The Middleby Corporation

Good day and welcome to the Middleby Corporation's second 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. On today's call are Mr. Tim Fitzgerald, CEO, Mr. Brian Meadowman, CFO, Mr. James Poole, CTO and COO, and Mr. Steve Spittel, CCO. 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 is being recorded. I would now like to turn the conference over to Tim Fitzgerald, CEO. Please go ahead.

Good morning and thank you for joining today's call. While this quarter's results reflect the economic challenges our customers are navigating in key end markets, they don't appropriately capture the fundamental transformation we've achieved across our business to drive long-term growth. The strategic investments we've made over the past three years across innovation, -to-market capabilities and operational excellence have created an unmatched platform that is poised for growth as market conditions normalize. Given our confidence in Middleby's trajectory, earlier this year, we chose to allocate the vast majority of our free cash flow towards share repurchases. As we do not believe, our current market valuation reflects the opportunities ahead of us. This isn't just optimism. It's conviction rooted in measurable progress and wins we are experiencing across our business. That is an overarching thought. I'll discuss what we're seeing in the current marketplace across our business segments. At our commercial food service business, we experience growth with our dealer partners in the general market, along with sales increases and better performing segments such as our institutional business and with emerging fast casual chains. We're also penetrating product categories such as ice and beverage. However, our revenues reflect the reduction in demand from our largest chain customers that are experiencing challenges with lower traffic and cost pressures, resulting in deferred replacement business and revisions down in restaurant openings. While facing these near-term headwinds, our business is fundamentally stronger than at any point in our history. We've invested heavily over the past three years building the preeminent commercial food service business in the industry. We've revolutionized our innovation engine, resold our selling organization, and we've dramatically strengthened our positioning with top customers. We also have strategically targeted and expanded into attractive new market adjacencies. Our ice and beverage platforms deserve special attention as they represent transformational growth opportunities. While we are still in early stages with ice, we've already grown our market position. As a new entrant in the faster growing beverage category, we are positioned to take share from established competitors as we disrupt the segment with automation and game-changing innovations. We're realizing early benefits of strategic investments in automation, controls, and IoT, investments that are long-term in nature that we know will separate us from the competition in the years ahead. Turning to our residential business, we're seeing encouraging signs and increased sales at our indoor categories with momentum at our core Viking, Lac Grenouille, and Aga Rangemaster brands. Product introductions over the past 12 months have been well received. New designs, colors, and induction offerings are gaining the attention of designers, builders, and channel partners. And we have additional new products coming to market over the next six months, including the next generation Viking reveal. Our new digitally connected product line with contemporary features capturing a new audience for Viking. Refrigeration in ice is another residential platform we're making great progress with exciting things ahead. We'll be completing the construction and move into our new manufacturing center of excellence in Michigan in the third quarter. All of our refrigeration in ice brands will consolidate manufacturing operations into this -the-art facility. Along with the manufacturing investment, we'll be launching an entirely new product lineup under our Marvell ULINE and Viking brands, all coming to market in the second half of this year. This major initiative has impacted our sales in the first half as we transition manufacturing. While new product launches will take some time to ramp, we expect to build momentum in the second half and gain traction as we move into next year. Finally, within residential, the outdoor segment is faced with significant challenges from tariff-related pressures, causing our channel partners to reduce inventories. That said, we do believe this segment is at the bottom of a challenging cycle and it'll be as well positioned to benefit once the market returns. As innovation becomes in greater demand to the outdoor space, we have already invested. Moving to food processing, we are pleased with the improvement in sales and orders from the first quarter. Order conversion has been slow in the first half, driven by uncertainties from tariff and food costs, impacting the timing of orders, particularly for larger projects. However, we've seen our order pipeline build, with conditions improving in both our protein and bakery segments. And the snack category, which is a new market for Middleby, is growing rapidly, with a large market opportunity ahead. Our strategy to offer -in-class, full-line solutions is continuing to differentiate us in the marketplace. And we're confident this strategy has positioned us for sustained long-term growth, both organic and through strategic M&A. Across all three of our business segments, we're building stronger competitive positions that will drive growth when market conditions improve. We have confidence in our strategy and optimism about our business in the future. With that, I will turn it over to Brian to break down the quarter and talk about our outlook before I provide some final thoughts ahead of Q&A.

Thanks, Tim. Looking back at the second quarter, we were pleased to see sequential revenue improvements across all three segments, including the significant step-up in food processing revenues relative to the first quarter. For commercial food service, while market conditions kept our Q2 revenues below prior year levels, demand for our leading technologies generated sequential top-line growth. We delivered over $580 million of revenue and a strong 27% EBITDA margin. At residential, tariffs significantly affected some of our outdoor products. Nonetheless, revenues grew sequentially to over $181 million and our EBITDA margin continued to exceed 10%. Notably, we saw improvements in our U.S. and United Kingdom indoor appliance markets. At food processing, we delivered a large sequential increase coming out of Q1, with Q2 revenue exceeding $216 million and an EBITDA margin of over 21%. Margins were below our expectations, owing to both tariffs and fewer large products that didn't yet materialize but do remain in the pipeline. The latter was driven by market uncertainty that impacted customer decision-making. Sequentially, we saw improvements across the majority of our platforms. Moreover, the businesses we acquired over the past year that have expanded our reach in snack foods continue to perform very well. On a consolidated basis, total company-adjusted EBITDA for Q2 was $200 million and adjusted EPS was $2.35. Regarding tariffs, which, by the way, are the driver of our -over-year decrease in EBITDA, this situation remains fluid. We currently estimate that the incremental cost impact will be approximately $150 million on an annualized basis. This does not include adverse impacts to sales, which we saw in the first half across all three segments, with the biggest hit to the residential outdoor business. While the adverse net impact to EBITDA in Q2 was approximately $10 million, we estimate that the costs will increase in Q3 due to the timing of tariff implementation and inventory flow through. Price increases will somewhat offset this, so we expect a $10-15 million net negative impact to EBITDA in Q3. As pricing actions take greater hold in Q4, the tariff headwind should be further offset. As of now, we estimate an adverse net impact of $5-10 million. As you can imagine, all of this is subject to where tariffs finally land and is subject to risks, particularly in key supply chain markets of China and India. Q2 free cash flow was $101 million. Our leverage ratio per our credit agreement at quarter's end was 2.3 times comfortably within our long-term target of 2 to 2.5 times. Please recall that our convertible notes will mature on September 1. We intend to pay them off in approximate terms by using $250 million of cash on hand and drawing $500 million on our revolving bank facility. Accordingly, our interest expense will be higher in the second half compared with current run rates. We expect interest expense in Q3 of $23-25 million and then $28-30 million in Q4. As far as capital allocation, earlier this year we made the decision to deploy the vast majority of our free cash flow to share repurchases. During Q2, we repurchased over 2.2 million shares for nearly $323 million at an average price of about $145 per share. At the end of the quarter, we had 9.4 million shares remaining under our share repurchase authorization. We've continued to buy back shares with July purchases of $97 million for over 650,000 shares. Looking ahead, we will continue to be opportunistic and we will do so while maintaining the financial flexibility needed for strategic growth investments. As you can see in our earnings release and quarterly presentation, we issued quantitative guidance this quarter. Our plan going forward is to provide you an outlook for the upcoming quarter as well as providing an initial annual outlook in conjunction with reporting year-end results. Regarding today's outlook, I offer the following additional perspectives. For food processing, there can be volatility on a -to-quarter basis for our results. This is often driven by the timing of completing medium to large-sized projects that may not repair with the same regularity as other parts of the business. After a stronger than anticipated Q2, Q3 is currently expected to take a small step back compared to Q2 revenue. We still expect the fourth quarter to be the strongest of the year and a stronger second half versus the first half. Overall, I would characterize the market conditions for our food processing segment as modestly improving. In the residential segment, I would characterize market conditions as fairly stable. For the third quarter, we are forecasting a typical seasonal step down in addition to the impact of tariffs. We do see our strongest quarter of the year in Q4. Lastly, thinking about commercial food service, we are seeing pressure at many of our large QSR customers, which represents a significant share of our business. We expect slight sequential increases in revenues over the coming two quarters, largely due to pricing benefits mitigated by tariffs and the impact of current consumer sentiment and industry-wide traffic challenges. Overall, this thoughtful view of the coming quarters in no way diminishes the greater level of optimism for the years ahead. So for Q3, we expect to achieve the following. Total revenue of $950 to $975 million. And by segment, this is comprised of commercial food service at $580 to $590 million. Residential kitchen at $170 to $180 million. And food processing at $195 to $205 million. Adjusted EBITDA is forecasted to be between $185 and $195 million. And adjusted EPS is projected to be in the range of $2.02 to $2.16, assuming approximately $50.8 million weighted average shares outstanding. Then for full year 2025, we expect to achieve the following. Total revenue of $3.81 to $3.87 billion. With adjusted EBITDA of $770 to $800 million. And adjusted EPS of $8.60 to $9.00. Based on, I'm sorry, $9.05. Let me correct that. Adjusted EPS of $8.65 to $9.05. Based on the sum of four individual quarters. This also assumes 51 million weighted average shares outstanding for the fourth quarter. Please refer to slide eight of the presentation we have posted on our website for these details. Taking a longer term, more general view with our new capital allocation philosophy and assuming more normalized market conditions, we believe we can deliver annual earnings per share growth in the high single to low double-digit range. In some years, we could certainly be higher or lower than this range due to unforeseen circumstances. But on average, we believe this is reasonable and achievable goal given our market position and positive outlook. I will conclude my comments with a quick update on the food processing spinoff, which we expect to complete in the first half of 2026. We are confident in our ability to execute the necessary actions to have a successful transaction. Activities to ensure the spin company will be operating efficiently and independently at inception remain on track. We had previously mentioned in investor day plan for Q4. But having it in the new year will be more meaningful. As we get closer to the spin, we will cover matters such as leadership team, cost to complete the spin, and stand-alone corporate costs. With that, I will pass the call back to Tim.

Tim Weiss Thank you, Brian. Before we go to Q&A, I want to share some final thoughts on why Middle B is positioned to create exceptional value for shareholders going forward. First, we have -in-class portfolio brands that is second to none. Almost all hold number one or number two market positions. The strength of this combined portfolio of brands under the Middle B umbrella is powerful. Establishing Middle B is the most experienced and trusted partner to our customers. Second, our commitment to innovation is extending our lead over the competition. We have introduced more new products and innovations in the last three years than any time in our history. In just 18 months, we received 24 individual innovation awards, far more than any other industry player. As solutions to reduce labor, increase speed of service, reduce food costs, and address operational pressures continues to grow in importance with our customers, Middle B is positioned to benefit. Third, the breadth of our product offerings and scale of our portfolio provides competitive advantages that are difficult to replicate. It is only in the last several years that we have made investments and executed upon strategies to leverage this scale to drive both top-line organic growth and bottom-line profitability. We are confident these actions are unlocking new opportunities and providing growing benefits. Finally, we have evolved our culture and organization over the past several years, aligned with our long-term strategic growth initiatives. I truly believe we have assembled the best team in the industry. We have attracted top industry talent and developed a new generation of leaders from within. Our people are empowered, they are running fast, and what they do every day is steeped in a culture of winning as a team. We're pairing all these advantages with shareholder-friendly actions designed to create long-term value. The food processing spin, our board refreshment with four new independent directors is all part of that plan. So is our share repurchase program, which smartly allocates our significant free cash flow to buybacks providing for increased leverage on our earnings per share growth. We're very excited about the prospects and our ability to drive shareholder value from all of these lovers. So with that, Operator Mike, can you please open the line for questions now?

Certainly. We'll now begin the question and answer session. To ask a question, you may press star then one 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 two. At this time, we will pause momentarily to

assemble our roster. And your first question comes from

Sari Boroditsky with Jeffreys. Please go ahead.

Hi, thanks for taking the question. And I have to say, I appreciate all the details on the guidance this quarter. That was a great thing to see. Maybe if we can ask for a little bit more within the EBITDA guidance, maybe just talk through how you're thinking about the contribution by segment.

Yes, Sari, this is Brian. I'll take that one. I think you'll see margins evolve a little bit similarly as the revenue trend works out through the year, you know, with Q3 revenues stepping down a little bit. We'll obviously lose a little bit of operating margin. So you'll probably see margins slightly down in Q3 as opposed to Q2 before stepping back up where Q4 is traditionally our strongest margin year of the quarter and will also benefit from higher revenues in Q4 over Q3.

Great. And then on residential, could you just update us on where the grills run rate revenues and margin performance are? And then are there any footprint changes planned in this business? And just how do you think about mitigating some of that tariff impact?

Let's get to the first part. Yeah, obviously, you know, the business was on a growth trajectory for us at the beginning of the grill season, you know, before having the full force of the tariffs, you know, hit us. But it is still, I will say, in that, you know, 100 to $150 million range, you know, run rate that it's been, you know, operating in for the past couple of years now.

Appreciate

the comment. Thank you.

Oh, sorry. Yeah, no, I'll kind of add on the first part of the question. So, I mean, as Ryan said, you know, we actually were seeing real growth kind of coming into the year with the tariffs that came to pretty much a switching halt and then actually averse the other way as our channel partners are taking inventory levels down to extremely low levels, we think, even potentially being out of stock later this year. So that's obviously challenging. And I think that's where the top line is putting pressure on the bottom line. I think as we play it out over a longer period of time, at some point that is going to turn. There was a fair bit of investment and integration over the last couple of years of consolidating our outdoor grill platforms. So when you actually look at the platform where they're operating as one team, consolidated customer service distribution, et cetera, we have better leverage in that model when volumes return. And that was part of our plan to expand the margins up to kind of double digit. So we're obviously far below that now. But, you know, we're positioned to benefit as the market comes back to, I'll say, some level of reasonableness.

Appreciate the color. Thank you. And the next

question comes from Mig Dobre with RW Baird. Please go ahead.

Hey, good morning, guys. It's Joe Grabowski on for Mig this morning. Hey, good morning. So I also wanted to say that we appreciated the guidance. It's very helpful. And I also wanted to ask a question on the guidance. It seems like the guidance implies that Q3 consolidated organic sales are going to be down low single digit. But then Q4 consolidated organic sales are going to be down mid single digit. Assuming that's correct, is it mostly just a factor of the prior year comparison or anything else you want to call out?

I think this is Brian. This is that is an accurate representation of things. You know, I commented before. Is it more useful to look at the business in terms of, dare I say, what did it do yesterday and how it's performing sequentially versus, you know, last year as obviously from year to year factors change and tariffs have been a big one this year and how, you know, consumer sentiment has evolved. So nonetheless, I think you've appropriately interpreted the guidance we've put out there.

Perfect. And then my next question would be on the outlook for the large QSR customers in the second half. It seems like maybe it's gotten a little worse than where we were 90 days ago. Maybe just talk a little bit more about what you're seeing with large QSR customers. I think you mentioned that new store openings were being revised down. Do you think that's just going to get pushed out to next year or just any color you can give would be helpful?

Yeah. Yeah. Good morning, Joe. This is Steve. Happy to cover it. I think what we've predominantly seen from the major QSR customers is a couple dynamics that are affecting both new store development and just overall replacement upgrade orders. I think number one, really all of this year traffic through the QSR segment has been down predominantly pretty much the entire year. They've been down in some cases double digits over prior year periods. So that's number one. Number two, I think just continued cost pressures that the QSRs are facing, whether it's labor, whether it's food, construction of opening new locations, and then you have the backdrop of uncertainty from tariffs. So I think as a result of that, you're seeing their new store pipeline push out. And I've talked about in prior calls about the benefit that we've seen over the last several years is we have a lot more transparency into the new store pipeline from our customers. But if you look at where that pipeline has evolved from the beginning of the year to even the end of the first quarter to now, that pipeline certainly has pushed out to the right, if you will, and it's pushing more and more into 2026 and out of the back half of the year. So that is a big driver of what you're seeing in the revised guidance. And I think secondly, that all the dynamics that we're talking about from a headwind standpoint are also having an impact on just the overall replacement and upgrade cycle that those QSRs go through. So those are the big drivers of what we're seeing from the QSRs in the back half of the year.

Got it. Okay. That's very helpful. And if I can just maybe sneak in one more question. You mentioned that the tariff impact is expected to be fully offset by the start of next year in part through operating initiatives. You know, you don't have to be specific, but just kind of generally speaking, what would some of those operating initiatives be, you know, in addition to price increases to offset the tariffs?

Well, I think it's several, but the largest is really supply chain. I mean, I think one of the things that we had invested in over the last handful of years is our operating team, but we've got significant supply chain strike. A lot of that kind of went to, I'll say firefighting as we went through the last few years with supply chain disruption. But we spent a lot of time really leveraging our supply base, expanding that, moving to other non-tariff markets, et cetera. So there's a lot of, I'll say, scaling capabilities that we have there that are helping to offset some of the tariffs or perhaps even reduce costs, which is really our long-term goal is drive supply chain for savings in the future. So I think those are things that are well underway and reaping some benefits.

Got it. Okay, great. Thanks for taking my questions. Good luck on Q3. Thanks, Joe.

And your next question comes from Jeff Hammond with KeyBank. Please go ahead.

Hey, good morning. Morning, Joe. I'll echo the comments on the guide. Appreciate the color there and a formal guide. Just, I just wanted to hit the, I guess the 25 to 35 million of tariff impact that's not going to be covered this year. Can you give us a better sense of how that's impacted by business? It seems like maybe FP and Res Kitchen are impacted a little bit more, but if you could break that down a little bit better, that'd be great.

Jeff, this is Steve. I'm happy to take a pass at it. We covered a little bit on the last call. It's actually not quite as you outlined. If you think of the three segments and the tariff impact overall, I'd say roughly 60 to 65% of the impact is coming in commercial, which is about the overall spend for the company. Residential is in the 20 to 25% of the overall impact, and then food processing would be, the remaining was at 10 to 15%. So food processing is actually probably the least impacted compared to the other two segments. And a big driver for that is that if you look at overall sourcing, food processing sources less componentry and parts from China compared to the other two segments. And again, remember in residential, you also have the grill impact, so that's why that's a little bit higher than food processing as well. So those would be the three breakdowns, but food processing would be the lowest of the three. Okay, great. And then that's

very helpful. I think Brian, you said you characterized FP as modestly improving from a trend. Can you just give us what you're seeing in terms of order rates and backlog growth, kind of cutting through the quarter to quarter lumpiness? And then just, I know you announced a deal, just kind of speak to M&A, pipeline in FP as you think about, as you head into the spin.

Yeah, the order trends have been improving throughout the year. And so that was behind my commentary. I would say our book to bill is above one, but some of those orders don't deliver in one, two, three months, so it takes a little bit of time for them to roll out and such. So that's driving the positiveness in my tone there. Accordingly, backlog is also growing compared to where we started the year. And then as you have seen, we obviously made an acquisition in this space and do have an active pipeline. We've said that M&A will be part of the strategy for this segment. So I would expect to see more of that in the future.

It's one of amongst many reasons for the spin. So it is a very active pipeline. And as we get closer to the spin, obviously we'll focus on execution there, but it is a robust pipeline. So we're excited about that last acquisition of Frigga Mechanica. It's not large to middle B, it's somewhat meaningful to food processing. It actually adds quite a bit of competencies to our platform, both product and in category. So it's pretty strategic in nature. So there's exciting things ahead with that.

Okay, thanks a lot.

And your next question comes from Tim Thine with Raymond James. Please go ahead.

Right, thank you. Good morning. First question was a follow-up for earlier conversation with Steve on the commercial business. And I'm just curious on these profit and margin pressures that have been ongoing for your restaurant customers and franchisees. I'm curious if you're seeing or have seen any impact in terms of maybe product mix or maybe share moving around, i.e. is there any shift to lower spec equipment or less technology uptake? I guess one could make the argument maybe they'd go the other way if there's issues around labor availability, but just curious your general question.

Yeah, good morning, Tim. It's a great question. I think maybe to cover the first, the last part of your question first, I think it is the opposite of what you're seeing. I don't think we've seen a trade down in terms of cost and spec in the equipment. I think what's been interesting, nuanced, especially in the QSR segment, is they're trying to figure out how to solve for getting traffic back through locations, trying to additional day parts to their traffic. So that focuses around bringing in new menu items, new categories they haven't been in before. A big push that we've seen with several of the big QSRs has been around beverage, of adding beverage to their existing footprint and existing menu, which obviously we've talked a lot about beverage before, but we're so well positioned in these categories when you think of beverage being ice, coffee, dispense, could be frozen products from a company like Taylor, and there's companies out there that manufacture ice, manufacture dispense, manufacture coffee. There's nobody else that does it in one company. So I think that's what's so powerful about how we're working with the QSRs right now in this space is we're the one stop solution for what we can bring to the table. So I think to answer the question holistically is they're continuing to look for new menu items, new day parts to drive traffic. Again, these QSRs, it's not just competing with QSRs anymore, it's competing with C stores, it's competing with your grocery stores, and I think that's why you're seeing it. And then to answer your last question, they are focused more and more on actually the higher technology products that allow them to be more efficient, reduce energy usage, take out labor, take out training. It just unfortunately takes a little bit of time to get these products to market through the corporate side, through the franchisee side to bring them to market. But that's, I don't know if I answered the question holistically, but that's what we're really focused on working on with the big chain customers right now.

Got it. I would just kind of take the recap of that. I mean, I think we would think we have, despite that we're down there, we've actually gained share at the same customers that we're down with. We have more products approved as you kind of go across our top chains in the system than we had prior. And if you look at a lot of the rollouts that Steve just alluded to, a lot of the things that maybe they deferred this year but we see coming in the next couple years, that's part of our pipeline that we're excited about. So we feel like we're winning with that segment. It's just a segment under pressure, but we're pretty confident it's going to turn at some point.

Yeah. Okay. Thank you. And maybe, Tim, I forget if it was you or Brian that mentioned the comment about the long-term target to grow EPS high single- or low double-digit growth. I'm just thinking about the long-term profile of the commercial business and obviously this post-COVID period has been distorted in many ways. But how would you think about just kind of the underlying growth of the commercial business? Is it a – it used to be kind of a GDP++ and in recent years it's kind of normalized. But I'm guessing you have plans for – would think of pretty nice outgrowth. I'm just curious how you think in that construct to grow EPS double-digit annually, what you would think about in terms of the underlying growth of the global commercial business? Thank you.

Okay. Well, I'll let Brian kind of pick up on the second part of the EPS translation. But we do think of it as an GDP++ business. I think we have built a lot of the pluses with the innovation pipeline, our -to-market, incremental new target markets that are new to us. Obviously, we talk a lot about ice and beverage, which are – we're just in early stages of attacking. So that's kind of incremental on top of industry growth. And then you have kind of the longer-term pieces of IoT and automation. So we do think those things are going to show up and be of growing importance once we kind of get past the disrupted period. So that's going to get us to the GDP or industry plus growth.

And translating that to EPS growth, I think there are two reasons that the EPS grows, I'll say, two levels above what the revenue is happening. We've consistently demonstrated in the past that – I'll call it our earnings growth exceeds our revenue growth as we look at how well we manage margins, operating leverage, the benefits of offering better technologies to our customers. Right? All the things that Middleby's been doing for decades now. Again, I would say that has earnings at higher growth rates than revenue. And then layer on top of that the additional benefits from our capital allocation and our buyback gives it one more lift up. So I think that's how you can bridge from, let's say, a mid to high single-digit growth rate into potentially a double-digit earnings growth rate. So our products, our operational excellence, and our capital allocation all work together really well there is what we see in the future.

Understood. Thank you very much. You

bet. And your next question comes from Tammy Zuccaria with JP Morgan. Please go ahead.

Hi. Good morning. Thank you so much. My first question is, could you refresh us on how you're thinking about your -to-customer initiatives? Any thoughts on furthering your equipment and part sales by enhancing the DTC channel? Any launches in the pipeline or ideas in the pipeline that we should look forward to in the coming quarters or the coming years? I think that would be helpful.

Tammy, I think we're all trying to make sure we understand your question properly. I'll maybe start talking a little bit, but then I'll ask you to clarify. So over the last few years, I've been talking about -to-market a lot. We are very focused on how do we build a machine that surrounds the end user. That has to do with how do we bring innovation to market leveraging, I'll say, newly created capabilities. So for example, you've been to our Innovation Center. So that's a big investment. We've had 30,000 plus customers come through there, built a culinary team. Totally revamped our rep organization, which a lot of those reps are new, that are fully aligned with Middleby to sell the breadth of all of our brands and really focus on higher technology solutions. That's not only a big investment, but we kind of disrupted ourselves in the process, but we're also great at training that team and working side by side. We've invested heavily in digital tools, and maybe that's what you're alluding to a bit, and that cuts across a lot, but we do think that that goes right to the end user with content education and developing a funnel. One of the things that we have not talked a lot about, but we will in upcoming quarters in the year, is our service initiatives, which we think will further differentiate us. We're not necessarily selling direct to the end user, but we've got all of these capabilities and channel partners that we're very well aligned with, and we strengthen those partnerships to kind of provide not only excellent engagement, but bring to them the latest innovations that we have. It's taken us a while to build these capabilities and it's significant investments, but we believe we're kind of gaining significant traction that we can see on a quarter by quarter basis. Understood. That's

very helpful.

Okay.

Just a follow-up, I was wondering, is there any plan or is there any business case for going direct to customer, even with sales, like having a website and having some of your business customers onboard there so they can directly order from you and parts and new equipment alike? That was the genesis of my question, but I think you answered most of it.

Okay. Yeah. I'll just comment two things. One, I mean, although we've got channel partners, we are engaging directly with end users in multiple ways. All those different elements I talked to are all about how we engage with those customers. So end user customer engagement, like I say, is at an all-time high and we've got capabilities we didn't have a few years ago to do that, and I think that's paying dividends in some of the pipeline we are building. Digital is a piece of that and we're evolving it. We are not going direct to customers, but it provides a channel for us to engage and educate customers.

Understood. Thank you. That's all I had.

And there's new tools that are being deployed that our investments already made that will gain traction over

the next year. And the next question comes from Brian McNamara with Canaccord

Genuity. Please go ahead.

Hey, good morning, guys. Thanks for taking the questions. So I understand there's a lot of headwinds to deal with. I think CFS organic growth has declined for seven straight quarters now. This business used to grow high single digits organically, but it's been well below that. We're going back to 2017 now. So I guess when should investors expect a sustainable return to growth here and is the expectation when that growth returns to be more volume driven?

Yeah, I mean, I think we try to pull, you know, maybe comment on a few things like we are seeing growth in certain areas, right? The general market is starting to improve. You know, certain of the better performing segments within commercial food service, we are seeing a lift and doing pretty well. So I mean, it really does come down to larger major chains where we're extremely well positioned. So I guess the answer to your question is kind of when does that turn? I don't think any of us believe that the chains are going away. And if you kind of look at what's going on right now, there's a lot of retooling, right? There's the addressing menu, not only from a pricing standpoint, but from innovation, as Steve talked about. There's management changes going on. So I mean, I think right now there's been a lot of disruption in the marketplace. They're all kind of capturing where they're at and then they're going to surge at some point is kind of our expectation. So when that happens, you know, we think that that's a longer runway, right? Because I think a lot of the headwinds that have happened over the last few years, which there's, you know, we can go back each year and talk about what the new crisis of the year was. You know, hopefully, you know, we'll have a couple of years without crisis and those chains will be able to execute on their strategies and then we're very well aligned with them. And I think that's kind of when you get back to sustainable growth. And I think, you know, we are very confident that we're better positioned than anybody. And we've made those investments. So I think that's kind of where you hear us talk about our business with confidence because we know we've done the work. And that's why we've also elected to buy back shares. So, I mean, I think, you know, there's not a better investment out there than Middleby in our view. And we've been aggressive on that because I think, you know, we think about this over a long time and we know that's going to pay off.

And then we saw a lot of, you know, impressive innovation at NAFEM earlier this year that kind of addresses, you know, customer pain points, whether it be labor savings or addressing other inefficiencies. You know, open kitchen seems exciting, fry-bot, pizza-bot, convection ovens, to name a few. Like, how are those products performing relative to your internal expectations? And how much do you, quite frankly, think the sales cycle has perhaps lengthened given tariff noise and other uncertainty in the marketplace?

So I'm going to have James get a hit on that. I'll just kind of that second piece. Like, the tariffs has extended things, right? Like, I mean, anytime you have uncertainty and, you know, that the tariffs were a cost impact to not only do equipment, but it did affect other areas, paper packaging, food, et cetera, right? So, I mean, I think anytime you have uncertainty, disruption, things get, you know, pushed to the right. So that is definitely part of, you know, what we've seen this year in, you know, and certainly, you know, some of our thoughts about the market as it sits right now, which we also think will change. We do think we're getting, picking up, gaining traction on a lot of the exciting things that you alluded to that have been, you know, James, maybe you can hit IoT and some of the average automation.

Yeah, let's talk about IoT first. I think, you know, with our investments over the, you know, past several years, we've kind of hit a nice critical mass with connected products to offer to our customers. And we're continually seeing an uptick in connected equipment sales through the channel, which is exciting. It's also, you know, been a, you know, tailwind for us on, you know, certain chain wins where we are winning, you know, rollouts because of our connectivity solution and having the products connected, you know, kind of out of the gate. So we're, you know, appreciating that. Also on the Open Kitchen side, we're seeing some wins out in the market on the energy management side of the Open Kitchen platform. If you remember, Open Kitchen has energy management, it has middle of the house, cold chain management, and then it also has connected equipment, you know, management, no other platform, you know, out on the market has all three of those pieces tied together with a single pane of glass. So very exciting there. On the new products that we showed at the NAPHEM and NRA show, I will say that they are seeding very nicely in the marketplace, starting to see, you know, some good traction there and will, you know, start to benefit, you know, nicely in 26 and as we go into 27 as, you know, volume picks up. I tell you where we're really excited is with beverage. Tim talked a lot about the beverage, you know, innovations that we have coming down the pike. And, you know, I just want to echo that we have some really game changing dispensing and dosing technologies coming out from Newton and L2F where we're bringing kind of future-proof beverage dispensing to the restaurant industry, enabling them to, you know, rapidly adopt new beverage platforms within their organizations and coupling that with, you know, some game changing automation from L2F, we really expect to see some nice revenues in 26 from our beverage platform.

Thanks very much. I just want to give a little bit of perspective of the heavy lifting James and team have done because, you know, we bought what we thought was the industry-leading platform with Powerhouse Dynamics. James and team developed the application Open Kitchen, so that's a multi-year kind of lift and investment. At the same time, the team developed the Middle B One Touch control, and that was kind of done in a period when controls weren't available. It wasn't that long ago. Everybody's probably forgotten about it, but you couldn't buy controls a couple of years ago. We've launched the Middle B One Touch control, which James has across the breadth of our brands and our platform, so that's very powerful for everybody to kind of have that one simple experience when you're interacting with Middle B, and those controls are tied to IoT out of the box. That all came together effectively at the beginning of 2025. This is a several-year multi-pronged initiative that really, like game time, was the beginning of this year, and we're building new muscle with the sales team as we're bringing to market, but now our customers are asking for it. As James said, we've got some wins, and we've got customers who it was a factor in why they bought the equipment. In some cases, it was the deciding factor. I think we feel good about where we're at in what is a long-term journey, and nobody else is anywhere positioned to where we are. These are significant investments that not only we've made that are hard to remake, but because of the scale of the portfolio, they kind of bring a different value with Middle B than they would with kind of an individual product.

Appreciate the call. Thanks, Cas.

Again, if you have a question, please press star, then one. Your next question comes from Walt Litak with Seaport Research. Please go ahead.

Hi. Thanks, guys. My question is on the capital allocation, and it looks like with the purchases that you might have made so far in the third quarter, you're at about $500 million of buybacks so far this year. Do you think you'll be continuing on with buybacks sort of at that rate in the back half of the year, or are you thinking about other sorts of capital allocation for the back half?

I think I'll start off with Brian. I'll kind of say that we're very dedicated. That was an accelerated or more committed strategy, so I think we're very focused on making sure we executed on the buybacks sooner rather than later, given a variety of things, including it's the best idea, things that we were focused on operationally in other areas, but I think we wanted to make sure we got ahead of our buyback strategy. I think we're going to continue with buybacks, so that is a longer-term view and we think a great investment, but we definitely kind of weighted it towards the front end was the thinking there to take advantage of where the stock price was.

Okay, great. Your debt ratio looks like it's about two and a half percent. I just want to understand the M&A strategy going forward. It sounds like FP might have some deals that you could do maybe in the back half, but in the past, you've always consolidated and done good acquisitions in the CFS segment too. During the sector weakness, wouldn't this be a good time to be consolidating and looking at deals? Is CFS still, do they still have a deal pipeline?

Look, I think a couple things. If you look at where we were allocating capital to acquisitions over the last several years, food processing was a significant portion of the deals. That was growing because of where that business in the life cycle, the fragmentation of the industry, and hence, again, one of the factors of us thinking about the separation, and that's going to be a fast-growing company driven both by organic growth as well as strategic M&A. That is where a lot of the acquisition capital was going, so that doesn't really change with the separating. When you look at commercial food service, we're at a different size and scale today. We have done a lot of acquisitions. We've built out a lot of the platforms, and even as of the more recent periods, a lot of the acquisition capital turned to beverage and ice, which there are some opportunities there, but we've also built that out nicely. I will say some of our longer-term initiatives around IoT automation and controls. I won't say that we're done, but we also have added a lot over the last several years, and we're very focused on, I'll say, integrating all of those opportunities and driving organic growth. We will continue to evaluate compelling and strategically fit the platform, but given where we're at right now, the R-share price is compelling. Number one, B, we want to focus on execution of the spin from a bandwidth standpoint and see probably the most significant or obvious opportunities are still in food processing today. I think that's how we're thinking about the priorities, but it doesn't mean that there will never be another commercial food service acquisition, but I think we're focused on those immediate priorities.

Okay, yeah, that would be surprising if you didn't do any more CFS deals. Maybe just the last one, while you were answering another question, you talked about how replacement of equipment in the field in CFS, that there's some delays in refurbished replacements. I can't remember if I've ever heard you guys talk about that in the past. What's the driver of that? What should we think about for when maybe some pent-up demand for replacement comes back?

Yeah, good question. This is Steve. We have talked about it a fair bit in the past. If you look at the last, I'll call it 10 years of commercial growth, a lot of growth going back to call it the 2012 to 2016 period, think about all that equipment that has been in the field. A normal life cycle of a piece of equipment is anywhere between five to seven years. Let's just use seven years as the baseline. You would normally expect that all that equipment and that period of growth would be up for replacement. Then what happened was so many of the franchisees going into COVID were focused on front of the house initiatives. Then COVID happened and then supply chain happened and then now the tariff disruption has happened. Everything's kicked the can down the road and just pushed it out further and further to the right. Now I think we are going to have to come to an intersection point. You do have a pretty large base of existing equipment that does need to be upgraded. It is more and more expensive to repair the equipment. Ultimately, if you lead to a place where you cannot serve food because your equipment is down, it's just going to push more and more towards a replacement period. Then they have to still solve for, hey, can my equipment help me with labor, efficiencies, energy savings, everything we've already talked about. I think we feel like it has been pent up for such a long period now that it has to come through. I guess a little bit of a question of when does it come through. I do think we're getting closer just because you can only push it off for so long until you really have to take a hard look at upgrading the equipment. I think it's something you see start to pick up as we get into probably next year and the years following.

Okay, great. Thank you.

Seeing no further questions, this concludes our question and answer session. I would like to turn the conference back over to Tim Fitzgerald for any closing remarks.

Thanks, everybody, for joining us on today's call. We look forward to speaking to you next quarter.

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