Thank you for joining us for the Middleby Corporation Second Quarter Conference Call. With us from management are Selim Bassoul, Chairman and CEO; Tim Fitzgerald, CFO; and David Brewer, COO of Commercial Foodservice. We will begin today with comments from management, and then we will open up the call to Q&A. Instructions to get in the queue will be give at that time. Now, I'd like to turn the call over to Mr. Fitzgerald for opening comments. Please go ahead, sir.

Thank you, Brian. As Brian mentioned, I'll have some initial comments about the quarter, and then we'll open the call to questions and answers. Net sales in the 2017 second quarter were up $579.3 million, decreased 0.2% from $580.5 million in the second quarter of 2016. The second quarter sales include the impact of acquisition activity not totally reflected in the prior year comparative results, which accounted for $29.2 million or 5% of sales growth in the quarter. While the impact of foreign exchange amounted to $10.7 million or 1.8% of less reported sales or growth in the quarter. Excluding the impact of acquisition activity and foreign exchange, sales during the quarter decreased by 3.3% as compared to the prior year quarter. This reflects an organic sales decline of 3.3% at our Commercial Foodservice Group, an increase of 8.5% at our Food Processing Group, and a decrease of 9.1% in our Residential Kitchen Equipment segment. Sales of the Commercial Foodservice Group for the quarter amounted to $333.8 million. Although sales in the general market increased, this was more than offset by reduced purchases from our major chain customers in comparison to the prior year. We continue to have a robust pipeline of revenue opportunities across these customer accounts, but they're in the process of approval of a number of our new product innovations. These opportunities include replacement and upgrade of installed base of equipment, which has impacted our replacement business in the short term as restaurant operators had slow purchases awaiting the next generation of approved new products. Sales internationally at the Commercial Foodservice Group were relatively flat in comparison to a very strong prior year. This reflects modest growth in Latin America and Asia, offset by lower sales in Europe. Sale of the Food Processing Group amounted to $92.3…

My pleasure. [Operator Instructions] Our first question will come from James Picariello with KeyBanc. Please proceed.

Hey, good morning guys.

Good morning.

Just for starters, can we get the EBITDA margins by segment? And I think you mentioned, Tim, 17% for Residential Kitchen?

No, so that was 17% just for AGA. For the Residential Group as a whole is approximately 25%, and then we were north of 28% both in Commercial Foodservice and also Food Processing.

Okay, got it. Thank you. So, within unpacking Commercial Foodservice a bit, I mean, I think we all understand the national chain timing dynamic and the testing visibility there, but what are you seeing in the general market? I mentioned some growth in the quarter, but are you seeing any changes in the pricing environment from a competitive standpoint? Any share gain mix up that you could talk about or reference?

I think the growth remains, I would say, [indiscernible] single-digit. So I think that -- I don't think we saw really any substantial changes in the general market there. We sort of…

Okay.

We were -- that we sought any market share losses than anything, I think we feel like we're in unit gain share in the general market.

Okay. And then you mentioned price increases to offset steel inflation in the back half. Can you provide more color on maybe what the price-cost dynamic was in the first half, and then what your expectation is for the back half here?

Yes, I mean I think steel was a minor drag on the margins. I would say less than half-a-percent. I think we're basically overlapping as we kind of move midway through the third quarter.

Okay. All right, I'll get back in queue. Thanks guys.

Thank you. Our next question will from Larry De Maria with William Blair. Please proceed.

Hi, thanks. A couple of questions; first off, how much was the pension benefit to operating income? And I think you mentioned in the filings about the FASB could change the way you present your numbers. So can you give us an idea of how to assess that or how you might present them going forward?

Okay. So the pension benefit was about $6 million in the quarter. It's relatively consistent with what we had in the first quarter. I'll mention that the 17% of EBITDA margins for AGA did not include that benefit. That I mean if we included that benefit that AGA would've been probably around 25% EBITDA. So I just kind of clarified that when we were talking about AGA where we talk about the operating business, and separating the pension kind of almost as a [indiscernible] corporate cost. As we move in to next year, I'll be honest we had -- probably should [refreshen] [ph] up for the next call, and maybe be go through a little bit more detail the accounting. But a lot of that gain will be -- which is not classified in operating would be moved down into the non-operating section in interest costs. As much as what we're realizing is a benefit, its returns on the assets are better there in the plan.

Okay. But the 25% of resi EBITDA margins would include that, correct?

Yes.

Okay. Thank you. And then secondly, obviously you guys talked about timing and some push-outs and stuff. Are we pushing out our believe that initially, I think Selim had talked about the second half having better organic, or do you still believe that? Or we just don't have visibility on that now; can you just give us some color on that?

Yes, Larry, I could give a lot of visibility on what I see. So let me start with talking a little bit about the state of the industry. I think we have an expanding economy that is helping restaurant sales continue to advance in 2017. Even as the restaurant operators face continue margin pressures, a tightening labor market and some lingering consumer uncertainty. So, 2017 projected restaurant sales are projected to grow at 1.7% gain over 2016 adjusted for inflation. This is slightly below what it was in 2014 and 2015, and in line with 2016. In 2015, 2016, and 2017, restaurant operators have been investing in social media marketing, online ordering, kiosks, and mobile payments. So to address your question, Larry, in 2018, restaurant chains will focus on new menu trends to fit dietary preferences to bring customers back in the store. And the food trends have become more concept-based than ingredient-based, with an evolving focus on production, sourcing, and preparation. So where does Middleby come into this? So I can't speak about one quarter or second, but I will tell you that today, sometime in starting the fourth quarter and going into 2018, we have basically nine chains that will account for over $300 million within the next 24 months starting in the fourth quarter of rollouts. What is different about this -- those nine chains than the previous rollout we've had in the fact that three of those nine accounts are totally new to us. They've never been a Middleby account. We are displacing all technology and all or other competitors to our new innovation. In addition, we have always been a second place player in QSR. So we're not number one in QSR, we've always been the number two. Today, we are rolling out $150 million with two of two largest QSR in the world in the next 24 months. Which means new customer opportunities are coming online, not only in QSR, fast casual, but in convenient stores, in hospitals, nursing homes, and in fast food, which is a new area for us, as you all know, we have always been lagging QSR in the past. So I see a lot of opportunities coming back with our new revenue opportunities in the new products in the pipeline. And I look at it, and I say, would I basically point it between one quarter and other? But I would tell you that sometime starting in the fourth quarter, and going into 2018, we are having major rollouts taking place in the commercial foodservice.

Okay, thank you. That's very helpful, Selim. So just to clarify, obviously we've underperformed in the market in the first half, and -- but things look better into next year. But we seeing that's mostly a function of where customers are spending or is market share -- and you were discounting market share is not an issue, is that what we're seeing?

No, market share, we have -- no; I will tell you, I will repeat, we have not lost a customer on the chain basis. And as Tim mentioned we have 2% in the general market. The general market is basically growing. If you look at TechNomics, and you look at all the research, the market is going mostly probably at 1.7 -- 1.5%, 1.7% to 2%, and we're in line with that. I don't think we've lost market share there. And there's not specific data to say -- this industry is not sophisticated enough to pinpoint specifically versus other industry, like pharmaceuticals or agriculture, where they can specifically pinpoint market share. I don't think we've lost customers. We haven't had customers coming in and saying we're not buying from you. I think the biggest thing that I face, and I made that comment in the first quarter of 2016 when I state to everybody, our new equipment, our new innovation takes longer time to test and implement. It's technology that basically works on delivery. It's enabled, it's longer testing, and it basically totally changes the makeup of a kitchen, whether it's ventless or speed of cooking, or it's our new TurboChef batch cooking that displaces three pieces of equipment; it's a big mindset change for our customer they implement those changes. So, from that perspective, a lot of the chains are saying, I am willing to forego replacing a piece of equipment for a year for me to invest into that new technology and that new innovation. And we pay the price for that, because in the meantime we're introducing unique innovation that's costing us basically several quarters until we launch and test much more innovative technology. And I can talk about that. I talk about basically our SOS fryer, our convect broiler, which is very different than [indiscernible] I could have gone back and replaced Nieco broiler at one of the chains, but we went to a much more advanced safety feature broiler, which take longer time to implement, and that's -- because it costs more. We look at our Nu-Vu artisan proofer and baking oven, a complete revolutionary oven from that perspective, takes a lot longer time for that specific sandwich chain or subway chain to basically implement it. I look at our Hoodini combi ventless oven, a unique technology in what we do, has not been implemented before, and we have implemented it in breakfast and now we have implemented beyond breakfast to do [indiscernible]. So we have a lot of technology that's coming in place that is taking longer time for our customer to implement. And finally, we're beyond testing. And that's why I was able to talk about 2018, and beyond, and in the $300 million that's coming our way.

Okay.

So Larry, our top accounts is not one, I mean, it's really across a broad base of chains. That's what's causing us to be down. But those are the ones that we have a pretty -- the installed base, a real good view to. And that's really what we know is going to actually drive revenues higher in the long-term, so it really is -- we've got pretty good visibility to it. So, that's -- and that's what's causing us to be down right now, it's actually what's going to be the driver of revenue growth as we kind of move into 2018.

Okay.

,:

Got you, understood. Thank you very much for the detailed answers.

Thank you. Our next question will come from the line of Jamie Clement with Macquarie. Please proceed.

Hi, good morning.

Good morning, Jamie.

Selim, could you take a little time and run us through Middleby's bakery strategy, particularly in light of opening up the Plano facility. I'm not sure how much of that is commercial foodservice or is it processing. But can you talk a little about where the technologies overlap in the two, and really what the company's strategy is there?

I would -- in fact, David, why don't you take that on, because you've been more involved with that bakery than I have been.

Yes. That -- just so everybody in the line understands, we opened the first ever integrated bakery production of food processing integrated with restaurant operations. So we have established a facility that literally you can develop a large scale manufacturing of [indiscernible] the muffin, the bun, and then actually take it within the end of the line. And this facility is literally 300 yards long and a hundred yards wide. It's an R&D facility. You can actually take the product from -- for a bakery to develop it, all the way into our finishing equipment that would appear right in a restaurant. And we just launched that months ago, and it's been a huge success. We've had -- so bakery -- large bakeries, processing companies from all over the world visiting us, and working with that equipment, and actually using it to produce new innovative products. At the same time, we slot in at least a half-a-dozen global chains or R&D people working backwards from the finishing product that appears in their restaurant thanks to some of our technology, to -- back to the bakery equipment focusing on bakery equipment. So it really is the first time ever that we connected in-store cooking equipment to upstream food processing equipment, and…

And Dave is that -- when you say first time, is that first time in bakery, or is that first time across all of Middleby's product lines?

It's the first time in the industry that in one place you can sell a product and finish it off just like an end-user consumer would have it, so I can go from farm to the consumer within 200 yards.

Huh.

I know.

Okay.

It's very cool.

Yes. And, Dave, roughly I was trying to do some work on this, and I didn't really get much good information. I think I read that roughly one-third of restaurants have on-baking -- has in-restaurant baking equipment, and that that's been growing over time. Does that sound about right to you?

One-third, yes, it's -- I would go with that number. And then I think it is growing. So, don't forget that's where this really plays, because we can demonstrate through controlled technology, heat transfer technology, we can me it easy for a person to operate it in the restaurant. So while it's being utilized in in-store bakery it's actually almost fully automatic. So you get all the aroma and feel of an in-restaurant bakery. But thanks to the upstream bakery production systems, which we also produce, it's very -- it comes through consistently and easy to use, it's a great combination.

Okay, great.

So, Jamie, the reason you're addressing this because it's the dream of every restaurant and every chain to have in-store baking. It's the aroma, the scent, it looks fresh. And the reason only one sort of restaurant have done it is the complexity and the consistency of making this happen, and margins; now you're having to bring a baker and a chef -- a pastry chef and whatsoever to do this, so very few have been able to do it. What we've been able to do is now through that, our technology, to reduce the cost, and the complication, and the complexity of in-store baking. And that's why chains have talked about that have flocked to Dallas to see this, because everybody would love to be able to differentiate and say, I provide fresh-baked goods on premise, because remember, millennials want freshness, they want quality food, they want to think it's healthy. And in-store baking is definitely better than getting frozen stuff if you could do it. The complexity of working with your supplier all the way to store becomes very complex. And that's why, literally, we have bridged that gap from sourcing to industrial supplier to in-store baking becoming almost one line.

Okay. Thank you all very much for your time, as always.

Thank you, Jamie.

Thank you. Our next question will come from the line of Tim Wojs with Robert W. Baird. Please proceed.

Hi everybody. Good morning.

Hi, Tim.

I guess maybe just to Selim -- just to clarify on that $300 million; I mean would you characterize that as firm orders?

I would capitalize them as -- there is nothing like firm orders. I think firm orders only if I got a PO. So for me, that's not a firm order until I get the first orders. I do not have the personal order, but I can tell you we've done all the work, and we've tested, and some of them have been going into store testing, so we're way into this. I would not have brought that number if I was not confident a high level of orders. Let's put it in probability 70% is going to occur. So, in my perspective, things could be deferred, could be done, but at this moment it's going well. It's nine chains accounting for almost $300 million, and with one of them slip maybe -- but it can happen. But it's such a big number. Now that I'm talking on the nine chains, now behind them there's a lot of them I did not count for because literally I don't have -- we're not as advanced with them, but I'm hoping between now and then we would. And I'm going to turn over and talk about a specific example what happened yesterday, and that's one of the reason Dave is here today. Dave, could you turn around and talk about what happened yesterday. I think, Tim, this is what differentiates us from everybody else in the industry, and what makes our margin be where they are.

You're right. I think that the big chains, and the spectrum of projects that Selim is talking about is across beverage, to baking, to speed cooking, to everything with our -- across our portfolio, which is very exciting. But let's go to the other end of the scale. And yesterday was -- actually it was basically because Selim and I were in the same spot at the same time. We didn't ask for these meetings, but they occurred because we just happened to be in the same room, which very rarely happens. We had four distinct meetings, basically, with titans of the industry -- with higher titans of the industry that came in, solicited us, asked for time with us. We never talked about, they came searching for us…

They flew in.

They flew in. They came here. And before we -- it's fun to talk about the big chains. But it's also just as fun to talk to individual owners that know what they're doing, that have run large corporations, and now are taking their own money and investing in what they consider billion-dollar ideas. And they have come exclusively to us because we have the unique ability, thanks to our experience in solving small kitchens and cruise lines, to fast casual, to full-scale high-end restaurants, our ability to bring our technology -- like business and control technology, and implement a solution, literally, in days for them. And they all saw that independently. And we were back-to-back with very distinct meetings with opportunities that almost boggle your mind by people that are investing their own money, and truly -- if you guys can include these people -- they are titans of the industry. And they came to us, to ask us exclusive to partner with them.

So in the meantime I asked a simple question, I said why do you come to Middleby or why Middleby. You know, everybody has heard of Middleby, they've used Middleby products. But they came here knowing that when they're going to put their money, and their investment, and bring investors -- they have investor online with them, to open that new concept, they were very comfortable by what we've done in trying to get them the consistency of what they are trying to do, so technology and the after sales service. So I said, well, have you gone to everybody else; they said we have. And we've gone to others, we've talked, not at that level maybe, but they've come -- go ahead, David.

They inherently know everything. They are -- they've been in the industry for [technical difficulty]. They know every one of our competitors in detail.

You're right, Dave. They know -- I'm very impressed by them. Some of them I had not met before. But some of them I've met and I've known, and I respect and admire in what they've done, but it's interesting, they came back, they said, Selim and, Dave, the reason we're here is because of your innovation. The reason we're here because when we use your product -- and it went down. Our products are not flawless, sometimes they went down; you fix them, you service them, you get it up-running very quickly. And I'm proud to say -- and I'll give a statistics here that I've wrote down that differentiates us than everybody else, which goes back to our ability to service. I think our service rate today -- I'm looking at that number to make sure it's correct and what I'm saying. Today, we can service 84% -- or 85% of our repair rate are done within 24 hours across all our platforms. We are best in industry, and we are even quicker in major cities. What brings this down to basically 24 hours is the number of installation we have in rural locations. So when he talked yesterday about our service capabilities, because they're going to be operating long hours, they are -- basically this concept is long hours, many, many unique locations; they came back to us and they talked about service. And that's why I went back and I said, let me understand our service rate. And that's why, in light of this meeting, I wrote it down. I went back and wrote down exactly our repair rate, which we manage -- which we basically monitor and manage at every division on every product.

I think it's the -- the fun part of yesterday was the accumulation of investment and hard work by a lot of Middleby people for the last four years. The fact is all these gentlemen, they know the business, and they realize -- they firsthand realize that while menu board are important, and table, and the colors of the restaurant are important, the most critical element of the restaurant for speed of service, food quality, the labor content, and menu flexibility is the [indiscernible]. And that's why they stop -- they've started with us. Once they solve the most critical component of the restaurant then everything else falls in place. It was fun.

Great. Well, that's a lot of helpful color. I appreciate that. I mean, is it fair to say that some of the business that you're seeing with the bigger chains, would that come on at an accretive margin just give some of the unique products you've talked about?

Yes, I mean our newer products tend to more innovative so they've got a perfect payback for our customers, they're higher margin.

Okay, thank you.

Already very high margin -- so, Tim, you already know very high margin. So basically people don't come to us to seek discounts.

Sure.

We don't offer a one turnkey project where people come back to us say, well, I'm going to buy everything from you, give me 10%. That's not what they come to us to do. Everything we do is niche, and that's what differentiates us from between us and most of our competitors, which is -- well that's what you do. And we'll talk about the structure in a little bit. I'll talk about that structure.

Okay. And then two other quick ones, Tim, I think you mentioned some improvement in the residential growth in the back half. I guess, is that organic or is that just due to some better FX? And then lastly, what's the payback, I guess, in terms of timeframe on the restructuring this quarter in AGA?

Okay. So I think we're going to continue to see disruption with AGA, I mean just given the substantial initiatives that we've got going on. A number of them relate to the non-core business. I think when we are a profit company, we kind of pull -- identify a number of the businesses that were not necessarily in the kitchen equipment side, they were residential products. And I think we're doing things to right size those businesses, including bridging some of the product lines. I think that's going to continue for the rest of the year. Exchange likely will be more favorable given where our rates are right now, so that headwinds on AGA should lessen in the back half. The comment I made really was more towards Viking. I mean, obviously we've had a long growth with Viking. I mean I think we've made -- we've really done so many great things over the last few years with all of the new products. Quality is totally different. We've seen our warranty rates go down by 85% from where they were a couple of years ago. As you know, we've restructured all the distribution, acquiring the distributors who really now have a great customer service and after sales service. So I think now -- I think we feel like we're making a lot of progress on the sales front of things too. So the comment there I think is just that we continue to be down in the second quarter. I think we're just saying that -- we believe that trends will improve. I don't think we're even saying that they're going to be up. Although I think we do expect that we would turn the quarter moving into 2018, but I think we would see things move kind of in the positive direction as we go on throughout the year.

But, Tim, remember, I would like to follow up. We've never been on a quarter-to-quarter. We're not a quarter-to-quarter company.

Sure.

We don't operate on a quarter-to-quarter. So at that moment -- you've been with us for a long time. I think many of you on the call have been with us for a long, long time. We are basically focused on what's best for our customers. We're not going to push somebody to place their orders until they would fully test -- we've fully showed them what we do. And the most important that I love what we've done yesterday comparison, we talked about payback. At the end, we have been focused on payback more than anybody else. I would say, for the last 10 years, I've talked about payback. Payback is trying to deliver value below two years. My concept is every new product that we put in place has to deliver payback, whether it's in energy, or speed, or labor saving, or menu preparation in less than two years. We've been most probably striving to 18 months, which has been an amazing record. And that's why part of those rollout that come to us have been to validate the payback, because that's important to us. We keep on telling them, please validate, please make sure, and that's something new. We push them to do that -- say, but, Selim, nobody else does this. Because I said, well, it's important that you guys got the payback. We want you to come back and figure out that when you buy that piece of equipment, and you go back to the franchisee and say I want to spend $10,000 on that piece of equipment, that they can go back and say, we selected Middleby and that piece of equipment because it has a unique payback. It makes -- it will make you money. On a return on investment it makes you money.

Great. Well, thanks for the answers. I appreciate it.

Thank you, Tim.

Thank you. Our next question will come from the line of Jason Rodgers with Great Lakes Review. Please proceed.

Yes. I did want to ask about the Food Processing segment performance there was better then you had expected last quarter. And wondered if you pulled forward any demand or anything special happened that quarter, and if you think that performance can be sustainable? Thanks.

Yes. So actually it was a very strong quarter for Food Processing. I think on the last call we talked about it maybe being more modest growth, and seeing it stronger in the second half. I think there was -- some of the business we anticipated that might be in the third quarter did come a little bit earlier. So I think we saw the benefit of that. And so as we go into the -- so that's going to pick maybe a little bit for the second half. And as I mentioned in the prepared commentary, we see growth in the second half, but kind of the level of that will be dependant on the timing of some of the larger orders there in the pipeline just given the lumpiness of the business. So I think it's difficult to predict how the forth quarter is going to rollout right now. But I would expect that we would see lesser -- that we would be more modest in the back half than what we saw in the second quarter, at 8.5%, which was pretty strong.

And then, I did want to ask about some areas that we haven't heard of from a while. There is Pepsi Spire rollout in the U.S., food waste and progress with introducing Viking internationally.

Okay. So we will talk about Spire. I think we continue to work with the Spire. We launched the Spire in the U.K. And now we are launching generation two. And we are going on to that. I think Dave you have been more involved with it than me on that one too.

Yes, we can't obviously share all the details.

We have confidentially…

But I mean from an engineering and manufacturing perspective, everything is on schedule and I would not happier performance of Wunder-Bar and what we have done there and specifically the group [indiscernible] is running that. So, not only we can't say without giving numbers or names.

I would just add to that it's really not the only Spire today. Also we are broadening the pipeline. I think we are moving Wunder-Bar from what was kind of back of the barn to front of the house with touch-screen automated dispense control. So I think we are really becoming an industry leader in that area. It is a long -- as Selim said, to get a lot of these products and technologies approved, but I think it's a really big opportunity with Wunder-Bar in beverage…

In beverage…

It can be exciting for the longer term.

For the longer term, yes, we are excited about it. So, just to say where we go on specifically on that, let's talk about next one which is waste management. I think waste management continues to be doing well. We have basically work mostly overseas. I think we've gotten a lot installations overseas. I think we have not cracked the U.S. market yet. And in full transparency, we have not and that's a huge opportunity for us. But we are doing well overseas. In Europe, our neighbor up north have put several installation in Toronto. But, however, specifically in United States has been very slow. And that's a huge opportunity. And I think things slowed as we need to build an infrastructure to launch that product here better than we done. I think we have not put infrastructure that we need to put on to this. We have seen the success overseas. And I think we need to come around this one and build enough infrastructure here of sales and marketing and services to see that product here. And that most probably will be done somewhere in the second half of 2018. I think we are busy doing all the other stuff, but I think that's a good comment.

I think both with beverage and with waste, the fact is this what Middleby does, the situation [indiscernible] to walk through a restaurant kitchen and look at all the semi-solids to liquids that need to be portioned from cleaning chemical to ketchup it is an opportunity for Wunder-Bar and its technology. And waste management, it's exactly the same story. The labor intensive -- the intensity of labor around waste management is huge. It's just a matter of time for the customer need. We are so connected to the restaurant that we are anticipating we know logically the need and the demand because of the pressure on the business to be profitable. Our customers pressure ahead of [indiscernible] go walk through a kitchen and you'll agree. On Viking internationally, I think we've focused heavily on the domestic market. I mean we had so many new products in the pipeline, but I think focus was more important than trying to go all around the world. I think the effort has really been in Latin America which we had significant success when you look at markets like Mexico and some of the other regional areas that's been somewhat offset by Brazil because they are more difficult economy there. So I mean I think the push has really been just in Latin America internationally as we focused domestically. And if you look -- I mean obviously we had a long pipeline of products coming out over the last years, but even as you look at this year, we launched the seven series of refrigeration which is just getting quick on floors right now. And the TurboChef oven which we talked about for a while is in production. And that is actually going out to our customers. You'll see that on coming out on floors. And the other product we are just launching now is the [indiscernible]. So I think given all the new products and domestically when you go in the international markets, it requires a lot of approvals and testing, so we have really just focused on Latin America until we get everything launched here in the U.S.

All right. That was a good update. Thank you.

Thank you.

Thank you our next question will come from the line of George Godfrey with CLK. Please proceed.

Thank you. Thank you for taking my questions. Selim, I just wanted to followup on the restaurant investment that you talked about where they are making it now online, POS, social application, so have you thought about making acquisition in that area? Or can you give us examples where cooking equipment that you sell takes advantage of those trends?

Yes, that's a very good point, George. We have not basically made investment to this. I think it's something that's not close to us, but we work with them. So, I give you a great perspective that happened yesterday. So, one of the things that customers do not know about, we are today we have -- many of our equipment that are tied to POS system. So, without naming specifically the customers, now we have a line of customers that we have technology that's been in place now for 2-3 years that ties our oven to POS. So I am going to give you a great perspective. Pizza Oven today is tied to POS system that a customer uses. So, when people call in or text in their order, the POS receive the order. The oven reads the POS and knows that this is a breadstick versus a pizza or wings because now remember pizza operators are not only cooking pizza in our oven, they are offering wings or breadsticks or biscuits. And what happen -- or it's a cheese pizza versus a 10 topping pizza and it's adjust immediately according to that speed of the oven. So we've done a lot of interaction between POS and control. We are doing the same thing now in our coffee business. We are doing same thing in our beverages business. We are doing the same thing in our Combi business where we are tying a lot of the technology that's in front of the house to us. We are doing a lot between our ventless technology and the air conditioning within the units. So we are working very closely in to figure out the air makeup in the kitchen so that it's the redirect air back in or out. Before our technology, let me give you exactly what happens, you had a cook line of equipments and you had to have hood on -- the vent on. And what did it do, not only it suck the heat and the grease of that oven and that range and the fryers, it also sucked out the heat and the air condition out of that [indiscernible] went through the roof. And finally, we have been able to work through interfacing and connecting between our ventless technology and our hood technology at Britannia and air conditioning unit through Bluetooth technology and interface that allows us to do that. So we have been very strong in technology. And we put a lot of effort into connectivity. Now we've not gone and bought one of those companies. We've stayed on the side, but to work very closely with them, specially the example of the POS system.

Thank you. That was very helpful. And then, Tim, just one question within the residential kitchen, given the improvements refrigeration Series Seven lines and Viking, and Virtual [indiscernible] is coming. The organic growth, would you expect that Viking turns the corner before the segment as a whole with the other piece being AGA, or do you think they will turn it simultaneously?

I am going to answer that question to someone involved that. I wish I knew this time still but I will tell you honestly at this moment, we have all the new products. So I am going to bring the question differently. I am going to bring the question from a different perspective. So I am going to look at it and I am going to talk a little bit about in the last 12 months, some of the award and recognition we have gotten. So online, right now if you go online on a Viking review which is one of the best online consumer affairs which is a top appliance rating in the world. Basically that's what people vent and they do rating. They do three stars, four stars, two starts, one star. It's like, I think, it's called consumeraffairs.com. So if you go there and you put Viking reviews versus all our competitors whether it's range or refrigerator, you can see where come in terms of produce from customers. This is not - it's an independent. We have nothing to do with it. It's a totally independent online site like Yelp in a sense. And you can see we've come a long way. Basically our Viking Induction was won the 2016 Kitchen and Bath show people's choice award. Our French door oven own the Architizer A+ award. Our -- basically our barbecue grill, four links, own the best built-in gas grill 2017. If you look at seven series, they own the biggest award in terms of rating and health keeping award. So we have got some amazing awards on Viking. I have not catch up with -- I did not catch up with AGA. I don't know if they got some awards in the U.K. But I would tell you that Viking is right there on again in the movement. What I said in last quarter, I would repeat today. Our new products are going very fast. We will continue managing the legacy products because unfortunately we have not done much to the legacy products. We have started to phase them out. And as I said by 2018, by the first quarter of 2018, 100% of the products of the Viking carries from refrigeration to hoods, to ovens, to ranges, to outdoors will be 100% new by Middleby. They will have Middleby technology with them with Middleby reliability with them, Middleby quality in them. And they will be zero legacy product. And that's what I have been shooting for. And it took us long time because we needed to get the technology there. We needed to get it approved. We needed to get all that. We got distracted by the recall. So that's where we are right now.

Thank you for taking my questions, Selim.

Thank you.

Thank you. The last question we have time for today will come from the line of Walter Liptak with Seaport Global. Please proceed.

Good morning, guys. Thank you for taking my call. I wanted to just ask a couple of followups because we have covered a lot already, and thank you for that. But, the food process sector seems to be going very well as you indicated and the strong growth. I wonder if you could help us understand what grew better in the quarter? Was it on the meat side or on the bakery side? And then when you talk about some visibility in the back half, was there order growth that was shipped in the back half or is that business that you have to go get? And then also I'll start with the long question, I mean turning those system faster because those are longer lead time I believe, are we able to turn -- like if you get an order tomorrow, will you be able to turn it before the end of the year?

So I will answer that. That's a good question. So that first one, we are basically moving a lot faster. So that's a very good observation. Yes, we have expedited the delivery of our system. We've reorganized our factories and our plants. And we've invested in equipments that allows us to churn those orders faster than we used to do it two years ago or even a year ago. That's one. However, I need to remind you that you are happy with food processing, you could be unhappy if I had a bad quarter because those are lumpy businesses. So I want to make sure we remind ourselves that it's lumpy and cyclical which means after long term, we have always said that food processing that while we love that business because of the margins are begin good, we have are dominant player and people are investing in factories and especially in the emerging markets. It's cyclical. Meaning it goes up and down and you need to manage it over. I think managing food processing if you want to model the business, we need to model it over a 18 months. Tim, am I correct?

Yes, I would say, it's two to three year period.

Two to three year period.

I mean if you look at food processing over 5 years, I believe we are or even longer than 7% to 8% growth. But last year you saw, we were up substantially. I mean we had double-digit growth. As Selim said, you're going to have quarters that we are going to be down. The extent of the ups and the downs and we used to be up 30 - 40% then down 30 - 40%. So I think the band has shrunk over time just because we have a more diverse portfolio of brand. But, it's going to be lumpy. And I think even though we have the ability to manufacture quicker as Selim said, our customers don't always want it quicker. I mean if they have -- if it's a larger project, they may say, hey, we want it nine months from now. And then they decide they really want it 14 months from now. And I think that's one of things that we can't manage. It's not in our hands. It's on the customer side of business. And that's why it's always -- and that can move from quarter to quarter. And that's always the difficulty determining really what the -- when you have an order book, you know, incoming orders, it can also even when it's in your backlogs sometimes it's difficult to predict when it's going to turn into revenue.

And I love this business. So we have been in this now for almost 12 years. It's great business. I think when we started the business, I don't you were analyst -- you weren't covering us at the time. And I think if you look back, we can from less than 5% EBITDA to sales ratio to now I think overall margin of closing onto commercial almost. Correct, Tim?

Yes, we were at 28.2% in the quarter, so very strong EBITDA margin.

Very strong and we feel good about it. And I think the innovation that we've done in that market…

Yes, coming out of [technical difficulty] realized also is we actually solved problems for commercial side customers. Sourcing, trying to figure out where to source meat or bread, we can connect our commercial customers to our food processing customers. And it's been a great marriage of solving those -- both solutions at the same time. It's been a lot of fun. It's great -- great opportunity for us.

Okay. So the -- well, thank you for that; the order growth though in the quarter was very good, is it on the meat side or the bakery side? Or was it on both of them?

Okay. Well, so I know we talked a lot about bakery and meat. I think it's -- we wanted to distinguish because bakery has been the newer piece of it and lower margins which we were bringing up. But I think we were developing that bakery business. So, we are very excited about it and even we just recently added Burford as an acquisition. So we are kind of building on our capabilities there. But I think we don't really want to kind of distinguish…

Oh, okay.

But I do want to say that…

And the reason let me tell you the reason because some of our customers are both in bakery and meat. So, if you look at [indiscernible], you look at Nestle, you look at some of those customer where they are buying ham and buying baking, so we have lot of customers that are they are overlapped. They are buying both equipment from us. And we have been basically -- we are not telling that this is now you have to -- you cannot buy from this now. So we've kept the food processing group tied together synergistically in many, many ways. Even though we have two presidents running it, there is a lot of cooperation between the two. And we've not made a differentiation because I think that there has been a lot of synergies. At least some of our customers -- now we have a lot of bakery customers that are unique, but we continue to see customers at transcends both.

Okay.

And some of these I have mentioned in other acquisition, we just did CVP Systems which is a great company on the packaging side that actually cuts over both; they can package meat and they package bakery. So, it's got great synergy going across our product portfolio. I do want to clarify orders were not up in the quarter. They were down. We have several large projects that you can have a couple of projects come in and go from negative incoming orders to positive incoming orders. So that's kind of the inflection point that we're at right now is we have a strong pipeline of activity going on. And we're work on realizing some of those orders that are in the pipeline that we have pretty good visibility too.

Okay. Good. Okay, thank you and I realize we are over, so but if it is okay, I would just take one quick followup?

Okay. Go ahead.

Okay, great. So when you were talking about 300,000 million rollout, and I just want to clarify that that was for kitchen refresh and not for new store openings? And also the timing of it, I think, Tim, you said over 24 months, maybe starting in the fourth quarter or in 20/18, did I get those numbers right?

Correct. So let's talk -- I think you have questioned the -- first part of the question is it's definitely total refresh. So, it's a not a store opening. It's all refresh. And second, when it comes to the timing, it's we talk about December through maybe starting in the fourth quarter, most probably late fourth quarter and most probably and most effectively 20/18. So, this is not a 20/19. This is not 20/20. It's strictly within the next 12 months that we are starting the majority of those rollouts taking place.

Oh, great. Okay, I just wanted to -- okay, thank you very much guys.

Thank you.

Thank you. So, I would like to go back and talk little bit -- do some prepared comments I have. So, I look at our innovation and I look at what we have done, but before I start this innovation what's next for Middleby, I would like to continue reinforcing what has been our forte which is our EBITDA margins and profitability. I am very proud at Tim and Dave mentioned before that we are industry leading margins in all three segments that continued in the quarter. Our commercial was 28.4%, our food processing at 28.2%, our residential is 22.3% excluding the pension. Including the pension was 26%. We continue to focus on price discipline. And we continue to have price increases that are in effect. We have record consolidated EBITDA margin of 24.8% and 23.8% year-to-date. So, that brings us to basically mid-term toward my only guidance I have ever done. In my tenure at Middleby, I have given one-time guidance which was a 27% EBITDA margin goal, which I said will happen by 20/20. And we are basically going -- crossing that threshold and going straight at that goal. Now we are hitting all those despite some short-term revenue headwind on our most profitable business. Now, we see improvement in Q2 from restructuring initiative. And we continue looking at that in the second half. We will see the full benefit of some of those restructuring initiative taking place in the third and fourth quarter. We also see a continued integration of our residential platform related to sales channel and improved mix as new product come online. So, our mix of product will have higher margin as the new product and new innovation come on the line and those rollouts take place. In addition, supply chain initiative target for…

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude the program. You may all disconnect. Everybody have a wonderful day.