The Middleby Corporation Price & Performance (MIDD)

This morning, we have made several important announcements alongside our twenty twenty four fourth These announcements include The the decision to separate our Middleby Food Processing business into a separate standalone public company. Additionally, we are pleased to announce the addition of two new The members to our Board of Directors. Please note there are two separate slide presentations covering our quarterly earnings and the food processing spin transaction on the investor page of our website. As we've shared over the past several quarters, our Board of Directors and management team have been conducting a comprehensive review of our business portfolio with the goal of realizing Middleby's full value potential. As part of this process, our Board has unanimously approved a plan to separate our food processing business [indiscernible] separate public company. This action will create two independent innovative industry leaders. Middleby Corporation which will be comprised of the The, residential kitchen equipment and Middleby Food Processing. Our team has successfully built a premier food processing business with the necessary scale that now enables us to take this exciting next step in the evolution of the company. Which we expect will unlock further value and growth opportunities for both Middleby Food Processing and our remaining Middleby Kitchen Equipment businesses.

As two market leading but separate businesses, The separation will assure greater strategic and operational focus at each standalone entity. Allowing each business to implement an optimized capital structure and capital allocation policy to best support growth opportunities. While greatly enhancing strategic and financial impact from M and A opportunities for each standalone business. And enabling Middleby Food Processing with its best in class growth and margin profile to be valued in line with food processing peers Now again, The specifics of each company, I'll first start with what The means from Middleby Food Processing. As highlighted in our investor deck, Middleby Food Processing is well positioned as a best in class the bakery and protein industries, We The opposed for organic growth as we continue to execute on our strategy to be the full line solutions provider of choice by enhancing the ROI and value delivered to our customers. We see market expansion opportunities as we extend into attractive adjacent market segments such as poultry, pet and snack food leveraging our existing competencies and with a strong track record of M and A, we expect to quickly scale the platform through continued strategic acquisition which on a standalone basis will be more impactful financially and better understood by shareholders.

Our Middleby remain co commercial and residential kitchen equipment business we are positioned to capture market opportunities and will continue with an even greater focus executing on our strategic growth initiatives. We are leading in innovation are positioned to benefit from accelerating demand for automation beltless kitchens, electrification digital technologies and IoT connectivity in the kitchen.

We have exciting growth opportunities through our expansion into new categories [indiscernible] highly relevant to our customers and current market trends. We expect to benefit from the differentiated go to market investments we have made over the past several years. As we are creating an engine to drive long term organic growth. And we are well positioned to benefit from a recovery at our residential business has been strengthened during the market downturn. [indiscernible] through strategic investments in sales and marketing, new product launches, and operational initiatives driving profitability and growth opportunities. We intend to execute the separation of the food processing business through a tax free spin off which is expected to be completed by early twenty twenty six. Separately, I'm very excited to announce the additions of Julie Bowerman and Ed Garten to our Board of Directors. Julie and Ed bring a wealth of relevant operating and directorate experience [indiscernible] As we implement our forward focused growth strategies execute on our portfolio evolution The the announced spin transaction and drive value for our shareholders. I am confident that Julie and Ed will be strong additions to our Boardroom as we drive value for shareholders and I could not be more pleased to welcome them to the Middleby Board.

Julian Ed's appointments are continuation of our Board refreshment process, which started last year with the additions of Steve Scherger and Tejas Shah to our Director Group. Throughout this process, we have continued to focus on extending the capabilities of our Board and bringing on fresh perspectives. We also announced that long standing Director, Jack Miller, has elected to retire from our Board. Jack has been instrumental to the success of the company greatly contributing the growth of Middleby from its small beginnings the company was only $25,000,000 in revenues.

And throughout the journey into the global foodservice leader that we have become today. Our management team and Board are incredibly grateful Jack for his service to Middleby and our shareholders. Lastly, I would like to briefly comment on our fourth quarter results. We closed 2024 by delivering our strongest margins of the year, with all three businesses posting strong results given The respective backdrop for each industry, The continue to make progress on our profitability initiatives across the businesses as we execute on supply chain take action to drive operational efficiencies and strategically reposition Sales mix. To our latest higher margin Macro conditions in the quarter remained challenged for our commercial and residential business but are showing signs of gradual improvement as we move through The the food processing business [indiscernible] the year exceptionally strong and we look to realize continued growth as we head into 2025 are navigating near term market conditions But as we and we continue to execute on our strategic initiatives focused on driving sustainable long term organic growth with recent launches of transformative product innovations across all three The the development of our differentiated go to market gate We're competitively well positioned across all three businesses to expand and realize growth in each segment as we progress through 2025.

Brian, I'll turn it over to you now for further comment on the quarter. Thanks, Tim. While challenging market conditions persisted throughout 2024, driving margins and cash flow continue to be demonstrated strengths of ours. [indiscernible] free cash flows of $229,000,000 in the fourth quarter, we concluded the year with a new record having delivered over $640,000,000 Revenues in 2024 declined modestly to around $3,900,000,000 Adjusted EBITDA of $866,000,000 at a 22.4% margin, which was slightly ahead of last year showed the power of our overall system with particularly impressive performance by the 25.6% The.

GAAP earnings per share were $7.9 Adjusted EPS which excludes amortization expense and impairment charges, non operating pension income as well as other items noted in the reconciliation at the back of our press release was $9.49 Looking at Q4, quarterly revenue returned to a level of Our adjusted EBITDA of over $251,000,000 was a record at a margin of 24% Q4 GAAP earnings per share were $2.07 Adjusted EPS was $2.88 Food processing was really cooking. 4.7% organic revenue growth in the quarter led to revenues of over $219,000,000 The adjusted EBITDA margin was 29.6% up 200 basis points versus the prior year. With organic growth over the back half of the year, we finished 2024 with $731,000,000 of total revenue and expanded margins by 70 basis points to 25.6%.

Now considering the impact of fourth quarter acquisitions, the segment run rate revenues now exceed $800,000,000 with a run rate margin of around 24%. In residential, looking at Q4, dollars 185,000,000 of revenue was a sequential increase from Q3 This was down a modest 2.4% versus 2023 and was the slowest decline of the year. Adjusted EBITDA margin was 13% the highest level in one point five years.

For 2024 in total, revenues were $725,000,000 at roughly 10% margins.

In commercial, Q4 revenues of over $6.00 $9,000,000 were up sequentially with organic revenues down 2.8% year over year the slowest decline of the year. Margins remain healthy at over 28%. For 2024, revenues of $2,400,000,000 supported by strong and fairly consistent margins of 27.4%. Moderated CapEx, and focus on reducing inventory levels which have declined by over $250,000,000 in two years we delivered record cash flows. Operating cash flows were $687,000,000 for the year, free cash flow conversion of 140%, Our total year end leverage ratio is 2x.

Our balance sheet is strong. Share repurchases in the fourth quarter were $16,000,000 and we have repurchased an additional $20,000,000 in the open market We are planning further buyback activity at this pace for and thus would potentially utilize around 20% of our free cash flow in this manner. With respect to 2025 cash generation, we expect free cash flow to again exceed operational net income.

Capital spending in 2025 will be back up to more typical levels around 2% of revenues. We continue to actively manage overall working capital levels However, we may have a lower inventory reduction this year.

Nonetheless, cash flow generation will remain a real strength for the business. Taking a look into the Q1 P and L, I will share a few perspectives. On a year over year basis, and looking at total company revenue, we expect modest revenue growth benefiting from the impact of acquisitions in food processing, along with having slight margin expansion. Shifting to an organic view for Q3, Q1 on a year over year basis revenues in total are likely generally flat. The commercial business will have a slow start to the year with So revenues will be down slightly for the For food processing, the timing of project completion was strong in Q4 Q1 will not be as robust, so organic revenue will be slightly down. In our residential business, we expect to continue to see positive momentum resulting in meaningful year over year growth. Now considering performance on a sequential basis, please recall that seasonality in our business is such that Q1 results and across our entire portfolio typically take a modest step down from Q4. Residential, however, could be a positive exception to that trend this year they may demonstrate sequential as well as year over year growth.

Now taking a look at 25 for the full year, In Commercial and Residential, we are expecting at least low single digit organic revenue growth rates, with modest margin expansion, For Food Processing, organic revenue growth is expected to be in the mid single digits for the year.

As I noted earlier, we call that the baseline on food processing margins is now in the 24% range due to recent acquisitions. Margins here will likely fall below last year's strong level as the integration processes are just beginning with two acquisitions [indiscernible] Summing it up, for 25 for the total company, we expect to deliver organic revenue growth in the low single digits, with profitability growth at rates in excess of our organic revenue growth. Our view is also that revenues are growing sequentially over the course of the year for all of the segments. Please note that this outlook excludes costs, which may be incurred to support the food processing spin we have announced today. We will provide updates on those activities throughout the The.

I will now turn it over to James for a NAFAM overview. If you come and see us there, you might find me serving ice cream, and I'm hoping to get adventurous and combine that with soda from our absolutely incredible new beverage dispensing platform by Newton to create ice cream floats, Innovation tastes great, but maybe isn't less filling. But I like it. And hopefully so will you [indiscernible] Thank you, Brian. Today, I'd like to take a moment to extend a special invitation to our shareholders, analysts and prospective investors to come experience Middle East Commercial Foodservice Equipment at the North American Food Equipment Manufacturers Show, in Atlanta, Georgia. The show runs tomorrow through Friday. You may refer to the accompanying earnings presentation for a detailed overview of our [indiscernible] to what's cooking at Middleby. This year marks our most ambitious presentation for any show. We are featuring featuring nine live cooking vignettes including two fully operational high volume restaurants one dedicated to Smash Burgers and Fried Chicken, and the other to Pizza and Wings. Both concepts will be powered by our cutting edge embedded digital robotic automation solutions. Additionally, we will unveil and showcase our latest beverage dispensing technologies from Newton CFV as Brian mentioned, the Newton The and Wild Goose filling the Servesci The.

A longer comprehensive lineup of ICE solutions [indiscernible] Be sure to also check out our new innovative ice which is 1.25 by 1.25 by 1.25 cracked cube [indiscernible] Beyond these innovations, our full Certus Coffee Cafe will highlight various solutions for Middleby Coffee and Marco including the Marco MilkPal, which Shadi discussed on our last earnings call.

Our enterprise IoT solution will be predominantly featured seamlessly connecting all live equipment at the booth we invite you to discover how we can quickly transform your kitchen operation from the front of the house with EMS, HVAC and lighting control the middle of the house with coal chain monitoring, HACCP reporting and labor tracking, in the back of the house with equipment connectivity. Open Kitchen is quickly driving to become the IoT standard for the commercial foodservice industry. Within Open Kitchen, we are also introducing a new fryer profitability tool to drive fryer connectivity sales and differentiation for Middle East.

The tool is designed to help restaurant operators The understand and optimize their frying processes by providing insights into oil usage per pound of food cooked oil quality, efficiency and waste through Open Kitchens real time analytics. I'd like to conclude by acknowledging the magnificent seven seven innovative products selected for the What's Hot, What's Cooled innovation section in Naffin.

Middleby is honored that it received more selections than any other manufacturer The Magnificent seven will be showcased live and will feature the new Pitcoed pork fryer, the first commercialized continuously filtering high efficiency fryer at the The Nacho Bar and the new Invoked Tombi which we preparing some delicious bites within the center of the booth. Thank you. And we look forward to seeing you at the show. We will now open it up for questions.

Thank you. We will now begin the question and answer session. And the first question will come from Surya Boroditsky with Jefferies. Please go ahead.

Good morning. Thanks for taking the question. I mean, I think we have to start with the decision to separate food processing. So could you just walk us through The decision [indiscernible] And then how do you think about the The cash generation of food processing and the ability to sustain the acquisition pipe? Thank you.

Yes. Good morning, Suri. So we've been considering it for a while. I mean, every year, and continuously the Board is always reviewing The portfolio and what think makes most sense to maximize shareholder value I mean, really support the growth of all three of those businesses. So I think we've been building as I said in the comments, the food processing platform For a while now and really over the last decade, that's accelerated. I think if you were to go back five years ago, was that large enough And I'll say it wasn't in the of the The of the journey where we could stand it up as a separate standalone business. But now we feel that we're at that point And I think [indiscernible] it's benefited from being part of Bittleby for a long time to get point. But now I think as a separate company, Being part of Middleby will hold back The growth and separating it will So we think it's really we're excited about it. I mean, I think the things that I commented on the greater focus with the management team not being one of three businesses And as you could see in some of the slides that we had this morning, there's a very strong track record of M and A over a long period of time, which we think We'll continue on and Dan perhaps even accelerate.

So we think The the platform will further scale on a more rapid basis Mittelby as a separate standalone company.

Thank you. And then should we think about the free cash flow conversion of both separate businesses as being 100% or greater? How do we think about that?

Yes.

I mean, it's a little early. We haven't provided I'll call it specific long range guidance certainly for the food processing company. But I do think that a fair assumption. All our businesses really have somewhat similar cap flow generating characteristics.

Appreciate that. And just one last one on resi, just given the positive influx how are you thinking about that recovery? And what are the incremental margins on that business given some of the factory investments you've made in recent years?

Yes. So I mean, I think we're clearly at a long term cyclical trough, kind of put a bit of that in the deck as well. So I mean I think there are significant opportunities and unrealized shareholders, we kind of go through The next several years. So it's hard to tell what the inflection is going to be on the backdrop of the market. With housing, but it is positive. And we're we've got a significant I'll say, tailwinds through the next several years we think it will be kind of gradual as we go through 2025 with some recovery, but that will pick up steam, we think, in the years going forward. We have been operating the business into [indiscernible] the mid to high teens kind of if you were to go back pre COVID, and the business fundamentally is much stronger today. [indiscernible] what is really a tough period relative to what it was in those years. We certainly taken a lot of actions to improve The operation of the The, which drives margins higher. And also commercially, we've made a lot of investments around new product as well as kind of our sales and marketing capabilities.

So as we kind of get to more normalized levels, we think that that is all exciting part of the story that shows up in the years ahead. And Sari, this is Brian, spending The a little bit. You think about the incremental. Certainly, would say this business will have largest incremental benefits as revenues grow compared to the other segments. Given the low operating leverage we're seeing right now, right in you've seen that in our gross profit reporting. So I think the incrementals here can be over 40% going forward. And to echo what Tim noted, as we achieve I'll say revenue levels consistent with those that we have posted in the past, we will have higher levels of profitability than we achieved in the past. Because of the investments and improvements have been made in the business.

Appreciate the color. Thank you. Your next question will come from Ross Berenblick.

With William Blair. Please go ahead. Hey, good morning, gentlemen.

Good morning. Good morning.

Hey guys. Just sticking with the spin, we put a finer point on some of the moving parts as we think about one time and ongoing dissynergies and maybe The expectations of the tax benefit versus outright sale [indiscernible] [indiscernible] It's not a benefit for the corporate, it's tax avoid if we were to consider other options, but we do see long term upside in this business. So we really think shareholders benefit The being a separate public company, trading on its profile with The margin the growth characteristic. We think it The trades in line with kind of higher industrial companies in that that kind of comp set From a dyssynergy standpoint, I mean, I think one of The philosophies of Middleby is running decentralized. That's been very core to us over a long period of time. So certainly, we're an engine for accelerating growth with kind of a lot of our strategies and our core company culture. I mean, I think those things are exportable and we think this is kind of Middleby two point zero as we think about it with continuing with The culture, a lot of the best practices in operating philosophies of the business that will but because the operations are largely central or decentralized, there's not a whole lot of dissynergies here.

So I think that makes it from an operational standpoint for us separate the business. And Ross, this is Brian. We're not prepared to specifically quantify those things today. But in future quarters, we will get into more levels of granularity around one time costs and such.

Yes, I can appreciate that.

Well, I previously was under the expectation that food processing is more of the M and A engine here. Kind of given the fragment of white space. But with a strong free cash flow profile for RemainCo, can you maybe just update us on what the M and A landscape looks like within commercial and kind of your early capital allocation expectations for the Renco business?

Yes, I guess, so definitely M and A is the core. For a long period of time that continues. However, we're at a different size and scale today. I mean, I think as you've kind of just noted, for more recent periods, food processing is still in The early stages, so it's very fragmented. So it's gotten a bit more of the attention on on M and A. And I think as a separate company, that's going to become even more clear and more focused. So I think that's one of the things that we're Excited about As cash flow has grown over time we've also [indiscernible] built into really more recent actions, being able to execute on M and A, while at the same time, really start taking action to return shareholder to capital to shareholders through stock repurchases, which is what we've been doing in the fourth quarter and the first quarter and Brian alluded to in in his comments. So I think it will be a little bit more of a balanced approach as given we've got much larger cash flow to deploy today. I think as you kind of look at RemainCo, The platform is built out larger But however, there still are significant opportunities out there.

I think you'll see them be a bit more focused particularly on the ice and beverage platform. I think that's something that we've also been excited to have [indiscernible] scaled relatively quickly here. If you kind of think about the last five to seven years, It is a larger market I continue to still a new player but you can see it's meaningful to our revenues and it's already a very highly profitable business. So happy with The portfolio that we've got right now. We think that portfolio will has organic growth opportunities given The different products, technologies and backdrop of what's going on in beverage. But The are additional opportunities to further build that Hyacinth beverage platform. So I think that's one of the areas that will to be focused on and then just technology overall. I mean, I think we've really positioned ourselves as kind of The The leader in automation controls, IoT, A lot of that has been a combination of our organic investments as well as some of the M and A activities that we've had. So I think we want to ensure that we're gapping the competition and I think we've positioned ourselves very nicely there for what we think is going to be driving growth over the next three to five years.

So that's certainly an area that will continue to focus on opportunistically.

All right. That makes sense. Well, thank you, Tim. Thank you, Brian. Leave it there.

The next question will come from Mig Dobre with Baird. Please go ahead. Thank you. Just maybe start with a clarifications [indiscernible] Where are you on this? Is it complete? Is it still ongoing? Maybe to ask this question, more pointedly, Is residential also being evaluated for strategic alternatives with something potentially happening down the line Are there portions of CFS portfolio [indiscernible] are being considered for divestiture I know that you've acquired a lot of businesses over time and I do wonder if all those brands are as successful as you hope or if you might find some better owners for some of those out The? [indiscernible] update here would be helpful.

Yes. So I mean, look, I think we're continuously reviewing the portfolio, right? I mean, just this announcement is part of a makes compelling strategic and financial sets for that business. At this point in time, but we always review where we're at with all the businesses and best opportunity to continue to grow those businesses considering where they're at, the lifecycle what we see upcoming opportunities in the future so I think right now, food processing is in a great place for us to take that next step. I mean, I think it will accelerate growth and be a continuation of the journey that we've been on for a long period of time. I mean, I think as we think about residential, It's a phenomenal platform. I mean, we have [indiscernible] industry leading [indiscernible] even at what is now the trough we're at very respectable margins. I would argue The margins that we have right now are in line with peers commercial foodservice and some of the food processing companies out there. And so we see significant margin expansion knowing that we've been to much higher levels The in the past. And it's a stronger platform The date, right?

So those are things that we are considering for where we're at with the journey of residential, right? So We're always going to be thinking about what is best for that business to reach its full potential and to maximize shareholder value.

In a theoretical recovery here, what I've heard from you in the past is that When this business is operating in normal volumes, this is maybe a 20% EBITDA margin business. So in many ways, this business is dilutive to the overall portfolio from a margin standpoint, and it also carries an inherent degree of cyclicality that arguably speaking you do not have in commercial foodservice. The customers are also different. The way you go to market is different. So what I'm trying to understand here is The than where we are in the cycle, It's why this business would fit with the Remainco longer term and how that would be additive to shareholder value.

Well, I think we had similar conversations with that with food processing for many years, right? So I would say it's not so different, right. I think [indiscernible] We've got a to taken a long term approach to build out that business and then take a it was an opportune time and we were at an appropriate chapter of its cycle, right? We're not saying that residential maybe at some point in time may maybe in a a similar junction. But it's it's not today. We see significant opportunity for improvement. Because food processing had been a very lumpy and cyclical business We had been told by shareholders for many years and it would had also had lower margins, right? So [indiscernible] built it to the point that it's The is today that I think now we're excited to unlock a lot of shareholder value and continue on on the journey. So I would say residential has its own timing and cycle and life of where it is within within the Middleview portfolio.

Understood. Last question for me. Just on your outlook in Commercial Foodservice, if I heard you correctly, we're starting a little bit slow, maybe slightly negative organic growth. Implicitly things get much better in the back half to get to low single digit growth.

So I guess I'm curious do you expect to inflect positive from an organic growth in Q2? Or is this all a second half story. And what gives you the visibility that growth here can actually improve and maybe you can comment in terms of what the headwinds have been in recent year years and what gets better.

This is Brian. I'll start, I'll call it, on the number side a little bit. Turn it over to Steve for some of the market commentary. We do think things improve sequentially throughout the year.

In terms of, I'll say, doing some math, the one nuance we have as we will compare 25 to 24, Is it Q2 'twenty four was the high point. So I'm not going to yet note specifically whether we'll eclipse Q2 of 'twenty four and 'twenty five obviously, the comps get a little bit easier in the back half of the year Having said that, we're really looking at things over the perspective of a year and do expect generally improving conditions and hopefully delivering The revenue I noted, but Steve, I'll give it to you for some market perspectives. Yes. Thank you, Brian. Good morning, Meg. I would call out maybe three specific areas. Mig, that gives us confidence Really the year progressing in a positive direction. We talked a lot about new store openings with our bigger chain customers, which they've gone back to the last couple of years. I think, unfortunately, we have seen The last couple of quarters of those new store openings being pushed out for a number of different reasons. Ranges from everything from weather to obviously The fires out The west, snow, flooding, etcetera, has certainly impacted construction. It's been allocation of personnel to actually build restaurants and just some of the broad macro challenges The the larger restaurant chains are facing.

Think the positive there is is if we look at our collective group of top chain customers, and we compare their 25 build plans holistic [indiscernible] does push and move from quarter to quarter. So the 25 build plans are up over 24%. So I think we're pretty confident in our chain customers in their new store build plans for this year over 24. Think the other thing we're seeing with our chain customers is knowing that opening stores has been more challenging, I do think you're seeing The add in sales layers to their existing footprint to try to capture market share. So that's where we're seeing beverage really start to pick up. That's going from being a concept to being actual reality in Agile. So that's the view on chains. I'd say just two more things. When we look at more of the general market in The U. S, Massey, which is our association of reps here in The U. S. Tracks every quarter The quoting and consulting activity If you look at their progression from the fourth quarter to the first quarter already they see a very positive uptick in consultant and quoting activity to the general market, which aligns with what we're seeing from our our reps and our dealers.

So I think you're seeing that pipeline more or less build in the general market. And I think the third thing I would call out if you picked up on the international markets talked about. I think we're very positive on what we've seen in our European divisions knowing that there are some challenges in that market, but we've seen more and more people for innovation kitchens in both Madrid and in The UK or opening a new innovation kitchen in Munich, The summer So see Germany as a big opportunity for us. So really see Europe actually with a lot of momentum as we as we go into this year. So it's really the change with the new stores, it's the quoting and consultant activity, and I think some of the international markets that give us the confidence for the rest of this year, Meg.

And we did grow in Q4 internationally?

Correct.

All right. Thank you.

Your next question will come from Jeff Hammond with KeyBanc Capital Markets. Hey, good morning.

Just last one I had on the The Can you just talk about what you think the leverage profiles of each of the businesses are going to be? The lean more leverage on RemainCo and leave the balance sheet dry for for acquisitions or is it more balanced?

Yes. So we're still a year out from executing The spin, right? So I think things will evolve during the course of the year, but on balance, we would expect less leverage less leverage on the food processing business, got a [indiscernible] EBITDA opportunities Okay. And then in terms of adding Ed Garden to the Board, can you maybe just I didn't see the eight ks, I don't know if it's out yet, something I think you mentioned cooperation agreement, maybe some of the the key tenants in there and if there's any kind of Early feedback you've gotten from him or his group that's kind of been built into this strategic plan? Thanks.

Yes. So maybe I'll just kind of start with the Board The mid overall, because that's been a process we've been going through for a couple of years. We had we had brought on two new board members with Steve Scherger and Tasha Shah which has been tremendous. So So we've been excited about greatly to our Board That process continued on. As we kind of move through the back half of of last year. I mean, I think you The, [indiscernible] robust process The we're going through and thinking about the capabilities that we wanted to have to expand the Board The again bring out fresh perspective. So So we were kind of in late [indiscernible] new members alongside Jack Miller's announced retirement who [indiscernible] tremendous Board member over many years. And so as kind of came into the fold, we've had very constructive conversations, sharing of [indiscernible] So So truly, we are very excited to have joined the The I think he's going to add a lot of financial investor, operational expertise insight capabilities. So that's kind of aligned There is a cooperation agreement that's out there on eight ks, but it's got, I would say, Got it. [indiscernible] [indiscernible] confidentiality provisions in it.

Okay.

Your next question will come from from Brian McNamara with Canaccord Genuity. Please go ahead.

Good morning, guys. Thanks for taking the questions. Know you mentioned you regularly review the portfolio, but when was the official strategic Did that date back to the JV? T Morel transaction last April? And is holding on to the residential business at this point just a function of nursing that business back to health before you contemplate a separation or so?

So again, we're continuously have been reviewing the portfolio. So that was not only last year, that was the year before. So I mean, that is something our Board does regularly. I mean, I think with these things, they evolve. I mean, certainly, we were looking at many different options as we entered the year. Last year. And The I think as we started evolving what we thought might be the most strategic option to unlock shareholder value for the long term That was probably midyear when we made that kind of [indiscernible] The official comprehensive review bringing on advisors In that regard, Look, [indiscernible] The residential business I would not frame it the way you did. I mean, I think The again it is a tough period for residential. They're is no question about it. We're housing existing home sales, remodels are, it's disrupted operationally, even try to [indiscernible] execute in the marketplace because getting contractors, electricians etcetera, I mean, I think That's been pressure on longer lead time products in the house market and when you're dealing kind of with a premium sector, we get hit a bit hard first, so it takes a little bit longer to start the engines.

But when it comes back, it's going to come back strong. So we're confident of that. So So it is an exciting platform that I think when it is not in I won't call it a cycle, I would call it a disrupted I mean, kind of coming out of COVID, that's just kind of that normal macro up and down, it's a significant disruption. So we think in better days that this is a very best in class, highest margin very unique portfolio of premium brands with nothing else like it. And we think there's a lot of shareholder value there. That being said, we always will continue to review the portfolio what is the best opportunities for each of the businesses for the long term and to create shareholder value. But we think that The residential business, again, presents Probably some of the higher growth and higher margin expansion opportunities as we go through the next several years kind of flipping it from where we are to where we think we will Great. That's helpful. Secondly, on Commercial Foodservice, can you talk about your price and volume expectations for 2025 and compare that to recent years. Are volumes expected to be negative No, I mean, I think The pricing benefits for '25 The modest at best.

We haven't The have the same level pricing actions to start this year that we have at prior years. You look at what's kind of cumulatively happened over the past, let's say, four years or so, So I think we are in a year here where we'll be more volume driven than price driven.

Great. And then finally, I guess for just your restaurant customers, how would you characterize the current operating environment? You have big players really leaning into value for limited time offers going from one month to one year. You said and you're confident in your stores opening plans I guess your store customers opening plans this year. I guess what drives that confidence kind of given the mid year surprise in 2024?

Thank you.

Yes, it's a great question. I think yes, there has been this push towards value The I think has probably been more in the the traditional fast food QSR segment. I think what you're seeing though is I think you're [indiscernible] some of the more fast casual, casual dining concepts really start to thrive. I mean, I give so many of them a lot of credit thinking creatively about adopting new operational initiatives, new technology initiatives to help with throughput, to help drive labor costs down, to help drive food costs, down. And I think you're seeing those actually thrive in this scenario. So it's a little bit of a nuance The yes, there are challenges around value, but you're also seeing again those, let's say, more forward thinking chains again, really adopt the new technologies and try to drive their costs overall down to give a better product experience to consumers. So I think that's very positive. I think in terms of what gives us confidence is The the chains are very open with their new store plans. And I do believe The if you look at them there's so many new markets that they're entering in, especially from an international standpoint.

And so I think when you look at markets like in India, certainly parts of Europe, parts of Africa that are still new up and coming markets for these chains. They have to get there. And I think they're looking to us more and more to drive down the economics of opening those restaurants, which I think we're coming through for them. So I think, yes, there's been a couple of quarters where things have been kind of pushed out the right I think what gives us confidence is nobody for the most part in those changes pulled their numbers down holistically for the year. So again, things are always going to move from quarter to quarter. But really feel like they have held to their overall next twelve to fifteen month plant I just adding a couple of other things. I mean, I think some of the chains were surprised [indiscernible] traffic in the back half of the year. I mean, it was expected to grow and that became a little bit more of a challenge. I think as of late or as we left the year traffic patterns had started to improve. So I mean, I think that gave gives a little bit more confidence to the chains.

Food cost was also another driver and it's got The whole cycle food cost being up, energy goes up traffic goes down. I think The and we did see inflation in food costs in the back of the year, which I don't think a lot of our chain customers were anticipating. So I think it was kind of a function of some of those dynamics and how that worked through their operation. I think going into this year, there's a more stability and food costs, which then think allows them to think about menu pricing, which then helps drive traffic and then traffic patterns improving. So I just think [indiscernible] Some of the issues that we saw in the third quarter, The sorry, they got to work their way through The cycle which then allows the chains to be a little bit more confident on executing The plants.

Great. Thanks for the color guys. Appreciate The next question will come from Tami Zakaria with JPMorgan. Please go ahead.

Hi, good morning. Thank you so much.

A question on the parts and services business. I saw on the presentation The remaining quote has about 17% and the spin coal would be about 33%. Do you have any targets in mind to increase the mix of parts and services over time for either of these businesses. Is that going to be a focus or strategy going forward? Or do you think this mix is pretty reasonable through the cycle?

Yes. No, that's a great question. I mean, I think we have initiatives and expectations The increase and invest in service for both food processing as well as remainco. One of the slides that we also put in the investor deck a lot of the go to market initiatives that we have to drive organic growth that includes service. I think we're very focused on how do we provide enhanced in more efficient customer experience kind of leveraging the scale of the platform, leveraging some of the new tools that we've got coming out. IoT is included in that as we start leveraging [indiscernible] for service those statements are true both for food processing as well as for commercial sub. And I think over over time, our expectation is to increase The the percentage of that piece of the the pie for all the businesses respectively.

Understood. That's very helpful. So a quick follow-up to that is, would you be able to tell us what the mix was for these two businesses, call it, in 2019? I'm just trying to understand how the mix has changed over time in the last five years.

Yes, Timmy, this is Brian. I'd have to go back and see, I forget if we started breaking that out as early as [indiscernible] Colleagues think maybe it was around 2021, we started publishing some I'll say, pie charts on that. I'll say, residential has always had the lowest portion of its business. In terms of parts, as you think about the three segments, Ibit Commercial has been probably fairly consistent in the high teens to 20ish percent area. Certainly The last five years. Yes. And then food processing is one that we've probably been doing has growth in it as we've been really working to offer more services to our customers and with that comes parts. And also our customers have seen how their operations are being managed. Has been evolving as we've been working through I'll call it, labor issues for the past couple of years. A lot of our large customers, I'll say, have lost some of their maintenance and service abilities on their own. It's giving us nice opportunities to be providing that level of service to The. Tim noted, in commercial, working a certain thing strategically to be an even better and more aligned service provider with different networks out there.

Wonderful. Thank you. That's all I had.

Great.

The next question will come from Walt Liptak with Seaport. Please go ahead.

Hi, thanks. Good morning. Yes, I wanted to ask about your supply chain work. I think you've been doing procurement and in supply chain, operations or consolidations for a number of years now. And I wonder I think I heard in the prepared remarks that there's going to be some benefit [indiscernible] if that's true and if you guys are getting some benefits in 2025 from The?

Good morning, Walt. This is Steve. I'd call out a couple of things from us. Supply chain standpoint. I think our team really over the last four or five years has done a phenomenal job first navigating all the supply chain disruptions certainly from a couple of years ago And then as we kind of move into this new chapter with the tariffs coming through, I think we are extremely well positioned to navigate that from competitive landscape standpoint. I think from a pure cost savings, perspective, I think it's a challenge that we put in front of every one of our divisions every year to be thoughtful and creative on how we [indiscernible] And then you layer in the Middleby supply chain team on top of The. To leverage our brands together, to leverage the network together, to come up with savings. So we do feel like there are savings that will come through this year from a supply chain standpoint. But I also really want to call out I think that we are extremely well positioned to navigate the tariffs having focused so much, obviously, being predominantly domestic manufacturer across really all three of our segments. Our team has done great job over the last couple of years really I'll call it near shoring our supply chain and manufacturing in many ways I think we've been very focused on diversifying qualified supplier roster, if you will, to make sure that we have domestic suppliers if we had an international supplier in some aspects.

So and I think we're always leveraging the 120 brands across the globe and leveraging that to really build up a more resilient supply chain. So I think that positions us uniquely It's a great competitive advantage, I think as We come into this year both from a savings standpoint, but really from a [indiscernible] [indiscernible] selling perspective as well.

Okay, great. Maybe just as a follow-up With the food process or food processing, are there or have there been supply chain cost savings between the other two segments?

Between commercial foodservice and residential? Or are they or The supply chain benefits unique to each of the segments?

So we've got one supply chain team that facilitates across all three of the businesses. And there's kind of unique I'll say, synergies depending on product by product, brand by brand. The food processing is inherently different in terms of [indiscernible] Absolutely. Size of the products and some of the components that go into it. So there there's probably a bit less synergies there with the food processing than there is with commercial and residential great similarity frankly, in the process and has very much overlapping and shared supply chain Okay, great. All right. Thank you.

The concludes our question and answer session. I would like to turn the conference back over to Mr. Tim Fitzgerald for any closing remarks. Please go ahead, sir.

Yes. So thank you, everybody, for joining us today. On the call Obviously, we're excited about all the announcements that we've made. And looking forward, to the future, of Middleby and the food processing spend and we think The is going to create meaningful value to all of our shareholders and looking forward to updating everybody on those activities as we kind of move through the next [indiscernible] hopefully, we'll see some of you at DAFAM, as James mentioned. We've got an exciting trade show with our latest and greatest products, And otherwise, we will talk to you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.