Middleby Corp (MIDD) 2012 Q2 法說會逐字稿

Ladies and gentlemen hello, and welcome to Middleby Corporation second quarter conference call. With us today from management are Selim Bassoul, Chief Executive Officer, and Tim FitzGerald, CFO. We will start the call with prepared comments, and then open it up for directions. Directions will be given at that time on how to enter the queue and ask your question. Now I would like to turn the call over to Mr. FitzGerald for opening remarks. Please go ahead sir.

Good morning and thank you. Net sales in the second quarter of 2012 of $260 million increased 23.3% from $210.9 million in the second quarter of 2012. Sales growth from acquisitions accounted for $38.8 million of this increase in the quarter. Excluding the impact of these acquisitions sales increased 4.9% over the prior year quarter. This increase reflects a 5.4% increase in sales at our commercial food service group, and a 2.1% increase in sales at our food processing group. Sales growth in the quarter was adversely impacted by foreign currency exchange rates, which impacted sales as reported in US dollars by approximately 1%.

At the commercial food service group we continued to realize sales growth driven by sales to restaurant chains looking to upgrade equipment and adopt new technologies to improve the efficiency of store operations. Sales in emerging markets also remains strong, with growth in excess of 20% in both Asia and Latin America. Offset by reduced sales in Europe, reflecting difficult economic conditions which we anticipate to continue in the near term.

A modest increase in sales at the food processing group reflects growing demand by food processing customers looking to modernize existing production operations, and new customers developing operations in emerging markets, and demand for precooked and preprocessed foods increases. Sales in the segment moderated in the first half of the year rebounding from a decline in the prior year and are expected to continue to improve over the course of the second half of this year.

Gross profit increased to $101.8 million from $85.3 million, and the gross margin rate was 39.2%, as compared to 40.5% in the prior year. The gross margin rate reflects a higher mix of sales from the food processing segment with a comparatively lower margin. Within the individual segments the commercial food service segment remained in excess of 40% and consistent with the prior year. While the food processing segment reported a slight decline reflecting lower margins at the newly acquired companies. In the upcoming quarters we anticipate that the food processing business will continue to represent a comparatively higher portion of the sales due to the recent acquisitions, which will likely impact the overall gross margins. However we anticipate improvement in the margins of the segment as we move into next year, as we realize the benefit of business integration initiatives.

Selling and Distribution expenses during the quarter increased $6.7 million to $28.3 million as compared to $21.6 million in the prior year second quarter. Selling expenses in the quarter included approximately $4.3 million of additional expense from acquisitions not included in the prior year quarter results. Excluding the incremental expenses, acquisitions, selling cost increases due to higher sales and investments in the selling organization, as well as increased investment in marketing programs.

General and Administrative expense its declined by [$300,000] to $28.2 million as compared to $28.6 million in the prior year second quarter. General expenses included approximately $3.5 million of additional expense related to acquisitions not included in the prior year quarter. This was offset by lower professional fees and stock compensation costs as compared to the prior year quarter.

The provision for income tax amounts to $12.7 million at a 29% effective rate, as compared to the prior year provision at a 37.7% effective rate. The current year tax provision reflects lower taxes on earnings in foreign jurisdictions, which have increased due to the foreign acquisitions completed in 2011. The tax provision also reflects favorable reserve adjustments associated with reduced state tax exposures, which favorably benefited the effective rate by approximately 4% during the quarter.

The Company also continues to realize cash tax savings associated with the utilization of net operating losses acquired from TurboChef. This tax benefit will amount to approximately $6.4 million for the year, and is not reflected in the tax provision that has been recorded as a utilization of an asset in the opening balance sheet of that acquisition. Cash flows generated by operating activities in the quarter amounted to $43.5 million, and it was $54.3 million for the first six months.

Consistent with the prior years, cash flows are anticipated to increase in the second half, as working capital is reduced from its midyear peak. Noncash expenses added back in calculating operating cash flows amounted to $9.7 million for the quarter, and $18.5 million for the first six months. The noncash expenses for the quarter of $9.7 million were comprised of $6.6 million of depreciation and amortization, and $3.1 million of noncash share base compensation. In the first half of 2012, the Company utilized $10.6 million to fund the acquisition activities, and made investments of $3.1 million for capital expenditures related to the production of equipment and facilities enhancements.

Total debt at the end of the quarter amounted to $274.2 million, and was reduced by $43.1 million from $317.3 million at the end of 2011. And this total debt reduction is net of the funding of acquisition activities. In August we entered into a new five-year multi-currency credit facility. This agreement provides for $1 billion in financing under a revolving credit facility, and this agreement also includes an increased option of an additional $350 million.

Addition borrowings will be assessed at an interest rate of LIBOR plus 1.5%,which is approximately 0.5% higher than the borrowing costs under our current or prior credit agreement, and this rate will be adjusted quarterly based on the Company's leverage ratio. This credit agreement allows for borrowings to fund the acquisitions, purchases, and other corporate uses, and provides the Company with availability to fund its growth initiatives. And Eric, that is all for our opening statements. Could you please open the call to questions?

Thank you very much. (Operator Instructions). First up is Peter Lisnic with Robert W. Baird, please go ahead.

Good morning gentlemen.

Good morning Peter.

Can you give us a little bit of flavor for the gross margin outlook for the second half of the year, understanding that food processing being a little bit more the mix, that you have got the synergies for acquisitions coming through, the first couple of quarters have been down year-over-year. Just kind of wondering what the outlook would be given that mix change in the back half of the year?

Yes, Pete, I think the food processing group increased as a percentage of portfolio, and I think that mix is going to continue in the back half of the year. So while we think we are going to start to see some increase in the gross margins of that group as we move into next year, the mix will still wait out where, that will be somewhat of a drag on margins in the back half, probably pretty consistent with what we have seen in the first half of this year.

Okay. That is fine on that. And then continuing with food processing, just given the confidence out there and the macro concerns, have you seen any backlog being pushed out, or how about deferrals of orders, can you talk about the backlog and order trend in that business right now?

Yes, we haven't seen any kind of deferrals of projects or spending at this point. The activities in that segment have been pretty strong.

Okay. And then last question, just on Europe in the food service business, can you give us a feel for kind of how significant that business was hit by the macro concerns, and what sort of impact that had on the organic growth number of 5.4 in the quarter?

Yes. I mean it was down quite a bit. I mean it was down double-digit for us Europe. So a lot of the international sales in total for us was up, but Europe offset most of the gains in Asia and Latin America. Because Europe still is a larger piece, is larger than Asia and Latin America. It is the biggest piece for international sales.

Okay. And then for the change here I guess and what they are doing overseas, any change in their investment outlooks? In other words are they continuing to look at international markets the same, in terms of what they would like to do from a growth perspective there?

I can answer that, Peter. We are seeing a lot of change. Literally still growing the unit growth in emerging markets, and I can tell you exactly where it is going, India, Russia, Middle East, Latin America remain very strong. We are also seeing regional change, local change coming to us, and also adding going from 25 stores to adding 10, 15, 16, 20 stores. So example, Domino's in India will be adding 100 stores in 2013, and they continue adding significantly in Asia, Papa John's continues to add in eastern Europe. I will continue to say that Yum is adding 700 units in China, we continue seeing emerging markets being very, very strong. We also see something else that is happening which is a great phenomenon for us specifically.

We are seeing a significant increase in labor inflation around emerging markets specifically in China, so what is happening is the established brands in China including Yum, who are managed by great people, some their CEO in China is a great, great guy, but they are feeling pressure from labor inflation that they will have to be forced to start looking at kitchen efficiency, labor efficiencies, force in the back of the house and the front of the house to keep their margins up. So that drives significant opportunity for us, as we see those emerging market's labor costs going up.

That is perfect, thanks for your help.

Thank you.

Thanks Pete.

Next in queue is Jamie Clement with Sidoti & Co. Go ahead please.

Selim, Tim, good morning. Follow-up from one of Peter's questions about processing, and obviously I think some of the pork oriented companies have felt some pressure, and there has been some kind of bad news out of them over the last couple weeks, related to corn prices and what that does to their margins, and that sort of thing. You all have a much higher percentage now via acquisition of processing the sales to things like breads and cakes and snacks, and that kind of thing. Can you talk a little bit about that kind of business and what the mix looks like compared to where it was three years ago?

Well, with some of the recent acquisitions we have expanded the group so we are not only in meat processing but there are breads and pancakes, and so forth. It is a broad portfolio of thermal processing technologies and we service all segments. So the majority of sales are in the meat processing segment, but we sell into really all cooking aspects of food processing now.

Yes. And I was wondering and Selim, I don't know if you want to weigh in on this, because it is not an area that we have heard you talk that much about, but in terms of processing to those other areas, what are the trends you notice, obviously you have spent acquisition dollars over the last couple years in that, what was particularly attractive about those markets?

What I like about the food processing business is they are very, very focused. Those processors whether they are in meat or in baking are very focused on pay back. So for them, increasing the yield, lowering energy saving, lowering labor saving. They literally operate, that segment operates like chains. They remind me a great deal that today, Maple Leaf Foods or Kraft or Sarah Lee or Nestle, are literally operated like a Yum or a McDonald's. They are looking at efficiencies in their factories, similar to those chains looking at the efficiency in the kitchen. What is fascinating for us, we have taken our concept of payback introducing products that increase the yield, reduce labor, increase basically efficiencies. And what you have seen, right after the recession took place, that those food processing continued to operate and upgrade their equipment. For them, a 1% or 2% yield literally justifies spending $1 million, $2 million, $3 million on a piece of equipment. Because of payback end up being less than a year.

So we are starting to see a significant order demand, and I think it will continue through 2013 easily on the food processing, where we are seeing our more efficient equipment taking place. So for example, we are right now in the process of working with several large food processors both in the US and in the emerging markets, where we are laying out completely automated lines, which reminds me of the pizza conveyor business. Very much so. It reminds me of over 20 years ago when Middleby Marshall literally took the pizza business from a deck oven, when you had someone standing in front of those deck ovens, and now they all went to conveyor. Almost 90% of the business is conveyor. And I see the same trend happening where you still see many factories, large factories, within Nestle, within Sarah Lee, Oscar Meyer, where you have those big ovens, and you are seeing the ovens and your seeing them going to automated conveyer belts and conveyor lines, and this is a sweet spot for us, because we dominate the automation in the food processing business with a lot of the companies we own today, both in the baking and in the meat processing.

Okay. thank you very much. Final question, Selim, given the earnings growth that you have all seen over the last couple of years, modest balance sheet leverage, would the Board consider a regular dividend sometime in the near future?

I think it is something that we will discuss. The problem I am facing and the Board is facing is the fact that we are continuing to remain acquisitive, and we have many, the pipeline is pretty strong on M&A, in fact it is getting stronger as we see a lot of larger sized companies, both in food processing and food service coming into play. So my feeling would be it has to be literally embarrassing. I don't want to send the message to our investors that we are running out of M&A, that now we are doing dividend. I think dividends are a great way, I think repurchase of shares is another option that the Board always considers, and we have done that in 2011, and we have done some I think earlier this year.

I think we need to make sure we don't send the message while our cash flow is very, very strong and we cannot afford to do both acquisitions and dividends and repurchase of shares, I want to make sure we don't send a message to investors that we are running out of acquisitions to buy. Because this has been a fantastic part of our DNA Jamie. It is a dilemma for us to give dividends because you want to be shareholder friendly, no doubt about it. I am sure that some funds would not even consider Middleby, and would like to because they are most probably, their motto is that they should have a dividend paying start to investment. But you are always concerned about sending the wrong message, and starting to have investors say well is Middleby now not being able to buy companies, which is not the case at all. We will continue to be very acquisitive, and the pipeline is very strong.

I very much appreciate the honesty and the view of the Board on that. That is extremely helpful. Thanks very much.

Thank you, Jamie.

Next is Tony Brenner with ROTH Capital Partners, please go ahead.

Thank you. A couple of things. First of all, Tim, adjusting for all of the recent food processing acquisitions that you have made and normalizing those margins, what is the difference in gross margins between food service and the food processing segment?

It is roughly in the 5% range.

Okay. Second, as I recall, beginning at the very early last year, maybe even a little before that, you began reporting that orders on food processing were accelerating sharply, and that initially you thought that would result in an acceleration of shipments beginning in second half of last year, and as we got into the second half of last year, you began reporting that should result in an acceleration. It is pretty easy comparisons in the first half of this will year, and now you are saying it will be the second half of this year, if in fact you suggest there haven't been any deferrals, I am wondering why those shipments haven't picked up more significantly yet?

A lot of the deliveries are scheduled for latter part of this year and even early into next year. So the timing of kind of the orders doesn't necessarily correlate with the timing of the shipments given the longer lead times.

I am not sure that answered the question, but okay.

Tony, let me answer the question because you have, we are the same way trying to address the same issues, because you have had the orders coming in very, very strong. They continue to be very strong. When you look at the quarter, your say well, shipments were up 2% in food processing where are the orders, how come they are not coming through? I think part of it is simple is one, we received a lot of orders, a lot of orders came in. And the end of the third quarter of last year, and in the fourth quarter of this year. Those orders are dependent on two things. They are dependent on upon users orders, because every order is customized, those are not stock items. Every order, they are multi million dollar orders of customers. We also tend to see in terms of dealing with our customers, that sometimes there is a slowdown in terms of literally laying out the factories to receive those orders.

We tend to see some, most probably slow down on the perspective our customers. But I would like to say that most probably 70% of the delays come from our factories versus our customers, because many of our customers are asking us to deliver sooner than we can. I think some of those leads times on our food processing business has been more stretched than we expect it to be, I think a little bit longer than we thought it was going to be, and there are several reasons for that

I am going to be very transparent for all of you. I think one of the challenges we faced is that as the recession took place and the food processing business if you remember in 2009 got hit very hard. 2010 we adjusted our work force. We literally like everybody else, we basically let go some people in our factories. We let go some engineers. We let go some technical service people to basically adapt to the order flow. The orders were anemic at that time in that segment. So as we received orders, literally we did not expect the flux of orders, we spoke about it and we said it is going to come. They have to start basically looking at labor efficiency, yield improvement, however, we did not expect it to hit us as hard. I think our orders have been very, very strong, stronger than we even expected. And I think we had a hard time ramping up and bringing people back. And I think literally, we were slow in hiring back in the food processing business because we were cautious, and that cost us in lead times.

And that is the honest truth. I think when I looked at our management in food processing, they are basically balancing do I hire full time people, we got burned very hard in 2009, and there is basically the memories remain very, very strong we need to be cautious, we don't want to bring a bunch of people again in volatile times the way we have here, and end up again hiring permanent people and then we have to lay them off, and have to pay all of that severance and cost of attrition.

Very good. Thank you. One last question. Could you Selim give us a little update on the status of the kitchen retrofit program, are you working yet with Chili's franchisees, or still with the company itself, or are other chains kicking in yet? Where does that stand?

The program continues to be very strong with that particular chain, that casual dining chain. We are in the process we have received several records from the franchisees, so we are seeing to see the franchisees coming through, and we are very excited. I think that program has specifically not only worked very, very well, now we are seeing the franchisees embracing it, and literally we continue now to see interest from other chains. So I think, as I mentioned my previous conference call, I said that we would continue focusing on Brinker, to make sure we give them the full service level of attention. We are now I think over 500 stores, and it is going extremely well. And I think now we are seeing the franchisee coming through, and I think by somewhere in the second half of 2013, we will be working with some other chains specifically to make efficient kitchens also for them. It is not going to be very similar to Brinker. I think the Brinker model is very unique. It is similar ways where we are going to help them customize and automate their kitchen. We have several other casual dining chains lined up for second half of 2013.

Thank you very much.

Thank you, Tony.

Next is Greg Halter with Great Lakes Review. Go ahead please.

Thank you. Tim I just wanted to clarify one point that you made on the food processing gross margins. You meant that they are around 35%, correct, the differential of about 5 points from the commercial food service?

Right, Yes, for the, I was referring to the differential, the 5 points of the differential that is right.

I was hoping it was not a 5% gross margin?

No, that is correct.

Okay. And the line other income which you had some this period versus expense, can you elaborate the difference between the two years?

Yes. So this year it is not a very significant amount. It is a slight income item, largely foreign exchange gains. That is primarily what runs through there. Last year we did the acquisition of Lincat, which is a large, it is an acquisition that we did in the UK and just with the financing of that transaction, the initial financing there was some larger unrealized exchange losses, but it had to do with the timing of when the acquisition went through, and how we financed that. That was more of an unusual item specific to the Lincat transaction in the last year's quarter.

Okay. Can you comment on what you are seeing or what you saw in the quarter regards to steal costs and what the outlook is going forward?

We have seen the kind of two components to steel, the base price and the surcharges. So the surcharges have come down while the base price of steel has come up. So the pricing is relatively flatish, and we expect that trend to continue for the remainder of the year.

Okay. Any shares repurchased in the quarter?

There were not any shares repurchased during the quarter.

Okay. And what do you expect your capital spending to be for the year, and maybe if you have an indication for next year that would be great?

Well we have always kind of indicated that we would spend in the 2% type range, or something less than 3%. We have typically trended less than that, our CapEx spending has been a little lower in the first half of the year being at $3 million for the first six months, so we are well under the even 1%, but I expect that will probably ramp up in the second half of the year. We have got some consolidation and plant integration initiatives that are going on, and that tends to be one of the drivers of CapEx for us, so we will see some of that come through in the second half of the year that will bring us up to that, closer to that average of the 1% to 2%.

Okay. And looking at the new credit facility going from $600 million to $1 billion, seems like a large amount. I am just wondering if there is something out there that you would need such a significant facility?

Well it is a five-year facility so we put it in place with a view for the longer term. If your were to look back over the five years prior to the agreement, we started off with a much larger facility, and we grew into it pretty quickly. As Selim mentioned, the pipeline for acquisitions is strong, and we think it makes sense for us to have the dry powder to go ahead and execute on our acquisition strategy. So we do anticipate that over a five-year period that we may need that, and want to keep the ability or the flexibility, so we can act on opportunities as they come up.

Okay. And the rate I think is LIBOR plus 1.5%, I think?

Yes, that is correct. It is on a grid, so the grid range starts off at 1.5%.

Is that above or below your previous, I can't recall?

Yes, well, the grid has it depends on, right now currently we are borrowing at LIBOR plus 1% roughly, so it is about 0.5% greater than the borrowing costs that we had up through the end of the second quarter.

Okay.

And generally that would be consistent.

One final one, Selim, if couple comment on any new products that may be out there and exciting we will give you a chance to elaborate?

Yes, Greg. I tame excited about literally 12 now products. We have 12 new products that have immediate payback of which it is less than a year. Fully measurable. They are in warming. They are in cooking. They are in speed cooking. They are in ventilation, ventless. So when I look at what is happening in the marketplace is literally, right now we are seeing two trends. We are seeing in the US, we talk about the US specifically because that allows me to come into that segment is we are seeing a complete segment, which is the casual dining segment totally remodeling their kitchen and their basic operations. That is a segment that has not done much over the years, and they are under significant pressure, food costs, labor costs same store sales have been under pressure, and what has happened with our basically change of Brinker has led to now other casual dining to say, I have to remodel, Darden, TGI Friday's, Cheesecake Factory, everybody is looking, Applebee's are looking at remodeling their kitchens. We are in the sweet spot for that.

Number two, we are seeing significant also change of saying okay, now labor, food costs are going down which is a big relief for all of the restaurant segments in the US. Food costs have stabilized, neutralized, in fact commodity price is going down yes, maybe there is a spike in corn, but generally all of the food commodities are way down. So now most of those operators are saying, what do I need to do to grow my same store sales? So they have two options. One, they can spend a lot of money on promotional activity, so we are going to see significant spending being spent on people promoting advertising,. Number two, you are going to see significant updating of menu items. I am looking at kitchen remodeling. And just to give you a perspective. Just to give you a perspective what has happened this year. So today, companies with new menu and new product development, I am talking about restaurant operators, are posting robust results. I give you an example. Taco Bell, Chili's, Panera, irrespective of how good you are, very strong you are, and you do not introduce new product and new menu changes, you are going to have a tough quarter.

I am going to give one example, McDonald's had a tough quarter. I truly believe part of the tough quarters they have had it is a fact they have literally slowed down their new menu introduction and platform this year compared to the year before, and I am sure the minute they introduce new products which they always do, they will most probably pick up again their results. So our feeling is people are coming to us and saying I need to introduce new menu items, help us out, I need to change that, I need to introduce a new piece of equipment, and we are seeing significant introduction of menu items, kitchen equipment, and remodeling in the casual dining in the US.

In emerging markets we continued to see specifically unit store growth. I talked about it, India, Russia, Middle East, Latin America remain to be very strong. In China, unit growth continues to be big, but they have a major issue. Labor inflation is here to stay. So they have to figure out a way to offset that labor inflation that is basically rampant, and they are going to have to remodel and figure out a way to reduce costs, both in the front of the house and back of the house. And I am looking at the established brand like Yum, McDonald's, regional chains like East Bay, Jollibees, all of them are under the pressure of labor inflation in Asia. I think that is a significant opportunity for us to introduce automation, to introduce versatile equipment that allows them to do more with less.

Great, thank you.

Thank you.

Our next question is from Jamie Sullivan with RBC. Please go ahead.

Good morning.

Good morning Jamie.

Hi Jamie.

Just wondering on the food processing side, maybe you can go into a little bit more detail on what you are seeing in the order levels in the quarter, kind of how that is trending, is your book to bill greater than 1, are you building backlog?

Yes, we built some back log during the quarter, so--

Okay.

It is greater than one.

Okay. And then as you look into the back half of the year, maybe kind of the magnitude of the improving growth that you are expecting just given that you probably have some decent visibility there with the backlog?

Well, we do expect to accelerate. I mean I think we are hesitant to give a number, but we are looking at high single digit and perhaps a double-digit type growth in the back half of the year.

Okay. That is helpful. And with all of the trends you are seeing on the food service side, maybe there as well, I mean, could that start to accelerate as well with some of those trends?

Well, I can answer that, Jamie. I think that literally on the chain side, both in the US and emerging markets we are going to see increases. We are going to see that happening. I think you are going to see two segments that continue to be pressured. The institutional segments which includes schools, hospitals, military, which represent around 10% of our sales is going to be quite under pressure. I think the leisure hospitality segment, which is hotels, stadiums, country clubs, which represent a little bit less than 5% of our Middleby sales also will be under pressure. So when I look as specifically our food service business, 15% of that business roughly, of that food service business will remain under pressure for the second half of this year. So of course emerging markets will upset it, because I think international continues growing.

I think Europe as Tim mentioned earlier will remain under pressure, except the UK I think we will start to see in the fourth quarter improvement in the UK. However Europe, central Europe, I am not talking about Russia, because Russia will be strong for us, and UK will start delivering in the fourth quarter better results. I think we will start, continue seeing Europe to be which represent around 16% of our business to be under pressure.

That is helpful. Then one last one. The stock comp looks like it was down a few million year-over-year. I am just wondering what we can expect going forward on that line?

There were some share grants that just based on the vesting periods fell off, so it is relatively lower year-over-year, and moving forward it is really dependent upon what shares are issued. But there typically are share grants that are issued annually or every other year. So at some point there may be an increase in that expense. But that is difficult for us to forecast.

Okay. Thank you.

Thank you. If there are no more questions, I would like to give my final comments please.

Go ahead sir.

So basically summarize a little bit where the Company is going, on organic growth while the external environment is challenging and recent buying habits might change in the short term, we believe that Middleby will gain market share in the short term and long term. We believe that the second half of this year will continue to grow organically, and for two reasons, over 60% of our business is coming from chain, and chain continues to invest and remodel their kitchen platform and adjust their menu offering to better connect with the end user. We have not seen a large change in restaurant chain behavior, so the question is do we see with all of what is going on, the volatility, we have not seen chains cutting back or changing their behavior. On the contrary, they are continuing to invest in their platform.

The second reason why we will she market share gain is the fact that restaurant operators are looking for specific product that can make them more money with immediate payback. And as I mentioned earlier, we are now having over 12 new products that are critical to making money for the restaurant operator. Those products are not discretionary. We are rolling out many of those products today, and we see more chains asking for them. Our success with the casual dining has brought forward many other chains that are looking for a similar result to what we have accomplished with that specific chain that we started over a year ago.

In Europe, while the markets are very difficult right now, Middleby sales in Europe account for less than 16% of our total sales. While most European markets are struggling, we see opportunities in the UK and in eastern Europe starting the fourth quarter of 2012. Our Lincat division in the UK will grow stronger also toward the end of the year, and specifically in 2013 due to the introduction of several new markets, products, and to the final successful testing with several UK chains.

In eastern Europe we continue to see store openings of a few chains which are pulling us into this market. So while Europe continues to be volatile, it will not be a significant drag on our total sales. The only challenge I see is the foreign exchange impact on our bottom line if the dollars continue to strengthen. Emerging markets, we see significant growth for Middleby this year and 2013 in China, India, Latin America, and specifically the Middle East, where we continue to grow double-digit in that market. Our market share in that segment in the Middle East, is less than 5%, and we see us literally doubling that penetration by 2014. In summary, we see our international market to grow in double-digit, despite the slowdown in Europe in 2013.

Our M&A, we are delighted by the closing of our new credit facility of $1billion with a cost of capital of LIBOR plus 150 basis points. This allows us to find strategic acquisitions in the near future. The acquisition pipeline remains solid, both on the food processing and the commercial food service. We are also seeing largest sized transactions, specifically in food service within the next 12 to 16 months. Many of these companies are specifically looking to be acquired by a strategic partner.

What is the overall state of the restaurant industry? As many of you are following us as you follow our customers. During good times and bad times we eat out. Buying habits may change and the amount of time and money we spend may vary due to the current economy trends. But the fact remains that Americans will dine out. And it is not going to be Americans who are basically teaching the rest of the world to dine out too. Whether it is placed in Jordan. When it takes placed in China Malaysia or India, everybody is trending up to dining out. To just validate my point, let's look at the food dollars spent on dining outside of the home. In 1962, we spent $0.28 out of every food dollar dining out, today that number is over $0.52. I predict that you take out in less than 15 years to be spending around $0.70 outside of the home. Just anecdotally just watch your children. I think most of them eat out more than they eat in. So this trend is in our favor.

Second also recent recessionary times have affected our buying habits, lessons have bounced back since 2010. The badly located restaurants and the concept of bad food and bad service did not survive this downturn. By early 2010, over 15% of all restaurant in the US closed down. Between 2008 and 2010, roughly 125,000 restaurants closed their doors. Today the ones who survived are well run. They are good, well managed, well operated, and they connect well with their customers.

In 2011, restaurant revenue was up 3% from the previous year, and is expected to be at this point 4% total restaurant revenue will be up 4% in 2012. We are also starting to see chains opening new store in the US for the first time starting this year, we are starting to see traditional chains opening up new stores in the US. While we are not back to the 2007 levels, it is a long way better than where we were in 2009 and 2010. The other trend we see is definitely menu changes, to meet popular customer wants, and here they are.

Customers today want basic comfort food, which drives significant sales for fryers, ovens, and ranges. Number two, they want healthy menu items, which drive griddle charbroilers. They want value meals, they want healthy, they want basic comfort food at a valuable proposition. It is driving conveyor ovens and driving holding cabinets and warming equipment. Number four, people want to be able to eat well in nontraditional locations, such as airports, and you are starting to see significant airports upgrading their food outlets, and that bodes well for our ventless equipment and our countertop equipment.

Middleby is today leading the kitchen op innovation for preparing breakfast, sandwiches, and burgers. We are also changing the way casual dining is preparing its food. Every six hours a casual dining restaurant is being automated using Middleby's patented technology. As I mentioned before, internationals have continued to grow fast, as we follow American chains around the globe.

In addition to seeing traditional fast food chains like McDonald's, KFC, Starbucks, Pizza Hut, Dominos, Burger King, Papa Johns, Subway. We are now seeing full service casual dining chains, such as Chili's, TGI Friday, Cheesecake Factory, having tremendous success in overseas markets. This is the beginning of the expansion worldwide. We are thrilled to be a great part of their growth.

Finally, I would like to sum up, the pizza business is growing fast and accelerating fast overseas. The recent example of Domino's and Papa John's and Pizza Hut, in places like India, the UK, Russia, and southeast Asia. Companies with new product development and menu items are posting robust results, for example Taco Bell, Chili's, Panera Bread. We will continue to see strong look at kitchen efficiencies by many operators in China and southeast Asia, where labor inflation continues to rise. They are going to be forced to look at equipment that is efficient to cut labor in that kitchen. For that, Middleby is very well-positioned. This ends my comments, and thank you.

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