MIDDLEBY Corp Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Spin of Food Processing Business: Board unanimously approved separating Middleby Food Processing into a standalone public company. Expected to be completed by early 2026 via tax-free spinoff. Will create two independent industry leaders, allowing greater strategic and operational focus.
• Board Additions: Julie Bauman and Ed Garden added to the Board; Jack Miller retired. Board refreshment process ongoing to bring fresh perspectives.
• Fourth Quarter Results: Strong margins across businesses. Commercial and Residential faced challenged macro conditions but showing signs of improvement. Food Processing finished 2024 exceptionally strong.
• NAFEM Event: Showcasing 9 live cooking vignettes, new beverage dispensing technologies, ice solutions, and Open Kitchen IoT solution with new profitability tool. 7 innovative products selected for NAFEM's What's Hot! What's Cool Innovation section.

Segment Performance

• Food Processing: In Q4 2024, organic revenue growth was 4.7% with revenues over $219 million. Adjusted EBITDA margin was 29.6%, up 200 basis points year-over-year. For 2024, total revenue was $731 million with a margin of 25.6%. Post-Q4 acquisitions, segment run rate revenues exceed $800 million with a run rate margin of around 24%.
• Residential: Q4 2024 revenue was $185 million, a sequential increase from Q3, down 2.4% vs 2023 but slowest decline of the year. Adjusted EBITDA margin was 13%, highest in 1.5 years. 2024 total revenues were $725 million at ~10% margins.
• Commercial: Q4 2024 revenues over $609 million, up sequentially, organic revenues down 2.8% YOY (slowest decline of the year). Margins healthy at over 28%. 2024 revenues were $2.4 billion with 27.4% margins.

Guidance

• 2025 Outlook:
  • Total company expected organic revenue growth in low single digits with profitability growth exceeding organic revenue growth.
  • Commercial & Residential: At least low single-digit organic revenue growth with modest margin expansion.
  • Food Processing: Organic revenue growth mid-single digits; margins in 24% range due to recent acquisitions, likely below last year's level as integration begins.
  • Q1 2025: Modest revenue growth benefiting from Food Processing acquisitions, slight margin expansion. Organic revenue likely flat; Commercial down slightly, Food Processing slightly down, Residential with positive momentum.

Risks

• Market Conditions: Challenges in commercial and residential markets, though showing signs of gradual improvement.
• Integration Risks: Food Processing margin compression in 2025 due to ongoing integration of recent acquisitions.
• Cyclicality: Residential business is cyclical, and its recovery depends on market conditions like housing trends.

Question and Answer

• **Q: Summarize the decision process behind separating Food Processing and benefits?

A: Tim FitzGerald mentioned the Board reviewed the portfolio, Food Processing is now at a point to separate for accelerated growth, greater focus, and better alignment with food processing peers. Benefits include strategic and operational focus, optimized capital structure, and better M&A impact.**

• **Q: Thoughts on free cash flow conversion for separate businesses?

A: Bryan Mittelman said it's early, but assumptions are similar cash flow characteristics across businesses.**

• **Q: Residential recovery and incremental margins?

A: Tim FitzGerald noted residential is at a cyclical trough, but has tailwinds; Bryan Mittelman said residential has low operating leverage, with incrementals over 40% as revenues grow.**

• **Q: Dissynergies and tax benefit vs sale for Food Processing spin?

A: Tim FitzGerald said Middleby runs decentralized, so few dis-synergies; tax benefit is from being a separate public company trading on its own profile.**

• **Q: M&A for RemainCo and capital allocations?

A: Tim FitzGerald said M&A continues, with RemainCo focusing on ice and beverage platform, and technology.**

• **Q: Evaluation of residential and other portfolio businesses?

A: Tim FitzGerald said portfolio is continuously reviewed, residential is a strong platform with margin expansion potential.**

• **Q: Commercial Foodservice outlook and growth drivers?

A: Bryan Mittelman said 2025 is more volume-driven; Steven Spittle mentioned new store openings, sales layers in existing footprints, consultant activity, and international markets as drivers.**

• **Q: Parts and services mix targets?

A: Tim FitzGerald said there are initiatives to increase parts and services for both businesses, leveraging IoT and customer experience.**

• **Q: Supply chain benefits in 2025?

A: Steven Spittle said supply chain team has navigated disruptions, positioned well for tariffs, and has savings and competitive advantages.**