What happened
Shares in commercial and residential kitchen-equipment company Middleby (MIDD -0.59%) 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."
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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.
