The Middleby Corporation (MIDD) Q1 2026 Earnings Report, Transcript and Summary

Good day, and welcome to the Middleby Corporation's First Quarter 2026 Earnings Conference Call. [Operator Instructions] On today's call are Tim FitzGerald, CEO; Mark Salman, President of Middleby Food Processing Group; Brittany Cerwin, CFO; James Pool, Chief Technology and Operations Officer; and Steve Spittle, Chief Commercial Officer. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Tim FitzGerald. Please go ahead.

Good morning, and thank you for joining today's call. I'm excited for the next few months and what it holds for Middleby. That starts today with sharing the excellent results achieved across both segments of the business and raising our guidance for the year. It continues next Tuesday during our Investor Day in New York as we lay out our visions for the exciting future of both segments, and it culminates with the separation of the segments into two pure-play stand-alone public companies. But the separation of the business is not the end. In fact, it's only the beginning of a new and exciting chapter for both companies. Following this transaction, Middleby will operate as a focused commercial foodservice leader with a scaled portfolio of best-in-class brands, accelerating innovation and industry-leading 26% segment level EBITDA margins. while Food Processing becomes an independent growth platform with segment level EBITDA margins over 20% and significant expansion opportunities through both organic and acquisition growth initiatives. The separation will allow for focused execution across both companies with significant growth opportunities ahead. While we're only discussing the near-term outlook on today's call, we look forward to showcasing our long-term vision next week. Turning to our first quarter results. Our total revenue of approximately $840 million for Commercial Foodservice and Food Processing exceeded our expectations. This strong top line performance drove adjusted EBITDA of approximately $181 million. Through a combination of these operational results and substantial share repurchases over the past 12 months, this translated to adjusted EPS from continuing operations of $2.16. Same as last quarter for today's discussion on segment level results and trends, I will be discussing the Commercial Foodservice results and outlook, and I've asked Mark Salman, the CEO of Food Processing upon completion of the spin-off to discuss the Food Processing segment performance. Starting with Commercial Foodservice, we generated revenue of approximately $616 million, which exceeded our expectations during the first quarter. The outperformance was driven primarily by the general market with our dealer partners, which again had double-digit growth during the quarter, maintaining the strength we saw to end 2025. We continue to gain share with our dealer partners as a result of efforts to strategically align those relationships and broaden the solutions we now sell through our channel partners. The broad-based strength we saw in the general market was complemented by better-than-expected growth with the chains. Replacement activity is improving given deferrals in the prior years. And more importantly, we have a strong pipeline of new opportunities, which are converting. We are particularly optimistic about the momentum we are experiencing across the industry on beverages, where chain customers are seeking to refresh their menus with new beverage offerings. The investment we have made in the past several years is allowing us to capitalize on this momentum and industry trend. All that said, while the quarter came in better than expected for chains, industry conditions remain challenging, especially as consumer wallets became increasingly strained in March and April. As we look ahead, we're remaining prudently cautious, though we are well positioned for the environment to hopefully improve as we move through the year. Britt will provide additional color, but our guidance assumes a relatively consistent environment to what we are currently experiencing as we await larger chain customers to firm up their plans for the year, particularly in the second half and adapt to the current macroeconomic environment. As we think longer term, the investments we have made positioned us with unmatched competitive advantages, both now and into the future. With the industry's broadest portfolio of leading brands, the strongest innovation pipeline, including IoT, automation, and beverage technologies, and investments in go-to-market and service initiatives that will accelerate growth and drive market share gains for years to come. The foundation of the Commercial Foodservice business is stronger than ever and the strategic investments that we have made over the past several years position us for growth in an exciting next chapter. Before I turn the call over to Mark, I would like to take a moment to welcome Brittany Cerwin as our new CFO. Britt has been an invaluable member of the Middleby leadership team and has been integral to the company's growth since joining 15 years ago. She has quickly and seamlessly stepped into this new role. I'm very excited to work with Britt as we transform the company into a pure-play commercial foodservice equipment leader. I would like to now turn over the call to Mark to discuss Food Processing.

Thanks, Tim. Food Processing delivered our best first quarter ever, delivering record results across key top line metrics with organic revenue growth of 25%, record order intake and our fifth consecutive quarter of book-to-bill above 1. Turning to specifics. In the first quarter, the Food Processing segment generated revenue of approximately $224 million, with orders of $231 million, resulting in a backlog of $416 million, a further increase versus the end of the year. The strength we saw across the business in the first quarter puts us on a solid foundation and builds confidence for the remainder of the year. In terms of drivers, we are realizing growth in the international markets, thanks to the investments we have made over the past several years in our international footprint as our brand can now reach a broader global audience with food processing trends that are evolving around the world. We saw these investments and strategy play out during the quarter with 2 new bakery projects in Kenya secured through our expansion of international offices in recent years and representing our first meaningful order in the country. This is yet another example of how we are uniquely positioned with our total line solutions to deliver value to our customers globally, and that strategy is proving to be a key driver of our organic growth. We are in the early innings of executing our growth strategy with significant market opportunities ahead. What sets Middleby Food Processing apart is this comprehensive approach to serve industrial protein, bakery and snack processors. We have created a portfolio designed to deliver complete end-to-end total line solution offerings that optimize our customers' entire production lines and are committed to delivering the lowest total cost of ownership. This targeted approach has also guided our acquisition strategy. We've built the food processing business by adding brands and products specific to target food applications, which complement our total line solutions. This formula works. Our recent acquisition of Gorreri from Italy is a great example. Since the acquisition 18 months ago, we have unlocked multiple total line solution opportunities in the cake category, not only elevating Gorreri, but growing the order pipeline for our existing brands and providing our customers an unmatched solution only Middleby food processing can deliver. We have consistently executed on our strategic and disciplined approach to acquisition for 20 years. Now, as we separate into our own public company with a strong balance sheet at just 1.25x net leverage, we have significant capacity to accelerate this proven growth strategy. Beyond top line growth, we have clear visibility to improve profitability driven by 3 key factors: lapping tariff-related headwinds from Q3 2025, favorable mix in our backlog and continued margin maturation of recent acquisition. In summary, we are well positioned to deliver both strong top line growth and margin expansion for the remainder of the year. Finally, as you saw in our Form 10 filed on Monday, we have completed the build-out of our management with a highly experienced set of executives prepared to execute on the extensive growth opportunities ahead of us. These include Mark Bowie, who has more than 25 years of manufacturing expertise and proven leadership as COO. Matt Fuchsen has more than 15 years of experience across a variety of roles at Middleby, has been my M&A partner for the past 10 years and will be joining Middleby Food Processing as Chief Strategy Officer. And most recently, Amy Campbell, who has 29 years of industrial manufacturing and public company experience as CFO. I, along with the rest of the team, are excited to share our vision for the future at the Investor Day next Tuesday. Although we have been executing our strategy for many years, I can assure you that we are only getting started on what's possible as we separate into an independent company with the balance sheet and necessary liquidity to support our ambitious growth strategy. With that, I'll now turn the call back over to Tim.

Thanks, Mark. As you heard from Mark and myself, both segments had a great first quarter, and we're optimistic about what each business will be able to accomplish for the rest of the year. On top of the excellent segment level results, at a corporate level, our capital allocation strategy remains aggressive and focused. We have continued our share repurchase program, having allocated over $520 million so far in 2026, reducing shares outstanding by approximately 7%. This is on top of the 9% reduction we achieved in 2025. We continue to plan to allocate a substantial portion of our free cash flow to repurchases this year. But most importantly, we have a world-class team around the globe and across both segments, whose commitment and execution continue to drive our success. With that, now I'll turn it over to Britt to discuss our financial performance in greater detail and guidance for the second quarter and 2026 full year.

Thanks, Tim. I'm honored to be the CFO of Middleby Corporation and excited to partner with you on the exciting opportunities ahead. Turning to the results. Our first quarter results showcase the strength of our execution, the quality of our business model and the realization of the investments we have made over many years to best position ourselves to capture these opportunities. Let me walk you through the key financial highlights and our outlook. For Commercial Foodservice, first quarter revenues were approximately $616 million, driven by organic revenue growth of 8.1%. Positive impacts were seen from general market, institutional and emerging customer segments with our chain business better than expected. Organic adjusted EBITDA margins were 25.8%. At Food Processing, first quarter revenues were approximately $224 million, driven by organic revenue growth of 25%. Positive impacts were seen from improvement in international markets. Organic adjusted EBITDA margins were 19.5%, including a modest headwind from the timing of a new product introduction that we do not expect to recur in future quarters. Q1 orders reached $231 million and backlog grew to $416 million. Overall, in terms of tariff costs, during the first quarter, we successfully offset the dollar impact of tariffs to our P&L. That said, from a percentage margin basis, tariffs remained a headwind in the first quarter, and we expect that to continue in the second quarter before we lap the impact of the execution of prior year second half pricing and tariff mitigation strategies. We are proactively working to get ahead of new inflationary pressures, particularly around shipping costs and electronic controls through operating initiatives along with targeted and strategic price increases of approximately low single digits that we have already announced for the third quarter. On a consolidated basis, total company adjusted EBITDA for the first quarter was approximately $181 million and adjusted EPS from continuing operations was $2.16. Adjusted EPS expansion was achieved through organic EPS growth, share repurchases utilizing the proceeds from the residential transaction and carryover from the 2025 share repurchase activity, offset by increased interest costs associated with the maturity of our convertible notes and higher stock compensation costs as compared to the prior year. Please refer to Slide 10 of the presentation we have posted online for a complete adjusted EPS bridge. First quarter operating cash flow was approximately $88 million, and free cash flow was approximately $80 million. Our leverage ratio per our credit agreement at quarter's end was 2.3x. As stated in the Form 10 we filed on Monday, following the Food Processing spin, we expect the new company to have a net leverage ratio of approximately 1.25x, which we believe will position them well to pursue the organic and M&A growth opportunities ahead for the company. We expect Middleby RemainCo to have a net leverage ratio of approximately 2.8x at the time of the spin and delever to approximately 2.5x by the end of 2026. Regarding capital allocation, during the first quarter, we repurchased 2.4 million shares or approximately 5% of our outstanding equity, for $366 million or an average purchase price of approximately $153.38 per share. Start the second quarter, we have repurchased an additional 1.1 million shares or approximately 2% of our outstanding equity for approximately $154 million for an average purchase price of approximately $142 per share. Turning to our outlook for 2026. For ease of communication and continuing the same methodology from our guidance last quarter, we provide this outlook on a current company basis, assuming that both Commercial Foodservice and Food Processing remain together for the full year. Let me walk you through our second quarter and full year outlook, starting with the second quarter. For the second quarter, we expect to achieve the following: total company revenue of $815 million to $850 million, which is comprised of Commercial Foodservice at $600 million to $620 million and Food Processing at $215 million to $230 million. Adjusted EBITDA is forecasted to be between $180 million and $192 million, which is comprised of Commercial Foodservice at $154 million to $164 million and Food Processing at $45 million to $49 million. Adjusted EPS is projected to be in the range of $2.27 to $2.39, assuming approximately 45.8 million weighted average shares outstanding. For the full year, we expect to achieve the following: total revenues of $3.36 billion to $3.44 billion, which is comprised of Commercial Foodservice at $2.44 billion to $2.49 billion and Food Processing at $915 million to $945 million. Adjusted EBITDA of $758 million to $790 million, which is comprised of Commercial Foodservice at $645 million to $668 million and Food Processing at $186 million to $208 million. Adjusted EPS is projected to be in the range of $9.54 to $9.70. Please refer to Slides 15 and 16 of the presentation we have posted online at our Investor Relations website for full details. That concludes our prepared remarks, and we are now ready to take your questions.

[Operator Instructions] Our first question comes from Jeff Hammond with KeyBanc.

Can you guys hear me?

Yes.

Okay. Sorry about that. Can you unpack the -- Tim, the March, April trend comment and what you're seeing from an order standpoint, kind of what's changing? I kind of sense that maybe there was a little bit of tone change or maybe I'm misreading it.

Yes. I think we're just commenting on what are the macroeconomic conditions that we're seeing out there. Obviously, there's a lot of pressure with fuel prices being up, and we're thinking about how that affects the consumer and some of the traffic trends that we're seeing out there. But in terms of order rates, we've been positive. So I mean, I think things have continued well for us early into second quarter. Remember, our lead times are not all that long, but I think a lot of the momentum that we've seen that started in the back half of last year and carried into the first quarter, we have not seen that change thus far. We just, again, are very in tune with what our customers are seeing. But as you can also see, a lot of our chain customers, a mixed bag, but a lot of them are performing much better than they were last year, which is also a good sign for us. And a lot of that is related to the initiatives that we had mentioned that they had taken actually with pricing on the menu and moving to more profitable categories such as poultry and beverage. So I think a lot of good things going on, but remain cautious just given the bigger picture.

Okay. Great. And then a couple on Food Processing. One, any kind of good lumpiness in 1Q, just very strong start and kind of kind of flattish organic into 2Q? And then if you can quantify the onetime new product intro cost impact on 1Q? And then just speak to M&A pipeline actionability.

Sure. Yes. Thanks for the question. This is Mark. So on the lumpiness, we really tend to look at our business not just quarter-by-quarter, but more so 2 quarters in a row, 3 quarters in a row because this is -- you take an order, you turn it into revenue between 6 to 18 months. So sometimes you do have some greater quarter than others, which if I look at the first half of the year, the organic growth with our guidance is at 9%, which is something we're happy to pinpoint. And the second part of your question was on?

M&A.

The M&A pipeline. Obviously, we've been active throughout the years. We remain very active. That's one of the thesis of our spin. And we will not give further comment other than we're in a good spot there as well.

And the next question comes from Brian McNamara with Canaccord Genuity.

This is Madison Callinan on for Brian. First, in CFS, what's been resonating with customers? And what drives future growth? Is it innovation? Is it deferrals coming through?

Yes. This is Steve. I think it's all of the above. I think when -- specific maybe to our chain customers, the bigger QSRs right now, a lot of the demand that we're seeing, there is a change. Over the last several years, there has been a greater focus with the bigger chains on new store openings. And although that does continue to some extent, you are seeing more going back into restaurants, making sure operations are delivering a very consistent product and a good experience for consumers. So you're seeing the demand in the replacement business start to pick up, which has been a thesis of pent-up demand in that area. But really, the biggest area I feel like we're seeing upside with our big chain customers is when they're adding additional products to drive new menu items and new dayparts. And obviously, beverage is a big category we've talked a lot about on these past several calls. And you're really starting to see that show up meaningfully with some of our customers in their last couple of quarters. And that is very powerful for Middleby just because no matter if you are adding a beverage platform that is anything from coffee to refreshers to shakes, Middleby can do all of that. And so we really have become a one-stop shop for any type of chain customer that's looking to add beverage to their menu. And now you're seeing it actually drive dayparts for them, which is driving traffic, it's driving revenue for them. So it's one aspect of where we see demand coming from, but it's an exciting part of what we think the rest of this year and certainly into next year holds in terms of beverage and just new product adoption for us.

Great. And then how does the recent updates to the Section 232 tariffs impact the company relative to the tariffs you were already paying? And can you remind us of your exposures to cost inputs like steel, aluminum, resin?

Yes. So as it relates to the tariff changes, so with the elimination of the IEEPA tariff and then the changes to the 232 and incorporating Section 122, we still feel that our overall tariff exposure on a gross basis remains relatively the same. As it relates to the inflationary costs that we're recently seeing kind of in shipping and on the control side, we are anticipating that to be a headwind here and have announced that we will be putting pricing through to cover that. On the Commercial side, we're expecting that to be kind of in the low to mid-single digits. And then on the Food Processing side, obviously, with their contracts, they will -- as they're prudent in their contract pricing and also through parts pricing as well. In terms of the overall exposure, as we do our initial estimate, we believe for each of the segments, that's probably about a 1% headwind on margins.

And the next question comes from Mig Dobre with Baird.

Brittany, congrats. Look forward to working with you going forward. I guess my question, starting with Tim or Steve, when I'm looking at the organic growth in Commercial Foodservice, it really stood out to me not only relative to your initial guide, but just relative to what the company has been able to grow over recent years if we're kind of leaving out the post-COVID recovery, right? The Q1 performance was just materially above recent trends. So what's different? What changed? And were there any sort of onetime items that investors need to be aware of either as it relates to prebuying by dealers or some stocking of channel inventory effect or even maybe some of your larger customers on the QSR side that have had any onetime purchases or lumped purchases for lack of a better term in the quarter?

Mig, so I think we'll kind of pass back and forth between Steve and I. We did not see anything that was kind of onetime or unusual. I think in terms of what changed, it was probably the chains starting to pick up. So I mean I think as we had mentioned last year, I mean, we were doing pretty well with the dealers in general market growing double digit in the back half of last year. And I think we have been taking market share there. And last year, we felt we were also taking market share with chains, but we're over-indexed to the chains, right? So that had been a challenging part of the business, but I think I describe it as losing where you're winning. So I mean I think we're very well positioned with the chain. So it's still a mixed bag, but they are performing better. So as you see the chains inflecting, that's kind of where that is now showing up in the numbers. So you have kind of both parts of the business up as opposed to one up and the other one, which was a larger portion down in last year. So that's really kind of the inflection in the front part of the year.

Yes, Mig, I would just add, I mean, I think the traction we see both with chains and certainly within the dealer community in the U.S. there's been a lot of work and investment over the last 2 or 3 years to get to this point. I feel like we've done a lot of work with a challenging backdrop, and we've invested both in people, resources, programs, trainings, both at places like the MIC, online trainings. And I think as the underlying markets for dealers in general market for institutional as that has started to come back around, we're taking market share in those segments because of the work we've done over the last 2 or 3 years. And so you're seeing it pay off in areas that we have maybe not been as successful with before wrapping projects together. So like for dealers, they used to potentially buy 3 or 4 brands on a project. Well, now because of the work we've done, they're packaging 6, 7, 8 brands, including stuff like ice, combi, TurboChef, et cetera. So both for dealers and chains, I guess I'm just stressing that we've put a lot of work in behind the scenes over the last 2 or 3 years with some pretty substantial time and investment to drive some of the growth that we're starting to see right now.

That's very interesting. Again, looking at your guidance, you're still talking about, call it, 5% organic growth in Q2 at Commercial Foodservice and just the full year organic growth of 5%. Again, if we're excluding the COVID recovery, that's the best organic growth you've had in a decade. So I guess my follow-up is, how sustainable do you think this is? Clearly, the year has guided the way it is, but I'm anticipating here at the upcoming Investor Day, are we to the point in your view that either through your investments in new product or the dynamics in the industry, we're finally back to this business, Commercial Foodservice being able to grow kind of mid-single-digit organically on a more sustained basis?

Yes. I mean I think we are confident in what we can control. I mean I think the investments that we made, and Steve just talked about a few of them, both with the go-to-market initiatives and all the innovation, we think we have been very thoughtful and executed on that well. And I think we're -- those investments are now made and starting to bear fruit, right? Like some of that was even disruptive as we went through the period, but certainly, the backdrop of the industry in the last 2 years has been disrupted, right? So I think we're confident in our execution and what we can control. We are optimistic that the industry is improving over a very disrupted period. But certainly, the industry is not completely off to the races either. There's a lot of pressures out there with pricing costs, et cetera. But our chain customers are starting to perform better. So I mean, I think as we think about it over the next 3 years, yes, we feel like there's a pretty good setup for industry to be in a better spot than the last 3 years. And certainly, we are in the best position we've ever been.

And the next question comes from Tami Zakaria with JPMorgan.

Congrats on the wonderful results. My first question is similar to Commercial Foodservice, do you have any price increases planned this year in response to tariffs? Or are food processing orders part of long-term contracts that have escalators that kick in and that issue gets taken care of eventually over time?

Well, Tami, thank you for the question. First, yes, we always price our contracts based on what we believe is going to be our cost. Whenever we get these big contracts, we go and immediately contract our suppliers to firm up the costing side of it. On the aftermarket, we do take price increases just to reflect the headwind that we typically get on pricing. So I think we're pretty much ahead of the curve at this point of time once we are done with the second quarter with the remaining tariff impact that we've had from 2025.

Understood. That's very helpful. And the other question I had was for the Commercial Foodservice segment, EBITDA margin was down year-over-year in 1Q, and it seems you're guiding to down again in 2Q. Do you expect to return to year-over-year growth in 3Q with pricing kicking in? Or is that going to happen in 4Q as pricing takes full hold?

Yes, Tami, this is Brittany. So I think as we go through the first half here, we're still lapping that tariff impact from 2025 on a margin perspective. And also, as we commented here in Q1, we still have some mix challenges that are impacting the margins, and we expect that to start to improve in the back half of the year as we look at the larger chain new unit growth and rollout plans that we have indication for right now. So that's why in addition to what we see from the inflationary pressures that we're facing on the cost side, we're being cautiously prudent in terms of the guidance for the margins for Q2, but do believe with lapsing the tariffs and as we continue to put further pricing out there to help us cover the new inflationary costs that we will start to have some benefits in the back half.

And the next question comes from Chris Senyek with Wolfe.

Great quarter. The momentum continues, and I like the surprise upside to the buyback. Ice and beverage continues to be a standout area of momentum in the last couple of quarters. Can you elaborate on what's driving that strength, whether it's cold beverage innovation, menu expansion, customer mix and how we should think about that as we look out over the coming quarters and over the next year? And I guess related to that same question, was there any more front-end loading of the ice and beverage rollouts in the first half of the year for menu changes in the back half of the year with these chains? Or is it sort of you think, going to be pretty non-lumpy over the course of the year this year?

Yes. Thanks, Chris. This is Steve. Maybe I'll take the last part first. Don't really expect a whole lot of lumpiness in terms of prebuy or how the purchasing happened both last year or throughout this year. I would call out two specific areas where we're seeing growth in both ice and overall beverage. I hit just a little bit earlier, but number one, within the dealer part of our business, we see massive opportunity to take market share, which we believe we have, again, packaging it with other Middleby brands. So we certainly saw increases in market share, both in the dealer community in the back half of this year. That continued definitely into the first quarter and expect that to continue throughout the year. But really in the chain side of our business, I keep talking about, but you're seeing QSRs that have never been in the beverage space adding beverage products to their menu, and it's become very, very prominent. And in many of those cases, it's being powered by Middleby and in some cases, exclusively powered by Middleby. And again, the chains are looking to us more and more to be able to provide a single solution that can almost immediately drive revenue. And from a franchisee standpoint, it's actually a very quick ROI, and that has become critically important to us. So again, I keep coming, it's beverage goes everything from ice to dispense to the actual product sales like it's everything in between and Middleby can do all of that, and that is why we're uniquely positioned. So that's -- so we have the dealer business and then we have a chain business that really is where we see momentum right now. And in many ways, I feel like we're actually just starting to scratch the surface of what the next couple of years can hold.

I think to that last point, a lot of those products are still coming to market right now. So I mean, I'll say some of them aren't even scratching the surface yet. So a lot of the coverage disruptions that we've got because I think our products are very differentiated. A lot of that will show up really 2027 and 2028. So we've got a pretty robust pipeline there. So that's very exciting for us.

Indeed, it is, yes. And then separately, on the buyback, I know there's upside to the buyback in the quarter and that kind of just changed maybe the mix of the buyback guidance. But how should we be thinking about the cadence of cash flow over the next couple of quarters as we think about modeling what might be available for the buyback in any particular quarters? Anything strange with working capital in certain quarters or anything else we should be aware of?

No, absolutely. As you commented, we did have obviously a front-loading here of the buybacks as we continue to utilize the proceeds from the residential transaction and continue to use the vast majority of our free cash flow to convert that. As we put kind of in the guidance slide, we are guiding for Q2 to be around $175 million with the back half of the year about $50 million each quarter. So continuing that trend of the buybacks, and we'll continue to be opportunistic at the right time.

This concludes our question-and-answer session. I would like to turn the conference back over to Tim FitzGerald for any closing remarks.

Great. Yes. Thank you, everybody, for joining today's call. Just again, as a reminder, we've got our Investor Day next week in New York on May 12. So hope to see many of you there. And then also call out that we're going to be at the restaurant show in Chicago, which is May 16 through 19. So that's also a great opportunity to come and visit with us and see a lot of the new products that we're launching, IoT, automation, beverage, get the latest in food service. So thanks very much, and we'll speak to you on the next call.

The conference has concluded. Thank you for attending today's presentation. You may now disconnect.