Sector financial performance:

This company, who primarily designs, manufactures, markets, distributes, and services foodservice equipment, food processing equipment, and residential kitchen equipment, has been grouped into foodservice equipment sector in foodservice industry.

It seems that companies in this sector have benefited from the strong demand from restaurants for cooking and warming equipment as indicated by continuing increase in revenue of foodservice equipment of companies (5-6% annually) between 2015 and 2016. Relatively, our data indicates that the demand for food processing equipment is weak and unstable and the demand for premium residential kitchen equipment has gone down. After sluggish growth (-2% ) in demand from food service for equipment in 2017 and the first quarter of 2018, it seems that the demand may be coming back driven positive changes in food service industry in the second quarter of 2018.

Our data indicate, from a typical company, that company’ gross margin is about 40% in 2017 presenting slight positive changes in the past several years. The typical SG&A as percentage of sales of average is 19% and the typical operating margin is about 20%. After the recent acquisitions, its gross margin down to about 38% and operating to 18% in 2018.

According to our analysis, the current companies’ enterprise price/EBI ratio is 31 with an interest/EBITDA ratio of 6%.

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Company performance:

It seems that the organic demand for foodservice products of this company has been strong while its sale data that the revenue decreased in 2017 after around 5-6% annual growth for 2015 and 2016. The increase in revenue of food processing equipment fluctuated in the past three years but an downward trend is expected. Demand for its high end residential kitchen equipment decreased by more than 7% annually and straight for three years. However, there is a signal indicating that the demand from commercial service and family for equipment may be rebounding in 2018 after weak 2017.

The first six months of fiscal 2018 compared with same period of 2017

Organic revenue (exclude acquisition and foreign currency) decreased about 3.6% (0.4% for 2Q) primarily attributable to decrease of 1.6% (up 4.3% for 2Q) in revenue of foodservice equipment, decrease of 25% in food processing equipment, and decrease of 2.9% (up 2% for 2Q) in residential kitchen equipment.

The fiscal 2017 compared with 2016

Organic revenue (exclude acquisition and foreign currency) decreased about 3.6% primarily attributable to decrease of 1.8% in revenue of foodservice equipment, decrease of 3.5% in food processing equipment, and decrease of 7.2% in residential kitchen equipment.

The first nine months of fiscal 2017 compared with the same period of 2016

Organic revenue (exclude acquisition and foreign currency) decreased about 3% primarily attributable to decrease of 1.7% in revenue of foodservice equipment, decrease of 0.9% in food processing equipment. Decrease of 7% in residential kitchen equipment.

Fiscal 2016 compared with 2015

Organic revenue (exclude acquisition and foreign currency) increased about 4% primarily attributable to increase of 5.5% in revenue of foodservice equipment and increase of 13.7% in food processing equipment offset by decrease of 7.7% in residential kitchen equipment.

Fiscal 2015 compared with 2014

Organic revenue (exclude acquisition and foreign currency) increased about 0.4% primarily attributable to increase of 6.3% in revenue of foodservice equipment offset by decrease of 8.3% in food processing equipment and decrease of 11.6% in residential kitchen equipment.

Its gross margin is about 39.5% in 2017 presenting an increase of 50 basis points since 2014. Its SG&A as percentage of sales was also down by 150 basis points and thus caused its operating margin up to about 20% in 2017. Gross margin was down to about 37.5% in 2018 probably due to acquisition and caused operating margin down to about 18.5%. While decreasing revenue, cash flow has still been increasing slightly in the past year.

Stock price

This stock currently has an enterprise price/EBI ratio of 31. We think that its stock is being relatively slightly overvalued considering that, while this company’s cash flow may benefit more from its newly completed acquisition than it shows now, uncertainty in commercial food service industry is still a concern.