Posted 10/4/2005
INVESTOR'S BUSINESS DAILY
Let's say you're hungry for a pizza. You go to a pizza joint, but the cook tells you it'll take eight minutes for the pie to cook.
That's too long, you tell him. If that pizza's not done in five minutes, you're going to pass out from starvation.
Relax — help is on the way. The folks at Middleby (MIDD) have designed a new oven, due to launch early next year, that cuts the time it takes to cook a pizza from eight minutes to five.
The oven is part of an overall company strategy to come out with a handful of new and better products each year.
Middleby develops, makes and markets cooking equipment it sells to institutional clients such as restaurants, hotels and hospitals. The bulk of its business comes from the major restaurant chains.
The company supplies everything from ranges, convection ovens and broilers under the Southbend and Blodgett brands to toasters and hot food servers under the Toastmaster name.
Over the the years, Middleby has served up a steady stream of new products designed to speed up the cooking process and reduce energy consumption.
"In this business, a lot of the products are similar in their functions," said analyst Mark Grzymski of Needham & Co. "Where the industry is looking to change is with new products, (and) Middleby is concentrating on that."
New products are needed to keep the top line humming. Middleby has launched 24 new products in the past three years. These products generate a combined 25% of sales, says Chief Executive Selim Bassoul.
Last year Middleby came out with eight new products. It plans to roll out a total of seven this year. Four already have launched — including a gas steamer that doesn't require a boiler, meaning it needs less water.
Over the next three years the company will introduce more than 20 new products — six of which will be what Bassoul calls "disruptive" to the market.
"They'll be transformational to the market the way the plasma flat panel TVs has been to the traditional TV," Bassoul said.
Bread Winner
Middleby also uses the occasional buyout to broaden its product line.
In January, it acquired the assets of Nu-Vu Food Service Systems from Win-Holt Equipment for $12 million. The Nu-Vu unit makes baking ovens under the Nu-Vu brand and holding cabinets under the Wilder brand.
The buy was Middleby's first since 2001, when it purchased Maytag's (MYG) Blodgett division, which specializes in commercial cooking equipment.
The Nu-Vu purchase brought Middleby technology that lets ovens bake bread in less than 15 minutes.
"We were looking specifically to buy a brand that had technology we didn't have," Bassoul said. "We felt that on-premise baking was a big trend, (where restaurants) are starting to bake bread, muffins and cookies (on site). . . . This is a very growing market."
Nu-Vu's customers include the Subway sandwich chain.
"The acquisition broadens their product offerings, and it obviously increases the revenue potential," analyst Grzymski said. "This purchase puts more products (for Middleby) into the same distribution channel."
Bassoul says he continues to look for more acquisitions. His criteria include companies with a strong brand and patented technology.
The Nu-Vu buyout accounted for 5.5% of Middleby's second-quarter sales growth. Sales for the quarter totaled $83.9 million, up 15% from the prior year. Earnings gained 35% to $1.11 a share.
Analysts polled by First Call see full-year earnings rising 28% to $3.74 a share, then increasing 14% to $4.28 in 2006.
Middleby's international unit posted a 26% sales gain during the second quarter.
The company gets 20% of sales from overseas. Most of its international growth comes from emerging markets such as India and China.
Middleby and other food-service equipment suppliers are getting a lift from international expansion by U.S. restaurant chains such as McDonald's (MCD) and Yum Brands' (YUM) KFC.
"As these fast-food markets open up in China and (other countries in) Asia, and their (cultures) become more like the U.S, it will benefit Middleby and other food-service equipment providers," Grzymski said.
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