Middleby Corp Q4 2024 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Saree Boroditsky - Jefferies - Analyst : I think we have to start with the decision to separate Food Processing. So could you just walk us through that decision process? What are the benefits of having the segment operate separately? And then how do you think about the stand-alone cash generation of Food Processing and the ability to sustain the acquisition pipeline?

Question: Saree Boroditsky - Jefferies - Analyst : Thank you. And then should we think about the free cash flow conversion of both separate businesses as being 100% or greater? How do we think about that?

Question: Saree Boroditsky - Jefferies - Analyst : Appreciate that. And just one last one on Resi, just given the positive inflection, how are you thinking about that recovery? And what are the incremental margins on that business, given some of the factory investments you've made in recent years?

Question: Ross Sparenblek - William Blair & Company - Analyst : Guys, sticking with the Spin, can we put a finer point on some of the moving parts as we think about one-time and ongoing dis-synergies and maybe the expectations of the tax benefit versus outright sale of Food Processing?

Question: Ross Sparenblek - William Blair & Company - Analyst : Yeah, I can appreciate that. Well, I previously was under the expectation that Food Processing is more of the M&A engine here, just kind of given the fragment of white space, but with a strong free cash profile for RemainCo, can you maybe just update us on what the M&A landscape looks like within Commercial and kind of your early capital allocation expectations for the RemainCo business?

Question: Mircea Dobre - Robert W. Baird & Company - Analyst : Just maybe start with a clarification in this strategic review process, where are you on this? Is it complete? Is it still ongoing? Maybe to ask this question more pointedly, is Residential also being evaluated for strategic alternatives with something potentially happening down the line? Are there portions of your CFS portfolio that are being considered for divestiture? I know that you've acquired a lot of businesses over time, and I do wonder if all those brands are as successful as you hoped or if you might find some better owners for some of those out there. So an update here would be helpful.

Question: Mircea Dobre - Robert W. Baird & Company - Analyst : But just to press you a little bit on Residential, I guess in a theoretical recovery here, what I've heard from you in the past is that when this business is operating in normal volumes, this is maybe a 20% EBITDA margin business. So in many ways, this business is dilutive to the overall portfolio from a margin standpoint. And it also carries an inherent degree of cyclicality that, arguably speaking, you do not have in Commercial Foodservice. The customers are also different. The way you go to market is different. So what I'm trying to understand here is, other than where we are in the cycle, why this business would fit with the RemainCo longer term and how that would be additive to shareholder value?

Question: Mircea Dobre - Robert W. Baird & Company - Analyst : Understood. Last question for me. Just on your outlook in Commercial Foodservice, if I heard you correctly, we're starting a little bit slow, maybe slightly negative organic growth. Implicitly, things get much better in the back half to get to low-single-digit growth. So I guess, I'm curious, do you expect to inflect positive from an organic growth in Q2? Or is this all a second half story? And what gives you the visibility that growth here can actually improve? And maybe you can comment in terms of what the headwinds have been in recent years and what gets better.

Question: Jeffrey Hammond - KeyBanc Capital Markets Inc. - Analyst : Just last one I had on the Spin, can you just talk about what would you think the leverage profiles of each of the businesses are going to be? Do you leave more leverage on RemainCo and leave the balance sheet dry for acquisitions? Or is it more balanced?

Question: Jeffrey Hammond - KeyBanc Capital Markets Inc. - Analyst : Okay. And then in terms of adding Ed Garden to the Board, can you maybe just -- I didn't see the 8-K. I don't know if it's out yet. Something -- I think you mentioned cooperation agreement, maybe some of the key tenants in there and if there's any kind of early feedback you've gotten from him or his group that they've kind of been built into this strategic plan?

Question: Brian McNamara - Canaccord Genuity - Analyst : I know you mentioned you regularly review the portfolio, but when was the official strategic review launched? Did that date back to the JBT Marel transaction last April? And is holding on to the Residential business at this point just a function of nursing that business back to health before you contemplate a separation or so?

Question: Brian McNamara - Canaccord Genuity - Analyst : Great, that's helpful. Secondly, on Commercial Foodservice, can you talk about your price and volume expectations for 2025 and compare that to recent years? Are volumes expected to be negative?

Question: Brian McNamara - Canaccord Genuity - Analyst : Great. And then finally, I guess for just your restaurant customers, how would you characterize the current operating environment? You have big players really leaning into value for limited time offers going from one month to one year. You said and you -- you're confident in your store's opening plans, I guess, your store customers opening plans this year. I guess, what drives that confidence kind of given the mid-year surprise in 2024?

Question: Tami Zakaria - JPMorgan - Analyst : A question on the parts and services business. I saw on the presentation, RemainCo has about 17%, and the SpinCo would be about 33%. Do you have any targets in mind to increase the mix of parts and services over time for either of these businesses? Is that going to be a focus or strategy going forward? Or do you think this makes is pretty reasonable through the cycle?

Question: Tami Zakaria - JPMorgan - Analyst : Understood. That's very helpful. So a quick follow-up to that is, would you be able to tell us what the mix was for these two businesses, call it, in 2019? I'm just trying to understand how the mix has changed over time in the last five years.

Question: Walter Liptak - Seaport Global Securities LLC - Analyst : Yeah, I wanted to ask about your supply chain work. I think you've been doing procurement and in supply chain operations or consolidations for a number of years now. And I wonder -- I think I heard in the prepared remarks that there's going to be some benefits in 2025. I wonder if you could talk about if that's true and if you guys are getting some benefits in 2025 from that.

Question: Walter Liptak - Seaport Global Securities LLC - Analyst : Okay, great. Maybe this is a follow-up, with the Food Processing, are there -- or have there been supply chain cost savings between the other two segments between Commercial Foodservice and Residential? Or are they -- or those supply chain benefits unique to each of the segments?