Middleby(MIDD) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported revenues for 2024 at approximately $3.9 billion, a modest decline compared to the previous year. Adjusted EBITDA was $866 million with a margin of 22.4%, slightly ahead of last year [19] - In Q4, revenues exceeded $1 billion, with adjusted EBITDA of over $251 million, marking a record margin of 24.8%. GAAP earnings per share were $2.07, while adjusted EPS was $2.88 [20] - Free cash flow reached $229 million in Q4, contributing to a total of over $640 million for the year, with a free cash flow conversion rate of 140% [18][23] Business Line Data and Key Metrics Changes - The Food Processing segment achieved 4.7% organic revenue growth in Q4, resulting in revenues of over $219 million and an adjusted EBITDA margin of 29.6%, up 200 basis points year-over-year [20] - Residential revenues in Q4 were $185 million, down 2.4% year-over-year, but marked the slowest decline of the year. The adjusted EBITDA margin was 13%, the highest in 1.5 years [21] - Commercial revenues in Q4 were over $609 million, with organic revenues down 2.8% year-over-year, maintaining healthy margins over 28% [22] Market Data and Key Metrics Changes - The company noted that macro conditions remained challenging for both commercial and residential businesses but showed signs of gradual improvement moving forward [14] - The Food Processing business finished the year exceptionally strong, with expectations for continued growth into 2025 driven by favorable long-term market drivers [15] Company Strategy and Development Direction - The company announced plans to separate its Food Processing business into a stand-alone public company, aiming to create two independent industry leaders and enhance strategic focus [5][6] - The remaining Middleby Corporation will focus on commercial and residential kitchen equipment, with an emphasis on innovation and capturing market opportunities in automation and digital technologies [9][10] - The company plans to execute the separation through a tax-free spinoff expected to be completed by early 2026 [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of the residential business, anticipating gradual improvement in the coming years due to strategic investments made during the downturn [49][50] - The company expects organic revenue growth in the low single digits for 2025, with profitability growth rates exceeding organic revenue growth [30] - Management highlighted the importance of M&A opportunities for both the Food Processing and remaining businesses, with a balanced approach to capital allocation [63] Other Important Information - The company added two new Board members, enhancing the Board's capabilities and perspectives as part of a refreshment process [11][12] - The company is focused on increasing the mix of parts and services across its business segments, leveraging IoT and data to enhance customer experience [124] Q&A Session Summary Question: Can you walk us through the decision to separate Food Processing? - Management indicated that the decision was based on a long-term strategic review, believing that separation will accelerate growth for both entities [42][44] Question: What are the expected free cash flow conversions for the separate businesses? - Management suggested that both businesses could achieve 100% or greater free cash flow conversion, given their similar cash flow characteristics [46] Question: How does the company view the recovery in the residential business? - Management noted that the residential business is at a cyclical trough but sees significant opportunities for growth and margin expansion in the coming years [50][72] Question: What is the outlook for organic growth in Commercial Foodservice? - Management expects a slow start to the year but anticipates improving conditions throughout 2025, with new store openings and increased consultant activity driving growth [80][86] Question: What is the leverage profile expected post-spin? - Management indicated that the Food Processing business would likely have less leverage, allowing for more focus on M&A opportunities [95]