarks, copyrights and other intellectual property; cybersecurity attacks and other breaches in security; changing market conditions, including inflation; the impact of competitive products and pricing; the timely development and market acceptance of the company’s products; the availability and cost of raw materials; the company's continued ability to realize profitable growth through the sourcing and completion of strategic acquisitions; and other risks detailed herein and from time-to-time in the company’s SEC filings, including the company’s 2023 Annual Report on Form 10-K. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included in this report are made only as of the date hereof and, except as required by federal securities laws and rules and regulations of the SEC, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

### Current Events

#### Inflation and Interest Rate Environment

The company has been negatively impacted by inflation in wages, logistics, energy, raw materials and component costs. Price increases and pricing strategies have been implemented to mitigate the impact of cost inflation on margins and the company continues to actively monitor costs. High inflation an uncertainty surrounding the Federal Reserve's interest rate policy decisions have led to increased interest rates 2023 and the first quarter of 2024, which combined with global macroeconomic uncertainty has and may continue to impact customer demand. Most notably in our residential segment, we have faced recent demand headwinds due to macroeconomic conditions. Even in light of such headwinds, we remain focused on delivering strong financial results and executing on our long-term strategy and profitability objectives.

#### Supply Chain, Labor and Logistics Constraints

The company continues to actively monitor global supply chain, labor and logistics constraints, which have had a negative impact on the company's ability to source parts and complete and ship units. While the company is seeing improvement on certain supply chain and logistics constraints, supply chains for certain key components remain distressed. The decreased availability of resources and inflationary costs have resulted in heightened inventory levels. To combat these pressures, the company has evaluated alternative sourcing, dual sourcing and collaborated across the organization, where appropriate, without materially presenting new risks or increasing current risks around quality and reliability. Our capital resources have been and the company expects they will continue to be sufficient to address these challenges.

### Net Sales Summary

### (dollars in thousands)

| Business Segments: | Three Months Ended Mar 30, 2024 Sales | Percent | Apr 1, 2023 Sales | Percent |
| --- | ---: | ---: | ---: | ---: |
| Commercial Foodservice | $590,344 | 63.7% | $613,935 | 61.0% |
| Food Processing | 162,683 | 17.5 | 173,503 | 17.2 |
| Residential Kitchen | 173,899 | 18.8 | 219,958 | 21.8 |
| Total | $926,926 | 100.0% | $1,007,396 | 100.0% |

23

### Results of Operations

The following table sets forth certain consolidated statements of earnings items as a percentage of net sales for the periods:

|  | Three Months Ended Mar 30, 2024 | Apr 1, 2023 |
| --- | ---: | ---: |
| Net sales | 100.0% | 100.0% |
| Cost of sales | 62.6 | 62.4 |
| Gross profit | 37.4 | 37.6 |
| Selling, general and administrative expenses | 22.2 | 21.4 |
| Restructuring | 0.4 | 0.2 |
| Income from operations | 14.8 | 16.0 |
| Interest expense and deferred financing amortization, net | 2.8 | 2.9 |
| Net periodic pension benefit (other than service costs) | (0.4) | (0.2) |
| Other (income) expense, net | 0.1 | 0.2 |
| Earnings before income taxes | 12.3 | 13.1 |
| Provision for income taxes | 3.0 | 3.3 |
| Net earnings | 9.3% | 9.8% |

24

### Three Months Ended March 30, 2024 as compared to Three Months Ended April 1, 2023

**NET SALES**. Net sales for the three months period ended March 30, 2024 decreased by $80.5 million or 8.0% to $926.9 million as compared to $1,007.4 million in the three months period ended April 1, 2023. Net sales increased by $3.8 million, or 0.4%, from the fiscal 2023 acquisitions of Flavor Burst, Blue Sparq, Filtration Automation, Terry, and Trade-Wind. Excluding acquisitions, net sales decreased $84.3 million, or 8.4%, from the prior year period. The impact of foreign exchange rates on foreign sales translated into U.S. Dollars for the three months period ended March 30, 2024 increased net sales by approximately $3.6 million or 0.4%. Excluding the impact of foreign exchange and acquisitions, sales decreased 8.7% for the three months period ended March 30, 2024 as compared to the prior year period, including a net sales decrease of 4.2% at the Commercial Foodservice Equipment Group, a net sales decrease of 7.7% at the Food Processing Equipment Group and a net sales decrease of 22.3% at the Residential Kitchen Equipment Group.

- Net sales of the Commercial Foodservice Equipment Group decreased by $23.6 million, or 3.8%, to $590.3 million in the three months period ended March 30, 2024, as compared to $613.9 million in the prior year period. Net sales from the acquisitions of Flavor Burst, Blue Sparq, and Terry, which were acquired on January 24, 2023, April 3, 2023 and July 5, 2023, respectively, accounted for an increase of $1.0 million during the three months period ended March 30, 2024. Excluding the impact of acquisitions, net sales of the Commercial Foodservice Equipment Group decreased $24.6 million, or 4.0%, as compared to the prior year period. Excluding the impact of foreign exchange and acquisitions, net sales decreased $25.6 million, or 4.2%, at the Commercial Foodservice Equipment Group. Domestically, the company realized a sales decrease of $26.1 million, or 5.8%, to $426.5 million, as compared to $452.6 million in the prior year period. This includes an increase of $0.9 million from the recent acquisitions. Excluding the acquisitions, the net decrease in domestic sales was $27.0 million, or 6.0%. The decrease in domestic sales is related to slow market conditions. International sales increased $2.5 million, or 1.5%, to $163.8 million, as compared to $161.3 million in the prior year period. This includes an increase of $0.1 million from the recent acquisitions and an increase of $1.0 million related to the favorable impact of exchange rates. Excluding the impact of foreign exchange and acquisitions, the net sales increase in international sales was $1.4 million, or 0.9%. The increase in international sales is related to improvements in market conditions, primarily in the European and Latin American markets.
- Net sales of the Food Processing Equipment Group decreased by $10.8 million, or 6.2%, to $162.7 million in the three months period ended March 30, 2024, as compared to $173.5 million in the prior year period. Excluding the impact of the acquisition of Filtration Automation, acquired June 13, 2023, net sales of the Food Processing Equipment Group decreased $12.6 million, or 7.3%, as compared to the prior year period. Excluding the impact of foreign exchange and the acquisition, net sales decreased $13.3 million, or 7.7%, at the Food Processing Equipment Group. Domestically, the company realized a sales decrease of $13.9 million, or 11.9%, to $103.0 million, as compared to $116.9 million in the prior year period. This includes an increase of $1.7 million from the recent acquisitions. Excluding the acquisition, the net decrease in domestic sales was $15.6 million, or 13.3%. International sales increased $3.1 million, or 5.5%, to $59.7 million, as compared to $56.6 million in the prior year period. This includes an increase of $0.1 million from the recent acquisitions and an increase of $0.7 million related to the favorable impact of exchange rates. Excluding the impact of foreign exchange and the acquisition, the net sales increase in international sales was $2.3 million, or 4.1%. The increase in international sales is primarily related to bakery product growth in the European markets.
- Net sales of the Residential Kitchen Equipment Group decreased by $46.1 million, or 21.0%, to $173.9 million in the three months period ended March 30, 2024, as compared to $220.0 million in the prior year period. Excluding the impact of the acquisition of Trade-Wind, acquired August 1, 2023, net sales decreased $47.1 million, or 21.4%. Excluding the impact of foreign exchange and the acquisition, net sales decreased $49.0 million, or 22.3% at the Residential Kitchen Equipment Group. Domestically, the company realized a sales decrease of $37.0 million, or 25.7%, to $107.0 million, as compared to $144.0 million in the prior year period. Excluding the acquisition, the net decrease in domestic sales was $38.0 million, or 26.4%. International sales decreased $9.1 million, or 12.0%, to $66.9 million, as compared to $76.0 million in the prior year period. This includes an increase of $1.9 million related to the favorable impact of exchange rates. Excluding the impact of foreign exchange, the net sales decrease in international sales was $11.0 million, or 14.5%. The decrease in domestic and international sales was primarily driven by challenging market conditions.

**GROSS PROFIT**. Gross profit decreased to $346.4 million in the three months period ended March 30, 2024, as compared to $378.7 million in the prior year period, primarily reflecting lower sales volumes. The impact of foreign exchange rates increased gross profit by approximately $1.2 million. The gross margin rate was 37.4% in the three months period ended March 30, 2024, as compared to 37.6% in the prior year period.

- Gross profit at the Commercial Foodservice Equipment Group decreased by $11.1 million, or 4.6%, to $231.0 million in the three months period ended March 30, 2024, as compared to $242.1 million in the prior year period. Gross profit from the acquisitions of Flavor Burst, Blue Sparq, and Terry increased gross profit by $0.5 million. Excluding acquisitions, gross profit decreased by $11.6 million. The impact of foreign exchange rates increased gross profit by approximately $0.3 million. The gross margin rate decreased to 39.1%, as compared to 39.4% in the prior year period related to lower sales volumes. The gross margin rate, excluding acquisitions and the impact of foreign exchange, was 39.1%.
- Gross profit at the Food Processing Equipment Group decreased by $2.2 million, or 3.4%, to $63.4 million in the three months period ended March 30, 2024, as compared to $65.6 million in the prior year period. The impact of foreign exchange rates increased gross profit by approximately $0.3 million. Excluding the acquisition, gross profit decreased by $3.0 million. The gross profit margin rate increased to 39.0%, as compared to 37.8% in the prior year period. The gross margin rate, excluding acquisitions and the impact of foreign exchange, was 38.9%.
- Gross profit at the Residential Kitchen Equipment Group decreased by $19.2 million, or 27.3%, to $51.2 million in the three months period ended March 30, 2024, as compared to $70.4 million in the prior year period. The impact of foreign exchange rates increased gross profit by approximately $0.6 million. Excluding the acquisition, gross profit decreased by $19.8 million related to lower sales volume. The gross margin rate decreased to 29.4%, as compared to 32.0% in the prior year period. The gross margin rate excluding the acquisition and the impact of foreign exchange was 29.2%.

**SELLING, GENERAL AND ADMINISTRATIVE EXPENSES**. Combined selling, general and administrative expenses decreased to $206.0 million in the three months period ended March 30, 2024, as compared to $215.4 million in the three months period ended April 1, 2023. As a percentage of net sales, selling, general, and administrative expenses were 22.2% in the three months period ended March 30, 2024 as compared to 21.4% in the three months period ended April 1, 2023.

Selling, general and administrative expenses reflect increased costs of $2.5 million associated with acquisitions, including $0.3 million of intangible amortization expense. Selling, general and administrative expenses decreased primarily due to lower compensation costs, selling and marketing expenses and intangible amortization expense. Foreign exchange rates had an unfavorable impact of $0.9 million.

**RESTRUCTURING EXPENSES.** Restructuring expenses increased $0.9 million to $3.2 million for the three months period ended March 30, 2024, as compared to $2.3 million for the three months period ended April 1, 2023. Restructuring expenses in the three months period ended March 30, 2024 related primarily to headcount reductions and facility consolidations within all three segments. Restructuring expenses in the three months period ended April 1, 2023 related primarily to headcount reductions and facility consolidations within the Residential Kitchen Equipment Group.

**NON-OPERATING EXPENSES**. Interest and deferred financing amortization costs were $26.3 million in the three months period ended March 30, 2024, as compared to $29.5 million in the prior year period primarily reflecting the decrease in debt levels on our current debt structure. Net periodic pension benefit (other than service costs) increased $1.4 million to $3.7 million in the three months period ended March 30, 2024, as compared to $2.3 million in the prior year period related to the slight decrease in discount rate used to calculate the interest cost and increase in expected return on assets as a result of the higher assets value. Other income was $0.3 million in the three months period ended March 30, 2024, as compared to other expense $1.9 million in the prior year period and consists mainly of foreign exchange gains and losses.

**INCOME TAXES**. A tax provision of $28.3 million, at an effective rate of 24.6%, was recorded during the three months period ended March 30, 2024, as compared to $32.8 million at an effective rate of 24.9%, in the prior year period. The effective tax rate for the three months period ended March 30, 2024 is higher than the U.S. statutory tax rate of 21% primarily due to state taxes and foreign tax rate differentials.

### Financial Condition and Liquidity

Total cash and cash equivalents increased by $184.5 million to $341.0 million at March 30, 2024 from $156.5 million at April 1, 2023. Total debt amounted to $2.4 billion at March 30, 2024 and December 30, 2023.

**OPERATING ACTIVITIES**. Net cash provided by operating activities after changes in assets and liabilities amounted to $140.9 million as compared to $92.0 million in the prior year.

During the three months period ended March 30, 2024, working capital changes meaningfully impacted operating cash flows primarily driven by increased inventory levels of $13.0 million, a decrease in accounts receivable of $36.3 million due to lower sales volumes and a decrease of $19.9 million in accrued expenses and other liabilities including impacts from the timing of payments made for taxes, various customer programs and incentive programs.

**INVESTING ACTIVITIES.** During the three months period ended March 30, 2024, net cash used for investing activities amounted to $16.1 million. Cash used to fund an acquisition amounted to $2.3 million. Additionally, $13.7 million was expended, primarily for upgrades of production equipment and manufacturing facilities.

**FINANCING ACTIVITIES.** Net cash flows used for financing activities amounted to $28.6 million during the three months period ended March 30, 2024. The company’s borrowing activities during 2024 included $10.9 million of net repayments under its Credit Facility. Additionally, during 2024, the company used $17.0 million to repurchase 109,859 shares of Middleby common stock that were surrendered to the company for withholding taxes related to restricted stock vestings.

At March 30, 2024, the company was in compliance with all covenants pursuant to its borrowing agreements. The company believes that its current capital resources, including cash and cash equivalents, cash expected to be generated from operations, funds available from its current lenders and access to the credit and capital markets will be sufficient to finance its operations, debt service obligations, capital expenditures, product development and expenditures for the foreseeable future.

### Recently Issued Accounting Standards

See Part I, Item 1, Notes to Condensed Consolidated Financial Statements, Note 4 - Recently Issued Accounting Standards, of this Quarterly Report on Form 10-Q.

### Critical Accounting Policies and Estimates

Management's discussion and analysis of financial condition and results of operations are based upon the company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the company to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses as well as related disclosures. On an ongoing basis, the company evaluates its estimates and judgments based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions and any such differences could be material to the company's consolidated financial statements. There have been no changes in the company's critical accounting policies, which include revenue recognition, inventories, goodwill and indefinite-life intangibles, convertible debt, pensions benefits, and income taxes, as discussed in the company's Annual Report on Form 10-K for the year ended December 30, 2023 (the “2023 Annual Report on Form 10-K”).

## Market risk

As filed, 3,534 characters.

### Interest Rate Risk

The company is exposed to market risk related to changes in interest rates. The following table summarizes the maturity of the company’s debt obligations:

| Twelve Month Period coinciding with the end of the company's Fiscal First Quarter | Variable Rate Debt |
| --- | ---: |
| 2025 | $44,542 |
| 2026 | 786,112 |
| 2027 | 1,578,282 |
| 2028 | 705 |
| 2029 and thereafter | 5,009 |
|  | $2,414,650 |

The company is exposed to interest rate risk on its floating-rate debt. The company has entered into interest rate swaps to fix the interest rate applicable to certain of its variable-rate debt. The agreements swapped one-month LIBOR for fixed rates. In February 2022, the company entered into an additional floating-to-fixed interest rate swap agreement that uses a daily SOFR in lieu of LIBOR. In April 2023, all outstanding LIBOR swap agreements were amended to one month term SOFR. The company has designated these swaps as cash flow hedges and all changes in fair value of the swaps are recognized in accumulated other comprehensive income. As of March 30, 2024, the fair value of these instruments was an asset of $46.1 million. The change in fair value of these swap agreements in the first three months of 2024 was a gain of $3.4 million, net of taxes. The potential net loss on fair value for such instruments from a hypothetical 10% adverse change in quoted interest rates would not have a material impact on the company's financial position, results of operations and cash flows.

The company has Convertible Notes that were issued in August 2020, which carry a fixed annual interest rate of 1.00%. As such, the company does not have economic interest rate exposure on the Convertible Notes. The fair value of the Convertible Notes is subject to interest rate risk, market risk and other factors due to its conversion feature. The fair value of the Convertible Notes is also affected by the price and volatility of the company’s common stock and will generally increase or decrease as the market price of our common stock changes. The interest and market value changes affect the fair value of the Convertible Notes but do not impact the company’s financial position, cash flows or results of operations due to the fixed nature of the debt obligation. Additionally, the company carries the Convertible Notes at face value, less any unamortized discount on the balance sheet and presents the fair value for disclosure purposes only.

### Foreign Exchange Derivative Financial Instruments

The company uses derivative financial instruments, principally foreign currency forward purchase and sale contracts with terms of less than one year, to hedge its exposure to changes in foreign currency exchange rates. The company’s primary hedging activities are to mitigate its exposure to changes in exchange rates on intercompany and third-party trade receivables and payables. The company does not currently enter into derivative financial instruments for speculative purposes. In managing its foreign currency exposures, the company identifies and aggregates naturally occurring offsetting positions and then hedges residual balance sheet exposures. The potential net loss on fair value for such instruments from a hypothetical 10% adverse change in quoted foreign exchange rates would not have a material impact on the company's financial position, results of operations and cash flows. The fair value of the forward and option contracts was a loss of $0.2 million at the end of the first quarter of 2024.

## Controls and procedures

As filed, 1,454 characters.

The company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of March 30, 2024, the company carried out an evaluation, under the supervision and with the participation of the company's management, including the company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the company's disclosure controls and procedures. Based on the foregoing, the company's Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of this period.

During the quarter ended March 30, 2024, there has been no change in the company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting.

### PART II. OTHER INFORMATION

The company was not required to report the information pursuant to Items 1 through 6 of Part II of Form 10-Q for the three months ended March 30, 2024, except as follows:

Filed May 9, 2024.
Source: SEC EDGAR, the filing index for accession 0000769520-24-000018. Last ingested by Listed: Oct 24, 2026, 14:56 ET. No prices; not investment advice.