A month has gone by since the last earnings report for Middleby (MIDD Quick QuoteMIDD - Free Report) . Shares have added about 14.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Middleby due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Middleby Q3 Earnings & Sales Beat Estimates, Fall Y/Y

Middleby reported better-than-expected results for third-quarter 2020, with earnings surpassing estimates by 31.4%. Also, sales in the third quarter outpaced estimates by 6.3%.

The company’s adjusted earnings in the reported quarter came in at $1.34 per share, beating the Zacks Consensus Estimate of $1.02. However, the bottom line decreased 22.1% from the year-ago quarter figure of $1.72 on weak sales generation and lower margins.

Revenue Picture

In the third quarter, Middleby’s sales were $634.5 million, reflecting a year-over-year decline of 12.4%. Organic revenues in the quarter slid 14.1% year over year mainly on the coronavirus mayhem. Acquired assets boosted sales by 1.1% and movements in foreign currencies had a positive impact of 0.6%.

However, net sales exceeded the Zacks Consensus Estimate of $596.8 million.

The company reports net sales under three segments. A brief discussion of those segments is provided below:

Sales from the Commercial Foodservice Equipment Group were $371.2 million, down 25.9% year over year. Organic sales in the quarter decreased 27.4% on market-related challenges and the pandemic’s impact. Buyouts and movements in foreign currencies had a positive impact of 1.2% and 0.3%, respectively.

Sales from the Residential Kitchen Equipment Group totaled $152.7 million, up 14% year over year. Organic sales in the quarter increased 11.4%, while buyouts and movements in foreign currencies positively impacted results by 1% and 1.7%, respectively. Business for premium appliance brands was healthy in the quarter.

Sales from the Food Processing Equipment Group summed $110.7 million, increasing 24.1% year over year. Organic sales in the quarter grew 22.4% while buyouts and movements in foreign currencies had a positive impact of 0.9% and 0.8%, respectively.

Margin Profile

In the September-end quarter, Middleby’s cost of sales dropped 9.3% year over year to $411.8 million. It represented 64.9% of sales compared with the year-ago quarter’s 62.7%. Gross profit fell 17.5% year over year to $222.7 million. Gross margin shrunk 220 basis points (bps) to 35.1%.

Selling, general and administrative expenses fell 10.8% year over year to $128.8 million. It represented 20.3% of sales in the reported quarter. Operating income in the July-September quarter decreased 28.6% year over year to $86.7 million. Operating margin fell 310 percentage points year over year to 13.7%.

Net interest expenses and deferred financing amortization totaled $18.4 million, down from the year-ago quarter’s $20.9 million.

Balance Sheet and Cash Flow

Exiting the third quarter, Middleby had cash and cash equivalents of $220.3 million, down 66.1% from the $649.7 million witnessed at the end of the last reported quarter. Long-term debt decreased 23.8% sequentially to $1,809 million.

In the reported quarter, the company generated net cash of $151.4 million from operating activities, reflecting growth of 18.2% from the year-ago quarter. Capital expenditure totaled $7.1 million versus the $12.2 million recorded in third-quarter 2019. Free cash flow increased 24.5% year over year to $144.4 million.

Outlook

In the quarters ahead, Middleby anticipates to benefit from its investments in sales and technological-enhancement initiatives.

For the Commercial Foodservice Equipment Group, the company expects to benefit from increased preferences for beverage systems, ventless products and automated cooking systems. Also, revival in restaurant businesses is a healthy sign.

For the Residential Kitchen Equipment Group, healthy orders driven by revival in new construction, healthy home sales trend and product innovations have been proving beneficial. Also, digital marketing actions, sales initiatives and investments in showrooms will open up opportunities.

For the Food Processing Equipment Group, innovation investment and healthy backlog will likely aid its performance. However, disruptions caused by the pandemic-induced travel restrictions might hurt near-term orders.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

Currently, Middleby has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Middleby has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.