The Middleby Corp (MIDD)

rgrossfool (< 20) Submitted: 5/03/07 9:12 PM : Start Price: $38.45 MIDD Score: 37.15

Middleby Corp just released their quarterly earning a short while ago. Middleby beat analyst expectations by ~2.5% The highlights of the quarter include the 24% increase in operating income, the 32% increase in EPS, and the 2.1% gain in operating margins. In addition, they announced a 2-for-1 stock split.

They are continuing to improve their business with operating margins increasing a little better than 2.1% This was responsible for $2.3M of the $5.58M or 41% of the gain in quarterly Gross Profit. It will be hard to expect more gains of this magnitude in future years. I would be incredibly surprised if they are able to crack 20% operating income margins.

Middleby has some promising new products coming out with significant gains in cooking time and energy efficiency. Moreover, they are making significant strides in market share within the fast food industry. This should continue to propel sales in future years. It will be interesting to see the adaption rate with the new ovens. As long as food quality is similar it should be hard for businesses to ignore the 30% increase in energy efficiency.

There were a couple of developments I would like to comment on. Diluted share count increased by 102K shares. The market value of this is $14.28M. This is very significant. I pray the large majority of this increase was due to acquisitions. Middleby normally has done a very good job decreasing share count with repurchases.

I am surprised by the stock split. This this absolutely nothing for shareholders. The pie has simply been divided into more pieces. The net will be the value of the company less the cost of implementing the share split.

Finally, I am not happy by the lack of the cash flow statement. Hopefully we will see this out in a few days. However, in looking at the last quarter it appears that we have ~6M increase in current assets mostly into Accounts Receivable and Inventories. On the other side we have a net decrease in current liabilities of ~$10.5M mostly to accrued expenses along with a $5M increase in debt. We will have to wait for the cash flow statement to see how the Free Cash Flow looks.

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