MIDDLEBY Q2 FY26 earnings call MIDD

Middleby completed its significant business transformation, including the sale of a controlling stake in its Residential Kitchen business to 26North in Q1 FY26 and the spin-off of its Food Processing business, Midera, on July 6. This strategic realignment positions Middleby as a focused solutions provider and innovation leader in commercial foodservice, leveraging its leading brands and momentum in high-ROI equipment categories. The company is confident in its ability to deliver on its 3-year targets of 3-6% organic net sales growth, 6-9% adjusted EBITDA growth, and 10-15% adjusted EPS growth.

The Commercial Foodservice segment delivered strong Q2 FY26 results with over 8% organic revenue growth, reaching approximately $631 million. This marks the second consecutive quarter of organic sales growth and the second largest revenue quarter in the segment's history. Growth was broad-based, observed across channels, customer types (chain and general market), and geographies, including North America and International. The company continues to benefit from go-to-market investments and new product innovations, particularly in newer markets like ice and beverage.

Despite strong top-line growth, Q2 adjusted EBITDA margins for Commercial Foodservice were 25.8%, falling below expectations. This was primarily driven by the better-than-expected strength in the lower-margin ice and beverage platform (approximately 400 basis points lower than cooking), accelerated inflationary costs (ocean freight, steel surcharges) contributing nearly 100 basis points headwind, and ramp-up investments for new product launches. Management anticipates these pressures to persist in H2 but expects sequential margin improvements in Q3 and Q4, driven by operational initiatives like product simplification, lean manufacturing, and mix profitability, with pricing benefits starting in Q4.

Middleby is making significant investments in its ice and beverage platform, including ramping up production for new products like 'Fizz' and 'Gravity' in H2 FY26 to support 2027 customer demand. These investments are currently weighing on near-term margins (150 basis points drag in Q2) but are expected to drive increased margins and contribute to growth in 2027 and beyond. The company believes there's nothing structurally lower about these margins compared to the cooking side, attributing the current gap to being earlier in the platform's journey and significant R&D investment.

The company has returned $1.3 billion to shareholders through repurchases over the past 6 quarters, reducing its outstanding share count by 16%. In Q2 FY26 alone, $200 million was used to repurchase 1.4 million shares at an average price of $142 per share. Middleby's leverage ratio per its credit agreement was 2.4x at quarter-end, with an estimated pro forma leverage of 2.7x at spin. The company expects to delever to approximately 2.5x by year-end, with debt paydown being the primary use of excess capital in H2.

QSR demand is driven primarily by new product adoption for menu expansion, dayparts, throughput, and labor efficiency, rather than new store openings (which are flat) or a rapidly accelerating replacement cycle (which is picking up but muted). International growth is strong, fueled by selling a broader portfolio of technology brands beyond traditional fryers and ovens, allowing penetration into emerging chains and local customers, not just large global chains. This strategy has led to significant changes in international markets, particularly in Europe.