Lowering Rating to Hold; 4Q EPS Miss
- 4Q17 (Dec) adjusted EPS was $1.48 (vs $1.44), 5 cents below our forecast on lower-than-anticipated revenue;
- Full year adjusted 2017 EPS rose 7% to a record $5.49;
- Our 2018 EPS estimate is now $6.38 (from $6.26, which was not adjusted for new U.S. tax law), up 16% given the lower tax rate (but with operating income modeled up only 6%);
- For 2019, our EPS estimate is being introduced at $7.10, up 11% from our 2018 projection;
- We are lowering our rating to HOLD (from Gradually Accumulate) as growth in 2018 will likely be constrained from an industry slowdown given greater competition from grocery stores, a slow ramp-up of chain rollouts for Middleby’s equipment in Commercial Foodservice, and the deferral of large projects in Food Processing expected to continue in the first half of the year.
Middleby is engaged in the design, manufacture, marketing, distribution, and service of a line of foodservice equipment, food preparation, cooking, baking, chilling and packaging equipment, and kitchen equipment. The company's segments are: the Commercial Foodservice Equipment Group, which provides foodservice equipment to serve cooking, warming, refrigeration, freezing and beverage application within a commercial kitchen or foodservice operation; the Food Processing Equipment Group, which provides processing solutions for customers producing pre-cooked meat products; and the Residential Kitchen Equipment Group, which manufactures, sells and distributes kitchen equipment for the residential market.
Great Lakes Review is located in Cleveland, Ohio, was founded in 1981 and became a division of Wellington Shields & Co. LLC in 2011. Great Lakes Review is a research boutique focused on the fundamentally-oriented investor seeking companies that dominate their respective specialty niche regardless of industry. The objective is to make money for the long-term by gradually accumulating a diversified portfolio from a universe of no more than 30 companies. Although short-term-oriented accounts will be alerted to trading opportunities, aggressive sell recommendations are triggered only by a deterioration in long-term fundamentals, not by short-term blips or investor fancy. Coverage of those names that lose their earnings momentum or earnings predictability may be dropped and replaced with more vital candidates.
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