Middleby (MIDD) Declines 38% YTD: What's Hurting the Stock?

Zacks Equity Research

Shares of The Middleby Corporation MIDD have declined sharply since the beginning of 2020. We believe that the share price decrease primarily reflects investors’ reactions to the company’s exposure to the uncertainties related to the coronavirus outbreak. Forex woes and high debts are also concerning.

The Elgin, IL-based company belongs to the Zacks Manufacturing – General Industrial industry, which, in turn, comes under the ambit of the Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #200, which places it in the bottom 21% of more than 250 Zacks industries.

We believe that the industry is suffering from global uncertainties due to the pandemic, unfavorable movements in foreign currencies, the softness in industrial production in the United States and strained trade relations due to tariffs.

Year to date, the company’s shares have dipped 37.9% compared with the industry’s decline of 15.8% and the sector’s fall of 14.9%. Notably, the S&P 500 has declined 5.5% during the same period.






The company currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Factors Affecting the Stock

So far in 2020, Middleby has reported results for fourth-quarter 2019, with an earnings beat of 7.91%. Also, it recently reported better-than-expected results for first-quarter 2020, with earnings surpassing estimates by 38.36%. It is worth mentioning here that first-quarter organic sales declined 5.9% year over year.

Despite better-than-expected results, we believe that the broader market nervousness caused by the pandemic and difficulties faced by Middleby caused the decrease in its share price year to date. For 2020, the company expects the pandemic to adversely impact its segmental performances.

The Commercial Foodservice Equipment Group will likely suffer from lower demand and reduction in restaurant openings due to the pandemic in 2020. Further, lower demand and soft businesses in the U.S. and U.K. markets are expected to hamper the Residential Kitchen Equipment Group. Also, the company expects the pandemic to impact its sales mix for the Food Processing Equipment Group.

In addition, unfavorable movements in foreign currencies as well as an increase in costs of sales and operating expenses might be concerning for Middleby. Also, high debt levels — with a balance of $2,177.2 million at the end of the first quarter — can be concerning for the company, as it inflates financial obligations. The situation can be detrimental, especially in the prevailing difficult operating conditions. Notably, the company’s cash and cash equivalents were just $381 million at the end of first-quarter 2020.

Notably, the company’s cost-reduction measures might be of help in dealing with the financial stress caused by the pandemic. Also, efforts to expand product portfolio, solid backlog at the Food Processing Equipment Group and synergistic gains from buyouts might be tailwinds.

Currently, the Zacks Consensus Estimate for the company’s earnings is pegged at $3.93 for 2020 and $5.11 for 2021, marking declines of 2.2% and 13.2% from the respective 30-day-ago figures. Notably, there were four and two downward revisions for 2020 and 2021, respectively. However, there was one upward revision each for 2020 and 2021.

The Middleby Corporation Price and Consensus

 

The Middleby Corporation Price and Consensus

The Middleby Corporation price-consensus-chart | The Middleby Corporation Quote

Also, earnings estimates for the second quarter have moved down from $1.03 per share to 38 cents in the past month. Such a downward revision in earnings estimates is reflective of bearish sentiments for the company.

Middleby’s Performance Versus Three Peers

The company underperformed three peers in the year-to-date period. Three such stocks are Illinois Tool Works Inc. ITW, Dover Corporation DOV and John Bean Technologies Corporation JBT, with respective year-to-date declines of 4%, 15.7% and 27.1%.

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