What happened
Shares in commercial and residential kitchen-equipment company Middleby(NASDAQ: MIDD) fell by more than 15% this week as of midday Thursday. There's little doubt as to why: a falling stock market and Middleby's disappointing first-quarter earnings release on Tuesday.
Two key talking points are reverberating around the industrial sector during the current earnings season, and Middleby is no different. Ongoing supply chain difficulties and surging raw material costs have hit profitability and lowered profit margin expectations. Indeed, Middleby's first-quarter operating margin was 12.3% compared to 16% in the same period last year. CEO Tim FitzGerald acknowledged significant near-term challenges but also said, "We believe our results will continue to improve in the back half of 2022 and into 2023."
Image source: Getty Images.
So what
The margin pressure is frustrating for a company set for a multiyear recovery in its key commercial foodservice segment. Middleby is seen as benefiting with the dining-out sector recovering from the ravages of the COVID-19 lockdowns, and customers starting to build out facilities again. As such, any downgrade to margin expectations, in a year of recovery, will hit the company harder than most.
Now what
Investors will be hoping Middleby can get a handle on costs and push through pricing increases while the economy stays strong enough to encourage underlying demand. Consumer spending is holding up so far, but rising rates could choke off some demand, not least in residential kitchens.
10 stocks we like better than Middleby
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and Middleby wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of April 7, 2022
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Middleby. The Motley Fool has a disclosure policy.
