CHICAGO (Dow Jones)--Commercial cooking equipment maker Middleby Corp. (NasdaqNM:MIDD - News) plans to be free of debt by 2006, and the company's chief executive believes there is more life left in the rally that has quadrupled its stock price over the past 20 months.

Dow Jones Business News Features Middleby Corporation

The Elgin, Ill., company is reaping the benefits of a major upheaval, begun in 1998, that cut its product offerings in half, reduced its workforce by 30%, and reoriented the company solely towards the hot side of the cooking business.

"It's the beginning of a journey," Middleby Chief Executive Selim Bassoul, told Dow Jones Newswires.

The seminal event in the transformation was the 2001 acquisition of the rival Blodgett line of cooking products from Maytag Corp. (NYSE:MYG - News) . The $95 million deal catapulted Middleby into the top spot in the commercial kitchen in the U.S. and more than doubled its sales to $229.1 million in 2002. Profit spiked to $6.1 million, or 67 cents a share, from $1.6 million in 2001.

The successful integration of Blodgett has improved Middleby's efficiency and boosted profit.

In the second quarter of this year, net income rose 64% to $4.6 million, or 49 cents a share, on only a 1.8% gain in sales, as margins jumped 200 basis points over last year. The company is expected to earn $1.62 a share in 2003, according to Thomson First Call's (News - Websites) poll of the two analysts that cover Middleby.

Since merging the two companies, Middleby has been able to cut between $10 million and $12 million in costs from its operations. It plans to standardize some of the products it has in common with Middleby, such as conveyor ovens, to lower the cost of production.

Having recently created a vice president position in charge of the company's global supply chain, Middleby is hoping to either consolidate suppliers or negotiate better deals to further lower costs.

Helping the company improve its profitability has been its drive to lower debt. Interest costs in the second quarter were almost 50% below year-ago levels, as the company was able to refinance its obligations with cheaper bank debt.

The company entered 2003 with $88 million in debt and cut that to $70 million by the end of August, along the way lowering its debt-to-equity ratio to 1.6 from 2.4 at the end of 2001. The company throws off about $20 million to $25 million in free cash flow every year, which helps in debt reduction.

No Major Acquisitions On Horizon

Bassoul and Chief Financial Officer Tim FitzGerald do not see another major acquisition on the horizon, certainly not of the magnitude of Blodgett, that would force it too re-leverage its balance sheet or seek additional funding from the capital markets.

"There's nothing we're working on right now, but we're always keeping our eyes open to what makes sense," said FitzGerald.

The union of Middleby, which had a dominant presence in pizza chains and the burgeoning fast-casual market, with Blodgett's leading position in quick-serve and casual dining restaurants, created a company whose mission is to be the one- stop shop for heating, cooking and baking equipment in the global foodservice market.

"Our whole idea is to control the hot side," Bassoul said.

It wasn't that way in 1998. The company lost $4 million, or 37 cents a share, was losing customers, and was floundering in its efforts to offer both hot-side and cold-side products such as refrigerated display coolers and mixers, among others.

The result was a reshuffling of the executive suites, bringing Bassoul up from his position as president of the company's Southbend division and naming him chief operating officer in 1999.

Shortly after his arrival, he slashed 10,000 individual products from the company's offerings, and with it the staff that supported those display coolers, mixer lines, etc.

With its concentration now on the hot side, Bassoul feels Middleby is better connected to its customers, with whom the company works closely to develop the types of products that cook faster, more efficiently and safer.

Some of its ovens have been able to cut the cooking time of a pizza down to five minutes. Its patented Energy Management System, for example, has reduced energy use by 60% in some cases. That's a savings of about $400 per month to a Chicago-area restaurant, and about $800 in California.

Electronic ignition and sensing devices enable ovens to shutoff automatically if there's a gas leak or the pilot goes out.

Those safety features will help expand Middleby's presence in the institutional kitchens in nursing homes, prisons and the military, Bassoul said.

The company is also hoping to capitalize on a growing consumer trend in the U.S. that is seeing people gravitate towards so-called fast casual chains, such as Panera Bread and Corner Bakery - a market in which Middleby is already strong.

Next Stops: China, India, Australia and UK

Outside the U.S., Bassoul outlined four target markets Middleby will pursue in 2004: China, United Kingdom, Australia and India.

Change in ownership laws in China is allowing some limited ownership of franchise restaurants, and be believes that will boost investment in this sector - meaning more restaurants and more sales for Middleby's equipment.

In Australia and the U.K., the increasing penetration of U.S. chain restaurants into these markets will also boost sales of cooking equipment. India is expected to follow the trend in the U.S., with more people eating outside the home particularly as incomes rise there.

The company's development has not gone unnoticed on Wall Street. Two analysts initiated coverage this summer with buys, and one increased it to a strong buy.

Middleby's stock has responded to the added attention, rising from $4.10 in mid-December, 2001 to $20.50 Friday - doubling in 2003 alone.

Bassoul said there's more good news ahead, both for the company and the stock despite the recent gains.

The company, founded in 1888, plans to introduce eight new patented products by the middle of next year, bringing the company's patents to more than 100.

"With the pipeline we have, we believe we are undervalued," he said.

By Michael McHugh, Dow Jones Newswires; 312-750-4142; michael.mchugh@dowjones.com