Middleby Corp (MIDD) 2011 Q4 法說會逐字稿

Welcome to the Middleby Corporation fourth quarter and full year earnings conference call. We will start the call with opening comments and then open it up for questions and answers. We will give instructions on how to enter the queue at that time. On the call from management, we have Selim Bassoul, Chairman and CEO; and Tim FitzGerald, Chief Financial Officer. Mr. FitzGerald, please go ahead with your opening remarks.

Okay. Thank you. Good morning, and thank you for attending today's conference call. I'm Tim Fitzgerald, CFO The Middleby Corporation. And joining me today is Selim Bassoul, our Chairman and CEO. The fourth quarter results reflected the impact of acquisitions completed during fiscal 2011, including the second quarter acquisitions of Beech and Lincat, the third quarter acquisitions of Auto-Bake, Danfotech and Maurer-Atmos, and the fourth quarter acquisitions of Drake and Armor Inox. The Drake and Armor Inox acquisitions were completed on December 2 and December 21 respectively; and therefore, are only partially reflected in the results of the quarter since the date of acquisition.

Net sales in the 2011 fourth quarter, up to $243.8 million increased 17.6% from $207.2 million in the fourth quarter of 2010. Sales growth from the acquisitions accounted for $24.3 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 15.7% increase in sales at our Commercial Food Service Group and a 28.6% decline in sales at our Food Processing Group. At the Commercial Food Service Group, 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 Food Service segment in the quarter continued to grow about 20%, and for the entire year increased by approximately 30%. The quarter also reflected continued sales growth in chain sales, which were particularly strong in the fourth quarter benefiting from several programs and roll-outs, which we anticipate to lessen in the first part of 2012. The fourth quarter was also modestly impacted by some pull ahead of orders as customer bought ahead of anticipated first quarter price increases. The sales decline at the Food Processing Group reflects the anticipated slowing in sales after a record 2010 where we realized 35% sales growth, which reflected the realization of orders which were deferred from the 2008 and 2009 periods.

Despite the sales decline, we saw a rebound in orders during the second half and believe capital spending in this segment will continue to be strong in 2012 due to investment activities at our customers with the development of processing operations in the emerging markets. We anticipate the sales decline we saw in the second half will moderate in Q1 of 2012, with a first quarter relatively comparable to the 2011 first quarter; and we will begin to realize sales growth in the second quarter of 2012. Gross profit increased to $99.7 million from $83.1 million and the gross margin rate increased to 40.9% as compared to 40.1%. The gross margin rate reflects improvement at both the commercial food and service and the food processing segments. The Commercial Food Service segment benefited from higher volumes and the favorable mix of product sales -- and while the mix between the Commercial Food Service sales and the Food Processing sales also benefited the rate as margins at the Commercial Food Service business are comparatively higher.

In the upcoming quarters, we anticipate the food processing business will represent a greater portion of the sales largely due to the recent acquisitions, which will likely impact the margins as we continue to integrate those businesses. Selling and distribution expenses during the quarter increased $3.1 million to $24.4 million, as compared to $21.3 million in the prior year fourth quarter. Selling expenses in the quarter included approximately $3.6 million of additional expense from the current year acquisitions of Beech, Lincat, Maurer-Atmos, Auto-Bake, Drake and Armor Inox, not included in the prior year fourth quarter results. Excluding the incremental expense of acquisitions, selling costs were slightly lower with reduced commission expenses on higher sales volumes.

General administrative expenses increased by $3.2 million to $30.3 million as compared to $27.1 million in the prior year fourth quarter. General expenses included additional expenses related to the 2011 acquisitions, which amounted to approximately $2.8 million. The remaining increase in comparison to the prior year includes $1.7 million of higher non-cash stock-based compensation and other incentive compensation offset by $1.8 million in lower restructuring charges recorded in the prior year. Net interest expense and deferred financing costs increase to $2 million as compared to $1.7 million in the prior year quarter due higher debt balances in 2011. Other income is primarily comprised of foreign exchange gains, which are -- were largely related to the initial funding of the financing of the foreign acquisitions.

Provisions for income taxes amount to $9.6 million at a 21.8% effective rate in the fourth quarter, and $45 million at a 32% rate for the full year. The fourth quarter and full year tax provision reflects non-recurring adjustments to tax reserves for reduced exposures related to closed statutes, state planning matters, and non-recurring foreign deductions. For the full year, the 32% effective rate compares to an effective rate of 36.2% in the prior year. As compared to the prior year, reserve adjustments benefited the effective rate by 1.6%. Additionally the tax rate benefited from reduced state taxes, which benefited the effective rate by 1.1% in comparison to the prior year and lower taxes on foreign earnings, which benefited the effective rate by 0.9%. The foreign provisions include non-recurring deductions associated with foreign acquisitions, which accounted for approximately 50% of this rate reduction.

In 2012, we anticipate the rate will move higher due to the non-recurring nature of certain items impacting the effective rate. And anticipate the effective rate to range from 35% to 37% for the full year, however, this effective rate may vary from quarter to quarter. During 2011, the Company also continued to realize a cash tax savings associated with the utilization of net operating losses acquired from Turbochef. This tax benefit amounted to approximately $6.4 million and is not reflected in the tax provision but has been recorded as a utilization of an asset in the opening balance sheet of the Turbochef acquisition. The Company will continue to realize a similar amount in 2012.

Cash flows used for operating activities amounted to $64.7 million in the quarter and $130.4 million for the year. Consistent with prior years, the fourth quarter generated the strongest cash flows as working capital is reduced from its peak in the second and third quarters of the year. Non-cash expenses added back and calculating operating cash flows amounted to $10.2 million for the quarter, including $2.1 million of depreciation, $2.8 million of intangible amortization, and $5.3 million of non-cash share-base compensation. In the 2010 comparative quarter, non-cash expenses amounted to $8.8 million including $1.4 million of depreciation, $3.8 million in amortization, and $3.6 million of non-cash stock-based compensation.

In the quarter, the Company utilized $50.4 million of cash to fund the acquisitions of Drake and Armor Inox. And made investments of $3 million for capital expenditures related to production equipment and facility enhancements. Company also utilized $2.6 million to repurchase shares of Middleby common stock in the quarter. Total debt at the end of the year amounted to $317.3 million and total cash amounted to $40.2 million. The Company held higher cash levels at year-end primarily due to cash acquired in connection with the Armor Inox acquisition, which was acquired late in the year. We anticipate the cash balances will decline in future periods as we utilize this cash to repay debt, however, since component to cash is overseas, the company anticipates retaining higher cash balances than in prior years.

The Company's current debt facility matures in December 2012. We have initiated discussions with our current banking partners to enter into a new facility with similar structure and terms, and anticipate this to be -- this facility to be entered into or completed in the second quarter of the year. As it relates to current quarter acquisitions, during the fourth quarter as I mentioned we completed the acquisitions of Drake and Armor Inox. Drake is a leading manufacturer of automated loading and unloading systems with sales of approximately $15 million. The Drake equipment is highly complementary to our current brands and products in food processing, and allows us to provide an integrated solution to our customers.

The Armor Inox is a leading manufacturer of a unique water based thermal processing cooking solution and has approximately $25 million in sales. The Armor Inox product is highly automated and energy efficient providing high volume customers with significant advantages in capacity and throughput resulting in lower operating costs. The Armor Inox product line is highly complementary to our existing cooking technologies of Alkar, Maurer-Atmos, and Auto-Bake, and allows Middleby to provide a broad variety of cooking, baking, and thermal processing solutions in our growing Food Processing Group. Amanda, that's all for the prepared commentary, could you please open the call to questions at this time?

(Operator Instructions) Okay. Our first questions come from Joel Tiss, please go ahead.

Yes. Just sorry for the delay. I just wanted to get a sense of where the out performance and the growth relative to competitors? It seems like your volume growth is a lot better than what we're seeing from ITW and from Manitowoc as well?

Joel, good morning. I can address that. I think part of our success has been our national account team where we've been literally getting close to the customer. We provide a very great service and I think our innovation over the years have been a very big driver, and our relationship with our key dealers. If you look at our partnership with dealers, there are more solidified relationships.

What differentiates us, I will tell you the business model that differentiate Middleby than anybody else in the industry is that, that's all what we do. ITW is a conglomerate. They do a lot of other things. Foodservice is not their core competency. Manitowoc, even though they -- food service is a big part of their business, they still do cranes and they do refrigeration and mixers and other stuff.

All what we do is literally, provide cooking equipment that offers features that nobody else can compete on and that has been most positive driver. Between our national accounts, our relationship with our key dealers, and the leading innovation of product that make us better. I think also we have the longest warranties in the industry. We have premiere brands. I think we have the best brands in the industry bar none when it comes to cooking.

Then I wonder if you could just spend another couple minutes giving us what would you see as the opportunities coming up for the next couple of years. It used to be energy efficiency, then it turned more in the direction of better efficiency in the kitchen and better throughput. I just wonder if you look out over the next three to five years, what's the big opportunity that the customers are talking about?

Well, the biggest opportunity right now is literally for a lot of people looking at two things; and one, how do I get the cooking speed? Everybody is looking at cooking speed to turn the table around to make it easier, especially for lunch. I think the adaptability to menu changes. I think you're going to start seeing people adapt their menu offering a lot faster. I think it's no longer we changed my menu every two years. I think some chains, fast casual -- especially in the casual dining, they're going to be adapting to menu changes a lot faster, which requires a lot more equipment. I think the biggest, biggest thing that I am seeing is, how do I offer a value proposition?

How do I come in and reduce my costs and this is happening at the QSR, at the casual dining, and at the fast casual. How could you help me streamline my operation in the kitchen? So looking at this, I would say the next forte is -- in addition to energy efficiency, similar to what we've done with Chili's, is help them reduce their costs and upgrade their quality and reliability and consistency of the food offered. So you look at a chain that has over 1,000 stores, as the economy start picking up and literally employment starts also picking up. They're going to have to be consistent in what they offer. In terms of a 1,000 stores, they want to be able to make sure that the same item offered in Chicago is offered the same way in Iowa. It's consistent, it's good. It's, -- it meets their focus group testing. It meets their quality standards and I think that's where Middleby plays a big role.

Then I will talk about vent-less. The ventless technology is most probably our biggest opportunity as we look forward into that. I look at it and I say that people are looking at ventless because it's a huge cost saving for them. I look at utilities, I continue looking beyond natural gas and electricity. Water is its next foray. Every chain is looking at a way to reduce their water bills and that's where Middleby is ahead. We started in 2006 working on water saving devices like water-less steamer now. We have a waterless steamer that's patented and unique, being tested at many chains. So again, to summarize where I see the future. Casual dining, fast casual are going to be most probably revamping their menu and their cooking speed.

Number two, product innovation is consistency of food in terms of using more labor automation, which casual dining is very prone to, similar to what we've done with Chili's. I look back at ventless technologies because the saving are humongous. I look at energy saving going beyond the traditional electricity and natural gas to water.

All right. Thank you very much. I appreciate it.

Thank you.

Thank you. Our next question comes from the Peter Lisnic. Please go ahead.

Good morning, Tim. Good morning, Selim.

Good morning, Peter

First question, just on the -- Tim, on the base business order trends in Commercial Foodservice. Can you give us a flavor as to what the trends there are like heading into the first part of this year, both in chains and then ex the larger chains if that's possible?

We don't break it out with chains and non-chains. But I as I mentioned, in the fourth quarter, it was particularly strong. International continued to remain strong. We did have some roll-outs with chains, and there's probably a little bit of pull ahead going into the year as customers try to get ahead of price increases. Going into the first part of year, orders continued to remain solid, but there was some expected slowing because just the rate of some of the roll-outs in the fourth quarter were probably lessened. We still anticipate that 2012 will continue to be a strong year with the chain business, but the fourth quarter was comparatively very strong.

Okay. Got it. Then if you look at that price increase that you put through. Can you give us a sense as to how significant of an increase that is? Probably a shot in the dark, but any chance of quantifying what the magnitude of the pull-forward might be in the fourth quarter?

It's tough to quantify that. I mean, I think we think it -- probably a few percent. It's always hard to measure that exactly on an order by order basis but that's a general sense. The price increases in the 3% to 5% depending on the divisions, but generally that's the range that we've been going up.

Okay. Perfect. Then, Selim, if I could, just strategically. Can you give us a sense as to what the recent acquisitions in the processing business mean for Middleby particularly -- to use Joel's question, over the next three to five years?

Well. The Food Processing business is a great, great platform for us. Why? Because there are a lot of synergies between what we do in Commercial Foodservice and what we can do in Food Processing. Example, we're taking a lot of application of energy savings that we've learned in the restaurant business to apply to our Commercial Food Processing platform.

What is interesting is, if you look back, Peter, at how we built that company we focused on Foodservice, most probably -- if I go back to 1999. So, in the past 12 years, we created a number one, number two platform in every market we serve. We focused on cooking only. We focused on a certain type of restaurant that we wanted to cater to, a certain type of clients. But when we started in 2006 with the acquisition of Alkar and RapidPak, we were basically one AA, a new player in a highly fragmented business. With all the acquisition we've done in the past few years, we're now playing number one and number two in almost every market we serve.

You look at that and I give you just a flare of where we've gone with this. Allow me to just give you -- we have become, with the acquisition now of [Armor Inox ], Drake, Maurer-Atmos, Auto-Bake, Danfotech, MP, in addition to our first Alkar and RapidPak; we're number one in hot dogs, number one in bacon, number one in sausage, number one in ham, number one in chicken forming, number two in industrial baking, and number two in meat packaging. So, if you look in a matter of six, seven years, we have most probably created a similar platform to our Commercial Foodservice. I see that trend continuing. People are going to spend in two buckets.

They're going to spend their food budget on either go now to restaurants or they're going to eat and get their food in the freezer. I will tell you that everybody on this call -- I do not know anybody on this call that does not have their freezer full. I will challenge that anybody will open their freezer and they will see that they have more food than they can sustain. I think that trend will continue. We have a tendency around the world as human beings to stock more food than we want. We go to a Costco, or a Wal-Mart now Supercenters, or Safeway, or a Publix, and we tend to over stock on frozen goods, and we would like to play in that market. I think that market will continue to grow not only in the US but in the emerging markets where we have literally a fantastic growth opportunity as we go to those markets with Food Processing.

Okay. That is very helpful, Selim. Thank you very much to you both for your time.

Thank you.

Thank you. (Operator Instructions) Our next question comes from Jamie Sullivan. Please go ahead.

Hi, good morning.

Hi, Jamie.

I wondered if you noticed any impact or any talk of whether accelerated depreciation helped in the fourth quarter as well?

Yes, Jamie this is Tim, I think there's probably some benefit in there. Again, it's hard to measure that. I don't think that it's a very material impact to the fourth quarter, but no question on the edges, people do try to take advantage of the depreciation roles.

Sure. Okay. Then in your prepared comments, did you mention that the pace of the roll-out with Chili's would slow a bit in the first half?

Jamie, I'll address that. I don't think it will slow down much. I think it will remain consistent. It will most probably pick up in the third and fourth quarter even more, but I think we continue accelerating the conversion of Chili's more and more. It's a huge undertaking for us and for them. But it's -- we're very excited about it, and I think it's gone very, very smoothly on both sides. So I would assume that it will be -- it just continues being stable and consistent in the first half of the year and picking up in the second half.

Okay. That's helpful. Then you've talked about having some additional customers queued up once this project is completed. Just wondering what your capacity limitation is on executing these projects, and how would you scale that up if you wanted to do it?

Jamie, I think from a capacity standpoint we're very geared up and we can at least accommodate two or three other customers at the same time. But we made a commitment to Chili's that they will be our priority for the time being to make sure they were the first to get us to where we need to be. I want to make sure that they are literally taken care of. I think we are still in an early stage of that business, and we're going to almost continue pushing very, very hard to this. We can continue pushing hard to making sure that transition.

I would say, we will be a lot better in working towards the second integration or second customer integration mostly toward the latter part of fourth quarter. Now, just to answer the question strategically. We have a lot of interest in that conversion by other casual diners. In fact, Chili's owns other concepts that they are interested in having us look at them and convert them. So, I think we're going to start seeing the impact of our -- what I call casual dining revolution, if I call it this way -- what we've implemented at Chili's in 2013 beyond Chili's. We'll most probably continue having Chili's through 2013 and then we'll most probably have at least one or two other conversion in 2013.

Okay. That's very helpful. Then just one on the Food Processing side, you've talked about the international markets, emerging markets being a big driver there longer term. I'm just wondering with the acquisitions that you've done, if you can give us a sense of the mix of international in that segment today and maybe the emerging market exposure as well?

Jamie, I'm going to answer that. I think it's too premature for us to tell you the mix. I can tell you we just made the acquisition in December of a couple of overseas companies. I think we have acquired -- well, I think in the second half of the year, let's put it this way, between Auto-Bake and Armor Inox and Maurer, who are all overseas companies. I think it will most probably shift our emphasis internationally on the Food Processing to become a very strong driver. It's tough to say right now, exactly what the percentage would be. But if you go back to the acquisition of Maurer, of Armor Inox and Auto-Bake, they will present most probably -- they will present at least 30% to 40% of our sales now coming from overseas.

Okay.

In the Food Processing business.

Yes, and Jamie, this is Tim. Of those companies, about half of their sales is in the international markets. Not necessarily where they're located though. I mean, they are global companies that sell throughout the world.

Okay. Thanks a lot.

Thank you. Our next question comes from Gary Farber. Please go ahead.

Yes. Good morning. Just a couple of questions. Could you just talk about your own input costs, raw material costs, what kind of trends you're seeing there, and then trends on freight as well?

Yes. So we do see a trend up in freight costs. That's one of the things that we're monitoring right now. Looking at how we're passing that onto customers. Because we do anticipate that the delivery costs are rising as we move into the beginning of this year, both as we buy product and as we ship it to our customers. So, that's a focus area.

Material costs is relatively, I guess it's stable right now. I mean, there are increases, but they're more manageable than what they've been in the prior years. Where we're anticipating that steel may go up in the latter part of the year, but it's still early in the year and we'll monitor it and adjust to that as we progress through the year.

Okay. Then just one last one. As you go through this year integrating the acquisitions you've done, where do you think the greatest rate of margin improvement? Is the gross margin going to expand faster than the SG&A is going to come down, or is it going to be the other way? How do you see it?

Well I think -- I think we'd want to comment on that as we further get into these acquisitions. Some of these, we're just absorbing now. I do think that there's opportunities both at the gross margin line and the selling line. I think we're looking at opportunities to leverage the selling organizations that we've got across these different business units. We think that's a good opportunity.

There's also similar to what we've experienced in the Commercial Foodservice side. There's opportunities to leverage our purchasing with, as we buy similar components across many of these businesses and, perhaps also, some manufacturing synergies between the different companies too. So, that's something that we'll evaluate as we move through 2012.

Okay. Thanks.

Thank you. (Operator Instructions) Our next question comes from Greg Halter. Please go ahead.

Yes. Good morning.

Good morning, Greg.

Good morning. I've been noticing at some of the Dunkin' Donuts there, they've received some new TurboChef products. I'm just wondering if you can comment on that possible new roll-out if that's what it is?

Yes, I can address that, Greg. Dunkin' Donuts has been a very strong partner with us for not only the TurboChef but other platforms that we do business with them. They've been -- they've worked with many of our other division so we have a very close cooperation with them. TurboChef has been in Dunkin' Donuts now for over -- most probably several years. As Dunkin' Donuts continues to look at space optimization, and increasing speed and menu offering, they have been working with us on implementing -- introducing a new TurboChef platform. Which is our new Encore oven, which is being placed there and in certain selection.

The Encore oven is 25% more energy efficient than our former TurboChef ovens and they are basically almost 8 to 10 seconds faster. So, it goes from a average of 30 to 40 seconds to now 20 to 25 seconds to cook and toast a product. So, the biggest thing at Dunkin' Donuts, they've been very interested in seconds and inches. They've been working with us and partnering with us on reducing seconds and reduces inches in the restaurant -- in the kitchen and TurboChef is one the solution we provided.

Blodgett is working with someone -- another oven introduction too, for other applications. So you're totally correct in saying a new, it's our new Encore TurboChef oven that is being launched in that application.

Is that the same one that's at the Subways. I've also noticed a bunch of new equipment at Subways as well.

That's correct. It's also at the Subway. It's our new TurboChef generational oven. It's a new technology. Again, 25% to 30% more energy efficient, I think -- or maybe 20% more energy efficient than the first one and 25% faster.

Also any comments on the Spin Fresh product line?

Yes. The Spin Fresh product fryer is out of production. It's basically in -- it's being tested at several chain locations. Mostly casual dining chains, and it's now available for sale. We have not sold many units to Starbucks. I think that if you've been with Middleby for a long time -- and I know Greg you have been, and many of the analysts on the call have been -- we usually take 12 to 18 months to seat a disruptive product like this.

So my feeling is, the SpinFryer is out, it's approved, it's HA approved. It's got all the kinks out of it. It's available for sale. I think that I would like to temper everybody's expectation because our experience has been it takes -- even a great product like SpinFryer or a TurboChef product or a Blodgett oven. It takes us between 12 to 18 months for people to test it, to train people, to realize the payback they get out of it, to make sure that our claims are true. So I think the impact of Spin Fryer will most probably be felt in 2013.

Okay.

It's out. Live, available, if you want one for your home, I can ship one for you. (laughter) So, it's available. So now finally, people have been waiting for this for a long time.

Before we go to another question. I would like to let everybody know that there is a brand new Investor Presentation that's out on the website. It's on our website www.middleby.com. You go under -- it's under our Investor Section, Presentation, and it's our Roth -- I am presenting at the Roth Capital this morning after this. So if you go in, it's our brand new investor presentation. If you go to www.middleby.com and then you go under the Investor Section, and it's under the Roth Presentation, PowerPoint presentation.

One other quick one for you, Tim, if I may. Any thoughts on what you're capital spending for 2012 will be?

We've typically been in the 1% to 2% of sales. So I think, I would expect that we continue to be in that range in 2012.

Okay. Thank you.

Thank you. That was actually our last question. So I will now turn the call back over to Management for closing comments.

Okay. I would like to go on and conclude the presentation with a few prepared comments from me. I think it would be very helpful to mention that in 2011 and 2012, some of the key factors in Middleby's performance have been and will be driven by our national account team. Literally our investment in getting closer to customer, a better service at the national chain roll-out like the Chili's roll-out, and [indulgence] and [Doyon], and all our close relationships, Subway, with our national account team has been very instrumental. In fact, we have just added two more great people to our national account team, and now we have one of the largest national account team in the industry.

Second, our relationship with key dealers. I think there, our distribution network has become more solidified and just to attest to this, our relationship with the buying groups where many of those dealers have formed is better than it's ever been. We've trained the dealers, we've trained their sales rep, and we've had a great relationship together in servicing them and creating bonds that literally allow us to be -- to penetrate urban markets with the dealer network, or to penetrate franchisees who the dealers have partnered with us to go after both chains, institutions and casual diners.

Our innovation of product, our energy efficient product, and we have the most energy efficient product in the industry, literally we have been very successful in delivering energy efficient product similar to our ranges, Southbend and Jade ranges, our Blodgett convection ovens, our TurboChef ovens. I can keep on talking about many, many innovative product in energy efficiency.

Our ventless technology has become a big driver of our business, and I've just been proud to give you some great highlights. We just equipped Augusta National Gulf Club for their Master's with a ventless technology. We just, if you live in the Washington area, Costco just started to put in ventless fryer tech application in the Costco units. Those are just a few of many application we've done, in military application, and institutional application where with see our ventless to be in huge demand and a huge return on the investment and payback of our customers.

The acquired companies and technologies continue to be natural choice for sellers to work with us. We've been able to acquire privately held companies because we have a DNA that allow those companies to thrive and use the Middleby umbrella. Our ability to improve profitability and expand the customer base. Especially using our emerging market infrastructure where we've taken companies, including TurboChef, which was a large company, our Middleby worldwide organization was able to take them places where they could have not gone independently.

So, just to give a few -- feeling about what happens since the beginning of the year, we are very proud to announce that Buffalo Wild Wings, one the most respected casual dining and fast casual concept gave us the Supplier of the Year award last week. It's the only equipment supplier to receive the Supplier of the Year award. I look at Domino's India, which six years in a row have given us Supplier of the Year. I look at Chick-fil-A, which gave us also this year, one of their biggest award for our partnership with them. We looked at, of course, the Yum Group the Papa John's, and I keep on going to many, many awards that we've gotten over the years.

I also am proud to say that the restaurant business added 41,000 jobs in February, and have hired more than 500,000 people since March 2010. In addition, many small and mid-sized chains have began to expand for the first time since the recession. So I feel very good where Middleby is positioned with restaurant concept, whether it's fast casual, or casual dining, or quick serve -- with greater exposure to a low mid-range customer. Those concepts have more aggressive remodel initiatives, and I would still say that we can start seeing some of those remodel initiatives start being more speeded up in 2012 and 2013.

Internationally, we're seeing nice unit growth in emerging markets. Now, we also see a strong start to 2012 for casual dining. We see the store checks significantly up. Some of it might have been driven by weather, but I think that some of it is sustainable. We also expect that food inflation for most of our restaurant concepts have likely peaked, which shall help restaurant margin and investment. So we're very excited about what's going on in the market.

However, I would like to say that there are challenges ahead of us in 2012. We are very concerned about fuel prices. I think fuel prices will impact not only Middleby because we do tend to ship around the world equipment, and we get materials from all over the world which will impact slightly our margins. It will also impact the consumer spending and the income of the consumer as fuel prices tend to inch up. I also am concerned about some of the macroeconomic factor of the slower growth of the GDP in the US and in Europe, specifically impacting our UK operations. I also see steel prices impact in the second half of the year to impact us slightly.

However, as you've been following Middleby, we have been always faced with challenges, and we are geared to offset some of those challenges with some of our restructuring that we've done. The consolidation of [Doyon] NuVu is going to help us. We are in the process of consolidating a couple more plants in 2012. I also believe that our focus on some of our top customers, both in QSR, casual dining, and fast casual will help us continue rolling out some initiatives with them in 2012 and 2013. So we continue seeing our forecast for 2012 to be slightly impacted in the first half of the year by some of those challenges that I've talked about, which is -- slower growth in the GDP in the US, the impact of the dollar strengthening, and the European's slow down that will impact our UK operation. But we believe that in the second half of the year, as we continue rolling out more product with our customers in the third and fourth quarter, we'll most probably alleviate the pressure on our first and second quarter. Thank you.