Middleby Corporation, a leading name in the foodservice equipment industry, recently held their earnings call, projecting optimism for 2024. Their presentation, filled with the phrase "More in '24," emphasized anticipated growth in their commercial foodservice and food processing segments. However, a closer look at the details reveals a potentially troubling narrative for their residential business.

Residential Red Flags

While analysts are focused on the positive aspects of destocking and the potential for a rebound in commercial spending, the transcript hints at a potential residential downturn that could significantly impact Middleby's overall performance.

The company acknowledges a challenging housing market and a lack of immediate improvement in 2024. They forecast a "meaningful step up" in the latter half of the year, but this optimism seems premature. Residential orders were positive in Q3 and Q4 of 2023, yet revenues declined. This disconnect raises concerns about the strength of the projected rebound.

A Billion-Dollar Question

To achieve their target operating margin of 25%, Middleby's residential segment needs to reach $1 billion in revenue. This is a significant leap from current levels, especially considering: Current residential volumes are substantially lower. Grill sales are down over 50% from the levels at the time of their acquisition. This ambitious target seems to rely heavily on a rapid and substantial recovery in the housing market, a factor outside Middleby's control. Given current interest rate trends and persistent inflation, such a rapid recovery appears unlikely.

Distraction Tactics?

The consistent "More in '24" messaging appears to be a strategic attempt to divert attention from the potential risks in the residential segment. While the company highlights their new product innovations and the strength of their commercial segments, it's crucial to remember that their residential business is a significant contributor to their overall performance. In 2022, it represented roughly 25% of total revenue.

A Deeper Dive into Residential Performance

The following table hypothetically breaks down the revenue contribution of Middleby's residential sub-segments based on management's commentary and the assumption of a total $800 million residential revenue in 2023:

Source: Estimated based on https://seekingalpha.com/symbol/MIDD

Sequential Revenue Growth Trends (Hypothetical)

Based on the provided transcript data, the chart below depicts hypothetical sequential revenue growth trends for Middleby's business segments. This visualization aims to highlight the contrasting trajectories of the residential and commercial segments.

Source: Estimated based on https://seekingalpha.com/symbol/MIDD

A Reality Check for "More in '24"

Middleby's "More in '24" mantra might be a calculated attempt to bolster investor confidence and downplay the potential weakness in their residential business. While their commercial segments hold promise for growth, the residential market remains uncertain. If the housing market fails to deliver a dramatic second-half rebound, the company's "More in '24" could quickly turn into "Less Than Hoped For in '24."

"Fun Fact: Middleby ovens are used to bake pizzas at many popular pizza chains! Their commercial ovens are also found in restaurants, hotels, and institutions around the world."