Good day ladies and gentlemen, and welcome to Middleby Corp Q2 2014 Earnings Conference Call. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder this call is being recorded. I'd like to introduce your host for today's call CEO and Chairman, Selim Bassoul and CFO, Tim Fitzgerald. I'd now like to turn the call over to Tim Fitzgerald for opening remarks. Sir, you may begin.

Okay. Thank you. Good morning, this is Tim Fitzgerald CFO of the Middleby Corporation. I will make some initial comments about the quarter and then we'll open it up to questions. Net sales in the 2014 second quarter up $424 million increased 16.8% from $363.8 million in the second quarter of 2013. The second quarter sales reflect the impact of acquisitions of Celfrost and Wunder-Bar completed in the fourth quarter of 2013 and Market Forge and Processing Equipment Solutions completed in the first half of 2014. These acquisitions were not fully reflected in the prior year comparative results and accounted for 5.8% of the sales growth in the quarter. Excluding the impact of these acquisitions sales increased $39.9 million or 11% over the prior year quarter. This increase reflects an organic sales growth of 10.2% at our commercial foodservice group an increase of 6.2% at our food processing group and a 20.6% increase in our residential kitchen equipment segment. At the commercial foodservice group sales amounted to $263.9 million. We continued to realize growth driven by increased sales to restaurant chains looking to upgrade equipment and adopt new technologies to improve the efficiency of store operations. Sales in the international markets grew 16% in the quarter with double digit growth realized in Europe, Mid East and Asia. Sales in China rebounded in the quarter following disruption in prior periods due to food supply issues at one of our major customers in there. Sales of the food processing group amounted to $89.9 million in the quarter. Sales continued to benefit from expansion of food processing operations in emerging markets, the adoption of newer technologies to improve operating efficiencies and addresses food safety. We anticipate that we will continue to realize some of our growth in the second half of 2014. However,…

(Operator Instructions) Our first question comes from Tony Brenner with ROTH Capital Partners. Your line is open.

Thank you, good morning.

Hi, Tony.

I have two questions. The first related to the statement regarding significant investments in marketing and training for Viking relative to the new products. Is that in the second half going to be an earnings headwind or will those outlays be offset as it presumably drives incremental sales?

They will largely be offset actually by some of the other margin improvements – as we're seeing the impact of distributor inventories in the channel less than as well as some of the cost efficiencies in the distribution channel will offset some of the investments that we make in the second half of the year.

Okay. You've talked about 15 new products being introduced. Have those all now been launched or will that be a gradual rollout?

Tony this will be a gradual rollout what's happening as we launched our cooking platform, we're launching our new refrigeration in December and we're launching our new cook tops in October. So basically you've seen the WOW! Ovens and the new range series out. We are launching a lot of new product coming out between now and then albeit gradually. So again, refrigeration coming up in September, cook top in October and then we have what you call a new line for urban dwellers or city dwellers is coming up in October, it's a complete new line which is very, very in demand for our international markets and high-risers and builders who are doing multi-family unit. So this is totally new for Viking which is they've never had. So this will be coming up also in October launching that new line.

Okay. Second question, Selim, you have been talking about a multiple number of restaurant chains, field testing kitchen renovation projects for a year. Have any of those chains now stepped up and are they ordering such a renovation or is this just an endless field test?

So let's separate the two. So we are getting interesting enough, we are getting implementation of this on the small chain. So we're having many, many 20 to 50 store outlet adopting the kitchen of the future so they are rolling it out. So we're getting most probably we've installed literally close to 300 kitchen of the future in the past few quarters. The big chains that are what I call a 1000 plus stores have much slower they are still being in test. The test has been very, very positive. But I think it takes a big commitment. The way Brinker did it, Brinker went out and said I am going to – out from corporate issue a check for all my stores and my franchises to basically roll out the kitchen of the future. So we're getting a lot of success what I call trains about less than 100 stores and they are rolling very fast, but we are still in test with the big chains that are over 1000 and more and it's been, the tests are going very well. But it's slower than we expected because its big commitment of money to rollout, so just to remind everybody basically the rollout just in capital expense structure of Brinker for their 1200 stores was over $50 million. So CEO has to decide to find a $50 million to decide to do business for a 1000 more store. But now everybody is telling me that they would like to do it. As we talk to people they did pay back, but it's a big commitment that they have to do. So summarize your question because everybody has been asking about this, the kitchen of the future is taking hold and at the smaller store and as those stores continue growing from 20 to 50 from 100 to 200 they are adopting that kitchen of the future a lot faster than the big one.

Very good. Thank you very much.

Okay.

Our next question comes from Tim Wojs with Baird. Your line is open.

Hey guys nice job.

Good morning.

Good morning.

I guess, just turning back to Viking a little bit, I guess, you have talked about a 20% EBITDA target exiting 2014 for Viking. I guess, I just wanted to confirm that that's still the target even though you are talking about some of these investments in the back half of the year.

Yes, we're still, that is still the target this year at a 20% EBITDA and we feel we're on track for that.

Great, great. And then I guess just on the dealer network, you spoke last quarter about reducing some of the numbers of dealers that you had there and I guess just an update on the progress there, what you have been hearing from the dealer network and then maybe any impact that you might be seeing either positive or negative from a top line perspective there would be great?

Okay. So what we've done is we said that we would like dealers to commit to our displays a much more bigger commitment with a exclusive display for us versus the dealers who sell Viking product among others that has been one. The second thing we would ask dealers which have been a big thing for us is, in order to make the true margins for us and they have to basically grow their business. So from that perspective we've had I would say we had a 1500 -- number of 1500 dealers that numbers now today is sitting at below 1000 because we've cut off some, we've told others to not so we've been a lot more selective. We are now working with – most probably that number will go down to close to 700 as we go into 2015 and it's working well. So the other dealers have stepped up, so we're seeing dealers who commit to us. So I can talk about specifically the 250 dealers who have stepped up significantly in their display and their orders results and their commitment to us. So we're feeling very, very good and we're seeing that in orders coming through now is July so literally let me repeat it in a different way. The first quarter and second quarter was very disruptive for Viking, why? Because we ended up buying two of the biggest distribution in January and February so we bought in the East Coast and we have to activate that. And shortly after that in the second quarter we went out with a new dealer program that literally set a new stage of how we do business with Viking and it took the dealer time to absorb it there were a lot of question and answer for our…

That's great. Now that's really helpful. I appreciate that. And then I guess, just in terms of in Viking, this might be a better question for Tim, but the $12 million year-over-year increase at Viking, is there a way to split out what was just organic growth and maybe what was the contribution from the distributor acquisitions?

I'll be honest with you its difficult there is so many moving pieces right now that it's hard to get a real accurate number on that but it's a combination of both obviously.

Right, okay, okay. And then I guess just on commercial foodservice, my last question, you mentioned that China rebounded this quarter and I guess I was a little surprised that just given there's more headlines about some food supply issues there. So how do you anticipate seeing that play out as we go through the year? Do you anticipate any other kind of hiccups there as some of those bigger chains digest supply chain issues?

Yes, I mean that's kind of early news, we really don't anticipate that it's going to have significant impact that recent issue is related more not to our larger customer in China but a different chain. So there is a lesser impact on our customer so we feel that there is store opening plans are intact for the back half of the year so we feel fairly confident that we'll continue to see growth in China in the back half of the year.

Great.

I can answer that a little bit more because I think China is in the mind of a lot of our customer who are operating there. But I have to tell you I give them credit because they are acting very actively. So as they grow fast in China and China is a huge market. Our customers have come back and literally forced their supplier to start looking at more safety. I think the last episode that we've seen at one of our customers in China is now putting all the supplier around in the emerging markets to come up and start looking at food safety. So on another hand this is great for our food processing business as we are the leader in pro-clean equipment for food processing company. We're going to see a big jump in people asking for or rest of the operator asking for safety from their supplier not only in China, it can happen in the Middle East, it can happen in South Africa, it can happen in Malaysia, it can happen in Thailand, in Latin America. So I think we're starting to see some lot of enquiries coming into our food processing part from what's happened because the biggest basically other than supermarket restaurants are the biggest user of food processors and they're not going to tolerate having a sloppy unfaith supplier. I can assure you that all the big chains we work with have been sending teams of people to make sure that that supplier is now audited and is not get incur any more of those type of health hazards or safety procedure that's not in place.

Great. Well, I really appreciate all the color. Nice job on the results guys.

Thank you.

Thank you very much.

Thank you. Our next question comes from Joel Tiss with BMO. Your line is open.

Well, I'm not used to getting on. How is it going guys?

Hey good how are you Joel?

I guess you sort of answered the inventories and receivables mostly the receivables, why they were up so much. Is that most of it just from acquiring the distribution and some of the acquisitions?

Yes. That's correct.

Okay. And I just wondered if you could take a step back and give us a little color, everyone seems to be focused on your new chain initiatives, the Kitchen of the Future and Viking, but can you just give us a couple of sentences on what else is happening, like some of the other big pieces within Middleby, what's happening and what kind of initiatives you have to grow just so we get a little bit of a more rounded picture of what else you guys are working on?

Joel, I'm glad that you asked that question because we talk about this kitchen of the future, but you have a lot of other initiatives. So we have the initiative of what's happening in what I call the Drywell from CookTek which has been launched now in one of the Asian chain and we started to rollout. The waterless steamer has been also rolled out and we are at the final phase of that rollout in the waterless steamer we just introduced at the National Restaurant Show the fire oven which is a 90 second ventless Artisan pizza which – Artisan pizza type of equipment that has been a huge hit. We gotten more award we've had people lined up, I've never seen in any introduction of any product like this that people lined up. We have orders for it and the product is being launched now it's launching in September. We've got orders when people just showed at the show and booked orders that are a very exciting product for us. On the food processing side, we have a lot of bakery, new bakery innovation coming taking place we continue innovating in respect of the pro-clean side and the chicken side there is a lot of equipment going on there. Then the most exciting product also that we introduced is our reduced oil volume product from Pitco that just basically not only is being tested extensively in the U.S. but we just want an emerging chain in the Middle East that just adopted, they basically compared ours and our competitors extensively and that team has made up of former KFC and McDonald's employees that started that chain and ultimately tested all the competitors and we came first in the reduced oil volume and – their food chain is not…

Great, thank you very much. I don't want to take up everyone else's time. Thank you.

Thank you, thank you very much.

Our next question comes from John Duni with BB&T Capital Markets. Your line is open. John Duni - BB&T Capital Markets: Hi, good morning nice quarter guys.

Thank you John.

Good morning, thank you very much. John Duni - BB&T Capital Markets: More of a housekeeping item and I know the Q is going to come out later today, but I was wondering if you could walk through the operating margins and EBITDA margins for each segment.

The EBITDA margins in commercial food service were around 28%, so fairly consistent with where we've been in the past. The food processing segment which was -- last year was around 19% this year has been north of 20%. So I think we were around 21% EBITDA in the second quarter and then Viking when you excluded the restructuring charges was around 15% and that's still would have included the impact of the lower gross margins on the acquired distributor inventory. John Duni - BB&T Capital Markets: Okay great, thanks. And then lastly, just want to get a sense of how the M&A pipeline is looking right now. Are you more interested in expanding in commercial or is it food processing and geographically do you see more opportunities domestically or abroad?

The pipeline continues to remain strong I mean very consistent really with the history of Middleby over many years so we see opportunities in all three platforms commercial, food processing and residential. So I would say we probably have a consistent pace of M&A moving forward. It's a mix of full domestic and international and we're really just focused on the best opportunities out there again leading brands, leading technologies things that complement and are synergistic to our platform as we're positioning ourselves as market leaders in all three. John Duni - BB&T Capital Markets: Great, thanks for the time guys.

Thank you.

Our next question comes from Jamie Clement with Sidoti. Your line is open.

Selim, Tim, good morning.

Good morning Jamie.

Selim, I've got a question for you about longer term product development R&D that sort of thing at Viking. Let's say somebody, and I can't imagine who this person would be, but let's say they don't need 23,000 BTUs of power on a burner and let's say they don't need to be able to melt chocolate off of a paper plate without burning the plate. When this Middleby technology start to flow down to the customer who might have historically been more interested in buying a three series or a five series range?

Very, very good question Jamie. At this moment what we've done is we're taking some of the technology and we want to be more democratic about who can afford Viking and I think that's something that we've always been -- I've been interested. When I bought the brand I've been interested in doing that. In many ways there are a lot of people go around and a lot of young couple say I aspire to buy Viking, I aspire to own Viking in my place. And I think results literally destructing the brand without making sure that we obstruct our affluent buyers who want to pay $10,000 a range. I think our 3 series now has become a very good platform to expand and bring technology. So I could tell you what's happening in both segment. So baby boomers are more looking at easy clean, quick heat they are looking at making sure that the controls are easy to use, very much so looking at whether its refrigeration that literally it's easy to clean, easy to store stuff. Younger generations are looking at smart appliances, connectivity they want to be able to control their appliances through their iPhone. They are more comfortable using their iPhone to -- or their tablets or their smartphone could be, not only an iPhone but it could be any phone. So in that perspective what we've done is we've done two R&D situation where we've seen significant investments in quality of construction to meet our baby boomers who are specifically demanding, give me a range that looks fantastic but easy to use, easy to clean rapid heat I want to be able to pre-heat I have entertaining I want to eat. Our younger generation want a connected kitchen and we're working on that and we've…

Great. Tim, Selim thank you as always for your time.

Thank you, Jamie.

Thanks Jamie.

(Operator Instructions) Our next question comes from Greg Halter with Great Lakes Review. Your line is open.

Yes. Good morning and congrats on very good results.

Thank you, Greg. Thank you very much.

Obviously, a fairly large significant reduction in debt in the quarter sequentially and your net debt is 1.8%. Just wondered what your thoughts are there, is that just timing on the M&A or if you're balancing that out versus share repurchase given the decline in the share price and just wonder if there were any shares repurchased in the quarter.

There was not any shares repurchased in the quarter. I mean our leverage ratio moves around from quarter-to-quarter and year-to-year just depending on the timing and the size of acquisitions that come through. And it's kind of – it's still -- it's within kind of that normal range about say 1.5x to 3x leverage on our balance sheet. But it was a very strong cash flow quarter. And the first quarter was a little bit weaker because of some tax payments that we made in advance which benefited the second quarter. but we're on track to have very good second half of the year, last year we had some investments or greater investments in distribution with Viking on the – as we acquired the distributors and built some inventory in the channel that we're now as were kind of run that optimal levels some of those investments that will have to occur going forward. So we feel pretty good about cash flow this year.

Okay. And what's the rate -- the average rate on your debt currently and how much is fixed versus floating?

It's roughly we've hedged about half of it so it's about half fixed and front half floating and we're paying LIBOR plus 175 on what's floating.

Okay. And any commentary on what you're seeing in terms of the M&A pricing environment?

Pricing has moved up a little bit from where we're a few years ago obviously in the downturn. So I would say that multiples are kind of back to a not – there are kind of in a mid level not completely out of wax but they will settle in the bottoms.

Okay. And one final one, what do you anticipate your capital spending to be for the full year?

We're always talking about that 1% to 2% of sales range so I would say that's kind of we'll probably end up – we'll currently be within that range probably in the 1.5% to 2% range for capital expenditures for the year.

All right. Thank you.

Thanks.

I am not showing any further questions at this time. I'd like to turn the call back to management for closing remarks.

So I am going to make some closing remarks please, Amanda. So on the commercial side literally we look -- restaurants are looking at growing same-store sales by expanding menu items and extending the hours of operation. Starting from breakfast to late night day parts, what is the impact of this for Middleby? More equipment to accommodate, new items that differ from just lunch and dinner. The second impact in the commercial food service is to lower labor cost. With more chains open longer hours cost of labor is higher. In addition the impact of raising minimum wage will force operator to look for automation such as kitchen of the future, such as conveyers, such as reduction of equipment that allows less cleaning, less training. Number three, cost of energy continues to be a big impact and we are the leader in energy efficiency, water savings our waterless steamer, our dry equipment our combi that use less water than our competitor reduce all volume. We continue to look at the cost of ownership. The lifetime cost of ownership reducing that lifetime cost of ownership I think we've done a great job going back and looking at feedback that are less than two years. What's happening to the future capital spending on commercial appliances, it looks very good. According to a survey by the National Restaurant Association 62% of restaurant operators plan to make a capital expenditure for equipment expansion or remodeling in the next nine months. Nearly two third of restaurant operator reported that their same-store sales grows above a year ago levels. Most important restaurant operators are increasingly optimistic about continued sales gain in the months ahead a sentiment that is also showing up in their capital expenditure. Looking at Viking, despite some headwind such as economy improving slower…

Gentlemen thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.