All righty. Welcome, everyone. Thanks for joining the 9:30 A.M. session with Middleby. I am James Ko, covering industrials at Jefferies with Steve Volkmann. I am joined by Brittany Cerwin, CFO, and Steve Spittle, CCO. We will do this in a hybrid format. Brittany and Steve will present for the first 20 minutes or so, and then we will move on to fireside chat questions. Before we do that, we are happy to take questions if you guys do. Please raise your hand. Now Brittany and Steve, the stage is yours.
Great. Thank you very much. Good morning, everybody. Great to be with all of you. Thanks for taking time to be with us. Very excited over the next 20 minutes or so to talk about what has been a transformative year at Middleby. If either you are new to Middleby or you have not stayed up with Middleby, when I say transformative, it is not a fancy buzzword. We truly have changed the landscape of our company this year. Beginning of this year, we sold off a 51% portion of our residential platform to 26North in a joint venture with them. Then five months later, we completed the spinoff of our food processing platform into its own separate standalone public company, today known as Midera. Very exciting for both platforms. It allows them to continue to grow and expand in their various categories.
What it allows us to do is now get back to our roots and to be very focused as a pure play commercial foodservice company, which is where Middleby started 25 to 30 years ago. We will talk about a number of different initiatives today. Probably the biggest thing I want to stress is that for as long as I have been at Middleby, we have always been a very sales-centric organization, always very focused on our customers, very close to our customers, and you are seeing that come through.
What we have done so far this year, we talked about it on Investor Day, we have seen top-line net sales grow 8% so far this year. We are very happy about that. We are going to talk more about that. We know that if we want to be an elite industrial compounder, we have to marry up great top-line growth with world-class margins.
That is what we are going to focus on more in this presentation today than we ever have before. How do we do that? That is through operational excellence, talking about how we are thinking about our portfolio of brands, our SKUs, our facilities, and coupling up with our organic sales growth. If you are new to Middleby or have not stayed up with us for a while, just a quick recap of what Middleby Commercial Foodservice now looks like. 2025, $2.4 billion in revenue, segment margin of 27% EBITDA, 65 brands across the globe, 38 factories, and about 6,000 employees. As you see in the bottom right corner of the slide, we are very fortunate to have a great and very diverse customer base. Some of the leading chains around the world, across QSRs, across c-stores, across retail, both domestic and abroad.
We'll talk a little bit more about the split in commercial foodservice between our core cooking and warming brands, which is about 2/3 of the business, and then our ever-evolving Ice and Beverage platform. These are the brands in the portfolio today. You start on the left-hand side, and it's the core cooking brands that I've referenced that go back to the initial acquisition of Pitco and Blodgett from Middleby back in 2001. We've built great brands, very focused in leading technologies within cooking and warming. But over the last six to eight years, we've developed and built out our Ice and Beverage platform. Very focused on, again, Ice, but the ever-evolving and ever-growing segment of beverage, which we'll talk more about. And it's the unique combination of the cooking and warming and Ice and Beverage that is the secret sauce for Middleby.
This is a portfolio of brands that nobody else in our industry has, and we'll talk more about how that has actually helped us grow both parts of our business. If you pay attention to nothing else today, this slide to me is why I'm so excited about Middleby, is, again, back to my time here, I've been here 16 years, we've always been very focused on our customers. We've been very close to our customers. We're a very sales-centric organization, and then we have a deep DNA within innovation, new product technologies, new developments. We're expanding to new markets. Again, we're going to talk more about Ice and Beverage, international markets, but what is so exciting is really the fifth bucket today, which we'll talk more about, and that is our drive towards operational excellence.
I think this is coupling the best of Middleby of the past, what we've done so well, and coupling it with this next chapter of Middleby. So these are our five key pillars of our growth over the next several years. Even though we've always been a very sales-centric organization, we've never wanted to be complacent about how we think about how we engage our customers. This slide shows all of our either brand new or completely rethought go-to-market initiatives, from our independent sales reps here in the U.S. to our ever-evolving digital marketing strategies. We've built innovation kitchens around the world to allow our customers to experience Middleby firsthand. The flagship's in Dallas, but we've built ones in Europe.
All of these initiatives are to make it easier for our customers to understand Middleby, to be closer to Middleby, and for us to be closer to them. And you may sit here and say, "Okay, Steve. Hey, that's great." Everybody you're going to see today probably has a slide that's similar to this about how they're close to the customers, what they're doing. But let me give you a real-world example of why all of these initiatives matter. I shared this during our Investor Day back in May, and very fortunate and very thankful to KFC for letting us share a story together and this initiative together. KFC has been a long time customer of Middleby on the cooking and warming side of our business for decades. KFC came to Middleby saying, "We want to add a beverage platform to our menu," about two years ago.
Think about a fried chicken concept saying, "We want to be in premium beverage." You have to really start to think about how you get your head around that. They came to Middleby to figure out how to do that. They started our innovation kitchens in Dallas, moved to our innovation kitchens in the U.K., working very closely with their suppliers. The end result is what you see on the right-hand side, a combination of 100% Middleby products. Taylor, QualServ, Marco, Terry. Middleby is now powering the Kwench program for KFC. KFC is very vocal and very transparent about this initiative. It is truly driving new daypart and new traffic to their stores. It has been rolled out in a lot of international markets in the U.K., Canada, Australia. They have big growth plans for this.
This does not happen for Middleby if we do not have the relationship, if you do not have the innovation kitchens, if you do not have the portfolio of brands. If you did not have cooking and warming, you did not have the relationship. If you did not now have Ice and Beverage, this does not come to fruition. This is the power of Middleby. Then again, you couple it up with international distribution, after-sales service, and support. That is why this has been such a success, not only for KFC but for Middleby as well.
I am giving you this as one example. There are so many QSRs. There are so many fast casual concepts that are really focused on adding new beverage, premium beverage to their menu. It is a great example of how Middleby is leading the charge on this initiative right now. Get very excited to talk about customers. Now back to numbers.
This is just a recap. This is what we presented at our Investor Day back in May of our financial outlook over the three-year period going through 2028, which we will talk a little bit more about. You can read the page of the net sales growth, 3%-6%, coupled with 6%-9% EBITDA growth, 200-400 basis point margin expansion, which we are going to talk more about in the slide deck, and the appropriate 10%-15% EPS growth. As I said at the beginning of the slide, we are very happy with how the first half of this year has come together from a top-line perspective, growing 8% so far through the first half of the year. Our guidance for the year has increased to being up 7% overall.
We are very fortunate to have a recurring revenue stream around parts and service, which today is about 17% of our annual revenue, and we believe we can continue to grow that segment. What I am very happy about from a growth perspective is our sales are very balanced. It is very balanced among QSRs. It is very balanced in the U.S. domestic business. It is very balanced in our international segments in Latin America, Europe, and Asia especially. It is not one in particular customer, it is not one in particular segment that is driving our growth so far this year. This gives me a lot of encouragement for how the rest of this year and the next several years continue to unfold.
But as I said at the beginning, we know that we have to marry the strong top line with the margin expansion, which we're going to talk a little bit more about in these upcoming slides. One of the questions that we do get and would like to give some clarity to is the margin profile of our cooking and warming segment versus our Ice and Beverage platform, which today is about a 400 basis point difference between the two platforms. What I want to stress is that there is no structural difference between the two platforms. There is no reason that Ice and Beverage cannot get to the same margin profile as cooking and warming. Cooking and warming is a more established platform, which is part of it. There still is a lot of development and investment that's going on in Ice and Beverage.
Last night, we announced the closure, and I'll talk a little bit more about it, of our brewing business, which represents for Ice and Beverage a 220 basis point pickup as we go into next year. So immediately right there, we're closing a part of the gap. There are a number of startup costs as we talk about new products around beverage that we're investing in. My biggest point and my biggest takeaway here is, yes, there's difference today, but we feel like we have a very clear path to close that gap, and there is no reason that both platforms can continue to expand their margin profile. The Ice and Beverage in the long run will certainly be in line with our cooking and warming platform.
We shared this 28 bridge during our Investor Day back in May, and would just like to provide some additional context to it of how do we drive those margins from where we are today to the targets from Investor Day. We called out four specific buckets of focus, which were mix, scale, productivity, and then the fourth in volume growth. I'm going to talk a little bit more about a couple of these, but the biggest thing I want to stress here is we gave a 200 to 400 basis point range as our target. Today, we announced the closure of the brewing platform, which is 60 basis points of margin pickup as we go into next year.
I'm going to talk more about Pitco and Taylor, two of our biggest divisions, and the opportunities that we have going through a lean transformation and supply chain opportunities that we feel like between those two divisions alone, there's another 100 basis points. So we feel like just between those three specific areas, we're already halfway there almost to the 400 basis point opportunity. Again, I'm going to go through a couple of the key initiatives, but I'm trying to give you additional context as to what we're working on so far and what the roadmap is for us as we go forward.
As we announced yesterday, I just called out, as part of a very intentional focus on our portfolio of brands, on our SKUs, on our customers, we did make the decision to exit our brewing platform, which is three brands of Ss Brewtech, Deutsche, and Wild Goose. Always tough decisions to close businesses, but we felt like the end user or the end segment in the brewing business has been challenged the last several years. There is a pretty heavy secondary market for beverage equipment, and we just did not feel like there was a good roadmap for growth in this segment. Made sense for us to announce the closure, which will occur towards the end of this year. You can see the financials for 2025. It is a very similar profile for 2026, both in the top line and the bottom line.
I would just say this was very intentional. This is something that we have been working on. It has been part of our bridge, and this is an ongoing review that we continue to have of our portfolio, and this is the first example of doing so. Just like customers, this is what I will probably get a little bit more excited about. We are in the very early stages of going through a lean transformation within Middleby. It is a new area of focus that I am very excited about, and the best case that we started on so far is with our frying division up in New Hampshire. This division that I came up through within Middleby, so it has been very exciting for me personally to watch how new team members we brought in with an 80/20 background, a lean background, have started to transform Pitco.
You can see some of the metrics. Again, if we are using a baseball analogy, I would say we are in the second inning of our journey, but you can see already so far this year what having a different mindset around lean, a very detailed focus on lean has driven. Inventory reduction, increase in throughput in our fry pots, reduction in lead times, and this is without a change in order patterns, which remain strong. This is not a change in increasing labor. This is all from very specific lean initiatives. The biggest thing that I cannot stress enough, it is the most exciting thing, and it is on the right-hand side of the page, is Pitco historically has operated out of three very old facilities. It has not always been that efficient. We have made the best use out of it.
Our mindset for a long time is at some point we would need a new building for Pitco, and we were down that path to go find land and to build a new building for Pitco. As this new team has come into Pitco and they have gone through implementing lean into the facility, not only do they feel like we do not need a new building, we do not need three buildings, but they feel like they can do it within two buildings. A great example of the mindset, the initiatives that allow us to not only consolidate plants but also at the same time increase throughput, increase margins, and we know that lean cuts across the entire organization. It is from customer interface to high-quality products, to driving margins, to safety. I am calling this out because we feel like we have the roadmap now.
Pitco is in early stages, but we can see how the impact that we are seeing at Pitco can cut across all of our other divisions. Taylor is the next one up for us. It is another big division that we are in early stages with. As we think about how we take control of our margins, I will turn it to Britt here for just a second. It is really being very focused in what we can control on our own, and certainly that lean and operational excellence part of our roadmap is what we feel like we control so much and why we are so excited about where we are headed from here. I am going to kick to Britt for just a couple slides to recap some of our finances.
Okay, so this financial outlook slide is a recap that we had out there for our Q2 earnings, kind of highlighting our full year 2026 guidance that we have out there. As Steve mentioned earlier, we have increased our net sales growth from earlier in the year, so our midpoint for organic growth for the full year is 7%. If you recall, we have also got a comment below that kind of shows where were we at Investor Day back in May, and how do those targets line up. You will see the improvement from about 5% to 7% on our organic net sales. We are extremely proud of that and believe that is a lot of our focus on that customer and our go-to-market initiatives. On the adjusted EBITDA side, you will see the growth versus midpoint of 5%.
That is one we will dig in a little bit deeper, and again, where our focus is now is on our ability and our capabilities to expand margins, even with some pressures under inflation right now. Then really, again, one of the things that was highlighted on that three-year investor target is making sure that we have that focus on return back to our shareholders. Again, we are at 12% for the midpoint for 2026, and as you can see, that increased from Investor Day from 9%. I f you want to flip one forward.
What we want to talk about is, we did highlight going into the second half, we are seeing increased inflation pressure. What we wanted to do on this slide was really highlight how those inflationary costs have come in, kind of the exposures that we are seeing, but also what are the initiatives that we have underway that give us confidence in our ability to achieve those growth targets that we put out there, both in the short term and our goals to the 2028 targets as well. As you see, the first four items really focus on initiatives that are underway and actions that we are focused on operational excellence. Again, yes, price, number five, is still an option and a lever, but that is not our only option and lever, and we are in control of a lot of the initiatives in operational excellence.
Steve highlighted, obviously, some of our facility consolidations. One that is called out in these slides that we started this year was consolidating our Ice platform. We have also rolled our Evo plant into the Tennessee Star Manufacturing plant. These items of rolling lean throughout the facilities, also facility consolidation and the recent announcement of the brewing closure. Again, these are the items that give us that confidence in expanding margins. The last one that I am going to cover here is really kind of our focus on capital allocation. Really kind of highlighting to everyone where our focus is, where it has been, and where we are headed.
Coming out of the spin that just happened at the start of Q3, we are a little bit higher leveraged, within our typical range of where we expect to be between two and three times is what we put out there at Investor Day. What we have commented on is that we will be planning to delever towards the end of the year. Obviously, it calls out here CapEx and reinvesting back into the organic growth of the business is always our primary focus. But it is a low capital intensive business, so that allows us, with our free cash flow generation, to again focus on returning back to shareholders. As we have called out, the vast majority of our free cash flow has gone to share buybacks. A little deviation here in the back half, but we will continue to be opportunistic in the right areas.
The other item we wanted to call out is, Middleby has been known to build up the platform through M&A. In our three-year outlook, there is nothing planned there in the current time, but that would be our third capital allocation bucket as we focus into the future as well. Back to you, Steve.
Okay. Thank you, Britt. I think just to wrap it up, and obviously everybody can read the slides, but I would just call out that I have been at Middleby for 16 years. I have seen a lot of ebbs and flows and changes over the company in those 16 years. I have never been more excited about Middleby. When I think about getting back to our core, our heritage as a commercial foodservice business, the focus that allows us to have in the business, I have never been more excited. It goes back for me to the five buckets of, we have always been very connected to our customers. We are a very sales-centric organization. We have a deep DNA around innovation, new products, disruptive technologies, providing solutions to our customers.
We're expanding into new markets around beverage, international development, and that really is, as you picked up today, that fifth bucket of operational excellence, lean integration, having a lean culture. That is why I'm more excited about Middleby than I ever have been before. I feel like we have the road map now for the next several years to set Middleby on this new path that we're on. Very excited about it. Thank you for letting us go through it, and I'm happy to kick it back to you for any questions.
All right. Thanks, Steve and Brittany, for an insightful presentation. Before I start firing away my questions, I just wanted to open the floor in case anyone has questions here. Mic, please.
Thank you. Do you guys, with your customers, do you have any sort of long-term service agreements where once you get the equipment installed, that you guys are servicing that over a period of time?
Yeah, great question. We didn't hit a whole lot in this deck in particular, but when I think of key initiatives in the company beyond what we talked about, after-sale service and support is actually one of the biggest initiatives we're working on right now. It's been one of the most challenged parts of our industry as a whole. Middleby has been working on Middleby first, Middleby Advantage Service, and what that allows us to do is have a dedicated network of service companies, service agents, not that we own, but that are dedicated to Middleby, that service all of our brands across the portfolio, and allow us to have a great experience, number one, for our customers afterwards.
allow us to do what you are talking about, to lock customers into service agreements, whether that is preventative maintenance or just a long tail on service in the field, coming to Middleby for that service. It is something that we have not had historically. This is a very active project. Again, using the baseball analogy, we are probably still in the second or third inning of where we are. We see it as a major initiative. Not only does it help, obviously, the relationship with your customers, if you can commit to a phenomenal after-sale service and support experience, it is going to connect you even better. It is going to have a better, just I will say, sticky relationship between customer and us. To think about the opportunity for after-sale service and parts is a massive opportunity for us. Great question.
It is an active project right now that we are super excited about.
Can I ask a little bit more about the brewing business that your guys are shutting down?
You show how it is not making money. How long has it not been making money? What kind of leash did the company give it to do better? Internally, what is the message to other businesses that may not be doing so great?
Yeah. Fair question. I think about the brewing platform, which was really built going into COVID or the back half of that decade. Brewing was, if everybody remembers during COVID, a booming industry, right? Everybody was home brewing. You saw a lot of craft brewing that was built up. So the brewing segment was doing very well in that COVID period. Over, I would say, the last two years especially, is where you've seen that business, unfortunately, that end segment just drop off. As Britt said, people are not drinking beer like they used to. The craft breweries have unfortunately come and gone a bit. So it really is, I would say, more over the last two years than anything where we've seen just the drop in volume, which has then led to the financial impact. I won't say we gave them a lot of leash.
I think we were still assessing, like, hey, was this an end segment that potentially had inflection to come back? Obviously, we felt like that has not been the case. In terms of internal messaging, these are always tough decisions to make, right? You're affecting your employees and livelihoods, so that is something we never take for granted and very thoughtful about that. There are other companies in our portfolio that we think there are opportunities to certainly improve margins. There are some that are investments for us. There are some that are just on a journey of margin expansion. There's not necessarily another segment in our portfolio that is like brewing, which also maybe made the decision a little bit easier. There's not as many synergies with the rest of the portfolio. I don't know if it's as much a message to other divisions.
I think everybody's always focused on driving them. That's a little bit of the context as to the history and why we made the decision we did.
To add onto that just a little bit in terms of the message to divisions, I do think it does help us show that commitment to investing in the core and our capital allocation though, over the long term.
Yeah, great point.
Maybe just staying on that thread, is there anything else in the business, any divisions that are loss-making that you could take a similar action with, or is this it?
Again, I would call out, I think we're trying to be very thoughtful about what the portfolio definitely looks like. That is an active project. This one is unique, I would say. I think there are other parts of our business that are not at a margin profile that we are happy with. Some of our, we feel like they're investments in a where we do see the potential inflection in certain segments, like coffee would be a very good example of that, where we're making investments. Coffee is obviously a growing market, so that has ramped up. I think some of the beverage platforms we talked about, where it's still investment into new products, truly new products, new development, and just the revenue needs to kick up to drive the margins.
There's others like that, but they're different than, I would say, a segment where the end market has really been depressed, continues to be depressed. This is kind of the one in that category.
Right. If there are no further questions, I am going to start asking you questions here.
Make sure Britt gets the hard. I only get the easy ones.
Okay.
Britt gets the tough one now.
Yeah. I guess the first one, I guess this is relevant to Britt, you. I guess the Pitco results look pretty impressive f or the first nine months on lead time, inventory, and output. What has that actually meant for the margin so far? Has the lean transformation had any impact on the growth side?
Yeah. We have not specifically called out individual numbers on that. We have seen some improvement in margins, but we still have our target out there. Obviously, we gave that kind of combined for Pitco and Taylor, but just these initial phases, we have seen some margin improvement. You see simplification in the business and the throughput. I think also, when it comes to lead times, those are important to our customers. So it does allow a better story in terms of that communication with your customers when they know and can believe in those lead times and the ability of us investing back into that.
Got it. Following up on that, I think Taylor is next in line here. What should we expect the Taylor version from here from now?
Yeah. I think one of the things that we highlighted in Investor Day on Taylor was really also the product- line simplification for them. Making the business less complex, looking at what products we are offering to the customers and how that drives our pricing discussions, where that drives our supply chain focus in terms of value engineering and leveraging the Middleby scale. Again, I think it will be a lean transformation, but there is also a big element for Taylor on the product- line simplification as well.
Got it. I guess, staying on this, the product, the pruning side of the questions here. Is there any kind of risk that pruning could lower volume products cost you revenue or a chain relationship where those products were part of the bundle sales or something like that. I think you talked about Taylor maybe simplifying some SKUs there. Is there any kind of bigger impact from that side?
I think there are potential impacts. I think we're looking very carefully across all of our brands. Taylor is, as Britt says, a very good example of where I think there are opportunities from a SKU rationalization standpoint, even a customer rationalization standpoint. The way that you help customers through that is, if you have a chain that's, say, buying 10 or 20 SKUs across your portfolio, and you can say, "Hey, if you move to a certain SKU and consolidate that, we can assure you better lead times, we can assure you better potentially pricing." That's how you get a customer on board with it. It hopefully doesn't create these challenging, like, "Hey, we're discontinuing a SKU, and now it's going to affect the customer relationship." You're always trying to find hopefully a win-win solution for the customer as you go through that process.
Awesome. Thanks for the color. I guess I wanted to touch on that incremental cost that you talked about, $10 million-$50 million. You talked about several initiatives to kind of offset that, and I don't think you're intending to really offset that fully through pricing. But a few of the offsetting initiatives you laid out seems like it's more of the longer term, kind of building into 2027. How confident are you that that $10 million-$50 million gets offset within 2026? Or is that more of the 2027 story?
I think it leads into some of the items that I highlighted. Pitco is on its transformation. We've already started to see some early successes at Pitco and expect that to continue here in the back half. As we mentioned, we're starting at Taylor, so we expect, just like Pitco, there will be some early wins that will allow us to see some expansion. We also have the Ice consolidation, Evo going into Star. There are these ongoing initiatives that we feel that we will start to be getting the benefits for. It is not all a 2027 story.
Got it. Thanks for the color. I wanted to touch on that long-term target that you laid out here, 3%-6% organic growth and 200-400 basis margin targets. Can you remind us how much of that is dependent on the market itself improving, and how much is deliverable through your own initiatives?
Yeah. On the top line, we talked about how 1/3 is really volume growth associated with that. Again, within that volume, we've also called that that includes any pricing that we would also take through there. Again, two-thirds is more in our control. Some of that being through new product innovation, through new product markets, so the beverage and Ice kind of expansion. Also what Steve talked about is our journey on service. Again, solving that aftermarket service and giving that commitment to the customer of that higher quality uptime or that preventative maintenance to make sure that their equipment runs longer allows that upfront sales process to be stickier. Those are some of the, on the sales side.
On the margin side, what we've talked about for the 200-400 basis points is that really about 80% of that is what we deem within our control, really driving some of these operational excellence initiatives through the platform. Leveraging Middleby's scale as it relates to supply chain in addition to that, and then really 20% being more on that volume growth.
Got it. All right, this sounds great. I guess you talked about new product introduction also driving growth here, and I think a lot of the new product introduction has been focused around Ice and Beverage. Which of these new items are furthest along in customer adoption today, and which is most likely to be a sweet factor for 2027 growth?
Yeah, great question. I think more about how we think about 2027 and beyond are a lot of the new products that we've been talking about, which is Gravity, Fizz, FizzBot, which is all around dispense technology. Think about your traditional soda fountain dispense valve technology in there, but then also a fully automated version of that. So a system that when a customer enters an order through a POS, it's dropping the ice, it's filling the cup, it's dispensing the soda, and then also has an automated lid sealer on it. Think about I'm saving labor, I'm incorporating the lid sealer to allow carry out and DoorDash as an example. Those are products that we've spent a lot of time in development on over the last 12 to 18 months. There are customers that are tied to those.
We've stood up its own separate manufacturing facility in Dallas for those products. We're happening in real time, but that ends up being revenue we start to realize in 2027 and beyond.
Got it. Awesome. I think we are up in time. I think that's a wrap. Thanks for joining us Steve and Brittany, and-
Thanks for having us.
Thanks for joining us.
Thank you very much.