Prepared remarks
Good day, and welcome to the Middleby Corporation's Second Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. On today's call are Timothy J. FitzGerald, CEO, and Brittany Cerwin, CFO. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Timothy J. FitzGerald. Please go ahead.
Good morning, and thank you for joining today's call. Last year, we set out to separate our three leading foodservice businesses into independent companies to best position each business for long-term growth and to unlock value for all of our shareholders. We completed the first step in Q1 of this year, selling a controlling stake in the residential kitchen business to 26 North. On July 6th, we completed the spin-off of our food processing business, launching MDF as a separately publicly traded company. MDF, now as a standalone business, is extremely well positioned as a best-in-class leader in the growing food processing equipment industry. We are confident that business and the MDF team have a very bright future ahead. With that, the transformation is complete. I am proud of how our teams worked together in the execution. It is a significant milestone and achievement in the history of our company. In parallel with our business transformation, we returned $1.3 billion to shareholders through repurchases, including $200 million in the second quarter, reducing our outstanding share count by 16% over the past six quarters. We are very pleased with the strategic allocation of capital that we believe has delivered substantial value to our shareholders during a pivotal time. We are now embarking on a new, exciting chapter for Middleby. Middleby now moves forward as a focused solutions provider and as the innovation leader in commercial foodservice. We are extremely well positioned with our leading brands, best-in-class innovations, and momentum in equipment categories that deliver the highest ROI for our customers. The strategic investments we have made in our business are gaining traction, and we are seeing the benefits in our top line. We continue to set the pace in the industry, bringing next-generation solutions that have practical application and meaningful impact to our customers. Our go-to-market strategy that has been underway for the past several years has put us closer to our customers than ever before, and we are viewed as a strategic partner. Our more recent investments in our operations are at early stages but are starting to take hold, and we are confident these initiatives will drive margin expansion and operational excellence over the next several years. Taken together, these investments are what underpin the three-year targets we laid out at our Investor Day in May: net sales organic growth of 3% to 6%, adjusted EBITDA growth of 6% to 9%, and adjusted EPS growth of 10% to 15%. We are confident in our ability to deliver against these targets. Turning to our Q2 results for Commercial Foodservice, the quarter reflected strong execution against our strategy as we delivered over 8% organic revenue growth. This marked the second consecutive quarter of organic sales growth in a challenging macro backdrop, a trend we expect to continue in the third and fourth quarters. It also represented the second-largest quarter for revenue in the history of Middleby Commercial Foodservice. The growth in the quarter was broad-based as we saw strength across channels and customer types, including with our chain customers and in the general market with our dealer partners. We were pleased also to realize growth across geographies, with increases in both North America and international. We continue to make inroads on the back of our go-to-market investments and new product innovations, and we are seeing the benefits of targeting newer markets including ice and beverage, where we have an even greater pipeline geared towards next year. The current industry backdrop is not ideal; however, Middleby has continued to drive year-over-year organic revenue growth. Turning to our second-half outlook, industry conditions remain challenging, particularly with traffic at the QSR segment, and customers are being more selective on their capital plans for the back half of the year. Within that, we are seeing replacement spend stable relative to our prior thoughts, with unit growth being pushed out modestly by some larger chains. That said, we are carrying momentum into the second half with global chains and we have visibility into the pipeline of opportunities into 2027. This momentum gives us confidence to raise our revenue guidance expectations for the second half of the year. We also saw year-over-year EBITDA growth in the quarter, although our margin percentage was below our expectations driven by a few key areas. The revenue growth included better-than-expected strength in our ice and beverage platform, which has margins approximately 400 basis points lower than our longer-established cooking platform. Additionally, inflationary costs, particularly ocean freight shipping and steel surcharges, accelerated faster than anticipated, driven by the recent broader macro environment. Our investments in the ice and beverage platform weigh on margins in the near term as we ramp production for new product launches to support 2027 customer demand in the pipeline. Although we anticipate these margin pressures to persist through the second half, we expect to see sequential margin improvements in both the third and fourth quarter. We have a number of operating initiatives currently in progress including product simplification, lean manufacturing, and mix optimization. While these are longer-term initiatives, they will partly offset recent accelerated inflationary pressures and support sequential improvement in margins ahead of larger benefits as we move into 2027. In addition, we are confident in increased margins at our ice and beverage platform, particularly as we move beyond the initial investment phase in 2026. We are excited about this new chapter for Middleby. With the portfolio transformation now behind us, we will benefit from greater focus on the execution of our strategic plans, both top line and bottom line. The team has a lot of momentum and we are looking forward to accelerating it. With that, I will now turn it over to Brittany to discuss our financial performance in greater detail and guidance for the third quarter and full year.
Thanks, Timothy. Today's conversation will be focused on Commercial Foodservice. Given the spin-off of MDF did not occur until July 6, food processing results are included in our continuing operations for Q2. For details on food processing, we invite you to join MDF's inaugural earnings call on Thursday, August 13. Turning to the results for Commercial Foodservice, second quarter revenues were approximately $631 million driven by organic revenue growth of 8.3%. As Tim mentioned, positive impacts were broad-based and seen across all channels and both domestically and internationally. Organic adjusted EBITDA margins were 25.8%. In terms of margins, Timothy laid out the drivers to our second quarter results and the implications for the remainder of the year. During the second quarter, we experienced a total margin headwind of nearly 100 basis points which was driven by higher-than-expected inflationary impact, partially offset by the benefit of a tariff refund of $5 million. For the remainder of the year, we expect incremental inflationary margin pressures of approximately $10 million to $15 million relative to our prior expectations. From a margin percentage perspective, we expect sequential improvement in the back half as we begin to benefit from the operational improvements Timothy laid out, including product simplification, mix, and lean manufacturing. On a consolidated basis, total company adjusted EBITDA for the second quarter was approximately $193 million and adjusted EPS from continuing operations was $2.35. Adjusted EPS expansion was achieved primarily through organic EPS growth, 2026 share repurchase activity, share repurchases utilizing the proceeds from the residential transaction, and carryover from 2025 share repurchase activity. This was offset by increased interest costs associated with the maturity of our convertible notes and a higher tax rate associated with discrete foreign tax items and nondeductible expenses as compared to the prior year. Adjusted EPS excluding food for the second quarter is estimated to be $1.74 as compared to the prior year of $1.40. This presentation of adjusted EPS is aligned with how we expect to report Middleby results on a post-spin basis with food processing as discontinued operations starting in the third quarter. Please refer to Slide 11 of the presentation we have posted online for a complete adjusted EPS bridge for the second quarter as reported and Slides 17 and 18 for post-spin adjusted EPS bridges for Q1 and Q2. Second quarter operating cash flow was approximately $100 million and free cash flow was approximately $89 million. Our leverage ratio per our credit agreement at quarter's end was 2.4x. At spin, our estimated pro forma leverage ratio was 2.7x. As stated at our Investor Day in May, we expect to delever to approximately 2.5x by the end of the year, and anticipate debt pay down will be the primary use of excess capital in the second half of the year. Regarding capital allocation during the second quarter, we repurchased 1.4 million shares or approximately 3% of our outstanding shares for $200 million at an average purchase price of approximately $142 per share on a pre-spin basis. Let me walk you through our third quarter and full-year outlook, starting with the third quarter. For the third quarter, on a post-spin, total company basis, we expect to achieve the following: revenue of $620 million to $640 million equating to organic revenue growth of approximately 4%; adjusted EBITDA is forecasted to be between $143 million and $150 million; adjusted EPS is projected to be in the range of $1.67 to $1.83 assuming approximately 45.2 million weighted average shares outstanding. For the full year, on a post-spin total company basis, we expect to achieve the following: revenues of $2.48 billion to $2.53 billion equating to organic revenue growth of approximately 7%; adjusted EBITDA of $572 million to $588 million; adjusted EPS is projected to be in the range of $6.73 to $6.89 assuming approximately 45.8 million weighted average shares outstanding. Please refer to Slide 14 and 15 of the presentation we have posted online at our Investor Relations website for full details. That concludes our prepared remarks, and we are now ready to take your questions.
Questions and answers
We will now begin the question-and-answer session. To ask a question, if you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press * then 2. We will pause momentarily to assemble our roster. The first question comes from Jeffrey Hammond with KeyBanc. Please go ahead.
Hey, good morning. So growth has been, you know, quite impressive year to date. I mean, the macro still seems pretty choppy. You do have kind of a step down, and I am just wondering if you know, is it less easy comps or if the first half had more kind of programs, maybe beverage wins in there, just a little more color on the cadence.
I think last year we talked about the double-digit growth from our dealers. So we still see strength across the market, and Steven can chime in on both dealers as well as chains, but we are not expecting the continued double-digit growth at the dealers. So I think we see it moderating in the back half of the year, but we still have momentum and robust demand as I mentioned in the opening comments.
Yeah. I would just build on that. The growth we have seen within our dealer channel has been pretty much sustained for the last four quarters now. And even though, as Timothy said, the comp is tougher for the back half of the year, we still expect growth within the dealer channel. So that is really the primary difference we are seeing, and it is what we saw in the first and second quarter: the pickup has really been within the chain space, specifically the QSRs. A large portion of that has been driven by new product adoption as they look to expand menus, expand dayparts, and certainly beverage and ice, as we have commented on before, has been a big driver within that space, and we expect that to continue in the back half of the year. That is actually where the predominant portion of growth we expect comes in the third and fourth quarter.
Okay. Great. And then, yeah, I understand a lot of inflation pressures. Can you just speak maybe unpack what really drives the sequential margin improvement? Is that mix, is it just getting this price through? And then are you contemplating any additional Section 301 tariff refunds next?
Sorry, this is Brittany. I can comment on that. First, in regards to the Section 301 tariffs, we mentioned $5 million in the second quarter, and we expect a similar dollar range of about $5 million potentially in the back half to be received. As for the step-up that we are expecting as it relates to sequential margin: as we go from the second quarter and into the back half, that is a mix of a few items. We are expecting a little bit of mix improvement. In the second quarter, as it relates to mix, new product innovation and the launching of manufacturing around the new beverage equipment was a headwind in the quarter to margins of about 150 basis points, which we will start to see reduce a little bit as we get into the back half, along with some improved mix. The pricing actions we have mentioned primarily will not start to benefit us until the fourth quarter. So that is why we expect sequential improvement as we move from Q2 to Q3 to Q4, along with the operating initiatives that Timothy commented on in the prepared comments.
Jeffrey, I would just say we obviously laid out at Investor Day a lot of the new capabilities that we have built up over the last year-plus—very similar to what we have done in innovation and go to market. You can see that taking hold on the top line. A lot of the operating initiatives that are in flight—we really are just starting to get traction, we think, in the back half of the year. So we feel like we have pretty good line of sight to that 200- to 400-basis-point improvement that we talked about at Investor Day. We are at the very early stage of that; some of that will bake into the year as we progress, particularly in the fourth quarter.
Thank you. The next question is from Timothy Thein with Raymond James. Please go ahead.
Great. Thank you. Good morning. Just to come back, Brittany, on the comments on, I think you mentioned earlier, $10 million to $15 million of incremental costs that you had not foreseen I guess 90 days or so ago. How are you expecting the yield on that—how that plays through—and how much, and then that is some offset presumably that you are expecting. And I guess a lot of that comes in the fourth quarter, but I guess that is part one of the question. The second is just thoughts around the pricing strategy as you go into 2027. Normally those pricing actions are taken around the start of the year. Does this adjust that or alter that potential strategy as you look into next year?
Yeah. So I will start with a little bit on the margin headwind. As we wrapped up the first quarter, obviously we had some inflation, and as we sit here 90 days later, that inflation has accelerated, and that is what we have anticipated here in the back half—the incremental $10 million to $15 million. When we put in the pricing, that is general market pricing, which has to be announced well ahead of the 8/1 effective date that we had. So that was really to start to partially offset the cost and inflation that we were seeing at that time. We will start to see some of that benefit roll through on the pricing in the fourth quarter. So it will be a headwind for us on this inflation into Q3 and some of Q4 as well.
I do not think we are going to lay out the magnitude in terms of top line right now, but I would say it is positive. It is a big addressable market that we have identified. We have made a lot of investments and we continue to make those investments. We have momentum. It is part of the revenue growth that we are seeing now and there is more to come because we have new products that we are launching going into 2027. The size of that pipeline has been expanding a bit ahead of some of the products that we will be launching next year, and those are some of the continuing investments that we are making right now. That gives us confidence in our growth outlook and algorithm for the next several years because ice and beverage will continue to play a part.
Thank you. The next question is from Tami Zakaria with JPMorgan. Please go ahead.
Hi, good morning. Thank you so much. My first question is organic growth. Can you clarify what your organic growth outlook is for Commercial Foodservice? I think when you started the year, you said 4% to 6%. I am guessing it is now higher, more like 6% to 7% or whatever. So can you clarify what that number is for the year? And within that number, how much is driven by price versus volume? And is there any headwind embedded in terms of the product line simplification initiative that you spoke to? If you could parse out the organic growth outlook for Commercial Foodservice, that would be helpful.
Yeah. I can speak, Tami, to the full-year guidance that we have given for Commercial Foodservice, which has now increased to be between 6% to 8% for the full year.
Tami, in terms of the price-volume dynamic, the predominant driver this year has been on volume. We took some low-single-digit pricing towards the end of last year into the beginning of this year, and we put forward another low-single-digit general market increase in early August. But the predominant driver is on the volume side, and that is coming through a lot of new product adoption from our chain customers. That is what gives us the confidence, and that is volume versus price. In terms of the product line simplification that we highlighted at Investor Day, we are still early days in that process, so we have not seen and do not expect much of a headwind from a top-line volume perspective for the rest of this year.
Thank you. Again, if you have a question, please press *. The next question is from Ian Zaffino with Oppenheimer. Please go ahead.
Hi, great. Thank you very much. I want to just drill down a little bit more to QSR growth. You mentioned there have been some menu changes, but is demand coming from anywhere else? Are you starting to see a replacement cycle yet or at least the start of a replacement cycle? I know the age of the plant is quite old and quite past replacement. So wonder if you are seeing anything there. And then on international, can you talk about the growth there? How much of it is deeper penetration, how much is innovative products like localized solutions, and given the success there, what should we expect as you bring some of those solutions to the U.S.?
Thanks. As I think about the QSR segment and the key drivers for demand, I would bucket it into three different areas. Historically, you have new store opening growth, which has been relatively flat year over year this year. We do have pretty good visibility to that pipeline into next year, which chains are expecting growth, but there have been ebbs and flows and some pushouts. The second area is the replacement demand, which has been muted over the last five to seven years, and we feel like there is pent-up replacement demand that is coming. We have seen that pick up as this year has gone forward. I would not say it is off to the races, but compared to where we were a year ago, we have seen chains start to go back and replace their aging equipment. The third bucket is where we have seen the growth this year and where we expect growth to continue to accelerate next year: new product adoption for additional menu items and to drive dayparts. We talk a lot about beverage and ice, but anything that helps fuel throughput, consistency, and labor efficiency in new products has been the primary driver this year and into next year within the QSR space. On international, over the last several years we have reinvented our teams and processes and opened innovation kitchens across the world. Historically, we only sold a handful of our portfolio in international markets—very heavy in fryers and ovens and focused on large global chains. Our global chains will continue to grow in international markets, and we are well positioned to grow with them. The biggest change happening in real time is selling the broader portfolio—selling the technology brands and moving beyond just fryers and ovens to a complete Middleby package that now includes areas like beverage and ice. That is the primary step change we have seen in our international markets: selling a complete solution, which allows us to penetrate emerging chains and local markets. We expect that to continue in the next year across our international markets.
The next question is from Mircea Dobre with Baird. Please go ahead.
Good morning, guys. This is Peter Kalimkaryian on for Mircea this morning. Thank you for taking my questions. Timothy, you mentioned initiatives in ice and beverage and I appreciate it, and Brittany, the commentary on the 150-basis-point drag from investment there in the second quarter. Is there any detail you could provide on the specific initiatives you have ongoing in that and the timeline for some of these investments to come online?
Great question. We have highlighted a lot of the new products we have been launching, particularly products such as the Fizz, which is our automated beverage machine, and Gravity, which has gotten a lot of interest from customers. Those are ramping in terms of production. We are actually bringing up a facility in the back half of this year. We do have significant customer interest and tests going on. So we are investing not only in production but in testing and product approval. We see a lot of that coming online at the tail end of the year—really not impactful to this year but starting to become impactful in 2027.
Thanks for that, Timothy. I guess the follow-up here on beverages as we think about 2027: what is the right way to think about that 400-basis-point margin gap? Does that close significantly, or is that more of a longer-term story?
I think it will close over time. We will first start to move past the investment stage, which I think we will begin to gain traction on in 2027 as revenue ramps. Along with that, we have a lot of operating initiatives across the entire platform—beverage and ice—because we have acquired new companies there and are consolidating the platform. We will benefit from lean manufacturing and SKU simplification across some of our larger brands. We see that continuing to gain momentum, including in the latter stages of this year and then expanding through 2027 and 2028 as part of the three-year plan. Those initiatives are underway; many of the capabilities were started at the back end of last year. That is why we have a high degree of confidence and line of sight that those initiatives will gain momentum next year.
The next question is from Christopher Senyek with Wolfe. Please go ahead.
Yes, hi, good morning. Great quarter. Following on the margin opportunity in ice and beverage: structurally it is lower than the hot side of the business. But is there anything that could close that gap further over time in terms of pricing action, competitiveness, bundling opportunities—because customers are not just buying three products perhaps, but five or six—and can you bundle things and price better that way? Over the next couple years, is ice and beverage structurally lower-margin, or are there pricing, bundling, and cost efficiency opportunities you can use to close the gap?
There is nothing structurally within that platform that would cause those margins to be lower than the cooking side. There is a lot of innovation and technology there. I would really chalk it up to where we are at in the journey. We have been at cooking and warming for a long time and have scaled many initiatives; ice and beverage is still a relatively early-stage platform and we are investing heavily in R&D and innovation. Some of the more mature companies within that platform are at or above our target margins today. As we scale the new products we are launching, execute on operating initiatives, and integrate some of the new businesses, we have a high degree of confidence those businesses will get to target margins similar to cooking and warming over time.
And another question on QSR visibility: you said QSR stuff has improved. Is there more visibility and line of sight through the year-end than you had in the last couple years in terms of store rollouts and openings, or is there still risk that pushouts could occur toward the end of the year?
I think it is greatly improved as we went through some of the supply chain challenges in 2022 and 2023. The new store opening pipeline for the rest of this year is fairly stable. There will be pushouts, but there have been pushouts over the last year or two. Where we have more visibility is in the new product projects that are starting to get greenlighted more and more. So from a pipeline perspective, we are more excited about where we are today versus a year ago, primarily due to the new product pipeline.
This concludes our question-and-answer session. I would like to turn the conference back over to Timothy J. FitzGerald for any closing remarks.
Thank you, everybody, for joining today's call. I also want to thank all of the Middleby team members around the world who contributed to what has been a major milestone and significant achievement with the execution of the separation of our businesses into three leading platforms. That was a heavy effort from many across the organization, and through the entire transformation the team stayed focused on moving our core commercial business ahead with many exciting initiatives that have us positioned stronger than ever. I am thankful for all of those efforts and very proud of the team. With that, thank you all for joining today's call, and we look forward to speaking with you next quarter.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.