The Middleby’s Tariff Impact Split and Margin Offset Timing Don’t Match

Date of Call: Feb 26, 2026

Financials Results

• Revenue: $866 million for the quarter
• EPS: $2.14 adjusted EPS for the quarter, $8.39 for the full year
• Operating Margin: Commercial food service EBITDA margin over 26% (would have exceeded 27% without tariff impacts); Food processing organic EBITDA margin 23%

Guidance:

• Q1 total revenue expected $760M-$788M (CFS $560M-$578M, Food Processing $200M-$210M).
• Q1 adjusted EBITDA expected $161M-$173M (CFS $142M-$152M, Food Processing $37M-$41M).
• Q1 adjusted EPS expected $1.90-$2.02.
• Full year total revenue expected $3.27B-$3.36B (CFS $2.37B-$2.43B, Food Processing $895M-$925M).
• Full year adjusted EBITDA expected $745M-$780M (CFS $632M-$658M, Food Processing $186M-$208M).
• Full year adjusted EPS expected $9.20-$9.36.

Business Commentary:

Strategic Portfolio Optimization and Shareholder Returns:

• Middleby Corporation completed the sale of a 51% stake in its residential kitchen business, resulting in approximately $565 million in immediate cash proceeds, with a total enterprise valuation of $885 million.
• The company reduced its overall share count in 2025 by approximately 9% through $710 million in buybacks.
• This strategic move aimed to unlock significant value for shareholders and is part of a broader plan to focus on two industry-leading platforms: commercial food service and food processing.

Commercial Food Service Performance:

• The commercial food service segment generated $602 million in revenue for the fourth quarter, exceeding expectations.
• This outperformance was driven by double-digit growth in the general market with dealer partners and improved demand in the institutional market.
• Despite challenges in the QSR market due to lower traffic and cost pressures, the company is encouraged by early traction in new ice and beverage innovations.

Food Processing Segment and Order Growth:

• The food processing segment reported $265 million in revenue for the fourth quarter, with orders reaching $322 million, leading to a record backlog of $410 million.
• Strong order intake was driven by the success of total line solution offerings and strategic expansion in international markets.
• The company anticipates continued growth through both organic initiatives and targeted strategic acquisitions.

Tariff Impact and Mitigation:

• Tariffs had an adverse net impact of approximately $7 million on EBITDA in Q4, with expectations of a similar impact in 2026, split roughly 70% to commercial food service and 30% to food processing.
• Middleby implemented pricing increases in July 2025 and January 2026 to offset these costs, with confidence that these measures will be effective as the year progresses.

Capital Allocation and Future Outlook:

• Middleby plans to allocate a significant portion of its free cash flow to share repurchases in 2026, having already repurchased 1.7 million shares for approximately $250 million in the first quarter.
• The company is focused on long-term growth, with plans to separate its food processing business, creating two independent pure-play industry leaders, and anticipates a strong year with clear catalysts for accelerated growth.

Sentiment Analysis:

Overall Tone: Positive

• Management expressed optimism about dealer market strength, gaining share, and improved demand. They noted 'strong top line performance' and are 'encouraged by actions taken by our larger chain customers.' The tone was confident regarding the strategic separation and future growth, stating '2026 represents a defining year' and they are 'looking forward to what is ahead.'

Q&A:

• Question from Meg Dobro (Baird): Context on what you're seeing in the CFS segment and the outlook for 2026, specifically regarding the general market and QSR customers.
  Response: The dealer market strength was driven by gaining market share and improved replacement demand, not historical stocking behavior. The inflection point for organic growth is expected when larger QSR customers stabilize and traffic improves.

• Question from Meg Dobro (Baird): Regarding tariff comments, how the $74M incremental drag splits between segments and confidence in offsetting it with pricing.
  Response: About two-thirds of the tariff impact is on commercial food service. Pricing increases taken in July 2025 and January 2026 are expected to fully offset the tariff costs, with timing causing a margin drag in Q1 that improves through the year.

• Question from Jeff Hammond (KeyBank): Update on QSR dynamics, including CapEx strikes, store openings, and dialogue around value pricing and traffic.
  Response: Operator confidence is increasing with better visibility on menu pricing and profitability. Some chains are still on a CapEx strike, but replacement cycles and beverage program initiatives are gaining traction, positioning Middleby well.

• Question from Jeff Hammond (KeyBank): On food processing, understanding the 66% order growth and why revenue growth is only 4-6%.
  Response: Order strength is driven by total line solutions strategy and a catch-up from prior slowness in the first half. Growth delivery is expected as orders are strong and the company enters the year with a confident outlook.

• Question from Tammy Zakaria (JPMorgan): On food processing backlog growth (up 36%) and how much is deliverable this year.
  Response: A significant majority of the backlog is deliverable in 2026, with a minority rolling into early 2027.

• Question from Tammy Zakaria (JPMorgan): Thoughts on broader capital allocation and M&A for the core CFS segment post-food processing split.
  Response: Focus will be on share repurchases and organic growth in the near term, with targeted M&A opportunities in areas like beverage and technology to accelerate organic growth.

• Question from Brian McNamara (Canaccord Genuity): On commercial food service guidance, whether it is predominantly pricing driven and expectations for volume movement.
  Response: Growth is expected from both pricing and organic opportunities, including market share gains in ice and beverage, and strength in dealer, institutional, and emerging chain segments, with the QSR segment being the key inflection point.

• Question from Brian McNamara (Canaccord Genuity): On QSR CapEx and unit growth plans, and when clarity is expected.
  Response: Clarity is awaited on the timing of new store build ramp-ups and greenlights for specific projects (like beverage programs), which are expected to firm up in the back half of the year as traffic improves.

• Question from Meg Dobro (Baird): On the May 12 Investor Day, what to expect regarding commercial food service portfolio simplification or structural growth plans.
  Response: More details will be provided closer to the event, but it will include a deeper dive into strategic initiatives and portfolio for both standalone companies.

• Question from Brian McNamara (Canaccord Genuity): On food processing, the typical time to convert an order to revenue.
  Response: Conversion typically takes between six to 12 months, depending on equipment and solution type.

Contradiction Point 1

Primary Driver of CFS Growth

Conflicting emphasis on whether growth is driven more by pricing or organic volume.

Brian McNamara (Canaccord Genuity) - Brian McNamara (Canaccord Genuity)

2025Q4: Growth will come from both pricing benefits and organic opportunities. - Tim Fitzgerald(CEO)

Is the positive CFS guidance predominantly pricing-driven, and what are the expectations for getting volumes moving again? - Meg Dobro (Baird)

2025Q4: The Q4 outperformance was driven by strong dealer market activity, partly due to gaining market share and improved replacement demand. - Tim Fitzgerald(CEO) & Steve(SVP)

Contradiction Point 2

Characterization of Q4 Dealer Strength

Inconsistent description of the nature of strong dealer activity in Q4.

Meg Dobro (Baird) - Meg Dobro (Baird)

2025Q4: The Q4 dealer activity was not the historical 'year-end stocking' behavior. - Steve(SVP)

What factors drove the better-than-expected Q4 CFS performance, and is it due to a return to normal dealer behavior or ongoing momentum? - Meg Dobro (Baird)

2025Q4: The Q4 outperformance was driven by strong dealer market activity... not just seasonal inventory building. - Tim Fitzgerald(CEO) & Steve(SVP)

Contradiction Point 3

CFS 2026 Growth Outlook and QSR Recovery Timeline

Contradiction on whether 2026 growth is near-term or depends on QSR traffic recovery.

Brian McNamara (Canaccord Genuity) - Brian McNamara (Canaccord Genuity)

2025Q4: For 2026, they are optimistic that the chain restaurant environment will stabilize and improve... The timing of recovery depends largely on the QSR segment, particularly when traffic improves and projects get green-lighted. - Tim Fitzgerald(CEO) and Steve(CCO)

Is the positive CFS guidance primarily driven by pricing, and what are the expectations for volume growth? - Mircea Dobre (Robert W. Baird & Co. Incorporated)

2025Q3: The outlook for **2026 is more positive**, with expected growth from the dealer, emerging chains, and fast casual segments. Underlying demand is strong, and investments made in these areas are starting to pay off. - Tim Fitzgerald(CEO) and Steve(CCO)

Contradiction Point 4

Tariff Cost Impact and Pricing Offset Timing

Contradiction on whether tariff costs are fully covered by the end of 2025 or create a Q1 2026 margin drag.

Meg Dobro (Baird) - Meg Dobro (Baird)

2025Q4: Pricing increases implemented in July 2025 and January 2026 are expected to cover the tariff costs... This causes a **Q1 margin drag**, with margins improving through the year as pricing offsets the tariffs. - Steve(CCO)

How is the ~$74 million incremental tariff drag in 2026 split between the two segments, and how confident are you in fully offsetting this with pricing, which may be the main driver of the implied margin ramp in full-year guidance? - Alec McGuire (JPMorgan Chase & Co)

2025Q3: Middleby adopted a measured approach... **By the end of Q4 2025, the company expects to have fully covered the tariff cost impact** through a combination of pricing and operational actions. - Steve(CCO)

Contradiction Point 5

Tariff Impact Distribution Between Business Segments

Contradiction in the percentage of tariff impact attributed to the Food Processing segment.

What is Meg Dobro's role at Baird? - Meg Dobro (Baird)

2025Q4: The tariff impact is split approximately 70% to CFS and 30% to Food Processing... - Steve

How will the ~$74 million increase in tariff drag in 2026 compared to 2025 be split between the two segments? - Jeffrey David Hammond (KeyBanc Capital Markets Inc.)

2025Q2: ...distributed as 60-65% in Commercial Foodservice... 10-15% in Food Processing... - Steven P. Spittle, Bryan E. Mittelman, and Timothy J. FitzGerald