The Middleby Corporation

Good day and welcome to the Middleby Corporation first quarter 2025 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event has been recorded. I would now like to turn the conference over to Mr. Timothy Fitzgerald, CEO. Please go ahead.

Thank you for joining today's call. I'd like to begin by highlighting several key developments that underscore our commitment to driving shareholder value. As announced this morning, we've authorized an additional 7.5 billion shares under our accelerated buyback program. We plan to deploy the vast majority of our free cash flow towards repurchasing shares, reflecting our confidence in the business. We believe our current share price does not fully capture the strength of our business. By prioritizing share repurchases, we aim to bridge that gap and deliver superior returns to shareholders while maintaining our strategic growth investments. This decision follows our February 2025 announcement to separate the food processing business into a standalone public company, a strategic move designed to unlock value and sharpen our focus. Middleby's consistent operational excellence, strong cash flow generation, and disciplined capital allocation provide a sound foundation for this enhanced buyback initiative. The total authorized shares for repurchase represent 21% of our outstanding equity. Now, as it relates to the separation of our food processing group, we remain on track to complete the spinoff in early 2026. We are confident that creating a standalone food processing company will unlock significant shareholder value by enabling focused growth strategies and operational agility. As outlined in our February call, The creation of two market-leading but separate businesses will ensure 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 and enabling Middleby Food Processing, with its best-in-class growth and margin profile, to be valued in line with key food processing and industrial peers. We are excited about the prospects of food processing as this business is poised for long-term growth as we continue to execute on our strategy to be the supplier of choice with our full-line solutions enhancing the value delivered to our customers. And we see market expansion opportunities as we extend into attractive adjacent markets such as poultry, pet, and snack foods, leveraging existing competencies. In the coming quarters, we'll provide more information on standalone financials, the leadership team, and cost structures. We also plan to have a dedicated shareholder day in the fourth quarter to present further details on the strategic roadmap and growth outlook for the food processing business as an independent entity. Now turning to tariffs, we are actively working to mitigate the cost impact of tariffs through targeted operational actions and pricing adjustments. Our preliminary estimate of tariff-related costs is expected to increase our annual expenses by approximately $150 to $200 million. We're highly confident in our ability to navigate this new challenge. And while we see the negative impact in the next several quarters, we anticipate our ongoing actions will offset these cost impacts by end of the year. While we address the cost side of the tariff equation, we are heavily focused on leveraging the strength of our manufacturing footprint. The strength we believe provides us competitive advantage and unique opportunity to gain market share in a number of key product categories. We fully expect to not only manage the current market dynamics, but emerge stronger. Before I turn it to Brian, I would also like to reemphasize the strategic investments we have outlined and invested in over the past several years to drive sustainable long-term growth. We have been consistent and intentional through market disruptions to execute against our stated key priorities to accelerate the development of market-leading innovations and to transform our go-to-market sales strategies. We put these two strategic priorities in place several years ago, and we've been building an engine to drive sustainable long-term organic growth. Market conditions may be challenged, but we are a better position than ever. Middleby is the established leader for the future trends of automation, beltless cooking, electrification, digital technologies, and IoT connectivity in the kitchen. This is the result of our execution on this strategy. And we have been strategic in our approach to identify and enter new complimentary and attractive markets, including ice and beverage, which has broadened our addressable market, providing an expanded runway for growth. We're excited about the many new game-changing innovations we have delivered, which James has discussed with enthusiasm on many of our past calls. We are proud that many of these products have been recognized with recent industry awards. We see these innovations gaining traction with customers and interest broadening in the marketplace. While the pipeline takes time to develop, the future is bright. Along with our acceleration of innovation, we have made major steps in transforming our go-to-market capabilities. From investments innovation centers, establishment of leading culinary teams, launch of unique digital sales tools, and the creation of a dedicated sales team, focused on marketing our industry-leading solutions, we have made strategic and incremental investments to recreate how we do business. This is all providing our customers a better experience from Middleby. We are at early stages of realizing benefits from these long-term growth strategies with recent wins and with more on the horizon. We're confident Middleby is better positioned than ever, and we're extending this leading position It is the reason we're confident Middleby is a great investment. Brian, I'll turn it over to you now for further comments on the quarter and outlook.

Thanks, Tim. Looking back at Q1, we are pleased to have driven margins and generated strong cash flows. Operating cash flows of just over $141 million are our highest for a first quarter. Free cash flows were $107 million for the quarter, and totaled $620 million for the trailing 12 months. Over the past two years, we have consistently demonstrated our ability to deliberately delever from three times to a modest two times today. Our balance sheet remains strong and our cash flows are resilient. After year-to-date open market stock repurchases of nearly $50 million, we are now substantially accelerating our share repurchasing. From a reporting standpoint, I want to call out that we have made a small adjustment in our segment's composition, as discussed in the footnotes in our press release. We've moved one operating division from being part of the commercial segment into food processing. This change has an impact of around $10 million per quarter of revenue. We have restated all periods presented for this change. For Q1, we had growth in the residential segment, strong cost control actions, and managing leverage led to higher operating income and net earnings. Regardless of market conditions, we have delivered robust cash flows and driven margin performance. Our commercial food service business is seeing success thanks to our investments in the ice and beverage platform, as well as chain wins with cooking and refrigeration brands. However, muted buying levels by our largest chain customers across a few of our brands are offsetting these wins. Nonetheless, margins expanded, benefiting from our continued cost control actions and favorable mix. Food processing after a very strong fourth quarter and having seen some customer-driven delivery delays in Q1 did see a drop in revenues. Given the lower volumes and some unfavorable mix, margins were challenged. However, we have near-term opportunities to engage directly with many customers at two very large trade shows in Q2, one focused on protein and one on bakery, which provide additional opportunities to improve the order trends. The residential segment growth was primarily attributable to outdoor products. margins held in well given the product mix and production levels. Looking forward, in commercial, we do acknowledge the challenging market conditions facing our largest chain customers and the resulting impacts on their buying decisions around our products. Nonetheless, we remain optimistic that over the year we could see consistent sequential revenue increases as customers continue to adopt our leading technologies with rollouts and store build plans. Tariffs are impacting this business in a few ways. Positively, we have a strong U.S. manufacturing footprint compared to our competition, and the geographies of our revenues and where we manufacture are generally aligned. Meanwhile, the level of Asian finished goods we import is negligible. Conversely, The associated uncertainty contributes to a continuation of marketplace dynamics where the spending level by customers remains rather muted, although there are some areas where we are seeing rollouts advancing. The biggest operational tariff challenge we face is around the costs of foreign-sourced componentry, mainly from China. We are implementing pricing actions to address this exposure, as well as taking operational actions and continuing supply chain activities. Our current view is that the margin pressures in Q2 may likely grow in the back half of the year. We expect to have offset these higher costs by the end of the year. Our long-term outlook for this segment remains unchanged. Our leading innovative solutions address our customers' challenges. This will drive organic growth, strong margins, and increasing cash flow. For food processing, I do view Q1 as a bit of anomaly. We expect meaningfully higher revenues sequentially into Q2. Margins will also improve from Q1. These views are supported by the impacts of Q1 delayed deliveries, backlog levels, and order activity. For the full year, areas of stronger performance include snack foods and some protein product lines. Uncertainty around trade and consumer behavior creates delays in converting an opportunity into an order and then into revenue. This may challenge us to deliver growth for the year, but as with our typical pattern, margins should sequentially improve as we proceed through the year. The magnitude may be a little lower than prior years given revenue levels and tariff cost impacts. Looking beyond 25, we remain completely bullish on this segment. Our multibillion-dollar pipeline is as robust as ever. Our strengths will drive growth over the coming years. Our full-line solutions resonate with customers and provide strong returns on their investments. We are expanding our capabilities into growing markets of poultry, pet foods, and snacks. We provide automated and innovative products across our portfolio, We remain very well positioned to capitalize on the opportunities ahead. Lastly, residential may be the strongest performing segment this year. We are seeing stability and even potential growth in some of the premium indoor brands. Tariffs may have quite a negative impact on most outdoor products revenue. However, we continue to introduce new products across our brands and our geographies. A cautiously optimistic view sees 25 revenues flat to the prior year. We are taking actions to maintain at least double-digit margins and realize that our views are highly dependent on consumer sentiment and spending, so there certainly is some risk associated with this outlook. But overall, we have full confidence in our long-term outlook. We expect cash flows to remain strong. We will continue to deliver value to shareholders through our innovation, operational excellence, and significantly heightened share buyback levels. We've consistently demonstrated our ability to manage our business effectively, maintain a strong balance sheet, and preserve margins under challenging market conditions. We are leaders in innovation. Our solutions address our customers' pressing business challenges. The current environment makes it a little hard to predict the next two to three quarters, but our confidence in the next two to three years remains high. Thank you, and we will now take your questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. The first question comes from Walter Liptuck from Seaport. Please go ahead.

Hi, thanks. Good morning, everyone. I want to ask about the 2025 sales guidance. You were previously at low single digit, and you just provided segment guidance. I wonder what you're thinking about for the company in total. And then within the three segments, you know, where you're seeing the biggest change? You know, is it food processing? where, you know, the outlook has changed the most, or is it in the CFS segment?

Thanks, Brian. You know, I'll take, you know, that one. Obviously, you know, the full-year outlook is going to be, you know, mostly driven by, you know, commercial giving it being, you know, the largest segment. So, I think, you know, based on what we're seeing today, even though as we think it improves over the course of the year, you know, that keeps, you know, the expectations on the full year, you know, mostly aligned with how commercial will, you know, will turn out. You know, a lot of the change in the outlook really is due to, I'll call it the, you know, the change in the macro and the, you know, change in the trade environment and what that is meant to, you know, uncertainty around consumer behavior, what that means to what our customers are seeing in the marketplace and their investment decisions. And so, you know, I do think that goes across, you know, to a certain extent, you know, most of our segments. You know, the dynamics are a little bit, you know, different today. in residential where, you know, it's consumers making investment decisions as opposed to in commercial and food processing, right, where it is, you know, businesses making, you know, business decisions. But I think it's well discussed in the general marketplace, right, And certainty creates challenging times for people to make the investments. And so that is what's, you know, caused our outlook to maybe be a little bit more, you know, muted today than it was, you know, the last time we discussed results.

Okay, great. And when you roll it all up, what are you thinking about for the revenue for 2025, especially in the back end? Yeah.

You know, like I said, things are going to, you know, should sequentially improve, you know, over the year. But I don't want to get, you know, explicitly pointed with, you know, a point estimate or a tight range, you know, for the year. But, you know, I think where we noted that growth is going to be a little bit challenged in at least, you know, two of the segments, right, that, you know, that overall outlook is what would, you know, also be applied to the full company.

Okay, got it. Okay, thanks much.

Thank you. The next question comes from Jeff Hemon with KeyBank. Please go ahead.

Hey, good morning. Just wanted to start with the buyback decision. Just want to inform that, you know, is it recognition like M&A is fewer and farther between or it's difficult or... you know, recognition on, you know, where the valuation of your company is versus deals or focus on RSC, just, just more, more color there. Thanks.

Yeah. I mean, I would say it's a combination of a number of factors and you sit on a couple of them. I mean, I think first and foremost, it's our view, our valuation, something that we've been spending time on going through last year led to the spin. But, you know, as we kind of think about our business, And as I mentioned in the comments, we really do believe it is stronger than ever. The last handful of years, we've come a long way with the strength of each of the portfolios, the amount of innovation, how we've transformed our go-to-market processes. And that's kind of against this backdrop of some of the challenging dynamics. I mean, I think And at the same time, we've grown cash flows, you know, profitability is still leading. So I think, you know, we believe inherently that the share price is not reflecting that. So I mean, I think that's the number one factor. So we're the best investment, you know, in town. I think at the same time, you know, our cash flows have grown, like we've compounded over a long period of time. We've got a lot of cash flow to deploy. As Brian mentioned in his comments, the balance sheet is also strong as we've delivered from three times to two times, which was also very intentional by the company. We're in a much better place from a cash flow and balance sheet position. So where do we want to deploy that cash? And that is to our best investment. And as you kind of think about M&A, if you look at really where we focused the last couple of years, I think five out of the last six deals have been food processing. So we've been scaling that business. And that's really the segment that's got the most opportunities. So I think as we've grown, there is differences in what are the opportunities in each of the three segments and some of the merit of why we've moved towards the separation, because we do think that food processing going forward is still going to be It has a lot of M&A opportunities where the other businesses are a bit more mature, and even the investments that we've made in commercial and residential to a certain extent have been largely technology-focused, so I would say enhancing our organic growth initiatives. So I think that's – A number of those, you know, factors, you know, with the evolution of the business kind of have, you know, led to that decision. So we're very excited about the buyback. So, yeah. So hopefully that gives you a little bit more perspective.

No, that's helpful. And then I guess with respect to tariffs and the tariff, I wanted to better understand, one, given your U.S.-centric footprint, where you think there are the biggest opportunities for share gains and how quickly those can come through. And then conversely, you know, I think the grills business has been a challenge and I think most of that is sourced, you know, out of China. So what's kind of the, you know, the risk in the short term and the longterm strategy to kind of write the ship on the grill side.

Yeah. Well, I'll start, and then I'll kind of kick it around here. I mean, I think, you know, even though we put out, I'll say, a big number, and that's kind of more the gross, you know, number, we are confident we're going to offset. I mean, I think certainly operating initiatives, which includes supply chain, which we're – the strength of that capability is much more developed today than a few years ago, and I think goes to – also the strength of the overall platform and our manufacturing. But we are highly confident we're going to offset this number. You know, price increases, I think, is not a scary number to us. So I think, you know, we have a high degree of confidence that through the balance of this year, this will all be offset. So your other, you know, question is, You know, we really are a U.S.-centric manufacturer, so the tariffs really are an opportunity. In some ways, we're a bit excited about the tariffs, so we actually don't want them all to go away. I mean, as you kind of look across different product categories, you know, for example, light duty and counter-aligned cooking equipment, we're kind of the last man standing with brands like Star, Toastmaster, Wells, Holman, A lot of that business with our competitors has been shifted overseas, so we see that as an advantage. But speed cook, fryers, induction is an area we've been investing. We're the only manufacturer of induction in the U.S. Our coffee platform that we've invested in, we're largely competing with Swiss, German, Italian, and we're the Seattle-based guys. Undercounter refrigeration also on the residential side of the business. Most of our competition today is in China, so we're very well positioned. So there's actually quite a few categories, both commercial and residential, that we think we're going to benefit from. So we very often kind of put the USA flag on our boxes, but that means a lot more today and hopefully next year as we go forward. On the outdoor, I'm first going to start with the premium. So we manufacture our premium outdoor in Greenwood, Mississippi. That's actually one of the initiatives over the last several years is to consolidate some of our outdoor premium lines, including Viking and Lynx there. So operationally, we're much stronger today. And a lot of our competition is coming from overseas, China in particular. So that's going to position us well there. And then on the other grill segments, We've got action plans in place. We're in a similar boat to our competitors. So I think the team has swung into action to counter some of those tariffs out there. I think it'll have an immediate market dynamic, but I think we'll navigate it as well as anybody there. And certainly some of the orders that may get delayed in a quarter or two, we think we'll just create some pent-up demand for the latter part of the year.

Okay. Appreciate the call, Tim.

Thank you. The next question comes from Mick Dobre with Baird. Please go ahead.

Thanks. Good morning. Maybe just some clarification around this tariffs figure, the $175 million at the midpoint. Is there a way to help us understand the the allocation at segment level, you know, what would this breakdown be between the three segments? And, you know, you talked about being able to offset these costs by year end. So I'm kind of understanding this, that into 2026, you expect this to be offset. But how do we think about these costs flowing through in Q2, Q3, Q4, presumably it takes a little bit of time before you can actually get to where you fully offset these costs.

Yeah, Mig, this is Steve. I'm happy to take a first pass at it. I think in terms of the allocation across the three segments, maybe I'll just use percentages of the 175. I think the impact is I'll call it weighted more towards commercial and towards residential and actually probably less on food processing. So if I had kind of round numbers, I'd probably say it's something like 70% ish would be commercial and, you know, 20 is residential and then 10 food processing. It's somewhere in that neighborhood in terms of scale of the overall 175. The big difference between, I would say, commercial and residential versus food processing is you don't have really any componentry being sourced from China or not as much in the food processing space. So that's how I would think about the allocation across the three segments. I think in terms of how we're mitigating it, we have talked a lot about the pricing actions that we would take. In commercial, we've already announced a July 1 price increase. that we're working through as we speak. We tried to be very intentional around the timing of the increase to try to give as much clarity to our customers as possible. So we feel like we are able to drive the pricing through the back half of the year. I think we've proven that we can do this over the last several, three, four, five years as we've gone through inflationary periods and be able to get pricing through the market. So that is our intention. At this point, I also think that we are better positioned today from a supply chain standpoint. Again, going through the last three, four, five years of supply chain disruption has actually, I think, enabled us to withstand this next period of disruption. We've actually moved a decent amount of sourcing of componentry into the U.S., over the last five years. So even though China remains a decent spend on componentry, it's actually less today than it was five years ago, I think, thanks to our supply chain team. I think other capabilities around, like we have a facility in Nogales, Mexico, that has become an insourcing capability for us. So even though there are tariffs, they're obviously coming in from Mexico into the U.S., it's obviously substantially less than China, so we have already been, even before this latest round of tariffs, been moving in-house manufacturing from China to Mexico. So between pricing, supply chain, and operational initiatives, I think that's why we're confident, Meg, that we can, in the back half of this year, overcome and mitigate the tariff impact to have us at more or less a cost-neutral standpoint going into 26.

That's helpful. And maybe this is parsing things too finely, but, you know, in CSS specifically, you've got to call it 4%. I guess the cost headwind would be about 4% of sales, right? So, you know, as you think about the things that you have to do to offset that, how much of that do you think is pricing versus all these other cost actions that you've sort of talked about? And I'm asking the question because you did talk about the fact that you were able to put through pricing in prior years, and that was very clear. But the industry was in a very different spot, right? We've been reeling here with the stocking, weak demand. This is not a great environment to be able to put through price increases. So how reliant are you specifically on pricing, and how confident are you that you're going to be able to actually get that?

Yeah, it's a very fair question, Meg. I think as we think about the impact of pricing just in terms of scale, you know, I expect that the pricing we set forth on July 1st is going to be in the mid to high single-digit range. So a predominant part of the coverage is going to come from pricing, and obviously the rest of it is going to come from the operational supply chain initiatives. I would tell you from a competitive landscape standpoint, from what we've seen so far, I think that puts us below the majority of our competitors. So even though it is another increase to your point on an already tough pricing spot, we actually think we're positioned better in a lower price point from our competitors. I do believe that the way I think we can be effective in getting the pricing through goes back to being very transparent in our approach, which I think is something we were effective with going back several years ago. Our customers are not ignorant to, hey, there is this tariff impact. They know that they're going to have to absorb majority of it or a portion of it. It goes back to being transparent with customers on where the increases are coming from. And I think it's also transparent on, hey, if tariffs do go away, that we would adjust pricing accordingly to remain competitive in the marketplace. So I think if you take that approach, And again, we've already started these conversations with the majority of our big customers that we feel like we can get the pricing through. I actually do believe, to round it out, that even though the pricing is tough in the market that we're in, it still favors us more than I think anybody because it puts more and more focus on we still have to solve for all the challenges the restaurants are facing, whether it's food costs, which are facing inflation again. Labor continues to be a challenge. Utility costs. And that ultimately still comes back to us as a solution to help solve for all of those things. So that would be my positive spin on even if costs continue to go up, I think they look to us to help solve those challenges that the restaurants continue to face.

That's helpful. If I may squeeze one last one. Sure. When we're thinking about the revenue outlook based on what you know today, I know that in Q2 typically we see a a little seasonal bump relative to Q1 for the revenue. And I'm wondering if that's still reasonable to expect. And then relative to the second half, in your slides, you talk about the fact that new store openings for your customers are weighted to the second half of 2025. How reliant is your revenue on these new store openings? Or maybe put differently, how much risk do we have from store openings potentially getting pushed out into 2026 or some later date. Thank you.

Mig, it's Steve again. So I think Brian called out sequential improvement that we believe will be in place second quarter over first quarter. So I don't know if I'd quite call it seasonality, but I do believe that second quarter sequentially will be above first quarter for commercial Yeah, new store openings, we've talked a fair bit about over the last several years. We get pretty regular updates from I'll call at least our top 25. chain customers in terms of new store openings by market, by country, et cetera. If you look at that list today of the top 25 chains we do business with and their new store opening plans for this year, yes, there has been pushouts or pushouts last year. I think you'll see some ebb and flow still this year. But for the most part, they would all have in their build plans that the remaining three quarters of development this year are net higher than the same periods in the back half of last year. So they continue to reiterate that. Do I think there's going to be some push out here or there? Yes, I do. But I think by and large, the numbers they continue to give to us do reflect, you know, a year over year improvement in net development for the remaining three quarters of this year.

Great. Thank you so much.

Thank you. The next question comes from Team Tyne with Raymond James. Please go ahead.

Thank you. I'll try and keep this tight here. Two questions on commercial, the first being the mixed benefit that you called out helping to support margins. I'm curious if that was a channel or product mix. Obviously, the product mix can swing around on a quarter-to-quarter basis, but I'm just curious if that's something that I guess the question is kind of the element of sustainability on that. And then I guess, Steve, just continuing on that last thread that you're talking about in terms of the new store openings, my sense is at least from, and obviously I don't have the lens that you do in terms of the number of operators, but it seems like more of that mix maybe is kind of oriented towards international markets, I'm curious if A, if you're seeing that, and B, how Middleby is positioned to the extent that that read is accurate, i.e. more of the new store growth being outside North America. Thank you.

This is Brian. I'll start with the mix and the margins in Q1 on commercial. It actually has contributed to both, I'll say, customer and You know, and product, you know, we've noted that we have some, you know, businesses in the beverage, you know, platform that perform well because of the value they create for our customers. As well as, you know, just as you go, I'll say, you know, up and down the list of the different, the many different, you know, brands we have. and which segments of customers were buying, that there was some positive mix in terms of which customer segments were buying at higher levels this quarter.

And Tim, this is Steve. To answer your question about the international mix on new store openings, you are spot on. If you were To bucket the new store opening pipeline for this year from a domestic versus international standpoint, it is definitely more heavily weighted. It's probably something like 75-25, maybe even 80-20 towards international markets. You certainly see a lot of growth. With some of the bigger chains and markets, actually Europe is doing well. Places like India, Brazil are markets where you continue to see these chains look for new franchisees and new markets to enter into. I think Middleby is incredibly well positioned. I think we've put a lot of investment into having The resources, both from a pre-sale and post-sale perspective, I mean, service, especially in international markets for these chains, is incredibly important. And I think we've put a lot of time and resources and investment into Europe, into the UK, into India, into the Middle East. And I think that lines up very well with where we're seeing that growth take place from our biggest chain customers.

Excellent. Thank you, Steve.

Thank you. The next question is from the line of Tami Zakaria with JP Morgan. Please go ahead.

Hey, good morning. Thank you so much. So my first question is on the 150 to 200 million impact you mentioned from tariffs, half of which is from China. Is that number based on the current 145% tariff rate? What I'm trying to understand is what the benefit reversal could look like if that rate comes down to a more manageable level in the coming months.

Yeah, so it's the true gross numbers is maybe slightly higher than that. So I think the range we've kind of taken a view of a little bit of a haircut of what we think it might model out to. So I would say we've assumed it might be anywhere from 20 to 40% lower looking at all the different countries in China in particular. So that kind of gave us the range of 150 to 200. Possibly that range can come down further depending on obviously how the how negotiations with tariffs go. So that's kind of, that is what we think is an adjusted gross number.

Understood. Very helpful. And my second question is on the buyback. Are you expecting most of the free cash flow you're going to generate this year to go for buybacks?

Yeah, I mean, I think the term we use in there is vast. So, I mean, I think really we are thinking about using, you know, essentially the entirety of our cash flow. This year certainly will take a lot of other, you know, factors into consideration, but we're pretty committed to deploying most of our cash flow to the buyback.

Got it. Super helpful. Thank you.

Thank you.

Again, If you have a question, please press star, then one. The next question comes from Brian McNamara with Canaccord Genuity. Please go ahead.

Hey, good morning, guys. Thanks for taking the questions. In commercial food service, I'm curious what competitive price increases that you have observed already in the marketplace in response to tariffs thus far and and how those would compare to kind of the mid-high single digit that you're planning on taking July 1st. I think you said you expect yours to be below, but I'm curious what you've observed already, if anything.

Yeah, Brian, this is Steve. I mean, I'll preface my comments by obviously there's a wide range of products and brands within Middleby, and we think competitors obviously crosses over a pretty wide range. landscape, I would just say first and foremost, when the tariff news first broke earlier this year, I think we built a lot of goodwill from our customer standpoint. We took an approach of a little bit more of a wait and see that, hey, we want to give you as much certainty as possible in uncertain times. And so that's why our Inc. Coming up July 1st is actually later than many. I think a lot of our competitors, I would say, rushed to put something across the line without having a lot of data to support it. And I think that did not play well from a customer standpoint. So I think we've taken the right approach of being a little bit more thoughtful and making sure we had as much data to support our increase as possible, going back to being transparent to get the pricing through. In terms of the competitive landscape, again, Brian, our increase is going to be just, again, in the mid-single-digit range. We have seen competitors anywhere from 10% to 25% in terms of increases. Tim called it out earlier. We've also seen a number of competitors that bring in product directly from China, either having to take massive increases in that 25-plus range or simply saying, hey, they're getting out of those products. So that's where we see, again, a pretty big opportunity in the countertop space, the cooking space, fryers, ovens, et cetera. So we definitely feel like we have a competitive advantage both from the pricing standpoint and from, again, having the product coming out of the U.S. and not bringing anything in from China.

Brian, I hope that answers your question.

Yeah, sorry. On tariffs, thank you for that, Steve. I'm curious, is there any nuance as it relates to China tariffs specifically? We've heard that like this Section 232 steel tariffs supersede the reciprocal tariffs from other companies. I know it sounds like your exposure is only on the component side, but a Is there anything investors should be kind of mindful of as it relates to the nuances associated with the stackability of kind of the reciprocals versus the steel as it relates to the componentry?

I think we've reflected all those nuances, I think, in the range that we've given. So I guess that's kind of the first comment. There's a handful of strategies to minimize the impact, including different types of classifications, et cetera. And so, I mean, I think we have quite a few tools in the toolbox to mitigate the exposure that we see in China, including relocating out of China. But, I mean, I think everything that relates to China, we've kind of embedded in all the comments that I think that we've already gone through here today.

Great. And then finally, I was just wondering if you could provide an update on any new open kitchen rollouts and maybe some of the new products featured at NAFEM that are gaining traction and that you're most excited about. I think a lot of the conversation focuses on Paris when you got some exciting stuff going on in the base business.

Yeah, so we continue to have good momentum on Open Kitchen. We do have a lot of good pipeline activity with Open Kitchen with some large chain customers. Obviously, I don't want to name names today, but we've got some good velocity behind us with chain activity, especially around really what I'll call the entire enterprise platform, Vulcan Kitchen. That's connectivity at the front of the house, the middle of the house, and with the back of the house, connectivity with the connected products. Additionally, we are seeing a second order benefit. And we saw this in, uh, you know, 2024 where we are winning rollouts, uh, because of, uh, you know, connectivity. And so, you know, we had, you know, uh, tens of million dollars of, uh, you know, rollouts in 24 because our products were connected to open kitchen and, you know, that ultimately, uh, you know, tipped us, uh, you know, over the, uh, the competition, uh, relative to, uh, to winning that, uh, that change. So a lot of great momentum with, with open kitchen in the, in the marketplace. And remind me your second question.

Just the new products you're excited about from Nathan.

Yeah. So, I mean, we're excited about, you know, our entire pipeline and, you know, Tim's going to talk about the sizzling seven at NRA that we're debate debuting here in a, in a couple of weeks. And, and, You know, a lot of the new products are around beverage, beverage dispensing and we've got a lot of, you know, great pipeline support on those products. We have some new products in holding around, holding chicken for extended periods of time. And obviously everybody on the call knows how hot the chicken market is in the QSR space. Beyond that, the frying with the new torque fryer, We're super excited about because we believe that revolutionizes the frying industry forever. We take oil life from five days to over 30 days with the torque fryer. A couple other mentions. Obviously, we talk a lot about the Invoke combi oven. We are really starting to get traction on that. We're now rounding that out. right after the NRA show with the introduction of our gas versions of the Invoke combi oven. So that will, you know, continue to help us, you know, drive sales with the Invoke combi. And then lastly, the convection oven from Blodgett, which offers a unique multi-cavity impingement and convection oven on demand product. platform. And we see that really, you know, going into the casual, you know, dining, you know, market and having a great success there. So just to wrap it up, very bullish on Open Kitchen and very bullish on our NPI.

Very helpful. Thanks, guys.

Thank you. This concludes our question and answer session. I would like to turn the conference back over to Mr. Timothy Fitzgerald for any closing remarks.

Yeah, no, thank you, everybody, for attending today's call. I was going to put an invite out, and I think James did a great job of covering all the terrific things that we've got going on with innovation. James referred to it there, but we're very proud to be taking uh, seven, uh, kitchen innovation awards at the national restaurant show. That's the most of any, uh, manufacturer. Um, and, uh, so I would encourage everybody to come and see it. And, you know, you'll James said, but you'll see the latest in automation, uh, kind of next generation beverage, which is an exciting platform for us. Um, and everything digital, including, um, you know, IOT is James mentioned there, which is, uh, big growth initiative and a huge part of the future for Middleby. So it's May 17 through 20 in Chicago, so hopefully the invite is out and we will see many of you there.

Thank you.

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