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Q2 2013 Earnings Call
August 09, 2013 11:00 am ET
Previous Statements by MIDD
» Middleby Management Discusses Q1 2013 Results - Earnings Call Transcript
» Middleby Management Discusses Q4 2012 Results - Earnings Call Transcript
» Middleby Management Discusses Q3 2012 Results - 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
Gregory W. Halter - LJR Great Lakes Review
Aaron M. Reeves - BB&T Capital Markets, Research Division
Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division
Anton Brenner - Roth Capital Partners, LLC, Research Division
James Clement - Sidoti & Company, LLC
Jamie Sullivan - RBC Capital Markets, LLC, Research Division
Welcome to the Middleby Corp. Second Quarter Earnings Conference Call. My name is Hilda, and I will be your operator. [Operator Instructions] Please note that this session is being recorded. I will now turn the call over to Mr. Tim FitzGerald. You may begin.
Timothy J. FitzGerald
Okay. Good morning and thank you for attending today's conference call. I'm Tim FitzGerald, CFO of the Middleby Corp. And joining me today is Selim Bassoul, our Chairman and CEO. I have some initial comments about the company's 2013 second quarter results and then we'll open up the conference call for questions.
Net sales in the 2013 second quarter of $363.8 million increased 40% from $260 million in the second quarter of 2012. Second quarter sales reflect the impact of acquisitions completed in the past 12 months, including Viking, Nieco and Stewart Systems. These acquisitions are not fully reflected in the prior year comparative results and accounted for $76.1 million in sales or 29.3% of the sales growth in the quarter. Excluding the impact of these acquisitions, sales increased 10.7% for the prior year quarter. This increase reflects an organic sales growth of 11% at our Commercial Foodservice Group and a 9.4% growth at our Food Processing Group.
At 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 at store operations. Sales in emerging markets remain strong, with overall growth in excess of 10%. Sales in Latin America, Middle East and Europe all grew at double-digit rates, while Asia slowed in the quarter, impacted by a temporary slowdown in store openings with a major restaurant chair customer in China. While we expect continued growth in the second half of the year, the growth rate will likely moderate from the second quarter, due to completion of a major chain rollout in the first half of 2014 -- or 2013.
However, we have continued strong demand across our broad portfolio of restaurant chain customers and expect growth to continue to at mid to high single-digit rates for the balance of the year.
At the Food Processing Group, we continued also to realize strong growth, 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 demand in orders at this segment, we anticipate sales growth will moderate during the second half of 2013. The 2012 comparative period realized particularly strong revenues related to a large customer project late in the year.
Sales at Viking amounted to $58.8 million during the second quarter, reflecting a general improvement in industry conditions. Included in these revenues are $1.9 million related to non-core business operations which were divested in the second quarter. Additionally, sales in the quarter reflected a positive impact of distributor acquisitions, which added to revenues in the quarter of approximately $4 million. Included in these revenues are certain non-Viking products that will be discontinued in future periods. We expect to be in the $55 million to $60 million range for the third quarter and anticipate continuing initiatives related to disposition of non-core revenue streams, the discontinuance of low volume and low-margin products and the temporary disruption in distribution channels may affect the sales in the third quarter.
Gross profit in the second quarter increased to $136.6 million from $101.8 million in the prior year, and the gross margin rate was 37.5% as compared to 39.2% in the prior-year quarter. The gross margin rate reflects the impact of lower margins at the recent acquisitions, including Viking, and a greater mix of Food Processing sales with lower gross margin. Excluding the impact of recent acquisitions completed during the past 12 months, the gross margin rate would have increased to 39.4%. Viking had the greatest dilutive impact to the gross margin in the quarter, impacting the gross margin rate by 1.4%.
At Viking, we reported a gross margin rate of 30.7% for the quarter. This was an improvement of 2.2% from 28.5% in the first quarter. The lower margin of this business will continue to dilute the overall margin for the balance of the year by 1% to 2%. However, we anticipate the gross margin will show continued improvement in the second half of the year, reflecting the benefit of purchasing savings, SKU simplification actions, gains in production efficiencies and other ongoing initiatives.
Selling and distribution expenses during the quarter increased $10.4 million to $38.6 million. The increase in selling expenses was entirely attributable to the additional expense from recent acquisitions not included in the prior year. Excluding the incremental expense from acquisitions, selling costs would've remained constant with the prior year.
General and administrative expenses increased by $9.4 million to $37.6 million. The increase in G&A expenses for the quarter was primarily attributable to $7.9 million of incremental cost from acquisitions. This includes $3.5 million of noncash intangible amortization costs associated with the recent acquisitions. There were minimal nonrecurring costs in the second quarter associated with Viking and we do not anticipate significant further restructuring charges in the second half.