Middleby shows surprising strength following acquisition

Oven maker Middleby (Nasdaq: MIDD) recently reported revenue down nearly 9 percent in its second quarter (over year-ago levels), to $159 million. Profits took more of a beating, dropping 25 percent. And as you can guess, profit margins declined as well. But so far this year, the company’s running on an operating profit margin of 17 percent, beating rivals handily.

The most impressive item in Middleby’s report is this: Since acquiring TurboChef, Middleby hasn’t just turned around its historically unprofitable rival, but has boosted its operating margin to nearly 20 percent! And people once feared that TurboChef would drag down profits at Middleby.

Despite spending $11.4 million on two acquisitions in the quarter, Middleby cut its debt load by $25 million, to $321 million. Here’s where Middleby’s prodigious prowess in generating cash comes into play. Free cash flow for the past 12 months amounts to nearly $84 million. Were it to cease acquiring competitors, and focus exclusively on debt elimination, Middleby could pay off its debt in relatively short order.

Right now, Middleby’s stock sports a price-to-earnings (P/E) ratio of around 14. Relative to Wall Street predictions of 16 percent long-term growth, the stock looks attractively priced these days. You might want to take a closer look at it.

Ask the Fool

Q: What’s a high-yield stock? – P.U., Lawrence, Kan.

A: It’s one that pays out a relatively hefty dividend, expressed as the dividend yield.

Dividend yield is simply the current annual dividend amount divided by the stock’s current price. If Home Surgery Kits (ticker: OUCHH) pays $2 per year (typically, it would be 50 cents per quarter) and trades for $50 per share, its yield is 4 percent (2 divided by 50 is 0.04).

Some companies, such as CVS Caremark, sport low dividend yields (around 1 percent), so they’re not high-yielding. Other companies, such as Google, pay no dividend at all. That’s not necessarily bad – it just suggests that they have better things to do with their money, such as reinvesting it in growing their business. They might make up for the lack of a dividend with relatively rapid stock price appreciation, though that’s not a sure thing. Dividends are never guaranteed, either, but with established, growing companies, they’re darn reliable and can provide welcome income.

For a long list of promising high-yield stocks, try our Motley Fool Income Investor newsletter for free at newsletters.

My dumbest investment

My wife works at Corning. One would think I would have known better than to dump 145 shares at $3.56 a few years ago, after snagging them a year earlier at $27 and change. Of course they later recovered to $27. So it goes. I learned a lesson: Never sell (exception taken for those companies readily recognized as truly moribund). – A.M., online

The Fool Responds: As with many companies, Corning’s stock has been rather volatile in recent years. It fell to around $7 in late 2008, but has risen to the high teens recently. You shouldn’t assume that you’ll never sell a stock, but it can be good to hope to hold on for many years, as long as you follow the company and it stays healthy and growing. In our free community of investors, Corning sports a rating of five (of five) stars, with 99 percent of our All-Star participants expecting it to outperform the market. Don’t be swayed by a panicking market, as long as you have faith in a company.


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