Middleby’s 4Q15 Earnings Call Notes

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The Middleby’s (MIDD) CEO Selim Bassoul on Q4 2015 Results

Two restaurant trends are rising wages and delivery

“if I look at what’s going on in the industry business, it bodes well for Middleby. One, we continue to see the pressure on labor wages. That’s number one. You get labor wages rising, and it’s an unstoppable aspect of a restaurant. Their costs are going to go up on labor wages, which basically have to do automation. Number two, you are seeing delivery is becoming a big thing. Everybody wants to deliver product. And delivering product requires flexibility and speed, so we’re looking at speed of cooking and delivery. Both of those are unique for Middleby, because we own the automation. We are the largest automated equipment supplier to the restaurants. Speed, we have the largest speed of cooking in that space.”

Capital budgets are free to spend more in kitchen again

“The third thing that’s going to help everybody in the space is that the fact that the last five years, restaurants have done a lot of investments in online — basically ordering, social media, texting, ability to text an order and receive it, into what I call making it easier for people to order online. They’ve made so much investment, and those investments are already done and sunk. Now you are seeing more money being freed up back to the back of the kitchen, where they have to start upgrading their kitchen, to allow for menu rollouts and flexibility and speed, and to figure out a way to corner that rising labor cost”

Another trend is more cooking

“I see another trend, which is the trend of, basically, more cooking. So you’re going back to healthy cooking food, more vegetable, grilling vegetables, steaming vegetables, just because people are walking away from a lot of the proteins that have hormone issues, bacteria issues, and the cost of rising beef. So you are looking back to chicken, you’re looking back to vegetables.”

QSRs doing breakfast

“Then another two trends is breakfast. Breakfast is also becoming more and more popular. You’ve seen, at one of the QSR, making breakfast an all day event. People are starting to emulate, because it has been very successful for them, and everyone is looking at breakfast again, to say, how do I take breakfast, and make it more of a revenue driver for me.”

Supermarkets and convenience stores have been growing customers

“Then you see convenience stores and supermarkets, which is a new entree for Middleby, is our growth in supermarkets being very, very strong. The last two years, we’ve invested significantly in going after supermarkets, because they are doing more and more take-out, and they are doing more prepared food. And the growth in that segment went from almost nothing, to now, we’re basically, I think, $15 million to $20 million, in two years, in that segment. Then convenience store is — we are playing a major role in convenience stores. And we are seeing that becoming even a strong competitor for food delivery.”

It’s business as usual at restaurants, if not even a little better than usual

“I think it’s business as usual. In fact, we are very excited, because not only low gas prices, low heating oil and natural gas prices, and we’ve had basically a warm winter throughout, even in Chicago. We’ve had a few days, but it’s been mostly warm in comparison to the previous years. And it’s having people spending in restaurants. I think also, I think the biggest thing that I see is literally, wholesale food projects have gone down about 5% in 2015, and — boosting margin for our restaurant operators. So they’ve been having improved cash flow and margins and it has really translated capital spending. So I think that we all see it. I give you a perspective. Our national accounts business has been growing, basically double-digit growth, every, the past three years. And I would say that this year, it will not be different. ”

The only thing they’re worried about is rising labor costs

“So we have no reason to indicate that there’s, nothing changes. We think that operator environment and the restaurant environment is, continues to be good for us. Now, the only thing they’re going to have to face, and they’re worried about it, is, literally, rising wages, labor cost.”

Chef driven fast casual is giving an entree into fine dining

“We’ve not been strong in the fine dining. We’ve not been strong as an institution as much. So if you look at the chain business, it is something happening in the fast casual and the QSR. Casual dining — you think things like chef-driven fast casual is becoming a big part of the restaurant movement, which is fantastic for us. So if you look at literally what is happening with all those chefs opening fast casual, and they are all flocking to us, because literally, they don’t have the R&D that they need. They want to open restaurants. They know how — the menu they want, but they are coming back to talking to us. And as I visit around the country, if you look at Paul Kahan with his Big Star. You look at Rick Bayless with Xoco. We look at Tortas Frontera and Frontera Fresco, and you looked at Danny Meyer with [indiscernible]. And I can name them. I can call Bobby Flay. We can talk about dozens of other high-profile chefs. And basically, you look at — that movement has become very attractive for us.”