Middleby Corp (MIDD) 2011 Q3 法說會逐字稿

Hello, ladies and gentlemen and welcome to The Middleby Corporation's third-quarter earnings call. As a reminder, all lines are in listen only mode and there will be time for questions and answers at the end of the conference. (Operator Instructions).

At this time I would like to turn the call over to Mr. Tim FitzGerald, CFO, to begin. Please go ahead sir.

Thanks, good morning, and thank you for attending today's conference call. I am Tim FitzGerald, CFO of The Middleby Corporation and joining me today is Selim Bassoul, our Chairman and CEO. I have some initial comments about the Company's third-quarter results and then we will open the call for questions.

During the third quarter we were pleased to announce the acquisitions of Danfotech, a leading manufacturer of meat processing equipment; Maurer, a leading manufacturer of batch and continuous ovens for the food processing industry; and Auto-Bake, a leading manufacturer of automated baking systems.

These acquisitions add three leading brands to significantly enhance and expand our food processing platform. The combined revenues of these businesses amounted to approximately $45 million annually. And these results -- the results from the acquisitions were included in the third-quarter results from the date of acquisitions. During the third quarter these acquisitions added $3.4 million in net sales.

Net sales in the 2011 third quarter of the $218.7 million increased 23% from $177.8 million in the third quarter of 2010. Third-quarter results included the impact from Cozzini, Beech, Lincat, Danfotech, Maurer and Auto-Bake. And sales growth from these acquisitions accounted for $30.4 million of the increase in the quarter.

Excluding the impact of these acquisitions, sales increased 5.9% over the prior-year quarter. This increase reflects a 10.1% increase in our -- in sales at our Commercial Foodservice Group and a 25.6% decline in sales at our Food Processing Group.

The decline in sales at the Food Processing Group reflects the anticipated slowing in sales after a record 2010. While order rates remained substantially lower in the first half of the year, customer quoting activity has remained strong throughout the year and we have realized a growth in orders during the third quarter as there are a number of projects that have been in the pipeline translated into orders. And we anticipate that this growth in order rates will continue.

However, due to the long lead time on larger projects the lower order rates in the first half is expected to result in second-half revenues -- lower second-half revenues with increased revenues as we move into 2012.

At the Commercial Foodservice Group we saw continuing strength in order activity throughout the quarter. We continue to realize strong sales growth in emerging markets resulting from higher demand levels and increased sales penetration as a result of investments made in our international selling organization.

International sales for the Commercial Foodservice Group in the quarter continued to grow above 20% organically. And domestically we continue to see the need to replace aging equipment and see opportunities with chain accounts as they retrofit their kitchens to drive operating efficiency and support new menu initiatives.

Gross profit increased to $87.3 million at a gross margin rate of 39.9% as compared to $70.7 million at a rate of 39.8% in the prior quarter. The gross margin rate reflects the benefit of efficiency gains and plant consolidations, offset in part by lower margins at the newly acquired companies as we complete integration initiatives.

Selling and distribution expenses during the quarter amounted to $24.6 million as compared to $17.8 million in the prior-year third quarter. Selling expenses in the quarter included approximately $5.3 million of cost from recent acquisitions not reflected in the prior-year third quarter. Excluding incremental costs from the newly acquired acquisitions, selling industry should costs rose approximately $1.5 million on higher sales volumes and due to increased marketing programs.

General and administrative expenses amounted to $25.6 million as compared to $20.9 million in the prior-year second quarter. The third-quarter expenses in comparison to the prior-year quarter included $3 million attributable to recent acquisitions. General and administrative expenses also included an increase of $1.7 million related to non-cash stock-based compensation.

Net interest expense and deferred financing costs amounted to $2.3 million in the quarter as compared to $2.2 million in the prior year, reflecting lower interest rates on higher debt balances, and other nonoperating income increased from $200,000 to $400,000, primarily as a result of foreign exchange gains.

Net earnings per share for the quarter increased from $1.13 to $1.26 per share for the quarter. The third-quarter acquisition had a dilutive impact to earnings of approximately $0.04 per share due to higher amortization in the initial third quarter and the results of operations as we integrate those businesses. But we anticipate that these acquisitions will be accretive as we move into 2012.

Cash flows generated from operating activities during the third quarter amounted to $36 million and $65.7 million for the first nine months. Non-cash expenses added back in calculating operating cash flows for the quarter included depreciation and amortization of $5.3 million. This compared to $3.8 million in the prior-year quarter, and non-cash share-based compensation of $5.5 million in the current-year quarter as compared to $3.7 million in the prior-year period.

The Company utilized cash flows to fund the acquisition activities during the third quarter of Danfotech, Mauer and Auto-Bake. The Company also utilized $1.7 million to fund capital expenditures related to production equipment and facilities. Additionally, the Company repurchased $3.5 million in shares of Middleby stock at an average price of $69.10 during the quarter.

Debt at the end of the quarter amounted to $303.6 million as compared to $309.4 million at the end of the second quarter, reflecting a net repayment after funding of the acquisition activities and share repurchases during the quarter. The Company has $600 million of total borrowing capacity under its revolving credit facility, which matures at the end of 2012.

Eric, that is all for our prepared commentary. If you could open up the call to questions that would be great.

(Operator Instructions). Josh Chan, Robert Baird.

If you guys exclude the acquisitions it looks like your Commercial Foodservice business has been growing at about 10% for the last few quarters. But as you look into the fourth quarter I think you're coming up against a very strong quarter last year. It sounds like order rates have been somewhat steady, so is it reasonable to expect that growth rates should moderate meaningfully in that fourth quarter?

I would say -- coming into -- let me give you a perspective. Coming into the end of the third quarter we had our orders have been -- continues to be double-digit orders into the fourth quarter. What is also a major interest for us is we have a couple of rollouts that should determine whether they fall in the fourth quarter or the first quarter.

So of course we have a rollout with a casual dining chain which at this moment has been officially rolled out. Now whether we are going to do 140 stores or 110 stores, depending on how quickly we can execute, because we are doing all that work in conjunction with the chain without shutting down.

So we are basically coming in on a Sunday night after midnight, equipping -- retrofitting the stores, and by Monday morning they are up and running again. So literally it depends on how we can execute in the fourth quarter as we rollout this chain.

The second chain is now basically, we are in the process for rolling out another product. And we are waiting for literally the final test, and once this is done we should start seeing the order, whether it falls in the fourth quarter or first quarter.

I did not answer it as much as you want it to be answered. (multiple speakers).

So I guess summarizing what Selim said, assuming that the chain activities fall in the fourth quarter than we should continue at double-digit. Sometimes you can't always foresee how that business is going to fall.

But the order rates were strong throughout the third quarter. They lessened a little bit in October after a pretty strong third quarter and our order rates were slightly better than what our actual sales growth reported were, so that has kind of been the trend that we have seen.

So let's put it this way. That is an important question to everybody on the conference call. It should be sustainable to third quarter depending on when the timing of those two rollouts come through.

Okay, yes. I appreciate the color there. And then going on to the SG&A, I think it is going to end the year around 23% of sales. What is the extent of your fixed or variable cost within SG&A? I guess, basically are you going to be able to get any leverage on that line as your sales growth either through organic or acquisitions?

Yes, Josh, we should get some leverage? If you look at the increase in SG&A most of it during the third quarter was related to acquisitions that we completed this year and a lot of it in the third quarter. So as we integrate those businesses we would expect to get some leverage on those acquisitions as we move forward.

Okay, and then last question, Tim, could you repeat the number of shares that you bought back in the third quarter?

I don't have the exact number.

Oh, the $3.5 million was (multiple speakers).

It was just over $3.5 million at an average price of $69.10, so you can do math and get pretty close to the number.

Okay, all right, I wrote done something wrong. Okay, thank you for the clarification.

Tony Brenner, ROTH Capital.

Selim, could you give some indication as to how much the kitchen redesign of the casual dining chain you're referring to is contributing to your quarterly results?

Tony, that is a good question. I think we had spoken about the whole -- I think the whole rollout I mentioned was around -- I would say is around $30 million if we did the whole chain, somewhere around that number.

For the one --

For the one chain it was around $30 million. So it is around 1,000 stores, and that is what it comes out to be. And so if you assume we are going to do 120 stores it is roughly around between $30,000 and $35,000 per store.

So, Tony, on the one account that I think you are referring to we have started to do business with them. It is still at early stages. It didn't significantly contribute to the third quarter. It has probably been doing something that is -- it was well under 1% of our revenues for the quarter to put kind of a frame on it.

Okay, well, that -- they have said that they're going to do 500 such remodels by the -- by midyear 2012, which gets to that roughly 125 stores a quarter pace that you alluded to. So that really is only going to begin in the fourth quarter, right, not the third quarter?

That's correct, in perspective, yes.

Okay. And, Selim, you have indicated that there are two additional casual dining chains that are in an earlier stage of a similar kind of kitchen remodel. What kind of progression has been made with those chains?

I think we are right now -- honestly, we have done the testing. We have tested their whole menu. I think in one case we have some beta test sites. But literally, Tony, in all honesty we could expedite that a little bit faster, but we are totally concerned to make sure that our first chain, which brought us the party, we are totally committed to delivering and executing properly.

I do not want to start having a second or third chain right early in the process. It is not fair to them. It is not fair to our people. And it is all about execution. Because what is exciting about this whole exercise is not only the product. Tony, we have never -- well, we have done it in the pizza business, but you're talking about one piece of equipment where we have done that, where we took a WOW! Oven and retrofitted a pizza chain without a shutdown.

We have never retrofitted a complicated concept like this where literally we are touching every piece of menu and we are touching almost every piece of equipment in that kitchen, and we are doing it without shutdown. It is a credit to them. I have to tell you that chain has significant great people. They have a great, great execution team. They have great management team working with us.

And this is something that puts Middleby from a software standpoint phenomenally. We have never done it. I don't think in the industry it has been done to do such a dramatic change in literally hours between shutting down after midnight on Sunday and being up literally by 10.30 to receive customers the following day on Monday with such a revolution in the kitchen. (multiple speakers). It is a great learning, and that is what is excites [us].

So it is not only what you have learned this process -- it is not only about creating great equipment. So people are asking, what about the competition, can the competition do this? I think they are at place -- the competition are many years behind us, and not only the technology, because we are patented on some of that technology. But second, the learning curve that we've learned and the infrastructure that we have put together to execute something like this is unheard of for our own company. So it takes us to a much, much different level.

These other two chains remain your projects. They're just 2013/2014 projects, but not [interim] project.

That is correct.

Was that the idea? Okay.

That is correct.

Last question. Are you seeing incidence of restaurant chain franchisees having difficulty obtaining financing to the extent that it is affecting your own order rate?

Tony, can you -- I could not hear it pretty well. Can you repeat it please?

Yes, so are you seeing restaurant chain franchisees experiencing difficulty obtaining financing, bank financing, to the extent that it is affecting Middleby's own order rate?

Yes, I think definitely, I think we could grow a lot faster with the mature chains, where I take examples of some pizza operators who would like to go out and open another store. I would like to say that some Subway -- I know several -- I can give you a great example. I know several Subway franchisees who would love to right now open at least two or three more stores.

I'm going to tell you I have a very close friend of mine who owns 11 Subways, who would like to open five more right now. And the reason is the locations are now available. Prime locations three, four years ago were not even attainable for a Subway. They would not even -- the tenant -- the landlord wouldn't even allow a Subway to be there -- or the cost.

And now my friend would love -- he has accessibility to a great lease rate, a great access to great location, but they cannot get financing. And some of the cases is Subway Corporate is financing some, but they're not financing five stores to one franchisee.

So at one point one bank starts releasing and relaxing the financing rate -- and this is a very successful operator, by the way. He has done very well. He has been in that business now in the last four or five years and growing very fast his stores. And made a lot of money and in each one of the subways that he operates. And still an operator like this cannot get his banks to even approach him to open one -- to finance one store today.

And I think that is affecting our business. It is affecting the whole industry business. Not only affecting Middleby, it is affecting every one of our competitors at the same time. It is affecting our customers too.

Okay, thank you.

Joel Tiss, Buckingham Research.

Just two things. One, can you talk a little bit about pricing? What is going on in terms of pricing and also the competitive landscape that you are seeing out there?

Well, pricing, I have to tell you pricing is -- tends to be a lot -- a little bit more disciplined today in the industry. The reason it is more disciplined is the fact that we are all under pressure by our raw materials and our cost and our freight charges and our cost of funding the business.

I can tell you that our cost of doing business has gone up significantly even in the recession. Which is surprising, because during a recession you usually tend to get a softening of commodities. Stainless steel should be going down 20%, 30% because the demand is off, which is not the case. It has gone up through the recession in multi-double-digit I would say 25%, 30%. If you start from the beginning of the recession to now we're up most probably double on stainless steel and surcharges.

Copper, I look at copper. I look at a lot of things that have gone up. So I think it is affecting us and our competitors. And as the industry has consolidated, they have found out that we need to make money. And I think at the end of the day there are two forces keeping prices up.

Force number one, is commodity prices pushing us all. This is not a Middleby issue. I can tell you that every one of my competitors got affected by stainless steel, by motors, by heating elements, by --.

Number two, the second impact is service. Our customers today expect a higher level of service than they have ever expected. And what I mean by that is, one, they want us to respond. They want almost very little downtime. So finally we have to prop up a service agent, because many of those in the US, all of us use, except ITW, we use third-party servicer.

And those service agents are under pressure on cash flow. So to service our customers I bet you me our competitors have all had to shore up our parts business, our way to expedite parts, because sometimes one of our top customers is down and the service agent might not have the parts. And what happens is we have to step in.

And all those costs have allowed us to go back to our customers and say -- we need to service you as you grow so that you don't lose customers. And I think customers are understanding that. They are understanding what they call reasonable and fair price increases of 5% to 6%.

Now you come and tell the customer I am increasing 15% or 20%, like Netflix did, I think a lot of them will be upset. But I think everybody in the industry have been expecting between a 4% to 6%, 7% increases year after year as we cover our commodity prices.

Okay, and then I will just glue two questions together to make it more efficient. Can you give us an update on the SpinFry? And can you also give us some flavor on what is driving your international growth and what the opportunities are there? Thank you.

That is an easy question. Finally, I can answer the SpinFry pretty nicely. We are ready to take orders. So as of this week ordertaking is happening at Spin Fresh. And finally I'm excited about that product. It has been very well received. And it is great, great product for us.

So orders are ready to be taken. I think it is going to have a huge impact with chains. As we look at the impact of that Spin Fresh, which is basically reducing oil consumption, reducing gas consumption, and most important, reducing literally decreasing calories from fat. And we are talking on that bucket alone is around 30% to 35%.

Oil consumption is between 25% to almost 50%, depending on the product being cooked. If it is a chicken nugget it is even more oil recovered. And if fries it is around 20% to 25%. Huge numbers in each one of the categories that this patented technology will deliver. So we are ready. We are open for business. So we hope that 2012 would be a nice year for Spin Fresh.

On the international market, I just came back from Milan show. So the Milan show is the biggest food show and food equipment show in the world. It happens every other year. And this is our first presence as The Middleby Corporation at that show. And we had fantastic impact for us.

Literally with our acquisition of Lincat, IMC, Britannia, Giga, Houno. Frifri, in Europe we became a nice player in that market. What is interesting also is a lot of the emerging market distributors and customers and chains we are present in attending the show. And products like our Spin Fresh, our pita oven, tandoori oven, our Beech oven, wood-burning oven, our TurboChef oven -- I can name our WOW! Oven, our tandoori again from Beech, we had some exciting products for them. We had a great show.

So I believe that emerging market will -- and I made the target -- I had put out a [target]. Today our emerging market is around 5% of our sales. I'm expecting by the end of 2016 will be -- closer to 20% of our sales will be coming from emerging markets.

So if you calculate every year what is going to be, it is going to be a significant growth coming from emerging markets. And we are very well positioned for those segments.

Thank you.

Jamie Sullivan, RBC.

I think you talked about a couple of chain rollouts. You said there is a new chain rollout that may start in the fourth quarter. Were you talking about one of the retrofits or were you talking about another project, and can you give more details if you were?

It is a complete different project, having to do with TurboChef. So it is a completely -- it is taking TurboChef back into a general market and away from what I call the fast-casual, the Starbucks and Subway and Dunkin'. It takes it into a mainstream large chain where they will present a disruptive technology that is patented and that will help that chain become more profitable.

And that business having to do with steaming product. It is a steaming technology that TurboChef is introducing to that chain.

Okay, any other details like (multiple speakers). Any other details like the potential number of stores you could get into on that project?

No, we are not going to get into those. I think --.

It is still early on. We have a lot of rollouts too. Every once in a while there is one that moves the needle, but our Company is made up of many, many chain rollouts. So this is a good example of a type of business that we get, and hopefully there will be other business like it, so it is an example. But I don't think it is something to focus on from a percentage of sales and how it moves the numbers. It is part of a trend.

Okay. And then on the Food Processing side, you talked about orders being up. I wondered if you could give us a little bit more context around that being a backlog business, whether it is a book to bill number or where the backlog is today?

On Food Processing?

Right.

Well, there is long lead times in that business. We have had a lot of good -- there is a lot going on with the customers right now in terms of projects that are out there. We have seen it all year, but it does take not only a long time from order to shipment, but also from -- it is always uncertain when you start talking to the customer when the order is going to come in.

So there has been a lot of activity throughout the year, but our order rates were much lower in the first half of the year, which translated into lower revenues that we saw in the third quarter.

That being said, we did see a lot of these projects start translating into orders in the third quarter. So the benefit of the increased orders that we are starting to see now we expect is going to translate into improved revenues as we move into the next year, because they are long lead times. So we do feel good about -- we are building the backlog and we think that will continue to build through the remainder of this year.

Jim, you have been covering us for a long time, and I thank you for that. And I thank everybody who has been covering our Company for a long time. I think I need to give you a better flavor of Food Processing.

I think Food Processing is a very exciting platform for us. And I truly believe that as you look back, and you can mark today as a day of basically going back to it, and saying Selim said so -- the organic growth of the Food Processing business when you look forward, including 2011 -- you take 2011, 2012 and 2013 and you go back, it is going to go back to becoming -- to being the same. As you recalculate the numbers it would be the same as our Commercial Foodservice of around 10%.

So what I'm saying is while it hasn't come in as smoothly as our food service -- Commercial Foodservice, it will catch up. And it is starting to catch up right now. And I think it will -- when you start looking at 2012 and 2013 and recalculating the numbers, we're going to have a big jump in those next years that will offset the slowdown and the lack of orders that occur in 2011.

So we are very excited about that. And I think that we are working -- as we are building the platform, we are working with some great customers right now where I took a lot of opportunity to visit our top customer in this year. I took the effort to get to understand this business and the customers, and literally we are becoming an exciting platform for them with solutions and innovation and technology.

So I am finally very ready to say that commercial food processing will end up becoming a major driver in our organic growth rate. And as we build the platform it has become now a much bigger part of our business with the acquisition we have done the last year and a half.

Jamie, just to put a little bit of numbers behind that, if you look at last year, our Food Processing business was up 35%. So I think if you take the line over a period of years, the trajectory like Selim said is similar in both businesses. It is just that you're going to have a little bit more ebb and flow.

Right, that is helpful. Then just one quick one. Housekeeping, Tim, if you have it, the acquired revenues by segment, that breakdown?

You know, I --.

Why don't you take a minute, if you have it. Why don't you come back to that, Jamie, because I think if you want it we might have it. But let's for the sake of getting back in line -- we will address that question for you as Tim looks back to his --.

Well, maybe I will just -- the two numbers that I referenced in the early part of the call, because in this quarter we had the acquisitions of Danfotech, Maurer and Auto-Bake, and that is on the Food Processing segment, and that added $3.4 million in sales during the quarter out of a total of $30.4 million of increased sales for the quarter.

So the Lincat business and the Beech business added more than what we saw in the new acquisitions for Food Processing. But we didn't have a full complete quarter for those Food Processing businesses either. As I mentioned what we acquired in this quarter is about $45 million annually.

Okay, that is helpful. Thanks a lot.

(Operator Instructions). Gary Farber, CL King.

Just a couple of questions. Just on the Lincat, it is impossible to quantify the how much that was in the quarter?

I am not -- I don't have that number readily available.

Okay. And then it is a recently acquired property, is there any kind of update to provide on it or is it too soon?

Can you repeat the question please? We could not hear it well. I am sorry.

Yes, sure. I am just wondering -- it is a recently acquired property, but I'm just wondering if there is any update to provide on what is going on with that company?

Okay, with Lincat?

Yes.

Okay, I can give an update on this. Lincat is -- basically is a leading player in the UK. And when we bought Lincat it came up with two other companies called Britannia and IMC, who are also leaders. One, IMC is a leader in what I call the front of the house bar equipment, a little bit of specialized customized refrigeration equipment. And Britannia is a ventless technology, similar to what we have here with Wells.

So the attraction to Lincat is not only that they are a leader in the UK, they came up with some technology products that puts us, especially with Britannia, with a lot of synergies.

But as we move forward with Lincat there is going to be a lot of synergies between our Frialator division, which is our sales and distribution arm in the UK, and Lincat. So there is going to be somewhat of a synergistic mode between Frialator and Lincat.

The other thing is prior to us acquiring Lincat, IMC and Britannia and Lincat operated totally independently. We are now integrating the three companies and Frialator, four of them under one banner. The other interesting synergies is occurring between Giga and Lincat, where the two companies have a lot of synergies, especially on the counter line equipment. So we expect between -- by the end of 2013 to have some interesting synergies between those five companies -- IMC, Britannia, Lincat, Frialator and [Giga].

Okay. Just another question on your gross margins. As you look out to the fourth quarter do you think those can get back up to the second-quarter levels or is that going to be hard to do?

That is the target is to get back similar to those levels. So I think there were some things in the third quarter with the new acquisitions that detracted from the gross margin, and when you back that out then you get closer to the 40.5%. So I think we are on a trajectory to move back about 40%.

Okay, and then just lastly on the tax rate, how do you think about the tax rate for the fourth quarter?

The tax rate we saw a little bit lower of a tax rate in the third because we did have some deductions that we were able to take. So the tax rate dipped lower than what we will see for the year. It will move back up into that 38 percentage range. 38%, 39% is where we have been historically.

Okay. Thanks.

Jamie Clement, Sidoti & Company.

Just another follow-up on processing, just so I get the numbers right and I just wanted to clarify my understanding of the history was -- you know, you all, if memory serves correctly, I think you were organically in the fourth quarter of last year are up 40% in Processing.

Plus I think you also highlighted that you had an awesome quarter at Cozzini, which wouldn't have been calculated in the organic number. So even though ordering activity is up, we still might see a minus 25% to 30% organic number to the downside in the fourth quarter, right?

(multiple speakers). I know you're not guiding, but is the first part of my math right? You guys had a lot of stuff going on in the [fourth] quarter (multiple speakers).

We were up 40%. We were up 35% for the year, as I mentioned, And you are right, we were up 40% for Food Processing in the fourth quarter last year. Plus, Cozzini did come in with a very strong initial quarter and we bought the company, so that added quite a bit. So your point is right. So we are seeing good order intake, but we are up against, frankly, not only a record year last year in Food Processing, but a record quarter.

And that is really what I'm getting at here. I just want to make sure (multiple speakers). Yes, okay. So would seem like it would be more of a reasonable expectation to see comps turning positive in the first half of 2012 versus the fourth quarter, which is just -- you guys were off the charts in that business in the fourth quarter.

That is correct.

I would say, Jamie, thank you for this clarification, because I think it would mislead people as they started doing their business modeling and calculation. I am glad that you clarify that, because you are right, we are not going to be able to lap. We are not going to be able to lap when you look at Cozzini and the next quarter to lap it and be positive in Food Processing in the fourth quarter.

Just totally changing gears here -- Selim, you talked about the Milan show. What is going on in Europe right now in your opinion? Obviously we read headlines over here -- it is hard to know how accurate things are. How comfortable are equipment buyers over in Europe these days?

It is fascinating to me, because I was very nervous about going to the show because we had not been to the show as a Middleby. We have gone with our distributors; we have gone as a small division, but we have never been as a Middleby and I was very nervous. And I thought to myself, do I need to go all the way and spent the money, because if you go to the show you have to do it all or don't do it.

We went to the show, and I was very nervous about a complete segment of Europe being down. And I can tell you it is enough. People are still eating out. So the key is, first, we have to say that Middleby is not a large player. So if you look at that in Europe we are not the largest player. We are most probably a distant third in the -- a distant fourth in the market.

So for us it is about gaining marketshare with our technology. So it is different than if you are number one and you have to grow all your business. Let's say -- we have a competitor whose business is 90% in Europe. And for them it is going to be difficult to grow, because some of those markets have not done well.

But in our case going from a smaller position, with our technology we have seen a lot of our distributor, even from Greece, from Italy come back and literally place orders. In the case of the Greece distributor, he still have customers literally trading down. They are still ordering, and they were there. So they were at the show. They came there and I spent time with them, because I wanted to understand what is going on there. And they said, Selim, we are worried about the inflation. We are worrying about what is going to happen.

They are not worried about whether the euro is going to go away. Because it is a euro currency, this is not -- but they say, Selim, I am worrying about my money in the banks being -- going. So I would like to buy some equipment, because people are eating out.

So that is just anecdotally. I am not trying to refer to the Greece problems through two distributors, at least I am not trying to do that at all. But I would say we have (multiple speakers).

I guess -- and, Selim, also correct me if I'm wrong, but from an installed base perspective in Europe, it is not as if Europe just all of a sudden got bad three months ago. You could argue that is a region that has been under-invested in for at least three years now.

Yes, yes, agreed. And I can tell you what was interesting for me. What was interesting for me specifically is Europe had not been, and others in the US chains, if you take local chains, like Telepizza, Autogrill, even Pret a Manger, and all of that, they were not as concerned about efficiencies in their kitchen. I would say it did not resonate. Of course it resonates with a Pizza Hut and a Burger King and a McDonald's, but it did not resonate with a -- I would say a Telepizza. It did not resonate as much with an Autogrill.

Today, at this show, at least at this show where we had this big presence, people were interested in a TurboChef. It is ventless. They were interested in -- can I take labor out? Our WOW! Oven at the show was a big hit. And the WOW! Oven is not new. The WOW! Oven is since 2006, 2007. We had people lined up in front of the WOW! Oven as we were baking with it and showing people how it's energy-efficient and all of that. And I had people -- I said where were those people?

Now in the United States you probably -- you bring something like this, at least if they don't want to buy our WOW! Oven, every chain would be up there at least looking at it. The Europeans were not in that type of mode and thinking. So they came in droves. The show was very packed, well attended.

And what happened is, at least our stand, people were looking at TurboChef. People were looking at the WOW! Oven. They were looking at the SpinFry. The SpinFry, people were -- at any time I looked if we had live demonstration, people were lined up at least four-deep looking at that technology.

So I think I finally in Europe you're starting to see interest about innovation and how do I cut labor, how do I cut energy-saving, and that was not the case before.

Okay, very good. Thank you all for your time as always.

Greg Halter, Great Lakes Review.

Your receivables are up about 33% year-over-year. Obviously we know there is acquisitions in there, but if you had to look at that on an apples-to-apples basis, what would the number look like?

The DSO for the quarter was up 2 days. So the numbers get skewed a lot by acquisition, as you mentioned. Also by the Food Processing business, because we have -- the timing of how we do installment billings is a little bit different on that business.

So the DSOs are up just slightly, and that is driven by international where we do have increasing sales and the credit terms are longer on that side of the business.

I am going to answer it a little bit better. We could do a better job on our DSO. So if you're asking me, I think we have room to improve our receivable and we have room to improve our inventory. I think that is something that is part of our metrics as we go forward as a company to improve all our -- both our DSO and our receivable. And I think the industry -- as an industry we have been lax on looking at that a little bit stronger. And I think as we move forward we should start looking a little bit better on putting more discipline within my management team on both inventories and receivables.

We have done a great job on growing margins, on growing earning per share, on managing our cost, our efficiencies in terms of producing the product, on innovation. I think those two areas often on the balance sheet deserve more attention.

Okay. And relative to the outlook for mergers and acquisitions, I just wondered if there are any things that you're looking at currently. If there is any holes that you're looking to fill, things of that nature, if you could address that?

Well, the pipeline is pretty solid for us. I think we have exciting companies that we are looking at. They continue to be tuck-ins so nothing big. It is mostly tuck-ins that provide us with market penetration, product technology or an extension of what we have.

Both in the Food Processing and Commercial Foodservice we are seeing some opportunities of tuck-ins. And we like it. It has been good for us, because we have been able to attract some great players. Some of them have been led by great management and some of them by -- were founded by great people and they have remained with us.

And I think in many cases -- in most cases when we have hired those people and we bought those family businesses or those small companies, the management remains with us and adapted to our Middleby DNA and have been very successful with us. We have been able to take companies like Doyon internationally, even TurboChef, which is -- it fits more into an entrepreneurial company, because they have technologies that are very limited to a few customers at the time.

It was a niche player, and now we are taking them a lot more aggressively in emerging markets. And we're taking them into places like we just mentioned earlier in customers that they would have not have been if it was not for the Middleby presence.

So we are very excited. I think the pipeline is pretty -- it is pretty strong with tuck-ins. I think this year Tim will be doing -- will be buying -- we would have bought how much so far this year in revenues? How much roughly, over $100 million?

Roughly $100 million.

Roughly $100 million so -- of companies. So it has been pretty rewarding for us.

Okay, and given the three acquisitions in the quarter -- and I didn't hear this, Tim, if you have this -- any sort of professional fees or other costs associated to the M&A activities?

Yes. There is, Greg, but there is almost every quarter, because we are so acquisitive. Even reporters we don't announce acquisitions there tends to be cost there. So it is -- it can -- it's a little bit higher in the second quarter because Lincat was a public company, so we called that out. But we definitely have some acquisition fees in there, but I think that is a continuing part of our business.

Okay. You addressed the tax rate. On McDonald's, I know you made a push there to try and do some more business with them and get on some of their lists, if you will, if you want to call it that. I am wondering how that business is progressing?

I think it is progressing very well. It is meeting all our expectations, and the dialogue is back between us and them and we are very delighted, because it is a great company. I think it is -- as you expect, I mentioned early on in my call is that it is going to take some time for them and us. They had other customers -- other suppliers that they have dealt with and -- all those years.

And they are testing out new technology. And I think that the dialogue has been very, very healthy between the two companies. And they have literally given us a very equitable and fair share, as they said they would, they have. I think that is -- I can't ask more than that.

They have come back and said, Selim and Tim and David Brewer, we are going to work with you. And we have our guy there, [Pete Ashcroft], who has been there. And I think we are testing several of our technology within them. I think they might even have had some orders flowing here in the US right now.

But again, it is going to be slow. Remember, we have had a long hiatus between us and them. And we are -- it is going to take most probably more than just one quarter or two quarters to reintegrate into that chain. But I think the dialogue is open. There are no issues. It is just now going back and retesting product results.

And can we on the outside assume that they are testing the SpinFry?

No, I would say at this moment the SpinFry has not been tested with that chain. They are aware of it. And literally we have not approached them on the SpinFry. It has been tested with other chains, but not with McDonald's.

Okay. And one last one. You always give a rundown on new products. Are there any think that you're working out there that we can expect for 2012 or beyond?

Yes, I would say in 2012 and beyond we have some exciting, exciting products for us coming through. I would say first this TurboChef product that I talked about, which is literally a tweak to what they have done in terms of going into a little bit of steaming opportunities and selective steaming opportunities.

We have -- we continue to introduce on the Doyon of a rack oven. We have literally on the Pitco, which is a SpinFry, which is now coming out, and a low oil fire. On the Star we have vertical broilers. We have a counter top oven for tortillas and pita bread. We are -- on the Middleby launch we are introducing a new way of approaching our oven for schools, Mexican and Italian menus. And we changed a little bit the way it cooks. So it goes away from just pita. And we just picked up our first customers there.

And, of course, on the Combi oven, the Hydrovection and Combi, we have a lot of changes there.

On the Wells ventless, we have are now ready to roll out our universal hoods. Carter Hoffmann is rolling out a complete line of holding cabinets. And literally on the Food Processing we have a lot of exciting product there. We have new mixer/grinders from Cozzini. We have new controls on our oven solution. We have a new packaging equipment coming through.

So when I look at the opportunities -- and of course the biggest thing is for us is continue producing that casual dining automation, which is a CTX product that we are rolling out to that chain, and then we have two other chain behind it that is coming through.

Okay, that is a (multiple speakers) very good rundown. I am glad to see you're staying busy.

Thank you very much. Thank you. If there are no more questions, I would like to take a little bit -- if you want to see those new products and you want to see some great testimonials and actual comparison of savings of how much it costs to run products, what is the saving versus all the technology, and competitors, finding advantages, finding what customers say about us, frequently asked questions about our induction technology and others, I urge you, I you have an iPad, to go to our free app.

Just go to the App Store on Apple and click on Middleby. And it is a free download. It takes a little bit long, because it has so many things in it. You can request a quotation; you can do a lot of things on it. It is a phenomenal application. You will be amazed by that application. So I urge you to go in and download -- if you have an iPad to download our free Middleby app.

It gives you ENERGY STAR rebates. It gives you amazing kitchen applications, energy costs. And if you have questions, please call me or call Darcy Bretz and we will take you through how to navigate it. It should be very intuitive.

The other thing, on literally I want to leave you with some exciting things. Because I know it is turbulent times, and every one of you who are monitoring Middleby tend to monitor our end-user, who are the customers, and sometimes some of the chains report same-store sales that are down or flat and you wonder what can happen to Middleby. I can tell you that many of the new products today that we are offering to our customers are helping them become more profitable. We are helping them to deliver more consistent product, and most important, create a more profitable kitchen.

And I can give you example. You may think about with all the turbulence -- I'm going to name just a few fast casual players. I start with Five Guys where we are -- we have been a player from day one with them. Noodles & Company, where we have been there. Firehouse Subs, Chipotle, which is a new thing for us, a new customer. Panda Express, which is a new customer for us.

So as we move into -- just to give you a perspective of the players, where some of them have been with us in the fast-casual for a long time and some of them are new to us. We continue winning new customers. I go back to some great customers that are out already. They have been there for a long time. I can name several of them.

I can go to customers like Dunkin' Donuts. With the management team at Dunkin' Donuts and what they are doing they are literally revamping and re-changing their menu and their speed and their cooking practices. And they're not standing still.

I could say the same about Taco Bell, about Starbucks, about Subway. About even companies such as mature -- you can call them a little bit mature like Wendy's, Burger King, Chick-fil-A, Papa John's -- new management, new organization of how they are revamping their kitchen, their menu items, their product quality. And in every one we have named we are in the forefront of working with them to develop new solutions for them.

I continue saying that our Food Service -- Commercial Foodservice, the growth is sustainable. Our emerging markets will continue growing extremely fast. We are now around 5%. By 2016 we should be between 15% to 20% of our sales will come from emerging markets.

We continue seeing rollouts. I am very excited about literally our Food Processing platform. As you have seen, it it might be lumpy quarter to quarter, but when you look over two to three years its growth is organic growth. It is very similar to our Commercial Foodservice.

So I am very excited about where we are going. And, of course, we might have setback from one quarter to another because the order didn't come in at that quarter as supposed to come it, or we couldn't build it fast enough. Or in the case of Food Processing, we are making sure to secure an international order that has a letter of credit that basically is not something that we were comfortable accepting the order before the language on a letter of credit can be clarified.

There are things that do not meet the quarter to quarter come through. But I can tell you as investors and people that are following the Company, we are very optimistic that our business model is good, sustainable. And we continue not to be challenged by one opportunity or one challenge. We don't have a customer here who is 60% of our business or 20% of our business or 10%. There is no customers that account for more than 5% of our sales.

Second, we have not through the recession lost customers in the process, where people say, okay, Middleby has changed its practice, or they don't treat us well. On the contrary, we have come back and raised our service level. We have raised our connectivity. Our national account team has gotten closer to our customer base. Internationally we have invested in people. We have invested in technology. We have invested in our [notable] warranty to make sure that our customers are always right.

We will always make sure that they come first. And I think as our success has taken place over the last few years, we have not become arrogant or aggressive in forgetting that who took us -- brought us to the party, our customers. Not only big chains, but even small customers, smaller dealers and distributors who stuck with us all those years. And we thank them, as we thank our employees and our suppliers and our shareholders for a great journey.

Thank you. That concludes, I think, our prepared comments and our --.

Thanks everybody for joining the call today, and we look forward to speaking with you next quarter.

Thank you very much, ladies and gentlemen. Today's conference is now concluded.