A Member of Pat McKeough’s Inner Circle recently asked for his advice on a company that specializes in foodservice equipment for a variety of difference industry sectors.

Pat likes the company’s track record of rising revenues and earnings, its broad reach in both the commercial and residential sectors, and its robotic assistant focus.

Middleby Corporation (Symbol MIDD on Nasdaq; www.middleby.com), designs, manufactures, markets, distributes and services a broad line of (i) foodservice equipment for all types of commercial restaurants and institutional kitchens, (ii) food preparation, cooking, baking, chilling and packaging equipment for food-processing operations, and (iii) premium kitchen equipment, including ranges, ovens, refrigerators, ventilation, dishwashers and outdoor cooking equipment, primarily used in the residential market.

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The company owns more than 75 brands, including TurboChef, Follett, Star, Viking Range, AGA, and Armor Inox.

Founded in 1888 as a manufacturer of baking ovens, Middleby Marshall Oven Company was acquired in 1983 by TMC Industries Ltd., a publicly traded company that changed its name in 1985 to The Middleby Corporation.

The company operates through three segments:

The Commercial Foodservice Equipment Group (55% of revenue) has a broad portfolio of foodservice equipment, which lets it meet virtually any cooking, warming, holding, refrigeration, freezing and beverage application within a commercial kitchen or foodservice operation.

The Food Processing Equipment Group (12% of revenue) offers a broad portfolio of processing solutions for customers producing protein products, such as bacon, salami, hot dogs, dinner sausages, poultry and lunchmeats, and bakery products such as muffins, cookies, crackers, pies, bread and buns.

The Residential Kitchen Equipment Group (33% of revenue) manufactures, sells and distributes kitchen equipment for the residential market. Principal product lines of this group are ranges, cookers, stoves, cooktops, microwaves, ovens, refrigerators, dishwashers, undercounter refrigeration, wine cellars, ice machines, beer dispensers, ventilation equipment, mixers, rotisseries and outdoor cooking equipment.

In April 2021, Middleby announced a $4.3 billion takeover bid for Welbilt Inc. (symbol WBT on New York), the owner of foodservice brands such as Cleveland, Frymaster, and Garland. However, in July 2021, Welbilt subsequently received a $4.8 billion bid from Italian firm Ali Group.

Middleby decided against upping its own offer, and Ali Group took over Welbilt. Meanwhile, Middleby received a $110 million termination fee from Welbilt to end its agreement.

Although it failed to acquire Welbilt, Middleby has made a number of successful acquisitions over the last few years.

Most recent was the December 2021 purchase of Masterbuilt Holdings for $385 million. Masterbuilt is a leader in outdoor residential cooking under the Kamado Joe and Masterbuilt brands. The firm has annual sales of about $250 million.

Headquartered in the Atlanta area, Masterbuilt’s brands are known for their outdoor residential products designed for cooking with charcoal. The residential outdoor market has gained momentum over the past few years as consumers spend more time in their backyards. The addition of Kamado Joe and Masterbuilt expands its offerings in this large and growing category, complementing its Lynx, Viking, Josper and EVO residential outdoor cooking brands.

Middleby’s revenue rose 26.7%, from $2.34 billion in 2017 to $2.96 billion in 2019. Sales then fell 15.1% to $2.52 billion in 2020, as COVID-19 hurt demand. Revenue then rebounded 29.3% in 2021, to $3.25 billion.

Excluding one-time items, earnings rose 31.1%, from $298.2 million, or $5.36 a share, in 2017 to $391.0 million, or $7.02 a share, in 2019. Earnings then dropped 30.0% in 2020 along with revenue, to $273.7 million, or $4.96 a share. In 2021, earnings jumped 60.3%, to $438.7 million, or $7.94 a share.

Inner Circle: Robotics are the future and this company understands

Middleby is adding more and more robotics to its product lines. This should be a key growth area as customers look for ways to offset persistent labour shortages, rising wages, training expense and other problems that automation aims to cure.

For instance, Middleby now sells a pizza machine called the PizzaBot 5000, launched at the Smart Kitchen Summit. The PizzaBot 5000 is an enclosed robotic system that spreads sauce and cheese on a pizza crust, as well as slices and dispenses pepperoni. The machinecan put a pizza together in under one minute. This prepares it for a human or another robot to place it in the oven. It uses large containers for the cheese and sauce and a stick of pepperoni that can be cut in custom sizes. Everything is refrigerated to keep the food safe.

The PizzaBot 5000 uses sensors and some computer vision for precise ingredient dispensing, which reduces food waste and saves restaurants money. PizzaBots cost about $70,000 each

Meanwhile, Middleby is also introducing its new Frybot that uses automation to streamline and improve safety in deep-frying. The robotic machine has an articulating arm that moves an empty basket under a french fry dispenser to collect frozen fries, and then moves those fries into the deep fryer. The arm then lifts the basket up from the oil when done, and the articulating arm then dumps them into a holding area.

This should be a big growth opportunity for Middleby because of labour issues and the dangers of working around hot vats of oil. It also improves the speed of production, ensures consistent quality and minimizes ingredient waste.

The company also offers software: its Open Kitchen product lets users monitor, analyze and control all facility assets, including HVAC, lighting and refrigeration. With the Open Kitchen application, restaurants, convenience stores, other food service operators and food retailers can connect and monitor different brands of kitchen equipment and automate essential kitchen functions using just one platform.

The Internet of Things (IoT) software is aimed at letting customers reduce energy costs, better manage critical equipment, and gain full visibility of their operations.

In the near term, Middleby faces supply chain constraints and rising prices for labour and other inputs. However, it has been able to pass on those costs so far.

The stock trades at just 15.0 times this year’s forecast earnings of $9.35 a share.

Recommendation in Pat’s Inner Circle: Middleby Corporation is a buy.