Middleby 2Q16 Earnings Call Notes

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Selim Bassoul

Restaurant business continues to do well

” On the domestic side, we continue to see the restaurant business doing very well. At least so far, the total restaurant same-store sales were up 2.4% from a year ago, and food away from home is up 2.6% from a year ago. We also believe that QSR and fast casual and casual dining are all in the positive category, and they will continue to be driven by the following, unemployment continues to trend down around 5%, and the most important is underemployment is now below 10%, which is the true measure of truly people who are no longer reported on the labor census is now below 10%.”

Trends should remain positive

“And then we continue to see gasoline prices trending down. I think that they will remain low for a while and will — they will continue to give consumers more money in their pockets. So I see that the Commercial Foodservice, while it could be that individual chains here and here could see some disruption, whether it might be in their operation or they might be implementing a online ordering system or changing menu items, but in general, I see the trends in the second half of the year to be — to remain positive.”

Gen Z wants speed, convenience and low prices

“So Tony, the — as a vision for beverage for me is literally targeting Generation Z. That’s followed by who is Generation Z? It’s the 13 to 23-year-old customers. It’s that population. And I have done a great effort in working, in designing product and helping our customers target that generation because that generation tend to eat out more often than the Millennials and the Baby Boomers. That generation want speed, convenience, low prices and customization, which is all excellent for Middleby.”

Most of our customers are doing well

“I would say many of our customers are doing very well. Let’s put it this way. First of all, commodity prices are manageable in terms of food prices compared to what it used to be I would say 2, 3 years ago. I would say also the fact that consumer confidence is pretty high in terms vis-à-vis eating out. As I mentioned, I would go back and I say food away from home is up 2.6% from a year ago, so we continue trending out where people are spending more of their budget and their dollar eating out. I think the challenges for our restaurant concept today is to continue to reinvent themselves, and I think that’s most probably the biggest issue. How do you reinvent yourself to cater to a changing expectation from a customer or delivering a great guest experience?”

Customers are coming back asking for help with new things

“we’re seeing significant, especially in our national account department where we’re seeing a lot of restaurant concept coming back to us and saying, Help us work out the rising labor cost. Help us make sure that we are efficient as we introduce more menu items or as we expand the hours. Many of them have extended hours. Let’s take the example of the all-day breakfast, which becomes very complicated. Help us get there.”

We look at the next three years

“I’ve never been sucked into a guidance or into a quarterly or even a yearly corporate guidance. What we’ve always looked back is the trend good over the next 3 years, not the next 10 years or next 5 years. I’m talking the next 3 years. If you are investing into Middleby, what is the trend over the next 3 years? And I will tell you that basically, I see our opportunities to be among the best”

We focus on what we do best

“Well, I have to tell you we’ve always faced competitors one way or another, and we’ve most probably stayed away from doing what they do. We’ve always been the contrarian. We’ve always been focused on what we do best, and I go back and say Middleby has always been very driven by its own corporate — or core competency versus trying to emulate what people want. We really have not been a company that goes by what you think the natural rationale will be. For example, all — most of our competitors, if not all of them, are really a full turnkey operators. They offer refrigeration. They offer freezers. Some of them offer dishwashers. They offer mixers. We’ve been very focused on what we do best.”