Good day and welcome to the Middleby Corporation's second quarter 2026 earnings conference call. All participants will be in listen-only mode. On today's call are Tim FitzGerald, CEO, and Brittany Cerwin, CFO. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Tim FitzGerald. Please go ahead.

Good morning, and thank you for joining today's call. Early last year, we set out to separate our three leading food service businesses into independent companies to best position each business for long-term growth and to unlock value for all of our shareholders. We completed the first step in Q1 of this year, selling a controlling stake in the residential kitchen business to 26 North. And on July 6, we completed the spinoff of our food processing business, launching Madeira as a separately publicly traded company. Madeira now, as a standalone business, is extremely well positioned as a best-in-class leader in the growing food processing equipment industry. And we are confident that business and the Madeira team has a very bright future ahead. With that, the transformation is complete. I'm proud of how our teams work together and in the execution. It is a significant milestone and achievement in the history of our company. In parallel with our business transformation, we returned $1.3 billion to shareholders through repurchases, including $200 million in the second quarter, reducing our outstanding share count by 16% over the past six quarters. We're very pleased with the strategic allocation of capital that we believe has delivered substantial value to our shareholders during a pivotal time. We are now embarking on a new exciting chapter for Middleby. Middleby now moves forward as a focused solutions provider and the innovation leader in commercial food service. We're extremely well positioned with our leading brands, best-in-class innovations, and momentum and equipment categories that deliver the highest ROI for our customers. The strategic investments we have made in our business are gaining traction and we're seeing the benefits in our top line. We continue to set the pace in the industry, bring next generation solutions that have practical application and meaningful impact to our customers. Our go-to-market strategy that has been underway for the past several years as it's closer to our customers than ever before. And we are viewed as a strategic partner. Our more recent investments in our operational capabilities are at early stages but are starting to take hold. And we're confident these initiatives will drive margin expansion and operational excellence over the next several years. Taken together, these investments are what underpin the three-year targets we have laid out at our investor day in May. Net sales organic growth of 3-6%, adjusted EBITDA growth of 6-9%, and adjusted EPS growth of 10-15%. And we are confident in our ability to deliver against these targets. Turning to our Q2 results for commercial food service, the quarter reflected strong execution against our strategy as we delivered over 8% organic revenue growth. This marked the second consecutive quarter of organic sales growth in a challenging macro backdrop, a trend we expect to continue in the third and fourth quarters. This also represented the second largest quarter for revenue in the history of Middleby Commercial Food Service. The growth in the quarter was broad-based as we saw strength across channels and customer types, including with our chain customers and also in the general market with our dealer partners. We were pleased also to realize growth across geographies, with increases in both North America and international. We continue to make inroads on the back of our go-to-market investments and new product innovations, overseeing the benefits of targeting newer markets, including ice and beverage, where we have an even greater pipeline geared towards next year. The current industry backdrop is not ideal. However, Middleby has continued to drive year-over-year organic revenue growth Turning to our second half outlook, industry conditions remain challenging, particularly with traffic at the QSR segment, and customers are being more selective on their capital plans for the back half of the year. Within that, we are seeing replacement spend stable relative to our prior thoughts, with unit growth being pushed out modestly by some larger chains. That said, we are carrying momentum into the second half with global chains and we have visibility into the pipeline of opportunities into 2027. This momentum gives us confidence to raise our revenue guidance expectations for the second half of the year. We also saw year-over-year EBITDA growth in the quarter, although our margin percentage was below our expectations, driven by a few key areas. The revenue growth included Better than expected strength in our ice and beverage platform, which has margins approximately 400 basis points lower than our longer established cooking platform. Additionally, inflationary costs, particularly ocean freight shipping and steel surcharges, accelerated faster than anticipated, driven by the recent broader macro. and our investments in the ice and beverage platform weigh on margins in the near term as we ramp production for new product launches to support 2027 customer demand in the pipeline. Although we anticipate these margin pressures to persist through the second half, we expect to see sequential margin improvements in both the third and the fourth quarters. We have a number of operating initiatives currently in progress, including product simplification, lean manufacturing, and Mixed Profitability. While these are longer term initiatives, they will partly offset recent accelerated inflationary pressures and support sequential improvement in margins ahead of larger benefits as we move into 2027. In addition, we are confident of increased margins at our ice and beverage platform, particularly as we move beyond the initial investment phase in 2026. We're excited about this new chapter for Middleby. With the portfolio transformation now behind us, we will benefit from greater focus on the execution of our strategic plans, both top line and bottom line. Our team has a lot of momentum, and we are looking forward to accelerating it. With that, now I'll turn it over to Britt to discuss our financial performance in greater detail and guidance for the third quarter and fall year.

Thanks, Tim. Today's conversation will be focused on commercial food service. Given the spinoff of Madeira did not occur until July 6, food processing results are included in our continuing operations for Q2. For details on food processing, we invite you to join Madeira's inaugural earnings call on Thursday, August 13. Turning to the results, for commercial food service, second quarter revenues were approximately $631 million, Thank you for joining us today. We experienced a total margin headwind of nearly 100 basis points, which is driven by the higher-than-expected inflationary impacts partially offset by the benefit of a tariff refund of approximately $5 million. For the remainder of the year, we expect incremental inflationary margin pressures of approximately 10 to 15 million relative to our prior expectations. From a margin percentage perspective, We expect sequential improvement in the back half as we begin to benefit from the operational improvements Tim laid out including product simplification, mix, and lean manufacturing. On a consolidated basis, total company adjusted EBITDA for the second quarter was approximately $193 million and adjusted EPS from continuing operations was $2.35. Adjusted EPS expansion was achieved primarily through organic EPS growth, 2026 share repurchase activity, share repurchases utilizing the proceeds from the residential transaction, and carryover from the 2025 share repurchase activity. This was offset by increased interest costs associated with the maturity of our convertible notes and a higher tax rate associated with discrete foreign tax items and non-deductible expenses as compared to the prior year. Adjusted EPS excluding food processing for the second quarter is estimated to be $1.74 as compared to the prior year of $1.40. This presentation of adjusted EPS is aligned with how we expect to report Middleby results on a post-spin basis with food processing as discontinued operations starting in the third quarter. Please refer to slide 11 of the presentation we have posted online for a complete adjusted EPS bridge for the second quarter as reported and slide 17 and 18 for post-spin adjusted EPS bridges for Q1 and Q2. Second quarter operating cash flow was approximately $100 million and free cash flow was approximately $89 million. Our leverage ratio per our credit agreement at quarter's end was 2.4 times. At spin, our estimated pro forma leverage ratio was 2.7 times. As stated at our investor day in May, We expect to delever to approximately 2.5 times by the end of the year and anticipate debt pay down will be the primary use of excess capital in the second half of the year. Regarding capital allocation during the second quarter, we repurchased 1.4 million shares or approximately 3% of our outstanding shares or $200 million or an average purchase price of approximately $142 per share on a pre-spin basis. Let me walk you through our third quarter and full year outlook, starting with the third quarter. For the third quarter, on a post-spin total company basis, we expect to achieve the following. Revenue of $620 million to $640 million, equating to organic revenue growth of approximately 4%, Adjusted EBITDA is forecasted to be between 143 million and 150 million. Adjusted EPS is projected to be in the range of $1.67 to $1.83, assuming approximately 45.2 million weighted average shares outstanding. For the full year, on a post-spend total company basis, we expect to achieve the following. Revenues of 2.48 billion to 2.53 billion, equating to organic revenue growth of approximately 7%. Adjusted EBITDA of 572 million to 588 million. Adjusted EPS is projected to be in the range of $6.73 We will now begin the question and answer session.

To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.

The first question comes from Jeff Hammond with KeyBank. Please go ahead.

Hey, good morning. Good morning. So growth's been quite impressive year to date. I mean, the macro still seems pretty choppy. You do have kind of a step down, and I'm just wondering if it's less easy comps or if the first half had more kind of program, maybe beverage wins in there, just a little more color in the cadence.

I think... Last year, we talked about the double-digit growth from our dealers, so we still see strength across the market, and Steve can chime on both dealers as well as chains, but we're not expecting the continued double-digit growth at the dealers, so I think we see it moderating in the back half of the year, but we still have momentum and robust demand, as I mentioned in the opening comments.

Yeah, I would just build on this, Steve. I mean, the growth we've seen within our dealer channel has been pretty much sustained for the last four quarters now. And even though, as Tim said, the comp is tougher for the back half of the year, we still expect growth within the dealer channel. So that is really the primary difference. We are seeing, and it's what we saw in the first and second quarter, pickup has really been within the chain space, specifically the QSRs. A large portion of that has been driven by new product adoption as they look to expand menu, expand day parts, and certainly beverage and ice, as we've commented on before, has been a big driver. within that space. And we expect that to continue the back half of the year. And that is actually where the predominant portion of growth we expect comes in the third and fourth quarter.

Okay, great. And then I understand a lot of kind of inflation pressures. Can you just speak, maybe unpack what really drives the sequential margin improvement? Is there any mix in there? Is it just getting this price through, and then are you contemplating any additional IEPA refunds? Thanks.

Sure. This is Brittany. I can comment to that. First, in regards to the IEPA tariffs, we mentioned $5 million in the second quarter, and we expect a similar dollar range of about $5 million potentially in the back half to be received. As it relates to the sequential margin step up that we're expecting as we go from second quarter and into the back half, I think that's a mix of a few items. We are expecting a little bit of mix improvement. So in the second quarter, as it relates to mix, and as we mentioned, new product innovation and the launching of manufacturing around the new beverage equipment, that was a headwind in the quarter to margins of about 150 basis points, which we will start to see reduce a little bit as we get into the back half, along with some improved mix. The pricing that we've mentioned primarily will not start to benefit us until the fourth quarter. So that's why we are kind of expecting some sequential as we move from Q2 to Q3 to Q4 improvement, along with the operating initiatives that Tim commented on in the prepared comments.

Jeff, I would just say, you know, we obviously laid out at Investor Day a lot of the new capabilities that we have built up over the last year plus. Very similar to what we've done with innovation, go to market. So you can see that taking hold on the top line. A lot of the operating initiatives that are in flight. So we really are just starting to get traction, we think, in the back half of the year. So we feel like we've got a pretty good line of sight to that 200 to 400 basis point improvement that we talked about, you know, investor day. But we're at the very early stage of that. So some of that will bake in to the year as we kind of progress, particularly in the fourth quarter.

Okay. Thank you.

The next question is from Tim Thine with Raymond James. Please go ahead.

Great. Thank you. Good morning. Just to come back, Brittany, on the comments on, I think you mentioned earlier, $10 to $15 million of incremental costs that you hadn't foreseen, I guess, 90 days or so ago. How are you expecting the yield on that, the pricing, how that plays through and how much, that some offset presumably that you're expecting and I guess a lot of that comes in the fourth quarter, but I guess that's part one of the question. The second is just thoughts around the pricing strategy as you go into 27. I think normally those pricing actions are taken around the start of the year. Does this kind of adjust that or alter that potential strategy as you look into next year?

Yeah, so I'll start with a little bit on the margin headwind. So as we wrapped up the first quarter. Obviously, we had some inflation. And as we sit here 90 days later, that inflation has accelerated. And that's what we have anticipated here in the back half of that incremental 10 to 15 million. When we put in the pricing, obviously, that's general market pricing, which has to be announced well ahead of the 8-1 effective date that we had. So that was really to start to partially offset the Costs and inflation that we are seeing at that time. So, and as mentioned, we'll start to see some of that benefit roll through on the pricing in the fourth quarter. So it will be a headwind for us on this inflation into Q3 and some of Q4 as well.

Okay. And then, you know, ICE and Beverage called out a couple times, and I think Maybe Tim, as you were going through the initial comments, you mentioned just more of a pipeline building. And I think you mentioned that into more of that hits in 27 on top of that. I know we touched on a lot of this at the investor day, but I mean, is that size of that pipeline as you think about the contribution to what that can mean for 27? Any further clarity on that in terms of how much meaningful that that could be?

Yeah, I don't think we're going to lay out the magnitude in terms of top line, but I would say it's just positive, right? I mean, I think that's a big addressable market that we've identified. We've made a lot of investments. We continue to make those investments. We've got momentum. It's part of the revenue growth that we're Thank you so much for joining us. The next question is from Tammy Zachariah with JP Morgan. Please go ahead. Hi, good morning. Thank you so much. My first question is organic growth.

Can you clarify what your organic growth outlook is for CFS? I think when you started the year, you said four to six percent. I'm guessing it's now higher, more like six to seven or whatever. So can you clarify what that number is for the year? And within that number, how much is driven by price versus volume? And is there any Thank you. Thank you. Thank you.

The predominant driver this year has been on volume. We took some low single-digit pricing towards the end of last year into the beginning of this year, and we just put forward, as Britt talked about, another one low single-digit in general market in early August. But the predominant driver is on the volume side. And again, that's coming through a lot of new product adoption from our chain customers. That's what gives us the confidence and that's volume versus price. In terms of the product line simplification that we highlighted at the investor day, we're certainly still early days in that process. So really have not seen or don't expect much of a headwind from a top line volume perspective the rest of this year.

Understood. That's very helpful. And second question is on tariffs. I wanted to clarify, your tariff headwind is now expected to be, it seems, $77.5 million for the full year, net of the additional increases and reductions under Section 122, 232, and 301 that you called out. So can you clarify how much of that 77.5 is already absorbed in 1Q and 2Q and how much is expected in 3Q versus 4Q?

Sure. With regards to the range that you provided, that's our gross tariff exposure as we look at the commercial food service business on a continuing basis. As we look to kind of the spread between the quarters, I would say it's starting to be more evenly split between the first half and the second half. Obviously, we're going to have a little bit of a step up, as we mentioned, with the new 301 tariffs that will start here towards the later part of the second half. But the $2.6 million is an annualized number that will start here in the back half of gross exposure on those.

Understood. Thank you.

Again, if you have a question, please press star then 1. The next question is from Ian Zaffino with Oppenheimer. Please go ahead.

Hi, Greg. Thank you very much. One could just drill down a little bit more to QSR growth. I know that you mentioned that there's been some menu changes, but is there demand coming from anywhere else? Are you starting to see... I know the age of the plant is quite old and quite past replacement, so I don't know if you're seeing anything there. Thanks.

Yeah, thanks, Ian. Good morning. It's Steve. As I think about it, we think about QSR segment and the key drivers for demand. I'll bucket it maybe into three different areas of where demand comes from. So historically, you have new store opening growth, which has been relatively flat year over year this year. We do have pretty good visibility to that pipeline into next year, which chains are expecting growth, but we also know there's been ebbs and flows of push outs there. So the second area is what you just highlighted is the replacement demand, which has We feel like been muted over the last really five to seven years and we feel like there is a pent up replacement demand cycle that's coming. We have seen that pick up as this year has gone forward. I wouldn't say it's quite off to the races, but compared to where we were a year ago, we have seen change start to go back and replace aging equipment. but really the third bucket is where we have seen the growth this year and really where we would expect the growth to continue to accelerate next year and that is within new product adoption for additional menu items, driving day parts, we talk a lot about beverage and ice but anything that is helping them fuel throughput, consistency, labor efficiency in new products, that's really been the primary driver This year and into next year within the QSR space.

Okay, thanks. And then just on international, can you maybe just talk about the growth there? You know, how much is it just deeper penetration? How much of it is more of these like, you know, very innovative products like, you know, KFC Quench or something along those lines? So how much would something like that or in that bucket be driving that? And then Just given the success that you've had in that area, what should we expect as you maybe kind of bring some of those solutions to the U.S.? Thanks.

Yeah, great question. Thanks for highlighting international. We have, in all international markets over the last several years, we have reinvented our teams, our processes. We've opened innovation kitchens across the world. I would highlight, I think one of the biggest changes, I'll maybe call it Europe specifically, but it's really true of all of our international markets, is historically we only sold a handful of our portfolio within international markets. So it's very heavy in fryers, very heavy in ovens, and it was very focused on large global chains. Large global chains are going to continue to grow in international markets and we're very well positioned to grow with them, but really the biggest change that's happening in real time is selling the broader portfolio and it really is selling the technology brands. It's moving beyond just fryers and ovens but selling a complete Middleby package that now includes areas like beverage and ice. So that really is the biggest I would say step change we've seen in our international markets is selling the complete portfolio not just relying on global chains but by selling a complete solution you can obviously penetrate into More emerging chains in local markets and really just those local customers. So that's the primary driver that we've seen and we'll expect that to continue certainly in the next year within pretty much every international market that we're in today.

Okay, thank you very much. Appreciate the call.

The next question is from Meg Dobro with Baird. Please go ahead.

Hey, good morning, guys. This is Peter Kellum carrying on from MIG this morning. Thank you for taking my questions. Tim, you mentioned initiatives in ice and beverage, and I appreciated, Brittany, the commentary on the 150 basis point drag from investment there in the second quarter. Is there any detail you could provide on the specific initiatives that you have ongoing in that platform and the timeline for some of these investments to come online?

Yeah, great question. So, We've highlighted a lot of the new products that we've been launching, particularly products such as the Fizz, which is kind of an automated beverage machine, Gravity, which has got a lot of interest from customers. Those are ramping in terms of production, so we're actually bringing up a facility in the back half of this year. We do have significant customer interest, and there are tests going on, so we're investing Not only in the production, but in testing and product approval. So we see a lot of that coming online kind of right at the tail end of the year, really not impactful to this year, but starting to become impactful in 2027.

Thanks for that, Tim. And I guess the follow-up here on beverages, as we think about 27, you know, what's the right way to think about that 400 basis point margin gap? Is that close significantly, or is that more of a longer-term story?

I think it will close over time. I mean, we'll first start to move past the investment stage, which I think, you know, we'll start gaining traction or kind of move into revenue in 2027. And then kind of along with that, we've got a lot of operating initiatives, which are across the entire platform with all the beverage companies and the ice companies because that's a big part of the story as well. We've acquired some new companies there. We're consolidating the platform and certainly benefiting from lean manufacturing, SKU simplification at some of our larger brands. So we see that kind of continuing to gain momentum, including in the latter stages of this year. and then kind of expanding as we go through 2027 and 2028 as part of the three-year plan. But I'll just kind of, you know, underline again, those initiatives are underway. So a lot of the capabilities we've built over the last 12 to 18 months, a lot of the initiatives were really started at the back end of last year. So that's kind of why we feel like we've got a high degree of confidence in line of sight of those gaining momentum, particularly as we go into next year.

Great, thanks Tim.

The next question is from Chris Senyek with Wolf. Please go ahead.

Yeah, hi, good morning, great quarter. So kind of following on the margin opportunity in ice and beverage, I know structurally it's lower than the hot side of the business, but is there anything that could close that gap further over time in terms of pricing actions, competitiveness, because you can offer, you know, customers now are not just buying, you know, sort of three products perhaps, but they're buying five or six, and you can bundle things and and Price Better That Way. So I guess over the next couple of years, is it that ice and beverage is just structurally lower margins or is there pricing opportunities, funneling opportunities, obviously cost efficiencies you talked about that over the next three years that you can kind of close that gap even further or above and beyond efficiencies from higher production?

Yeah, there is nothing structurally within that platform that would because those margins would be lower than the cooking side. There is a lot of innovation in technology there. I think I'd really kind of chalk it up to where are we at in the journey, right? Like we've been at it with cooking and warming for a long time, which by the way, there are opportunities there as well as we kind of execute on the operating initiatives and some of the things to leverage the scale of the platform. It's still a relatively early stage platform and we're mid-20s, right? So I think and we're making significant investment in innovation R&D. So, I mean, I think that's one of the things that excites us. If you look at some of the more mature companies within that platform, they're actually, I'll say, at or above our target margins right now. So, I mean, I think it's really just where we're at in the journey as we kind of move forward to scaling some of the new products that we are launching some of the operating initiatives underway including some I'll say the integration of some of the new businesses and then execution of kind of the operating initiatives I mean you know we've got a high degree of confidence that those businesses kind of get to the target margins that we have which are you know I'll say very similar to what we think we're at and can achieve in cooking and warming.

Okay great and then another question on QSR visibility you know QSR Stuff's improved. Is there any more visibility line of sight through the year and this year than you've had the last couple years in terms of, you know, there's still rollouts and openings or as we kind of get to this back half of the year that there's still risk like there's been for the last couple years and beyond that, that you could see potential push outs towards the end of the year? Or do you think that that's stabilized better than in the last few years where you were competitive?

In terms of new store openings, we've had very good visibility over the last several years. I think it's greatly improved as we went through some of the supply chain challenges from 22 and 23. That said, I think the new store opening pipeline the rest of this year is fairly stable. I mean, there's going to be pushouts, but there have been pushouts really over the last year or two. So I think it's pretty consistent. I think where we have more visibility is in just some of the new projects that we've been talking about that are starting to get freed up more and more and they're starting to be green lighted more and more. And so I think that's where, from a pipeline perspective, we're more excited about where we are today versus say where we were a year ago is in that new product pipeline.

Okay, great. Super helpful. Thanks.

The next question is a follow-up from Tim Thine with Raymond James. Please go ahead.

Oh, thank you. Sorry to come back here. Maybe two for Steve that I'll package together. The first is the product mix, and I guess this is probably more of a general market question, but just as operator budgets continue to get stretched, I'm just Curious if you've seen that show up in terms of features and content within items or opting for lower price units, things like that. I'm just curious if you talked about mix from the standpoint of hot versus cold, but I'm curious if you've seen it more pronounced in terms of features and specs. And then the second part is on the organic growth, call it, you know, eight-ish percent in the first to four-ish in the back half. You know, the comps get a little tougher, but is it the rollout that may be, you know, getting pushed? Is there, because you get presumably maybe a little bit more pricing that kicks in. So I'm just curious if we're none of the above, just in terms of... I guess how we go from first half organic run rate to what we're modeling for the second. Thank you.

Yeah, thanks, Tim. I'll try to take a pass at both. You know, it's really interesting in terms of your first question and especially within the QSR space. We know that, you know, the end user operator, the franchisee is certainly watching costs More than ever before, there is a very clear delineation, I think, in chains that are winning in the market versus the ones that aren't. And it's tied to, are they trying to buy the same products they always have and just trying to buy them at a cheaper price? Like that's one approach. And that approach is currently tied to, I think, chains that are not doing as well versus the chains they're investing in. The new products, the new equipment that's giving them operational improvements, that's fueling throughput consistency, giving them new additional day parts. So in spite of how you teed up the question of it is a challenging environment from a cost perspective, I actually think it's leading QSRs to actually invest in better technologies with more features and benefits because it gives them a greater ROI, which has become probably the most important metric that they're looking at for their franchisees. In terms of the second question, the rest this year, Tim, it really is a function of, you know, we grew so much the back half of last year within the dealer segment in the U.S. Again, it was double-digit growth in both the third and fourth quarter. That growth is continuing to be positive. It's just not growing at the same pace it was This concludes our question and answer session.

I would like to turn the conference back over to Tim Fitzgerald for any closing remarks.

Thank you everybody for joining today's call. I also want to thank all of the Middleby team members around the world who contributed to what's been a major milestone and significant achievement with the execution of the separation of our businesses into the three leading platforms. That was a heavy effort from many across the organization and through the entire transformation the team stayed focused on moving our core commercial business ahead with many exciting initiatives that have us positioned stronger than ever. I'm thankful for all of those efforts and very proud of the team. So with that, thank you all for joining today's call, and we look forward to speaking with you on next quarter.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.