Middleby's Bad News Is Behind It

| About: The Middleby (MIDD)

It looks like the economy finally caught up with Middleby (NASD: MIDD) in the second quarter. After their first quarter, it looked as if they could defy the gravity of the economy. In the second quarter, however, sales declined 8.6% and earnings fell from $0.99 per share a year ago to $0.74 per share in the current quarter. This sounds bad, but the sales numbers are actually worse.

Over the past year, Middleby has continued to purchase rivals, the biggest of which was Turbochef. They have used debt to finance these acquisitions. Excluding the impact of these acquisitions, sales fell over 21%. All of this should be expected in this economy. It’s only surprising that these sales declines didn’t occur sooner.

In terms of their earnings release, this is pretty much where the bad news ends. Operating margins were 17% for the quarter, and the company continues to produce strong cash flow. Debt was reduced by over $25 million, and this is after they completed two acquisitions for a combined $11.4 million. Debt is now $321 million, down from $346 million at the end of the first quarter.

I mostly agree with Rich Smith at Motley Fool that it may be time to buy Middleby. If you annualize the current quarter’s earnings, the company is priced at 16x earnings. This is relatively cheap based on Middleby’s past performance, and if sales pick up again over the next year the current price will prove to be quite a bargain.

Disclosure: i currently hold shares of Middleby.

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