Forget Middleby, Buy These 4 Rising Industrial Stocks for 2025

In This Article:

Year 2024 has not been a smooth one for The Middleby Corporation MIDD. The leading manufacturer of kitchen equipment and foodservice provider has been experiencing business challenges due to the weakness in the Residential Kitchen Equipment Group and Commercial Foodservice Equipment Group segments, high debt level, and forex woes.

Middleby, which has a market capitalization of $7.3 billion, surpassed earnings estimates twice in the four trailing quarters and missed the mark in other two, the average surprise being 0.2%. The company’s third-quarter 2024 earnings missed the estimate by 5.7% and sales lagged the same by 5.5%. The company’s bottom and top lines decreased 1.7% and 3.9% year over year, respectively, in the third quarter of 2024.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

This Zacks Rank #4 (Sell) stock has lost 7.7% against the industry’s 15.2% growth in the year-to-date period. Further, the Zacks Consensus Estimate for 2025 earnings has moved south over a couple of months from $9.63 to $9.13. This indicates bearish sentiments for this stock, as six estimates moved downward.

What is Ailing Middleby?

Middleby has been struggling with underperformance in the Residential Kitchen Equipment Group and Commercial Foodservice Equipment Group segments. Lower demand for residential kitchen products due to weakness in the housing market, amid lower existing and new home sales, is affecting the performance of the Residential Kitchen Equipment Group segment. Also, tough market conditions, both domestically and in Europe, remain concerning for the segment.

Softness in the restaurant industry, due to declining traffic, is affecting the demand for the company's products within the Commercial Foodservice Equipment Group segment. Also, high wages and recent food cost inflation have pressured restaurant operators, leading to delayed investments and more restaurant closures, which are alarming for the segment as well.

High debt levels raise financial obligations and hurt Middleby’s profitability. The company's long-term debt in the last five years (2019-2023) witnessed a CAGR of 27.3%. At the end of third-quarter 2024, the metric remained high at $2.36 billion. Also, the stock looks more leveraged than the industry. Its long-term debt/capital ratio is currently 0.40, higher than 0.36 of the industry. Its debt/equity ratio of 0.67 is above the industry's 0.65. This makes us cautious about the stock.

International businesses expose Middleby to risks arising from geopolitical issues and unfavorable movement in foreign currencies. This is because a strengthening U.S. dollar may require the company to either raise prices or contract profit margins in locations outside the United States. Thus, adverse currency movements are a worry. In the third quarter of 2024, forex woes negatively affected the Commercial Foodservice segment’s sales by 0.1%.