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Q1 2013 Earnings Call
May 09, 2013 11:00 am ET
Previous Statements by MIDD
» Middleby Management Discusses Q4 2012 Results - Earnings Call Transcript
» Middleby Management Discusses Q3 2012 Results - Earnings Call Transcript
» Middleby Corp Q1 2008 Earnings Call Transcript
Selim A. Bassoul - Chairman, Chief Executive Officer, President, Chairman of Middleby Marshall Inc, Chief Executive Officer of Middleby Marshall Inc and President of Middleby Marshall Inc
Anton Brenner - Roth Capital Partners, LLC, Research Division
Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division
James Clement - Sidoti & Company, LLC
Aaron M. Reeves - BB&T Capital Markets, Research Division
Jason A. Rodgers - Great Lakes Review
Gary Farber - CL King & Associates, Inc., Research Division
Thank you for joining us to The Middleby Corporation First Quarter 2013 Conference Call. With us today from management are Selim Bassoul, Chairman and CEO; and Tim FitzGerald, Chief Financial Officer. The format for today's call is starting with prepared comments from management, then opening the call to questions. [Operator Instructions] Now I would like to turn the call over to Mr. FitzGerald for his opening comments. Please go ahead, sir.
Timothy J. FitzGerald
Okay. Thank you, and good morning, everybody. I have some initial comments about the quarter and then I'll open up the call for questions for Selim and myself.
Net sales in 2013 first quarter of $327.5 million increased 43.1% from $228.8 million in the first quarter of 2012. The first quarter sales reflect the impact of the acquisitions completed in the past 12 months, including Viking, Nieco, Stewart Systems and Baker Thermal Solutions. These acquisitions are not fully reflected in the prior-year comparative results and accounted for $74 million in sales or 32.3% of sales growth in the quarter.
Excluding the impact of these acquisitions, sales increased 10.8% over the prior-year quarter. This increase reflects organic sales increase of 8.6% in sales at our Commercial Foodservice Group, and an 18.4% increase in sales at our Food Processing Group.
At the Commercial Foodservice Group, we continue to realize growth driven by increased sales to restaurant chains looking to upgrade equipment and adopt new technologies to improve efficiency of store operations.
Sales in emerging markets also remain strong, with growth in excess of 20% in Asia, Latin America and the Middle East. Sales in Europe continued to decline due to challenging market conditions. However, the rate of decline lessened from prior quarters, as sales in this region were down approximately 5%, which adversely impacted the Commercial Foodservice growth rate by approximately 1% in the quarter.
Sales at the Food Processing Group continue to realize double-digit growth, both domestically and internationally, reflecting demand by Food Processing customers looking to modernize existing production operations and new customers developing operations in international markets. While we anticipate continued strength in sales at this segment, we anticipate growth rates, which were particularly strong in the second half of the year, will moderate as in the second half of 2013.
Sales at Viking amounted to $58.7 million during the first quarter and reflected general improvement in industry conditions. We anticipate that sales in the second and third quarters will be impacted by integration initiatives, including the disposition of non-core revenue streams, the discontinuance of low volume and low margin SKUs as we simplify the business operations and temporary disruption in distribution channels as we restructure and improve efficiencies in our sales and distribution processes. This will result in lower second quarter sales that we estimate will be closer to $50 million in the upcoming quarter, with the second half of the year reflecting the initial benefits of the ongoing sales and product initiatives.
Gross profit for the quarter increased to $121.3 million from $87.5 million in the prior year, and the gross margin rate was 37% as compared to 38.2% in the prior-year quarter. The gross margin rate reflects the impact of the recently -- the recent Viking acquisition, which carried a 28.5% gross margin in the quarter, adversely impacting the overall gross margin rate by 1.9%. The lower margin of this business will continue to dilute the overall gross margins for the balance of the year by 1% to 2%. However, we anticipate the Viking gross margin will improve in the second half, reflecting the benefit of purchasing savings, SKU simplification actions, gains in production efficiencies and other ongoing initiatives benefiting the gross margin rate.
Selling and distribution expenses during the quarter increased $11 million to $36.2 million. Selling expenses in the quarter included approximately $12.1 million of additional expense from acquisitions not included in the prior-year results. Excluding the incremental expense from acquisitions, selling costs were slightly less than the prior year due to lower costs associated with the timing of various trade shows and marketing programs.
General and administrative expenses increased by $17.3 million to $42.9 million. G&A expenses for the quarter included $5.6 million of additional intangible amortization related to Viking and other recent acquisitions. Other ongoing operating expense increases related to Viking and other recent acquisitions, which added to G&A expenses during the quarter, amounting to $4.2 million.
Additionally, in the quarter, G&A expenses included $6.8 million of nonrecurring expenses associated with the integration initiatives of Viking. These costs are largely comprised of severance costs, non-core asset disposition and facility closure costs and other related reorganization cost. We anticipate there may be additional expense to occur in the second quarter as we complete our integration activities related to Viking.