Middleby Reports Strong Q4, Plans Strategic Split

The Middleby Corporation (NASDAQ: MIDD) announced several major strategic moves in its fourth-quarter earnings call on February 25, 2025, including plans to separate its Food Processing business into a stand-alone public company. Here are the key insights for long-term investors.

Strategic Separation Aims to Unlock Value

The planned tax-free spinoff of Middleby's Food Processing segment represents a significant shift in the company's structure and growth strategy. The separation, expected to complete by early 2026, will create two focused entities: Middleby Corporation ("RemainCo" -- Commercial and Residential kitchen equipment) and Middleby Food Processing ("SpinCo").

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We have 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.

-- Tim FitzGerald, CEO

Management says the Food Processing business has reached sufficient scale with an $800 million revenue run rate and 24% margins, which it believes positions the segment to operate successfully as a stand-alone entity.

Strong Margin Performance Despite Market Challenges

Despite challenging macro conditions in Commercial and Residential segments, Middleby delivered its strongest margins of the year in Q4, with adjusted EBITDA reaching 24.8%-a record level.

We closed 2024 by delivering our strongest margins for the year with all three businesses posting strong results given respective -- the respective backdrop for each industry. We continue to make progress on our profitability initiatives across the businesses.

-- Tim FitzGerald, CEO

The Food Processing segment was particularly strong, achieving a 29.6% adjusted EBITDA margin in Q4, up 200 basis points versus the prior year.

Residential Business Shows Signs of Recovery

The Residential segment showed improvements, with Q4 revenue of $185 million representing the smallest year-over-year decline of 2024 at just 2.4%. More importantly, the segment achieved its highest margin level in 18 months at 13%.

Residential, however, could be a positive exception to [seasonality] this year as they may demonstrate sequential, as well as year-over-year growth.

-- Bryan Mittelman, CFO

Innovation Focus Driving Future Growth

At the upcoming NAFEM show -- a leading commercial foodservice equipment and supplies exhibition -- Middleby is showcasing nine live cooking demonstrations, including two fully operational high-volume restaurants powered by digital robotic automation solutions.

Within Open Kitchen, we are also introducing a new prior profitability tool to drive prior connectivity sales and differentiation for Middleby. The tool is designed to help restaurant operators to understand and optimize their frying processes by providing insights into oil usage per pound of food cooked.

-- James Pool, CTO and COO

The company received seven product selections for the What's Hot! What's Cool! Innovation section at NAFEM -- more than any other manufacturer.

Robust Cash Flow Generation

Middleby demonstrated strong cash flow performance, generating record free cash flow of $229 million in Q4 and over $640 million for the full year. The company achieved a 140% free-cash-flow conversion rate while reducing inventory by over $250 million in two years.

Operating cash flows were $687 million for the year, with free cash flow conversion of 140%. Our total year-end leverage ratio is 2x. Our balance sheet is strong.

-- Bryan Mittelman, CFO

Management expects free cash flow to again exceed operational net income in 2025, supporting continued investment in growth initiatives and strategic opportunities.

Looking Ahead

For 2025, management projects low single-digit organic revenue growth with profitability growing faster than revenue. The company sees improving conditions across all segments as the year progresses, with particular strength in the Food Processing business expected to deliver mid-single-digit organic growth.

The Commercial and Residential business will continue executing on strategic growth initiatives focused on automation, electrification, and digital technologies, while Food Processing will pursue expansion into adjacent markets, such as poultry, pet and snack food; and strategic acquisitions.

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David Kretzmann has positions in Middleby. The Motley Fool has positions in and recommends Middleby. The Motley Fool has a disclosure policy.