Middleby Corp (MIDD) 2012 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to The Middleby Corporation fourth-quarter earnings conference call. Please note that all your lines are on listen-only mode. There will be time for a Q&A session towards the conclusion of this conference. Instructions on how to ask a question will be given at that time.

(Operator Instructions)

With us today from management are Chairman and CEO, Mr. Selim Bassoul, and CFO, Tim FitzGerald. We will begin the call with opening comments from management, then open the call up for questions. Mr. FitzGerald, please go ahead.

Thank you. And good morning, everybody.

I have some initial comments about the Company's 2012 fourth-quarter results, and then we'll open the call for questions and answers. The net sales in the 2012 fourth quarter of $291.6 million increased 19.6% from $243.8 million in the fourth quarter of 2011. The fourth-quarter sales reflect the impact of acquisitions completed in the past 12 month, including Drake and Armor Inox., which were acquired in the fourth quarter of 2011, and Baker Thermal Solutions, Stewart Systems and Nieco acquired in 2012.

These acquisitions are not fully reflected in the prior-year comparative results, and accounted for approximately $27.6 million of the sales growth in the quarter. The fourth-quarter results did not include the impact of the acquisition of Viking Range Corporation, as this acquisition was completed subsequent to the fiscal 2012 year end.

Excluding the impact of acquisitions, sales increased 8.3% over the prior-year quarter. This increase reflects the 3.9% increase in sales in our Commercial Foodservice Group and a 29.6% increase in sales in our Food Processing Group. At Commercial Foodservice Group, we continued to realize growth driven by increased sales to restaurant chains looking to upgrade equipment, and adopt new technologies to improve efficiency of store operations.

Sales in emerging markets also remain strong, with growth of approximately 13% in Asia and Latin America. However, sales in Europe continued to decline due to challenging market conditions that impacted the overall growth at the Foodservice division by approximately 2% in the quarter. Sales at the Food Processing Group continued to realize significant growth, both domestically and internationally, reflecting demand by food processing customers looking to modernize existing production operations, and new customers developing operations in emerging markets. While we anticipate continuing sales growth as we enter 2013, this growth will likely moderate from the growth rates we saw in the second half of 2012, which included revenues related to several large customer projects.

The gross profit for the fourth quarter increased to $113.2 million, from $99.7 million in the prior year, and the gross margin rate was 38.8%, as compared to 40.9% in the prior-year quarter. The gross margin rate reflects a higher mix of sales from the Food Processing segment, with comparatively lower margin. Sales at the Food Processing Equipment Group comprised approximately 27% of total sales in the quarter, as compared to 17% of the sales in the prior-year quarter.

Within the individual segments, the Food Processing segment reported an increase in the gross margin of approximately 1.5%, increasing from 33.1% to 34.6%. Reflecting improvement in operating efficiencies, offset in part by lower margins at the newly acquired companies. While the gross margin at the Commercial Foodservice segment was 41.3% as compared to 42% in the prior year, reflecting changes in the mix of product sales.

In upcoming quarters, we anticipate the Food Processing business will continue to represent a comparatively higher portion of the sales due to recent acquisitions, which will continue to be reflected in the overall gross margin. However, we expect to also see continued long-term improvement in the margins at this segment as we realize the benefit of business integration initiatives. In upcoming quarters, we will also have the impact of the Viking Range acquisition, which currently has lower gross margins. And will likely dilute the gross margin by approximately 1% to 2% over the next few quarters.

The selling and distribution expenses during the quarter increased $2.3 million to $26.7 million. Selling expenses in the quarter included approximately $2.6 million of additional expense from the acquisitions not included in the prior-year results. Excluding the incremental expense of the acquisitions, selling costs were slightly less than the prior year, due to lower costs associated with the timing of various trade shows and marketing programs.

General and administrative expenses declined by $2.4 million to $27.9 million. G&A expenses in the quarter included approximately $1.3 million of additional expense related to acquisitions not included in the prior-year quarter. The decline in expense in the fourth quarter reflected reductions related to business integration initiatives and lower stock compensation costs incurred relative to the prior-year quarter. The provision for income taxes for the quarter amounted to $17.9 million at a 32.1% effective rate. This compared to a prior-year provision of $9.6 million at a 21.8% effective rate.

The prior-year fourth-quarter provision reflected a nonrecurring benefit related to reserve adjustments related to reduced state income tax exposures. While the recurrent quarter effective rate reflects the benefit of lower taxes on earnings and foreign jurisdictions, which have increased in the past year due to the foreign acquisitions completed during 2011, favorably affecting the effective tax rate.

The cash flows during the quarter, we had cash generated by operating activities amounted to $34.7 million in the quarter. And cash flows from operating activities for the year were $128.1 million. This non-cash expense is added back, calculating operating cash flows amounted to $9.4 million for the quarter, and were $37.7 million for the full year. During the fourth quarter, the Company utilized $24.2 million to fund acquisition activities and made investments of $1.7 million related to capital expenditures for production equipment and facility enhancements. For the full year, acquisition funding amounted to $62.2 million and capital expenditures totaled $7.7 million.

Total debt at the end of the quarter amounted to $260.1 million. And was reduced by $57.2 million during the year from $317.3 million at the end of 2011. Subsequent to the year end, the Company's debt increased by approximately $380 million to fund the recent acquisition of Viking Range Corporation. This acquisition and the majority of the Company's borrowings are under its five year, $1 billion revolving credit facility, which was established in August of 2012. And the borrowings under this facility are assessed at LIBOR plus a margin of 1.75%.

Now, as it relates to the Viking acquisition, we are pleased with the early stage progress. And are taking steps to reduce product and operating costs, enhance our focus on product quality and design, and realize synergistic opportunities with our Commercial Foodservice business. We anticipate that we will incur restructuring and nonrecurring expenses in the first half of the year associated with business reorganization initiatives, which will result in earnings dilution in the first half of 2013. But we expect the acquisition will be accretive to earnings in the second half of the year as we realize the benefit of these initiatives. And we remain confident in our initially stated expectation that we will achieve EBITDA margins for this business in excess of 20% within a three-year period.

Munie, that's all for the prepared commentary. Can you open up the call to questions at this time?

(Operator Instructions)

Mr. Josh Chan, Robert W. Baird.

Selim, I was curious on your thoughts about how the recent NAFEM trade show went for you. I understand that you had a lot of customer conversations. Without naming anybody in particular, I was wondering if you can just give us a feel of the customer sentiment out there.

I would say that the NAFEM show was a huge success across the industry. I think we had more chain operators looking for solutions coming through the show. We also had, for the first time, independents coming in. And we had a large influx of international visitors come to the show. For everybody who is attending this conference call, the NAFEM show is the largest North American trade show for equipment in America. It's held every other year. And the last time it was held was two years ago. And there is a huge difference in the consumer confidence between this NAFEM show and two years ago. It was a lot more upbeat.

And I think for Middleby specifically, we really exhibited a clear strategic vision of our innovation. So if you were one of the attendants at the show, you could see that our product and services were substantially different from others already in the marketplace. We stand apart in the way we connect with our customer by providing solution to energy savings, labor reduction or speed to table. I think if you look at that, you've seen significant innovation in our booth.

Okay, great. And staying with Commercial Foodservice, I know that you have certain rollouts that are being completed and then replaced by other rollouts as you go through the year. As you look at how these flow through the quarters in 2013, do you expect growth to be fairly steady for the year? Or are there any timing issues that you think are worth calling out?

I would respond to the fact that we are working with several chains on rollouts of equipment for the chains. Some of them are more breakfast chains, some of them are casual dining segments. We see several of those rollouts taking place in the second half of this year. However, we have not finished yet the rollout with the casual dining chain that started almost a year ago -- over a year ago. I think this will be completed sometime during the third quarter of this year. And I think we see other chains coming in to fill in the gap. Yes. We do see other chains coming in to fill in the gap. It's not going to be, most probably, one chain that will fill up the gap of that chain, but it will be several chains that will fill up the gap. Yes.

Josh, this is Tim. The other impact that we saw with growth this year was with Europe being a challenge, which was probably more difficult in the back half of the year. So, as we head into 2013, we'll probably see Europe be more of a drag in the first half of the year. And then as we start to overlap more challenging numbers in the back half, that it will probably have less effect in the back half than the front half, Europe.

Right. That makes sense. Thanks for the color there. And, Tim, looking at in terms of the gross margin decline year over year, you said it was mix and acquisitions. So of the approximate 200 basis points or so of difference, could you ballpark the relative impact of mix and acquisitions? Is there a way to think about that?

I tried to lay out in the comments there, it's probably -- in the Food Processing, actually, we had an increase in the gross margin there by about 1.5 percentage. So while Commercial Foodservice was down slightly because of the mix within that segment in and of itself. So, really, given the dynamic there, it's largely the mix between the two segments that drove the margins. The fact that we've gone from 17% of the net sales being Food Processing to 27%. So that's largely the gap year over year is a mix impact.

Okay. I see. And then, finally, just an administrative question. So in the first quarter, you probably will have some meaningful purchase accounting impact from Viking. Is that something that you plan to call out? Or will those be just incorporated into the way that you report?

You're right, we will have an impact, both for typically amortization related to intangibles, and transaction costs are higher in that first quarter. As well as we're likely to have some nonrecurring type benefits related to business reorganization. So at this point those amounts are still being determined. But in the first quarter, when we report, we'll highlight what those amounts are and the impact of the quarter.

Okay. Great. Thank you so much for your time.

Tony Brenner, ROTH Capital Partners.

Two things. Middleby has had a Spin Fresh fryer and waterless steamers in test applications for over a year. And I'm wondering what the prognosis is for those two products. Are they being rolled out commercially? Are they ready to make a meaningful contribution to sales in 2013?

Tony, I would have to answer that, those two products are being tested extensively. One of those products, the waterless steamer, is rolling out with a major customer chain this year. So it should be on its way as a major rollout. We expect those two products to have meaningful impact to our sales growth in the next, I would say, 24 to 36 months. As I've always told our shareholders and our customers, it takes between 18 to 24 months to see a game-changing product in our industry. People need to test it, they need to train people, they need to validate the data. And the Spin Fresh fryer has been out, I think, now around 18 months and it's been well received. We are still working with several chains who are testing it. The waterless steamer has been out for around a little bit longer than 14 months. And it is being rolled out in 2013 with a major chain.

Now, in addition, we have a lot more innovation than just those two. I can talk about our kitchen of the future, which is being tested with several. We have our 30-second toaster, which is also being tested right now in five store locations as a practice chain. We have our induction waterless steam table that's being tested, and rolling out this year with a major chain, too. So I can talk about many products that are coming out, including our combi ovens. We have a brand new line of combi ovens out in the marketplace that just got launched, with water-saving features.

Thank you. And the other question I had was regarding your entrance into the consumer market following the Viking acquisition. You referred at the time to other products that could be retrofitted for consumer use, from TurboChef, from MagiKitch'n and maybe other lines. I'm wondering what progress you're making, what the timing of those products are, whether they'll be domestic or just domestic or international. And what we might be looking for in that direction.

Tony, we are introducing a slew of new products for Viking. And those will be both introduced for our domestic and international markets. They will be introduced within the next nine months. And they are game changers. Some of those are organic products that Viking is working on right now. We've had several of the dealers come in and visit Viking in the last two weeks, and they had a chance to see a preview of those. And the response was unanimously overwhelmingly positive.

What is an organic product?

We are also going to integrate some innovation, as I've always spoke, in synergies from our other divisions, including induction, including TurboChef speed cooking, including some Jade technology that they have been working on their own with residential. So in the next nine months, there will be a slew of game-changing products coming out from Viking.

Great. Tim, do you have a tax rate projection for 2013? Would it be similar to the 31% of last year?

I think we're probably looking in the 33% to 35% range. There still was some one-time benefits run through the tax provision this year related to some state exposure reductions. And then we also have, with more of our recent acquisitions being domestic in nature, they carry a higher effective rate. So that will probably push it up a little bit from what we saw this year.

Great. Thank you very much.

Jamie Clement from Sidoti & Company.

Selim, it seems like a lot of the restaurant chains that have reported recently have harped a lot on labor costs, referring to potential healthcare cost increases and that kind of thing. With respect to your new product development -- first of all, is that, as customers talk to you and say -- hey, Selim, you need to help me with X, Y, Z -- are labor costs and productivity within the kitchen, is that becoming increasingly an issue from your point of view?

I will tell you, Jamie, what customers are telling us. Mostly in the casual dining segment. In the casual dining segment, they see a significant pressure on what I call the lunch menu, and the ability to compete effectively against the fast casual chains. So it's not specifically only about flavor. They are looking about how do I build trade ups and add on items to build my average check, and be able to provide what I call a value, price value proposition, and impact the consumer perception. So those are coming up in three things. And we have many casual dining chains now coming to us and working with us on trying to find the following. One, how do I literally improve my food scores and consistency? How do I introduce trade-up and add-on menu items that allow me to increase my lunch menu items? How do I reduce my costs to become more competitive with the fast casual chains? And part of it has been looking at what I call automation.

Automation is interesting. I want to address automation since we just did it with one of the largest casual dining chains in the world. What happens is they are looking at three things. They are looking at making sure that the quality of the food is better. They are making sure that the speed to table is faster. They are making sure that consistency across their 1,200 stores or 1,500 stores is consistent. So, as they have turnover in those restaurants, the consistency is there and the quality doesn't go down. And most important, many of them would like to reallocate labor, or reduce labor from the kitchen, or reallocate it to the bar or reallocate it out to the front of the house.

However, what makes Middleby cooking platform, or the kitchen of the future, which is automation, unique, it still allows scratch cooking. So what has happened is we are not taking labor out of the kitchen and automating the kitchen at the expense of quality. We have combined a process that allows still scratch cooking with an automated process. And that's why it was very successful as we embark on that kitchen of the future. So what we're seeing right now is literally seeing the casual dining being one of our fastest-growing segments today, trying to reposition itself to compete effectively against the fast casual segment.

Are menu changes a part of that, as well? You didn't specifically allude to that in your answer, but is that another piece of the equation?

Yes. Mostly what I call trade-up or add-in items. It's not a complete overhaul of the menu. We haven't had somebody come to us and say -- you know this menu that has 30 items? I want to change it completely and go from being a chicken and a burger house to becoming a seafood house. What we're seeing is they are coming to us saying -- can I increase menu items without adding complexity in the kitchen, or adding labor, and be able to provide what I call trade-up or add-on items that give me the price value proposition to compete effectively at lunch.

Okay. Thanks very much for the color there. And, Tim, if I could ask you just one question about Viking. I think you addressed the gross margin impact. But in bridging the gap between Middleby's existing EBITDA margin and what Viking has as it's joined Middleby, below the gross profit line, should we see more in the G&A line, considering most of their equipment is sold through dealers? Or what are those numbers going to look like over the next couple of quarters with respect to Viking? Like the discrepancy between what Viking brings versus what you have, is there going to be a disproportionate increase in one of those two lines?

I would say that there's an effect in both lines, both the gross margin and the SG&A line. Our operating margins are roughly approaching 20%. And there is a greater than 10% gap. So from an EBITDA standpoint. And then you've got the non cash charges, which we've yet to layer on and disclose because we're going through the valuations. But I would say, as you're thinking about a 10%-plus gap, that's probably half driven at the gross margin level and half at the SG&A level, if that makes sense.

Okay. It does. But the two line items of SG&A, are Viking's selling expenses, as a result of going more through third parties, are they lower as a percentage of revenue than Middleby's existing? Or are they roughly comparable? Maybe I'm not asking the question clearly enough. Like, in other words, --.

I would say they're roughly comparable.

Okay. All right. Thank you very much for your time.

Jamie Sullivan, RBC Capital Markets.

You talked a lot about some interesting products and themes in Commercial Foodservice. I'm just trying to think about adding it all up. Do these trends accelerate the organic growth as we look at '13? Do they sustain the 5% range? Just wondering how we should think about that.

I think those trends most probably continue the same trend as 2012. I think that, as you see where we've been, we've had a fantastic run, Jamie. We've had significant rollouts, like the Chili's rollout. We've had also on the Food Processing significant increase in pent-up demand. And what you're seeing right now in 2013 would be most probably a similar pattern as 2012. So it will continue filling up the gap of not falling off when you have a rollout such as the one that you had with Chili's. That, for the most part, ends up in the third quarter of this year. And what you've done a great job is filling up, replacing that rollout with other rollouts that will fill in the gap.

So I think 2012 was a superb year. 2013 will continue being, on the top line, very similar. And I think we can continue expecting better improvement on the margins coming through the Food Processing platform. And now that you have Viking, Viking is most probably going to be our biggest nut to crack as we grab our hands around that new platform. I think that as you look at the Food Processing and you look at Foodservice, it will most probably continue being in a similar trend as we've seen before. With the biggest wild card is going to be the residential platform as we continue introducing new products, as we continue looking at the cost structure, and we continue looking at the gap. As Tim mentioned in just the previous question, between the gap of over 10% of EBITDA margin between our existing business and the residential platform of Viking.

That's really helpful. And then on Viking, just wondering what kind of growth rates are they experiencing today absent some of those new initiatives you talked about? And then, is there any color you can give on some of the synergies, now that the deal's been done? Is there any more details you can give on footprint consolidation, plants, purchasing, savings, any of those areas. And when we might look for some of the major milestones with the integration.

Jamie, I would say that we've done a lot of action items. As you can see publicly, we've let almost 180 people go. That was substantial savings. And I'm sure it is a hit, a one-time hit, of severance because we were very generous with severance. We wanted to make sure that we take care of people as we exited. Those were great people, but literally wanted to become more efficient. So we would most probably be hit in a severance package or severance cost in the first quarter of 2013. It will be a one-time. And we will then get the benefit of the reduction in force as we move forward. Because it's a permanent reduction.

Number two, I think that, as we continue tweaking the distribution channels, and we introduce new products, a lot of people are sitting on the side line as we introduce a new product. So many of the dealers are waiting to see the new products unveiled. And I think we're going to most probably see somewhat of a reduction in top line while we basically introduce the new products. We want people to buy our new products. We don't want them to get an experience of an older platform. So we've alerted our dealers, we alerted our distributors that there is a slew of new product that's coming in. So I would say we will have a somewhat flattish to maybe slightly down sales volume in the first six to eight months until we launch the new products. And as I mentioned earlier, they are game changers. And we've had nothing but phenomenal kudos from our dealers who already, some of the dealers who visited our factory, our Viking in Greenwood, Mississippi, and had a chance to preview some of those game-changing products.

Now, in terms of synergies, I think we've had some purchasing savings that you're going to see coming through this year, whether it's steel buying purchasing, or other types of purchasing, through the leverage of Middleby. So I think there's going to be some cost initiatives that will allow us to start moving the EBITDA closer to where we need to be. I would like to give, again, what I've always said with the purchase of Viking. I've said Viking is not an immediate turnaround. We never bought Viking to turn around within one year. We set a plan that within three years we hope to bridge the gap of the EBITDA of less than 10% to where Middleby is around 20%. We think we can achieve that within three years.

So, from a long-term perspective, by the end of three years, we should be at a running rate of where Middleby should be at Viking. In addition to a gross top-line growth that will be a lot more faster in the next three years, as we introduce the new products, as we take them internationally. So, just to remind you, I would like to go back and give some numbers. Viking used to be a $400 million top-line company and prior to the recession. I think we can get some of those numbers within three, three-and-a-half years. And at an EBITDA closer to 20% of what Middleby should be, within three to three-and-a-half years.

That's very helpful. Thank you.

Mr. Schon Williams, BB&T Capital Markets.

Congratulations on the quarter. I wanted to circle back on some earlier commentary. You talked a little bit about growth in the first half of the year maybe decelerating a bit from what we'd seen in the back half of 2012. And I wanted to just clarify what your comments were. Are you saying that essentially total top-line growth? Or are we talking about just organic? Maybe if you could just clarify your comments there.

We were just talking about organic. Obviously, with Viking, the acquisition growth would be very strong in the top line. So it's organic growth. And it's primarily related to Food Processing because we grew, roughly we had 30% growth for Food Processing on the top line in the back half of the year. So the comment there is that, while we expect Food Processing will continue to grow solidly 30% organically, we don't view as sustainable. So we think that's going to moderate as we head into the first part of next year.

Okay. And maybe just as a follow up. On the Commercial Foodservice side, obviously significantly outpacing your competitors in 2012 here on an organic basis. Is mid single-digit organic growth, is that still the right way to think about that Commercial Foodservice business as we move into 2013?

I think, yes. I would like to say that's the way to look at the organic, is we will continue outpacing our competitors. I think the biggest challenge we had, literally the biggest challenge we faced, Schon, was we just came up with a huge rollout with Brinker. Which that rollout is ending this year. So our biggest challenge was how do you fill that so it's not a one-time up swing and then you go back to normal. And what our team has done across the segments, across the Foodservice segment, has been to fill in that basically $30 million order that came Brinker over 18 months. So we were able to fill up enough rollout to basically continue at that same rate.

Now, the biggest challenge we've seen on our customers is the fact that, I have to be honest, there is one risk. The weather has most probably impacted in the first two months of this year some of our customers. Now, it does not impact the pizza chains, which continues to, in fact, in a weather like this, they benefit because people, they deliver pizza people, instead of driving around in snow or slush or whatever. But what happened in New England with the storm, what happened now in the Midwest with facing one of the toughest storms in years, I think impacts our customers. I think that's -- I am a little bit nervous about the weather impacting some of our casual dining customers, as they face slowdown, as people stay at home with storms where they cannot drive. And I think that's most probably the only wild card I see for our casual dining customers, is the weather. Because we've had unusual weather hitting the United States, both in New England and the Midwest in the first two months of this year.

Let me follow up to those comments. Typically Q1 would seasonally be very strong for Middleby on the Commercial Foodservice side. Should we expect, could Q1 be more flattish, given some of the impact from the weather? Or is flattish a bit too dramatic?

No, I would say that's too dramatic. The quarter hasn't ended, so I hate to say, sitting here in February, talking about a quarter that still has a full month's impact to come through. But I would say so far we haven't been dramatically impacted. But, you know what? We're still in the middle of it. In my opinion, we're still in the middle of the first quarter. It's not like we -- we don't have visibility to backlog. We ship basically -- most of our orders are shipped within a week or two. So it's not like we have a backlog.

Now, we can talk about Food Processing, which continues to be very solid. But on the Foodservice side, we've had two good months so far. So I don't want to send alarm that the weather has impacted. We've had two good months at Foodservice. But still, I am worried, like everybody else, that our customers got impacted by significant weather deterrent. And we still have one month to go. So far, if nothing happens, we should have a very solid first quarter. But I am keeping my fingers crossed for March. So far, generally February has been good. We still have March to go. And like all of us, I want to basically let everybody know that the weather has impacted our customers. So (inaudible -- multiple speakers) is a normal part of our business. Would you like to ask something else?

I just want to back it up, your initial question, which is the trends going into the year, I think we see that being fairly consistent with last year. From quarter to quarter, there could be things from timing of weather or chain rollouts that can push growth rates a little bit higher or lower in one quarter versus the other. But I think from a bigger picture going into next year, the same trends that we saw coming into last year are there this year, with the growth in emerging markets, chain customers adopting a new technology. Europe's a challenge, but it will probably lessen in the back half of the year. Selim mentioned about the Chili's rollout, but we have other chains coming on. So I think all together, things are very consistent with what we saw in 2012 as we go into the year.

All right. That's helpful. And maybe one last question, if I may. I was at the NAFEM show, as well, and had a chance to talk to some of your competitors. It looks like one of your competitors, it looks like they're aggressively going after your TurboChef unit with a very similar product there. And I'm sure that's certainly not the first time you've seen competitors pop up with copycat products. But I'm just wondering, how do you address competitors that pop up from time to time with very similar products? And what do you view as your advantages in the market? And then what does that traditionally do to pricing in the market? Should we expect maybe, could we actually see pricing come off because of a disruptive competitor? Or does that tend to even out over time? Maybe just your general thoughts there.

Schon, I would like to address that. I think we respect, every innovation. I think that that's what keeps America going. That's what keeps our industry going. I'll be honest with you, we love having competitors to TurboChef, because TurboChef already has other competitors, but it opens up the need to look at speed cooking. We always bought TurboChef, we always thought that the TurboChef market could be easily a $200 million to $300 million market. Today TurboChef is around $100 million company. I would say that we welcome. It opens up the need for people to look at speed cooking. Being the largest -- we love people going and looking at speed cooking. I think instead of being the only people trail blazing, it helps us trail blaze. And I think at the end, people will have to compare.

Now, TurboChef has other competitors worldwide. They have companies like MediChef, they have a company like Amana. They have other companies. But what is unique about TurboChef is not only the fact that they have a consistent base of $100 million. The uniqueness is the fact that part of Middleby the customer gets the following. They get ability to go in emerging markets. If you're a chain that has stores outside the United States, a new innovator cannot get them there. They don't have the service, they don't have the global footprint. Number two, the focus on making sure that we customize our product, whether it's a software, whether it's a service local to meet the needs of our operators or their franchisees. It's difficult and cannot be emulated by our competitors.

I can tell you, before we go to TurboChef, I can tell you that on the pizza chain, we dominate the pizza business. There has been, most probably, 10 to 15 competitors in over 20 years who tried to go after Pizza Hut, Papa John's, Domino's with somewhat a better, let's say, mousetrap. At the end, our product, the Middleby Marshall WOW! oven or the Middleby 360 oven has been battle tested, not only in the United States, overseas, in Europe, in UK, in emerging markets. In addition to the fact that we validate the fact with, we have a franchisee who might be having a turnover in their stores, and we set up training, we set up follow up, we set up service.

So I think that we welcome the competition and we don't basically disregard them. I think that they bring visibility to the industry. They keep the industry alive. And I think that what you saw at the show is a great product. I think that at the end, we think that it allows us to promote speed cooking a lot faster. And fortunately, one of the things that Middleby has faced over the years is, I mentioned that, adopting or adoption of new technology is slow by our customers. It takes us 24 months to adopt a new technology. And we've been most probably at the forefront of this. I can name the fact that we started on energy saving in year 2000 and it took many of our competitors many years to catch up to us. And we're still leading the energy saving, we're leading the labor saving, we're leading the speed cooking, we're leading ventless. So at one point, I welcome the fact that other competitors have jumped in to help our competitors adopt that technology faster, and we will benefit. We hope that everybody benefits, but I think, given our size, our innovation and our connection with the customer, we'll benefit more.

All right. Thank you. That was very helpful on the color there.

Mr. Greg Halter, Great Lakes Review.

Obviously you've made a few acquisitions here. Wondered if you could provide the inventory and receivable figures, or what the acquisitions added to inventory and receivables?

The amount of receivables at year end was $6.7 million and inventories were $12.3 million.

All right. Great. And what kind of impact did foreign exchange have on your top line?

It had very minimal impact. There was currencies that were going different ways, which netted out to not much of an impact in the fourth quarter.

All right. And there was about a, I think, $2 million swing between other income and other expense. Can you explain the change there?

Yes. It's all foreign exchange gains and losses. Most of it is unrealized. So that's really just a function of working capital levels and where exchange rates move. So we hedged some of it, which naturally offset some of the P&L. But there's always some pieces that we don't hedge, that roll through. And just given the fact that we've expanded our foreign operations pretty significantly over the last couple of years, we've had some bigger swings running through that line.

All right. And you commented about the international business. Any countries you can call out that would be good or bad in the most recent quarter?

Countries that would be good or bad -- I'm sorry, from what perspective?

In terms of top line performance. Sorry.

I just think Europe as a whole. So a lot of continental Europe. If you're looking in countries such as Italy, Spain, Greece, those would be challenging markets.

Anything in Asia or Latin America that you want to call out that's doing especially well?

I would say we're doing generally well really across the sector. Brazil is a market that we really have opened up this year. It's doing particularly well as a market generally. And then I think our penetration in that market was our opening and expanding an office there. That's one of the faster-growing segments in Latin America. And then obviously China is a growing market for us. That's the largest market that we have in Asia and that continues to do well.

And Selim, you were talking about pizza ovens before. And it seems like there could be a replacement cycle out there. Just wondered if you could speak to that, and where we may stand in that cycle given the labor challenges of the pizza shops.

I can tell you, you hit on a very fantastic note. Pizza chains are doing fabulously. If you look at Papa John's, Pizza Hut, Domino's, they are doing fantastic. The same-store sales are up and doing very well. The other interesting part is the fact that they are all looking at ways to introduce more toppings, more side items. And I think that we're seeing our pizza chain business growing very fast. In addition, the pizza chain still is a growth story overseas. Domino's, Papa John's, Pizza Hut and others, local pizza chains, are opening up stores all over the world. Russia, India, Middle East, China, Latin America. So we see that the pizza chains continue to be very good.

We also are seeing, most probably, the last year or year-and-a-half a huge migration from the old oven that takes eight minutes to cook, or eight-and-a-half minutes to cook a pizza to going below five minutes, or even below four. So we're seeing a significant pent-up demand for our new oven. The other interesting, more important than labor saving, is the fact that we have, basically, energy savings and speed of cooking. And better bake. So as we introduce new ovens that has better bake, like WOW!2, it will have a new fantastic new belt on it. And we're seeing significant interest about the WOW!2 or WOW!3 with the new belts. And I think that we're seeing a huge pent-up demand on pizza chains, yes.

And this is high margin for us. Because literally, it's the only piece of equipment in that restaurant. If it fails, they have nothing. Not like a casual dining. Okay, my convection oven fails, I will use the oven underneath my range. Or I will stir fry, or I will most probably use the griddle or charbroiler. In a pizza chain, the conveyor oven is the only thing. The Middleby Marshall Oven is the only over there. If they fail, they have no pizza to serve. So in many ways, it's been fantastic, and I think we see the pent-up demand in the pizza business to accelerate very fast. There is roughly 100,000 Middleby Marshall old ovens out in the marketplace. And we're seeing that, most probably, coming in literally at a 5% a year, coming in at 5% replacement a year, which is lifting the Middleby Marshall business strongly.

Okay. And you've obviously talked about TurboChef already. I just saw something the other day about Subway possibly going from 30,000 to 100,000 units between now and 2030. And I presume that would be helpful, given all the different products that -- lots of Middleby products -- within each Subway.

Yes, our relationship with Subway has been fantastic, I think, from baking the bread on premise and toasting their ovens on our TurboChef. It's been a fantastic relationship. We just basically introduced a new platform for them with the TurboChef, a new TurboChef platform that reduces energy usage on the TurboChef and increases speed. So it's been a fantastic relationship. We continue benefiting from the growth of Subway.

We are also benefiting from other chains that have adopted TurboChef, whether it's Starbucks or Dunkin' Donuts, and others. We've seen some significant growth within the TurboChef. We're seeing also -- the interesting part is TurboChef seems to be getting a lot of excitement. But I can tell you the CookTek platform is something we haven't spoken much about it. CookTek is also growing very fast in its induction platform. We have a rollout with a major pan Asian chain. One of the largest in the world is rolling out a complete induction platform, ventless, no water, waterless. We are also seeing CookTek being generated in many other places, including casual dining places where they are using induction to do scratch cooking. So it's been fantastic. We have some great technologies going there.

I think our kitchen of the future, which is a CTX Carter Hoffmann WOW! combination is being tested by also other casual dining chains. So we are very excited about those. I think our platform in the frying platform, whether it's Perfect Fry, Spin Fresh and LOV, low oil volume, fryer is also gaining traction in many places. So we're very excited about all the innovation, not only within TurboChef, but kitchen of the future, induction with CookTek, the frying platform, ventless. I think Wells ventless is recording double digit in non-traditional outlets, both in the United States and overseas. So we seem to be very excited on those innovation. And the previous analyst who was visiting [al you], you were visiting NAFEM. You had a chance to see all the innovation in our booth. It's amazing. We were packed. We had every chain operator, almost, that was visiting the show that spent hours in our booth looking at all the innovation we had. And you saw the size of our booth with all the innovation we had. So we are very excited about the future of our product execution from our engineering and our innovation standpoint.

All right. That sounds good. And, Tim, one last one for you. With Viking, what would you envision your capital spending on a combined basis for 2013 to come in at?

For the overall Company, we've typically indicated 2% or less. And I think that would still be our expectation. 2% of revenue, that is, for 2013. So I think we will still be in that.

All right. Thank you.

Thank you, Mr. Halter. Ladies and gentlemen, that is all the time we have today for questions. I'll turn it now back to management for closing remarks. Gentlemen?

I would like to summarize where we go from here. I think there are three items that literally sets us apart. One, we continue doing great job executing on product. Number two, the focus on customization to meet the needs of our operators is so critical, and it cannot be emulated by our competitors. Number three, our international footprint of sales, service and manufacturing, especially in emerging markets is unique and tailored to both US and local chains.

So as we look at the platforms, the three platforms that we now have. Let's start with the residential platform. People are beginning to feel better about spending money on their homes as the housing market slowly recovers. The rising home values have given home owners additional confidence in spending on renovating their homes. Number two, new construction is starting to increase as the housing inventory has shrunk. And we see improved activity in new home construction. Today, exactly today's data showed that new home sales hit a four-and-a-half year high. However, we are not only counting on the housing market to grow our residential platform. We believe that Viking lost market share during the recession, as its core cooking platform remained the same without much innovation. The slew of new products to be introduced within the next nine months will reposition Viking for significant growth. Those new products are game changing.

On the Food Processing platform, we see the following three trends. One, the Food Processing segment will continue to grow as companies are looking at food safety issues and better quality oversight. Number two, the customers of the food processors, such as veteran chains and supermarkets, are going to require food processors for more investment in equipment and management to insure quality and consumer safety. Number three, there will be greater need for safeguards in emerging markets. This is a critical spot for our Food Processing business, as the emerging markets will grow much faster in the next two to three years.

Finally, the Foodservice platform, as I just mentioned, and some of you attended the NAFEM show, you could see a clear strategic vision of our innovation. Our products and services are substantially different from others already in the marketplace. We stand apart in the way we connect with our customers, by providing solutions to energy savings or labor reduction or speed to table. Our biggest opportunity is the casual dining segments, when it needs to introduce new menu items at lunch to compete effectively against the fast casual chains, where we already are a dominant player. The service times at the casual dining is far too slow to compete. We are currently working with several casual dining chains on ongoing remodels to improve food scores and consistency. We are working with them to build average check via trade ups and add-on menu items. These goals outside the US will accelerate at all chains. The fastest growth will come in the next two years from casual dining as they expand in emerging markets.

We also continue to benefit from the international growth of pizza chains. The pizza chains, whether it's Domino's, Pizza Hut, Papa John's, will continue to grow internationally, in Russia, in India, in Latin America and the Middle East. So, the response of all our customers is to introduce menu items that tweaks the price-value proposition and impact consumer perception. A great example of this has been both Chili's and Buffalo Wild Wings and TGI Friday's, where they continue tweaking menu items and remodeling their kitchen to get there. I think working with chains like Olive Garden, Red Lobster position us to look at innovation, whether it's reducing water, reducing energy, improving speed of cooking in those kitchens, make us the supplier of choice.

So, most important, I look at the fact that within the next couple of years labor costs will increase across all segments. They will increase in the food processing segment. It will increase in the restaurant segment. Middleby is a leader in kitchen automation, both in the restaurant segment and in the food processing segment, including companies like Alkar, including companies like MP Equipment, Drake, Armor Inox, Middleby Marshall, Auto-Bake, TurboChef, CTX, Star, Holman, Nico, Carter Hoffmann, and Pitco. We are currently testing these technologies with several restaurant chains and food processors, to help them improve their food quality and consistency, speed to table, and labor saving.

The most important thing that we accomplished with the latest casual dining chain that features we just implemented this kitchen of the future has been to allow them to automate their kitchen, while not sacrificing food quality or scratch cooking. Our kitchen of the future is a testament of how we have successfully implemented an automated process at one of the largest casual dining chain in the world. This has resulted in better food scores and labor saving. For the past 20 years, Middleby has automated the pizza business, reducing cook time and labor costs across that segment. The acquisition of Nico is another piece of technology that automates the broiler, which is being used by several leading quick-serve restaurant chains and fast casual. The ability to improve food quality, speed up the cooking process and reduce or reallocate labor, it's critical to most operator across the whole business. This is a little bit the reason why Middleby stands apart from its competitor.

Those are my comments. Thank you very much.

Thank you, everybody, for attending today's call. And we look forward to speaking with you next quarter.

Ladies and gentlemen, thank you for your time and attendance. This conference is now concluded. Please enjoy the remainder of your afternoon.