MIDDLEBY Corp Q4 2025 earnings call

Good morning, and thank you for joining today's call. Over the past year, we have executed decisive actions to unlock significant value for our shareholders through the strategic optimization of our portfolio of industry-leading businesses across Commercial Foodservice, Food Processing, and what was formerly our Residential Kitchen segment. Before we dive into our results for the quarter, let me start with our strategic accomplishments. In February, we announced the completion of the sale of a 51% stake in our Residential Kitchen business to 26North at an $885 million total enterprise valuation, delivering approximately $565 million in immediate cash proceeds, subject to future closing adjustments. This transaction represents a premium valuation while allowing us to retain meaningful upside through our 49% ownership stake.

Following the close of the transaction, Middleby operates two highly focused, industry-leading platforms, Commercial Foodservice and Food Processing. While we retain a 49% stake in the residential JV, we are treating this as a non-core part of our operations, which is why you'll see it in discontinued operations in the fourth quarter, and going forward, will be excluded from our adjusted results. In anticipation of the proceeds from the deal, we will immediately put this capital to work for our shareholders. Combined with our ongoing share repurchase program, we reduced our overall share count in 2025 by approximately 9% through $710 million in buybacks, one of the most aggressive capital return programs in our industry. This reflects our conviction that Middleby shares remain significantly undervalued relative to our earnings power and growth prospects.

In the second quarter, we plan to complete the separation of our Food Processing business, creating two independent, pure-play industry leaders. Each business will emerge with enhanced focus, optimized capital structures, and the resources to maximize growth in their respective markets. The financial impact is compelling. Following these transactions, Middleby will operate as a focused Commercial Foodservice leader with industry-leading 27% segment-level EBITDA margins, while Food Processing becomes an independent growth platform with segment-level EBITDA margins over 20% and significant expansion opportunities through both organic and acquisition growth initiatives. Turning to our fourth quarter results, our total revenue of approximately $866 million for our remaining two segments exceeded our expectations. This strong top-line performance drove adjusted EBITDA of approximately $197 million.

Through a combination of these operational results and the substantial share repurchases we made in 2025, this translated to adjusted EPS of $2.14 for the quarter and $8.39 for the full year. For today's discussion on segment-level results and trends, I will be discussing the Commercial Foodservice results and outlook. I have asked Mark Salman, the current President of our Food Processing segment, and as we announced today, the CEO of Food Processing SpinCo, upon completion of the spin-off, to discuss the Food Processing segment performance. Starting with Commercial Foodservice, we generated revenue approximately $602 million, which exceeded our expectations during the fourth quarter. The outperformance was driven primarily by the general market with our dealer partners, which had double-digit growth in the quarter.

We attribute the second half momentum to improved demand with independents and in the institutional market, along with continued growth with emerging chains. We are gaining share with our dealer partners as a result of investments to strategically align those relationships over the past several years. The broad-based strength we saw in the general market was offset by continued declines among our large QSRs and C-store customers, who faced lower traffic and cost pressures throughout 2025. While the QSR market conditions remain challenging, we are encouraged by actions taken by our larger chain customers to better position themselves heading into 2026. We have seen our customers address menu pricing, return to limited time offers, and launch new beverage programs to reposition against the challenging backdrop with a focus to drive customer traffic.

We are encouraged by the early traction we have with some of our largest customers with our new ice and beverage innovations. This is a targeted area of expansion for our Commercial Foodservice business. We are well-positioned with exciting new solutions. As we think about the year ahead for Commercial Foodservice, we remain focused on building our business for long-term success. We are optimistic that the chain restaurant environment will stabilize and improve as we move through the upcoming year. Bryan will provide additional color. Our guidance assumes a relatively consistent environment relative to what we are currently experiencing as we await larger chain customers to firm up their plans for the year, particularly in the second half.

More specifically, we have clear catalysts for accelerated growth, with restaurant industry fundamentals stabilizing, with early signs of traffic improvement, with our dealer partnerships generating strong momentum in the general market and institutional segments, and our ice and beverage platform representing a significant growth opportunity that we're uniquely positioned to capture. As we think longer term, the investments we have made position us with unmatched competitive advantages, both now and in the future, with the industry's broadest portfolio of leading brands, the strongest innovation pipeline, and leadership in automation and IoT capabilities that will drive market share gains for years to come. We still have work to do, but I'm excited for what the future holds for Middleby Commercial Foodservice. I would now like to turn the call over to Mark to discuss Food Processing.

Thanks, Tim. Before I discuss the segment results, I want to thank the board of directors for entrusting me with leading Food Processing SpinCo. Leading this company is the honor of a lifetime, I am excited for the opportunity ahead. I also want to thank you, Tim, for the partnership you've shown me over the past 10 years here at Middleby. I look forward to working with you even more closely through this process. Turning to the Food Processing segment, in the fourth quarter, we generated revenue of approximately $265 million, which outperformed our expectations. As I look at the business, I am proud of what we have accomplished in the fourth quarter, particularly our extreme strong order rate, more excited about the strong foundation it creates as we enter 2026.

2025 was challenged with disruption from tariffs and high food costs, which delayed our customers' purchasing and investment in solutions in the first half. The latter part of the year, we saw our customers moving ahead. We had a very strong orders in both the third and fourth quarters, with a record backlog as we finished the year. This was driven by continued success with our Total Line Solutions offering, along with strategic expansion in international markets. We have a strong sales pipeline and continuing strong order intake. This all gives me a great confidence in our position for not only next year, but the longer term. Taking a step, what sets Middleby Food Processing apart is our comprehensive approach to serve individual protein, bakery, and snack processors.

Rather than creating a portfolio of disconnected brands, we have created a portfolio designed to deliver complete end-to-end Total Line Solutions offerings that optimize our customers' entire production lines and are committed to delivering the lowest total cost of ownership. Our success reflects year of strategic investment in building these comprehensive customer solutions, and we are gaining momentum in the marketplace with a growing competitive advantage. Our decentralized culture promotes agility, innovation, and speed. We have state-of-the-art innovation centers, with the most recent one opened this fourth quarter outside Venice, Italy, where we can showcase our know-how in the most innovative and collaborative environment. This strategy is one of the key foundation that will drive our organic growth in the years to come. I am also very excited about the continued opportunities that exist as we expand the platform through targeted strategic acquisitions.

We have built the Food Processing business through additions of brands and products very specific to the food application that we have targeted and that complement our Total Line Solutions. This has proven to be a very successful acquisition strategy, providing significant revenue and operating synergies. We have a consistent and proven track record of executing on our acquisition strategy over many years with our strategic approach and financial discipline. Although we have been executing our strategy for some time, we are still in early innings, and it's the right time for the separation into an independent company. We now have the proper scale. We can accelerate what has proven to be our unique and successful business model. I am excited for what lies ahead. With that, I'll turn the call back over to Tim.

Thanks, Mark. I am looking forward to what is ahead for Food Processing. As you've already heard, we have two well-positioned segments for growth in 2026 and beyond. On top of this, at a corporate level, our capital allocation strategy remains aggressive and focused. We'll continue our share repurchasing program, having allocated over $700 million in 2025, reducing our shares outstanding by approximately 9%. We continued this share buyback activity into the first quarter, expecting to repurchase approximately another $300 million in the first quarter of 2026. We plan to allocate the substantial portion of our free cash flow again to repurchases this year. Most importantly, we have a world-class team around the globe, whose commitment and execution continue to drive our success.

2026 represents a defining year for Middleby as we execute this strategic portfolio optimization and position both businesses for accelerated growth. We're planning an Investor Day on May 12th in New York City, ahead of the Food Processing spin, and look forward to providing greater level of information on profiles and growth strategies for each standalone company ahead of the separation in the second quarter. With that, now I'll turn it over to Bryan to discuss our financial performance in greater detail and guidance for the first quarter and 2026.

Thanks, Tim. Our fourth quarter results showcase both the strength of our execution and the quality of our business model. Let me walk through the key financial highlights and our outlook. For Middleby Commercial Foodservice, positive impacts were seen from general market, institutional, and emerging chain customer segments. We delivered $602 million of revenue and a solid EBITDA margin of over 26%. This would have exceeded 27%, if not for tariff impacts. Customer engagement and interest in our leading technologies remain strong, especially in beverage dispense and ice products. At Middleby Food Processing, Q4 revenues were approximately $265 million, and our organic EBITDA margin was 23%. Organic revenue growth of 1.3% benefited from improvements in international markets. Margins were impacted by tariffs with higher costs and disruption in order timing impacting production efficiencies.

We are experiencing a strengthening order rate and growing backlog. Q4 orders reached $322 million, and backlog grew to $410 million, with growth across most of our served markets and in our Total Line Solutions. Turning to Residential Kitchen, our transaction to sell a 51% stake to 26North closed on February 2nd. Prior to the close of the sale, Residential Kitchen was treated as a discontinued operation. Following the close of the sale, our future balance sheets will include a minority interest investment, reflecting our 49% ownership stake and a note receivable. Our income statement will reflect the impact from our non-controlling interest on a quarter in arrears basis. Residential results are not included in our non-GAAP adjusted earnings and adjusted EPS calculations, as they are no longer part of core operations.

On a consolidated basis, total company adjusted EBITDA for Q4 was approximately $197 million, and adjusted EPS was $2.14. Regarding tariffs, the adverse net impact to EBITDA in Q4 was approximately $7 million. We expect benefits of pricing and operational actions implemented in 2025 to offset the cost of tariffs in 2026, although we will continue to have margin dilution in the first half of the year. Q4 operating cash flow was approximately $178 million, and free cash flow was approximately $165 million. Our leverage ratio per our credit agreement at year's end was 2.5x. Regarding capital allocation, last year, we communicated the decision to deploy the vast majority of our free cash flow to share repurchases.

For the full year 2025, we repurchased 4.9 million shares for $710 million, or an average purchase price of approximately $144.50 per share. In total, these repurchases reduced our share count by 9% during 2025. To start 2026, we have repurchased an additional 1.7 million shares for approximately $250 million at an average price of approximately $154 per share. I would like to provide some commentary on our capital structure overall. Our 1% convertible notes matured in Q3 of 2025, which now results in a higher interest expense of approximately $6 million a quarter. This is a $0.12 headwind to the fourth quarter earnings.

For full year 2026, the interest rate headwind from the higher cost of debt is approximately $0.34. The 2026 EPS guidance reflects the benefit of share buybacks from the proceeds of the sale of the 51% of the Residential Kitchen business. We retain future upside through our ownership of the 49% of the business and the $135 million senior note. Turning to the rest of our outlook for 2026.

For ease of communication, we provide this outlook on a current company basis, assuming that both Commercial Foodservice and Food Processing remain together for the full year. With that said, we still anticipate the separation of the two segments into separate public companies in the second quarter of the year, and we expect to provide updated guidance for the standalone companies at our Investor Day in advance of the separation of the divisions. For Q1, we expect to achieve the following: Total company revenue of $760 million-$788 million, which is comprised of Commercial Foodservice at $560 million-$578 million, and Food Processing at $200 million-$210 million.

Adjusted EBITDA is forecasted to be between $161 million and $173 million, which is comprised of Commercial Foodservice at $142 million-$152 million, and Food Processing at $37 million-$41 million. Adjusted EPS is projected to be in the range of $1.90-$2.02, assuming approximately 47.7 million weighted average shares outstanding. For the full year, we expect to achieve the following: Total revenues of $3.27 billion-$3.36 billion, which is comprised of Commercial Foodservice at $2.37 billion-$2.43 billion and Food Processing at $895 million-$925 million.

Adjusted EBITDA of $745 million-$780 million is comprised of Commercial Foodservice at $632 million-$658 million and Food Processing at $186 million-$208 million. Adjusted EPS will be in a range of $9.20-$9.36. Please refer to the presentation we have posted online at our investor relations website for full details. Please note this guidance does not include one-time costs associated with the completion of the spin transaction, nor does it include standalone public company costs for the Food Processing business. We will provide estimates and detail on standalone costs we expect to incur, along with additional materials in connection with the upcoming Baird Food Processing Symposium in New York on March 5th.

I also want to provide some additional color on the shape of the year for Food Processing revenue. As a reminder, we typically see Q1 as our weakest quarter and Q4 as our strongest, with Q2 and Q3 relatively equal in between. We expect 2026 to follow this general pattern. However, in 2026, we expect the sequential increase from Q1 to Q2 to be smaller than the $48 million step up we saw in 2025. This reflects our expectation that Q1 2026 will be stronger relative to the rest of the year than Q1 2025 was, essentially returning to more normal seasonal patterns after an unusually weak Q1 of 2025. Before we conclude our prepared remarks and begin Q&A, I want to provide an update on the Food Processing spinoff.

We remain confident in our ability to execute the necessary actions to have a successful transaction. Activities to ensure the spin company will be operating effectively, efficiently, and independently at inception remain on track. We continue to expect to complete the spinoff by the end of the second quarter. Ahead of the joint Investor Day on May 12th, we expect to file a publicly available registration statement, which will include annual audit financial statements in April. That concludes our prepared remarks. We are now ready to take your questions.