This Company is Really Cooking

08/06/2013 11:00 am EST


Jim Jubak

Founder and Editor,

There is a company that takes a unique approach to its business plan, and even though it might miss estimates when it announces earnings tomorrow, remains a company for you to have faith in, writes MoneyShow's Jim Jubak, also of Jubak's Picks.

Take it from someone who has been in and out of Middleby (MIDD) shares over the last decade: the big problem can be finding a way to get back after you've sold because the stock has hit what looks like a peak. (I added Middleby to my Jubak Picks 50 portfolio on May 3 when the shares traded at $144.78. To see the write-up on my annual changes to this portfolio click on this post.)

But there is a chance that we'll get a slight dip this week after the company announces earnings on August 7. Analysts project that earnings per share will grow by just 6.6% year over year. That could qualify as a disappointment after the 15.8% year over year growth reported last quarter. The company might even miss, although Middleby has beaten estimates for the last five quarters in a row.

Why do you want to own Middleby? Here's what the company does in the fragmented industry for cooking equipment for restaurants and food processors. It acquires a smaller specialized maker of kitchen equipment for the food industry, such as 2012 acquisition Nieco, a maker of automated broiler equipment, or Stewart Systems, a maker of bakery equipment. Then, using its size and management skills, it finds ways to cut costs in those acquisitions, while also increasing sales from those acquired businesses by leveraging its existing customer base. And quite a customer base it is too: Middleby has the Number One market share in equipment for pizza chains, Number One in convenience stores, Number One in fast casual, Number One in chicken outlets—you get the idea. In fact, the only mass-market restaurant segment that I could find where Middleby wasn't Number One was a Number Two position in the quick service (fast food) segment.

Middleby's future growth will come from continued penetration and consolidation in the still fragmented US market for restaurant equipment, plus a move into international markets. There, Middleby's history of working with restaurant customers to understand what equipment will work for them is important. Middleby isn't going to attempt to jam US style equipment down the throats of non-US restaurants, but instead will use its investment in R&D to come up with products suited to individual international markets. For India and China, for example, Middleby has rolled out tandoor ovens, samosa fryers, and rice steamers. (International markets now account for 31% of sales.) The other source of growth for Middleby is in the industrial food processing and baking segment, now 30% of sales. The selling proposition in all these markets is simple: Middleby cranks out a steady stream of innovative products that lower costs to restaurants and food processors—by cutting the time from order to food delivery, (what's know as ticket time, for example)—while also providing measurable improvements in customer satisfaction.

Wall Street projects earnings growth of 16.3% for 2013 and 17.7% for 2014. The shares currently trade at 27.8 times trailing 12-month earnings per share and 24.4 times projected 2013 earnings.

Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Middleby as of the end of June. For a full list of the stocks in the fund as of the end of June see the fund's portfolio here.

  By clicking submit, you agree to our privacy policy & terms of service.

Related Articles on STOCKS