Initiating at Hold Cooking Up Modest Growth in 2019: Key Takeaway

This document is being provided for the exclusive use of TYLER WALLING at OTTER CREEK ADVISORS LLC
EQUITY RESEARCH
The Middleby Corporation (MIDD)
Initiating at Hold; Cooking Up Modest Growth in 2019 Initiating Coverage

April 3, 2019 RATING HOLD
PRICE $132.55^
Key Takeaway MARKET CAP 7.4B / $7.4B
We believe Middleby is ushering in a new era of low-single-digit growth as it enters a
PRICE TARGET (PT) $135.00
more mature phase in its company life-cycle. However, we see this growth outlook as
UPSIDE SCENARIO PT $150.00
balanced by potential risk to equipment demand and margins from the rise of delivery
DOWNSIDE SCENARIO PT $95.00
(dark kitchens) and higher competition in the residential space. Net/net, we initiate
^Prior trading day's closing price unless
coverage of Middleby with a Hold rating and a $135 PT.
otherwise noted.
New Era of Low-Single-Digit Growth in Commercial Foodservice FY Dec 2018A 2019E 2020E 2021E
Commercial Foodservice organic growth rebounded in 2018 following two years of EPS ($) 6.18 6.88 7.33 7.79
declines as the restaurant industry struggled with overcapacity and diverted spending FY P/E 21.4x 19.3x 18.1x 17.0x
from kitchen equipment towards front-of-the-house technology (i.e. apps). We are
modeling low-single-digit growth in 2019 as restaurant chains continue to execute on Exhibit 1 - Stock Price Performance
roll-outs, balanced by more a muted outlook in the general market. Over the longer-term,
we see risk to growth as the rise in delivery allows restaurants to reassess kitchen needs
along with increased competition from other food sources (grocery).
Viking Recovery Offset by Weakness at AGA

Residential organic growth turned positive in 2Q18 following three years of declines
driven by the Viking recall fallout and UK market weakness. We are modeling ~flat
.
growth in 2019 as domestic sales are offset by continued weakness in AGA and non- Source: Factset
core product declines. Long term, we see risk to market share and segment margins
given the increased competition in the premium appliance market and penetration of the
connected home.
Slowing Global Growth + Uncertainty Weighs on Food Processing

Food Processing faced challenging market conditions in 2018 on the back of trade
concerns and geopolitical uncertainty. We are modeling continued weakness in the 1H19
with some recovery (on easy comparables) in the back half 2019. That said, we do not
see a significant rebound in the near-term as commentary from US meat processing
companies points to slower capacity expansion over the next couple of years.
Capital Allocation Can Add Upside to Estimates

Middleby has used a roll-up strategy to consolidate the commercial foodservice
business, expand its food processing footprint, and enter the residential market.
Management will likely continue to make acquisitions, driving earnings upside versus
our current estimates (which only include announced deals). Our pro forma analysis
shows potential incremental earnings of ~$2.60/share over the next three years, ~40% Saree Boroditsky, CFA *
above our 2019 forecast. That said, given recent deal challenges (i.e. QualServ), we would Equity Analyst
expect transactions to be met with mixed results by investors. (212) 284-2280
sboroditsky@jefferies.com
Initiate coverage with a Hold rating
Stephen Volkmann, CFA *
We see Middleby continuing to generate low-single-digit organic growth in the near-term, Equity Analyst
but this is balanced by long-term risks to growth and margins. Our $135 price target is (212) 284-2031
based on 20x our 2019 earnings forecast, in-line with the company's historical valuation. svolkmann@jefferies.com
Chirag Patel *
Equity Associate
(212) 284-1773
cpatel@jefferies.com
Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on
pages 25 to 30 of this report.
* Jefferies LLC / Jefferies Research Services, LLC
EQUITY RESEARCH
The Long View
| Scenarios | Investment Thesis / Where We Differ

Base Case We expect Middleby's organic growth to continue to recover at
low levels in 2019, but see risk to growth and margins from the
• Commercial Foodservice generates low-single-digit organic
rise of delivery (dark kitchens) and higher competition in the
growth as chain roll-outs are balanced by more muted general
residential space.
market demand given restaurant overcapacity issues
• Food Processing reverts back to growth on the back of • Commercial Foodservice generates low-single-digit growth
double-digit declines in 2018, with stronger results in the as chain roll-outs are balanced by more muted demand from
second half of 2019 the general market
• Residential generates ~flat growth on challenging • Slower global growth and geopolitical uncertainty continues
comparables at Viking, continued market weakness in the UK, to weigh on Food Processing sales, balanced by easy
and the closure of Grange comparables
• Our $135 price target is based on 20x our $6.88/share 2019 • Residential generates flattish organic growth as a recovery
estimate in Viking sales is offset by continued challenges at AGA from
UK market weakness and the closure of non-core brands
Upside Scenario
• Commercial Foodservice generates mid-single-digit organic | Catalysts
growth from the benefit of chain roll-outs and a recovery in
the general market To the Upside:
• Food Processing bounces back with double-digit organic • Commercial Foodservice demand accelerates on higher
growth following double-digit declines in 2018 demand from restaurant chain roll-outs and a rebound in the
• Residential generates mid-single-digit growth as Viking general market
continues to see market share gains and AGA outperforms • Food Processing sales pick-up as customers execute on
the general market large projects, leading to operating margin expansion
• Our $150 price target is based on 20x our $7.40/share 2019 • Residential demand continues as Viking and AGA outperform
estimate the overall market
Downside Scenario To the Downside:
• Commercial Foodservice organic growth declines on lower • Commercial Foodservice demand declines on lower
equipment demand given the challenging market outlook
equipment demand given the challenging market outlook
• Food Processing continues to decline on slower global • Food Processing sales continue to decline on the back of
growth and geopolitical uncertainty
slower global growth and geopolitical uncertainty
• Residential sales decline mid-single-digits on challenging • Residential demand declines on challenging comparables at
comparables at Viking, continued market weakness in the UK,
Viking and UK market weakness
and the closure of Grange
• Higher-than-anticipated SG&A from incentive compensation
• Our $95 price target is based on 18x our $5.36/share 2019 and stock compensation
estimate
| Long Term Analysis

• Low-single-digit organic growth plus acquisitions of 5-10%
• Incremental margins of 20%
• Earnings growth of 9-15% CAGR
Please see important disclosure information on pages 25 - 30 of this report. 2

EQUITY RESEARCH
Financial Summary and Market Data
Financial Summary Market Data
Book Value (MM) $1,665.2 52-Week Range: $133.27 - $96.65
Book Value/Share $29.90 Total Entprs. Value NM
Return on Avg. Equity 24.5% Avg. Daily Value MM ($) 78.95
Net Debt/Capital 0.5% Float (%) 98.3%
Long-Term Debt (MM) $0.0
Dividend Yield 0.0%
Cash & ST Invest. (MM) $71.7
Estimates and Valuation
Estimates
$ Prev. 2018A Prev. 2019E Prev. 2020E Prev. 2021E
Rev. (MM) 2,722.9 3,024.3 3,124.5 3,184.2

Consensus
- 7.00 7.96 8.93
EPS
EBITDA (MM) 575.2 649.3 666.7 680.2
EPS
Q1 1.20 1.36 1.47 1.52
Q2 1.63 1.79 1.90 2.03
Q3 1.56 1.77 1.89 2.02
Q4 1.79 1.96 2.07 2.21
FY Dec 6.18 6.88 7.33 7.79
Valuation
2018A 2019E 2020E 2021E
P/Rev 2.7x 2.4x 2.4x 2.3x
EV/Rev 3.4x 3.0x 2.9x 2.9x
EV/EBITDA 16.0x 14.2x 13.8x 13.5x
FY P/E 21.4x 19.3x 18.1x 17.0x

EQUITY RESEARCH
Executive Summary
We are initiating coverage of Middleby with a Hold rating and a $135 price target. Middleby
has a strong financial track record with average sales growth of 15% over the last ten years
as organic growth is augmented by acquisitions. That said, recent results have been more
lackluster, as organic growth declined in 2017-1H18 on weaker market demand and self
-imposed headwinds (i.e. salesforce reorganization, distribution channel disruptions, and
acquisition missteps). We expect organic growth to continue to recover at low levels in
2019, but see risk to long-term growth and margins from the rise of delivery (and dark
kitchens) and higher competition in the residential space.
Where we stand on Middleby:
• Modest growth in Commercial Foodservice. Commercial Foodservice organic growth

rebounded in 2018 following two years of declines as the restaurant industry struggled
with overcapacity and diverted spending from kitchen equipment towards front-of-the-
house technology (i.e. apps, kiosks). We are modeling low-single-digit growth in 2019;
however, as we look out over the next several years, we see risk to growth as the rise in
delivery allows restaurants to reassess kitchen needs along with increased competition
from other food sources, such as grocery.
• Flattish results in Residential as Viking growth is offset by AGA declines. Residential

organic growth turned positive in 2Q18 following three years of declines driven by the
Viking recall fallout and UK market weakness. We are modeling relatively flat growth
in 2019 as domestic sales are offset by continued weakness in AGA and non-core
product declines. Long-term, we see risk to market share and segment margins given the
increased competition in the premium home appliance market and increased penetration
of the connected home and smart appliances.
• Food Processing outlook remains relatively weak. Food Processing has faced
challenging market conditions on the back of trade concerns and geopolitical uncertainty
with double-digit declines in 2018. We are modeling continued weakness in the 1H19
with some recovery (on easy comparables) in the back half of the year. That said, we do
not see a significant rebound in the near-term as commentary from US meat processing
companies points to slower capacity expansion over the next couple of years.
• Capital deployment can drive upside to estimates. Middleby transformed from a

struggling company to a growth engine using a roll-up strategy to consolidate the
commercial foodservice business, expand its food processing footprint, and enter the
residential market. Middleby will likely continue to make acquisitions, driving earnings
above our current estimates (which only include announced deals), and our pro forma
analysis shows potential incremental earnings of ~$2.60/share, ~40% above our 2019
forecast. That said, we caution that given recent deal challenges (i.e. QualServ), we would
expect transactions to be met with mixed results by investors.
Valuation / Risks: Middleby stock has been ~flat over the last several years with investor
sentiment turning negative as organic growth came under pressure. We expect more
moderate growth ahead, and our $135 price target is based on 20x our 2019 estimate.
Risks include: limited demand visibility, increased competitive environment, acquisition
integration.

EQUITY RESEARCH
Investment Highlights
Commercial Foodservice (64% of total sales): Low-single-digit growth in 2019,
but long-term headwinds remain
Sales in the Domestic Commercial Foodservice business (~40% of sales) rebounded in
2018 following two years of declines as the restaurant industry struggled with overcapacity
and diverted spending from kitchen equipment towards front-of-the-house technology (i.e.
applications, ordering kiosks). We are modeling ~4% growth in domestic sales in 2019
as restaurants continue to execute on roll-outs, balanced by more a muted outlook in the
general market. As we look out over the next several years, we see risk to growth as the rise
in delivery allows restaurants to reassess kitchen needs along with increased competition
from other food sources (grocery, meal kits).
Exhibit 2 - We are modeling $2.0bn in total Commercial Exhibit 3 - Domestic sales have historically trended with
Foodservice sales in 2019 restaurant SSS, which rebounded in 2018
.
Source: Jefferies and Company Data .
Source: NRA and Company Data
We believe we are entering a period of low-single-digit organic growth in food equipment

sales going forward versus the 8% average seen in 2011-2015. Our outlook for 2019 is in-
line with the latest MAFSI survey of food equipment sales representatives, which shows
growth expectations for 2019 at 3.4%, slightly below the 3.7% growth predicted for 2018
and the average of ~4% growth from 2014-16. Slightly more optimistic, the FE&S 2019
forecast call for growth of +4.7% in 2019 (following +5.0% growth in 2018); however, this
is driven primarily by price (+3%), which may not be fully realized by Middleby on sales into
chains or in the year-end backlog.

EQUITY RESEARCH
Exhibit 4 - Commercial foodservice industry sales are expected to Exhibit 5 - Quoting and consulting diffusion indexes remain in
grow 3.4% in 2019 following 3.7% growth in 2018 positive territory, albeit at a lower level than prior years
. .
Source: MAFSI
Source: MAFSI
Restaurant same-store-sales (SSS) closed the year on a strong note, with 4Q18 results of
1.3% Y/Y, representing the strongest growth in over three years. However, winter weather
stalled growth in February (down 60bps) with TDn2K (which measures performance data
from ~30K restaurants) noting that the bad weather amplified the challenges facing chain
restaurants. While higher prices / guest checks helped boost sales in 2018, restaurants
continue to struggle with declining traffic as the industry remains in oversupply.
Exhibit 6 - Restaurant SSS dipped modestly (60bps) in February Exhibit 7 - Traffic has declined every year since the recession, and
following an eight-month run of positive growth was down 3.7% in February
. .
Source: TDn2K Source: TDn2K
The restaurant industry continues to recover from a period of rapid expansion, as unit
growth outpaced demand and customer spending has been dispersed across a growing
installed base of restaurants. For example, density in fast causal (where Middleby has
a strong market share) almost doubled from 41/units per million customers in 2007 to
74/units per million in 2016. This period of robust growth has been followed by slower
restaurant expansions over the last couple of years, with total unit count declining for the
first time in 2018, down 1% y/y to 660,755 units in the spring of 2018 (per NPD Group).
This was driven by a 2% decline in independent restaurants, reflecting a combination of
sluggish traffic growth and the resources it takes to withstand the more challenging times.
The impact on chains from the more competitive environment is illustrated by recent
push back by McDonald’s and Jack and the Box franchisees against corporate demands.

EQUITY RESEARCH
McDonald’s franchisees banded together to form an owner advocacy group after grappling
with the lower sales and the high cost of the company’s Experience of the Future
remodeling initiatives. As a result, McDonald’s pushed out the timeline for the completion
of its 14K domestic location remodel from 2020 to 2022. Similarly, the Jack and the Box
franchisee association filed a lawsuit against the company which highlighted declining
transactions and the required major remodeling programs.
Exhibit 8 - Restaurant growth has been outpacing its potential Exhibit 9 - ...mostly driven by higher growth in limited service
customer base... restaurant concepts
. .
Source: US Census Source: US Census
We see the expanding food delivery market as a negative for long-term equipment demand
as it allows restaurants to reassess the need for physical locations (thus kitchen needs)
and allows for more competition outside of traditional restaurants (i.e. grocery). One of the
major trends in the restaurant business has been the increasing demand for food delivery.
Currently, restaurant delivery represents only around 5% of the total restaurant market,
but BCG estimates that total delivery will account for 7-8% of restaurant sales by 2020 at
current growth rates, with potential to accelerate to 10% or higher based on penetration
in other sectors.
In response to the rise in delivery, restaurant operators have been reassessing the need
for physical locations as delivery allows food to be prepared offsite, enabling one kitchen
to serve multiple restaurants brands using the same pool of ingredients, equipment, and
labor. This is best illustrated in the recent launches of ‘dark’ or ‘ghost’ kitchens by a number
of online delivery companies. These shared kitchen concepts can help lower the upfront
equipment cost needed by new restaurants and allow spaces to be reused in the event of
restaurant failure. Key examples include:
• Deliveroo launched its delivery-kitchen only concept called Deliveroo Editions to expand
to underserved areas and attract restaurant concepts that its customer data show will
be successful in the area. The company makes it easy for restaurants to start doing
business by providing all of the infrastructure (included kitchen equipment) to allow
restaurants to operate.
• Uber Eats started its virtual restaurant program in early 2016 and now works with
~1.6K restaurants around the world. Other US food delivery services, including DoorDash,
Caviar, and Postmates have all been experimenting with virtual and commissary
kitchens.

EQUITY RESEARCH
• Kitchen United, backed by Google Ventures, is a similar concept to Deliveroo Editions

and offers shared kitchen facilities for restaurants that will support delivery-only
concepts. The company operates as a portfolio company of the Cali Group, which is also
responsible for Miso Robotics, the developer of a burger filliping robot.
As consumers eat more food at home, the line between restaurants, grocery, and meal
kits becomes more blurred, creating more competition. Online grocery has ramped up
quickly in recent years, especially with Amazon’s purchase of Whole Foods in 2017. Heavy
investment and rapid deployment of online ordering by companies such as Amazon,
Walmart, and Instacart (which serves multiple chains / local grocery stores) has increased
the number of consumers that have access to at least one online grocery delivery or pick-up
service to over 80% of households in 2018, according to Brick Meets Clicks, which expects
this to grow to 90% of households in 2019.
Exhibit 10 - Households buying online groceries expected to Exhibit 11 - Online grocery is expected to account for ~40% of
increase to 70M for over 50% penetration food at home growth over the next two years
. .
Source: BSM Consumer Survey 2019; Nielsen Total US E-Commerce Source: BSM Consumer Survey 2019; Nielsen Total US E-Commerce
powered by Rakuten Intelligence; USDA Food Expenditures; Brands Still powered by Rakuten Intelligence; USDA Food Expenditures; Brands Still
Matter 2019 estimates Matter 2019 estimates
Along with the increasing convenience (and thus substitutability) of grocery purchases,
food deflation and pricing competition have also made it cheaper for consumers to eat
at home. As such, after a period of rapid growth of spending at restaurants, we have
seen the trend line converge with grocery stores. This trend towards eating at home is
more pronounced when adjusting grocery store sales for inflation, which shows higher
spending versus restaurants in 2017 and 2018. The cost of eating at home is expected to
continue to be cheaper, with the USDA forecasting 2019 CPI of +2.0-3.0% for food away
from home vs. +1.0-2.0% for food at home. To put this competitive threat in perspective, the
average US consumer eats at a restaurant 190/year, or ~16 meals/month (per Technomic).
If consumers eliminate just one of these monthly visits, it equates to a 6% decline in annual
restaurant visits.

EQUITY RESEARCH
Exhibit 12 - Spending at restaurants grew 4% in 2018 versus 3% Exhibit 13 - …however, adjusting for inflation puts grocery growth
growth in grocery… at 3% versus 2% for restaurants
. .
Source: US Census Source: US Census and BLS
Despite the challenging market backdrop, Middleby expects chain activity to continue as
restaurant operators seek to replace older equipment, increase efficiency, and lower costs
(i.e. labor). We are modeling organic growth of 3% for the segment for total growth of 17%
including acquisitions and FX.
Exhibit 14 - We are modeling Commercial Foodservice sales of ~ Exhibit 15 - Commercial Foodservice operating profit goes to
$2bn in 2019 $477m in 2019
. .
Source: Jefferies and Company Data Source: Jefferies and Company Data
Residential (22% of total sales): Viking recovery continues but is offset by lower
AGA sales + long-term risk from higher competition & smart homes
Residential organic growth turned positive in 2Q18 following three years of declines driven
by the Viking recall fallout, service issues, and UK market weakness. We are modeling
relatively flat growth in 2019 as modest growth on the domestic side is offset by continued
weakness in AGA / UK housing market. Long-term, we see risk to market share and
segment margins given the increased competition in the premium home appliance market
and increased penetration of the connected home and smart appliances.

EQUITY RESEARCH
Exhibit 16 - We are modeling ~flat revenue for 2019 as domestic Exhibit 17 - Organic growth turned positive in 2Q18 following three
growth is offset by international declines years of declines
. .
The US housing market is expected to be relatively flat in 2019, with FMI expecting
residential construction put-in-place to slow from 4.1% in 2018 to 1.7% in 2019. Despite the
forecast for continued growth in the overall market, there have been signs of deterioration
in the high-end sector, which is the primary audience for Viking. Toll Brothers, a US
homebuilder focused on the upscale market (average price of $862K in FY1Q19), saw unit
orders down 24% in its fiscal quarter ended Jan. 31st. Along with the well-publicized impact
from rising interest rates and negative housing headlines, the impact from the US tax
reform (i.e. lower tax deductions on mortgages) and reported tightening of enforcement of
foreign investment is expected to impact demand for luxury housing markets in 2019.
That said, the Viking brand has potential to outperform the overall housing market given
the recent launch of new products following the 2015 recall, which contributed to sales
declines over the last three years. We estimate that Viking sales peaked at $450m at the
top of the housing cycle, and while sales are unlikely to reach that level again, that still
leaves ample runway as current sales are closer to ~$200m.
Exhibit 18 - FMI expects residential construction put-in-place to

grow at 1.7% in 2019
.
Source: FMI
We expect to see continued headwinds from a weak UK housing market (~60% of AGA
sales), which has suffered over the last three years from a series of legislative changes,
including an overhaul of the stamp duty that increased the charge on expensive homes, a

EQUITY RESEARCH
surcharge added to second homes, along with uncertainty related to Brexit. Momentum is
likely to continue to slow according to the RICS Residential Market Survey, which showed
the majority of respondents predicting both lower sales and prices over the next three
months. The Nationwide House Price Index showed subdued growth in February (+0.4%)
with commentary suggesting that while indicators (transactions, mortgage approvals)
remain broadly stable, surveys suggest sentiment has softened.
Exhibit 19 - Sales and pricing expectations continued to decline, Exhibit 20 - New buyer enquiries declined for the sixth consecutive
with net readings of -32% and -40%, respectfully month, with a net balance of -35%
.
.
Source: RICS
Source: RICS
Connected kitchens and increased competition in the premium appliance market

represents a risk to both sales and margins. The connected kitchen remains in relatively
early stages, but is expected to continue to accelerate, especially as millennials are likely
to make up the largest share of home buyers over the next decade. The growing popularity
of smart home features is demonstrated by the growing importance amongst homebuyers,
with just over half of real estate professionals citing smart home features as helping with
home sales.
Exhibit 21 - Smart appliances still have significant penetration Exhibit 22 - Approximately 50% of real estate professionals
opportunity believe smart home features help home sales
. .
Source: Coldwell Banker Source: Coldwell Banker
We see brands with technology know-how as well positioned to gain share with the
increased adoption of home automation. This includes several relatively new entrants to
the luxury appliance market:

EQUITY RESEARCH
• Samsung appears well positioned, in our view, to benefit from the rise of the connected
home given its strong position in consumer electronics as well as appliances. The
overlap between its electronics and appliance businesses was demonstrated with
the launch of the Family Hub, which embeds a touchscreen and voice control into
the refrigerator. Further, the company is poised to go more head-to-head with Viking
following its 2016 acquisition of US-based high-end appliance brand Dacor.
• LG launched a new line of products under LG Signature in 2016 to compete in the

US premium appliance market. Similar to Samsung, we see LG as well positioned to
combine its technology and appliance platforms. This was illustrated in the company’s
testimony for the Whirlpool trade case in 2017, where LG's presence in mobile phones
and electronics was cited as contributing to the growth in washing machines demand.
• Whirlpool, which owns luxury brand JennAir through its 2006 acquisition of Maytag, has
been focused on strengthening its smart kitchen portfolio. As part of this effort, Whirlpool
acquired Yummly, which will allow users to select recipes on the application that are
then pushed to their Whirlpool appliances (i.e. set the cook time and temperature and
provide step-by-step directions).
• While not currently focused on the premium appliance market, we believe Amazon
is one company to watch going forward. The company has already demonstrated its
ability to distribute appliances through its Sears collaboration, and recently launched
an AmazonBasic microwave which allows users to re-order popcorn through Amazon’s
replenishment service. While this product is not currently a threat to Middleby, it
illustrates where the company could go in the future as it aims to get closer to its
customer and leverage its Whole Foods acquisition. Notably, Amazon filed a patent in
2017 for spoilage sensing technology used in refrigerators.
Long-term margin potential in Residential? Middleby has a 30% long-term EBITDA margin
target for its Residential segment (~1,300bps in improvement vs. 2018 results), but has
discussed a mid-term target of closer to ~25% (vs. 19.2% in 4Q18). This margin expansion
is expected to come from: 1) the benefit of higher volumes as Middleby regains lost market
share in Viking products; 2) transition from a third-party distribution platform to a company
owned channel which supports the entire portfolio of brands; 3) acquisition integration
initiatives, including the closure of non-core businesses in AGA.

EQUITY RESEARCH
Exhibit 23 - Middleby is targeting ~1,300bps in EBITDA margin Exhibit 24 - We are modeling ~165bps of margin improvement
improvement to 30% thorough 2020 to ~18%
. .
Source: Company Data Source: Jefferies and Company Data
We see a 30% Residential EBITDA as a lofty target given the higher competition in the
premium appliance sector and the likely need for higher R&D spend given the increasing
demand for smart appliances. Middleby’s R&D budget has been ~1% of sales over the last
five years. Assuming Middleby increases its budget by ~150bps to 2.8% of sales (based
on the average of Whirlpool and Electrolux, which are more comparable given LG and
Samsung’s electronic businesses) total company margins would decline to ~17%, which
would equate to a headwind of approximately $0.65/share, or 9% of our 2019 earnings
estimate.
Exhibit 25 - Middleby has the lowest R&D spending versus its Exhibit 26 - However, it currently has the leading operating
Residential appliance peers margins of the group
. .
Source: Company Data Source: Company Data
Food Processing (14% of total sales): Slowing global growth + geopolitical

uncertainty weighs on demand
Food Processing organic growth declined 16% in 2018 following a 4% decline in 2017
as customers pushed out projects due to heightened uncertainty in global growth and
geopolitical concerns. Our model assumes a slight recovery in 2019 with 1% organic growth
on the back of easy comparables and management expectations for a stronger second
half of 2019.

EQUITY RESEARCH
Exhibit 27 - Food Processing sales have continued to grow due to Exhibit 28 - ...but organic growth has declined over the last two
acquisitions… years
.
. Source: Jefferies and Company Data
Source: Jefferies and Company Data
This softer market outlook is corroborated by competitors John Bean (FoodTech) and
Marel. JBT pointed to early signs of improvement in South America, while Asia continues
to lag expectations due to trade and geopolitical issues, which has delayed equipment
orders. The company saw order growth of 10% for 2018 but backlog declined 18%. Marel
cited more challenging market conditions due to geopolitical uncertainty and the general
slowdown in global growth, and highlighted a temporary slowdown in US poultry on the
back of trade constraints.
Exhibit 29 - JBT Foodtech saw backlog decline 18% in 2018 as Exhibit 30 - Marel book-to-bill was 0.99x YTD in 2018 vs. 1.10x for
M&A activity and trade uncertainty pushed out projects 2017 with weakness in US Poultry
. .
Commentary from US meat processing companies points to slower capacity expansion

in 2019, with Sanderson noting that this year will be the first time in eight years that the
company has not been building a plant.

EQUITY RESEARCH
.
Source: Factset
Following a period of rapid expansion in 2014-2017 where meat processing capital

spending increased ~20% on average, investment growth is expected to be a modest 4%
in 2019 before declining in 2020 on lower spending at Tyson.
Exhibit 32 - Meat processing capital spending is expected to be Exhibit 33 - There is expected to be modest 3% capacity expansion
up 4% in 2019, with a decline in 2020 driven largely by by lower in 2019 in US poultry markets
spending at Tyson
.
. Source: Company Data and EMI Express
Source: Company Data and Factset
Based on industry commentary and expansion expectations, we are modeling 1% organic

growth in 2019, which embeds a weaker start to the year. Operating margins fell drastically
in 2018 (from 25% in 2017 to 16% in 2018), and we model ~70bps expansion to ~17% in
2019.

EQUITY RESEARCH
Exhibit 34 - We are modeling a modest rebound in Food Exhibit 35 - Operating margins declined drastically in 2018, but
Processing sales in 2019 should rebound along with volumes
. .
Acquisitions drive upside to estimates

Middleby will likely continue to make acquisitions in the Commercial Foodservice and
Food Processing markets, driving earnings above our current estimates (which only include
announced deals). The company transformed from a once struggling company to a growth
engine that effectively used a roll-up strategy to consolidate the commercial foodservice
business, expand its food processing footprint, and enter the residential market. Middleby
has spent over $3.7bn acquiring 60 companies since 2001.
Exhibit 36 - Sales grew at a 19% CAGR from 2000 to 2015 vs. 10% Exhibit 37 - Acquisitions have averaged ~14% annually over the
from 2016-2018 last 10 years vs. ~3% organic growth
. .
Middleby generates ~110% free cash flow conversion and has ample available borrowing
capacity to continue to execute on its acquisition strategy despite leverage being at an
all-time high following the acquisition of Taylor for $1bn. To maintain its balance sheet
firepower, the company expanded its revolver by $500m to $3bn of borrowing capacity in
December 2018, of which we expect a portion to be used towards acquisitions.

EQUITY RESEARCH
Exhibit 38 - Cash conversion has averaged ~110% over the last ten Exhibit 39 - Leverage reached an all-time high in 2018 following
years the acquisition of Taylor for $1bn
. .
We estimate that Middleby has $2.4bn of dry powder to deploy over the next three years
from the combination of the company’s current debt capacity and free cash flow through
2021. Thus, while we are not forecasting additional M&A activity in our model, we believe
it is useful to illustrate the potential pro forma earnings power of the company. Based
on our illustrative analysis below, we estimate that Middleby has the capacity to acquire
additional earnings of $2.60/share or ~40% of our 2019 EPS estimate.
Exhibit 40 - Our illustrative earnings analysis shows potential for

earnings of $2.60/share, or ~40% above our 2019 estimate
.
Source: Jefferies
As Middleby has transformed into a larger company, there are fewer deals that can truly
impact the bottom line. This can lead to bigger transactions or deals that are outside of the
company's wheelhouse, which are more challenging to integrate and carry bigger risks than
smaller bolt-ons. This is best illustrated in the recent acquisition of QualServ in Commercial
Foodservice and Viking on the Residential side:
• Middleby’s acquisition of QualServ in 2017 for $40m created an uproar in the company's
distribution channel, as dealers felt that Middleby was encroaching on their territory. The

EQUITY RESEARCH
company worked to reassure dealers that it was buying the company for its fabrication
capabilities, but it still caused uncertainty and speculation in the market.
• Middleby added Residential as a third leg to the business in 2013 with the $380m
acquisition of premium kitchen manufacturer Viking. Sales struggled for three years
following the 2015 recall related to legacy ovens, where faulty wiring caused ovens to
turn on by themselves and could not be turned off using controls.
As such, we would expect any larger deal announcement outside of the company's
traditional focus to be met with mixed results by investors.
Time for share buybacks & dividends?

Middleby is becoming a more mature company that we believe will show low-single-
digit organic growth over the next several years. Given this profile, we believe it is worth
evaluating alternative uses of capital outside of acquisitions, which has largely been the
sole source of capital deployment over the company's history. To compare the accretion
on an apples-to-apples basis, we use the same $2.4bn of dry powder used in the above
acquisition analysis. This shows potential for Middleby to repurchase over 30% of its
share count over the next three years using a combination of debt and free cash flow,
equating to ~35% accretion versus our current 2019 estimates. However, given that we
think it is unlikely that the company will lever up to repurchase shares, we provide a second
analysis below using only the available free cash flow. This shows the potential for $1.3bn
in cash over the next three years, which could be used to repurchase just under 20% of the
company's current share count for over 20% earnings accretion.
In addition to share repurchases, we believe that initiating a dividend could reassure

investors about the long-term sustainability of growth, as well as open up the company to
a wider set of long-term investors.
One potential hurdle to Middleby returning more cash to shareholders is management's

incentive compensation, which is based on both EBITDA and EPS growth. While share
repurchases would benefit the earnings portion of this growth, unlike acquisitions, it is not
aligned with growing EBITDA, and a dividend would not go towards either of these financial
targets.
Exhibit 41 - We believe Middleby should look at starting to return cash to shareholders,

including share repurchases
.
Source: Jefferies and Factset

EQUITY RESEARCH
Company Overview
Middleby is a leading manufacturer of foodservice, food processing, and residential kitchen
equipment. The company goes to market across three key segments:
• Commercial Foodservice (~60% of sales): Provides a broad portfolio of foodservice

equipment used in restaurants, convenience stores, and other institutions. Domestic
markets account for almost 70% of segment sales, where replacement drives a majority
(~60%) of purchases. Other key drivers include new restaurant openings, menu changes,
and cost savings (i.e. labor, energy). International market demand is largely related to
chain expansion and equipment roll-outs.
• Food Processing (~15% of sales): Offers food processing solutions for producing meat
products (hot dogs, lunch meats, etc.) and baked goods (muffins, cookies, etc.). Long-
term demand is driven by increased consumption of packaged foods globally, while
short-term demand can be influenced by project timing.
• Residential Kitchen (~25% of sales): Sells kitchen equipment for residential homes
under brands such as Viking and Rangemaster. Long-term demand is dependent on
luxury housing markets, primarily in the US and the UK, while near-term demand can be
influenced by new product penetration.
Exhibit 42 - Geographic mix Exhibit 43 - Segment mix
. .
Middleby has a relatively strong financial track record in the machinery / diversified
industrial space as the company has historically generated above-average profitability with
below-average cyclically. Sales growth has averaged 15% over the last ten years as organic
growth is augmented by acquisitions. That said, Middleby’s growth performance over the
last couple of years has fallen well below its historical average, with relatively flat organic
growth over the last several years versus ~8% organic growth on average from 2010-14.
Similarly, earnings growth (which includes acquisitions) has also slowed versus historical
levels, with our forecast calling for 6% growth on average in 2019-21 versus average growth
of 17% over the last ten years. This lower earnings growth appears to be expected by
the company, with management compensation targets based on EPS growth of 10% for
2016-17 versus 14% in 2014-15 and 16% in 2013.

EQUITY RESEARCH
Exhibit 44 - Organic growth has been significantly below historical Exhibit 45 - Similarly, earnings growth has also fallen versus prior
levels over the last several years levels despite the benefit from acquisitions
. .
Valuation
Middleby stock has been relatively flat as organic growth has declined over the last
four years on weaker market demand and self-imposed headwinds (i.e. sales force
reorganization, distribution channel disruptions, and acquisition missteps). Investor
sentiment has been more negative starting in late 2015, based on the elevated short
interest.
Exhibit 46 - After a long run of strong performance, MIDD stock Exhibit 47 - MIDD short interest peaked in 2018 at ~11%, but
price has been flattish over the last couple of years remains elevated at ~9% of the float
. .
Source: Factset Source: Factset
Middleby has long traded at a premium valuation to peers based on its high growth profile,
though the company has come under pressure over the last couple of years following the
slow-down in organic growth. The company is currently trading in-line with its peer group
on P/E basis, which is well below its historical ~10% premium (and ~15% premium over the
last five years). However, this includes the 2011-14 period, when Middleby was delivering
8% organic growth on average versus the flattish growth over the last three years. As such,
we see the current discounted valuation as justified based on our expectations for lower
earnings growth going forward, along with the ~$0.50/per share pension benefit embedded
in estimates.

EQUITY RESEARCH
Exhibit 48 - MIDD is currently trading at ~18x NTM P/E, which is a Exhibit 49 - Middleby's multiple has declined in recent years along
discount to its peer group vs. its historical in-line valuation with its organic growth profile
. .
Source: Factset Source: Factset and Company Data
Exhibit 50 - Comparable company valuation
.
Source: Jefferies and Factset; Note: SITE and POOL covered by Stephen Volkmann
Management
Timothy J. FitzGerald (CEO and Director): He has served as Vice President and Chief
Financial Officer of The Middleby Corporation since 2003. Prior to that, he was Vice
President and Corporate Controller of Middleby from 1998 to 2003. Mr. FitzGerald has
been heavily involved in all strategic and operating decisions during his tenure, and has
been responsible for the Middleby acquisition and business development activities since
joining the company. Additionally, Mr. FitzGerald has lead the development and had
oversight for the Middleby Worldwide international sales and distribution operations. More
recently he developed the Middleby residential distribution platform supporting growth
for Viking and all the residential brands. Prior to Middleby, Mr. FitzGerald held positions
at Arthur Andersen in audit and consulting from 1991 through 1998, assisting clients in
restructurings, business integrations, and mergers and acquisition activities.
Bryan Mittelman (CFO): He has 27 years of finance experience and most recently served
as Chief Accounting Officer of The Middleby Corporation since 2018. Prior to Middleby, he
spent five years as a Vice President and Controller of Knowles Corporation. Mr. Mittelman

EQUITY RESEARCH
has also served as Corporate Controller at Morningstar, Inc. and in finance and accounting
roles at Siemens Healthcare Diagnostics, Dade Behring and Arthur Andersen. He is a
Certified Public Accountant.
David Brewer (Executive VP and COO): He has served as Chief Operating Officer of the
Middleby Commercial Foodservice Group since 2009 and developed the Middleby National
Accounts team which serves the major restaurant chain customers. Mr. Brewer joined the
company in 2007 as President of Middleby’s Pitco division. Prior to Middleby, Mr. Brewer
served as President and General Manager at Lantech Corporation. Mr. Brewer also held
leadership positions at Yum! Brands Corporation and Chiquita Brands International. Mr.
Brewer’s experience at Yum! Brands has been instrumental to the success of Middleby’s
customer initiatives and relationships with the major restaurant chains.
Exhibit 51 - Board of Directors
.
Source: Company Data
Risks
Limited visibility for demand outlook. Middleby has limited view on the timing of deliveries,
which could result in quarterly fluctuations in earnings.
Increased competitive environment. Middleby operates in competitive environments,

which could alter demand for its product or its ability to pass along price increases in the
market.
Acquisition integration risk. Acquisition accretion depends on the company’s ability to

successfully integrate operations.
Exposure to global markets. Middleby generates 33% of its sales outside the US & Canada
and could be impacted by unfavorable currency and / or changes in global growth.

EQUITY RESEARCH
Exhibit 52 - Income Statement
.
Exhibit 53 - Cash Flow Statement
.

EQUITY RESEARCH
Exhibit 54 - Balance Sheet
.

EQUITY RESEARCH
Company Description
Middleby
Middleby engages in the design, manufacture, marketing, distribution and service of a broad line of foodservice equipment. It operates
through the following segments: Commercial Foodservice Equipment Group, Food Processing Equipment Group, and Residential
Kitchen Equipment Group. The Commercial Foodservice Equipment Group segment offers a foodservice equipment, which enables
cooking and warming application within a commercial kitchen and foodservice operation. The Food Processing Equipment Group
segment includes portfolio of processing solutions for customers producing pre-cooked meat products and bread. The Residential
Kitchen Equipment Group segment manufactures, sells and distributes kitchen equipment such as cookers, stoves, ovens, refrigerators,
dishwashers, microwaves, cooktops, wine coolers, ice machines, ventilation and outdoor equipment for the residential market. The
company is headquartered in Elgin, IL.
Company Valuation/Risks
Middleby
We value the shares based on a combination of EV/EBITDA and PE multiples taking into account both the historical range over prior
cycle and the peer group. Risks include: limited visibility for demand, increased competition, acquisition integration, and exposure to
global markets.
For Important Disclosure information on companies recommended in this report, please visit our website at https://
javatar.bluematrix.com/sellside/Disclosures.action or call 212.284.2300.
Analyst Certification:
I, Saree Boroditsky, CFA, certify that all of the views expressed in this research report accurately reflect my personal views about the
subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly,
related to the specific recommendations or views expressed in this research report.
I, Stephen Volkmann, CFA, certify that all of the views expressed in this research report accurately reflect my personal views about the
subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly,
related to the specific recommendations or views expressed in this research report.
I, Chirag Patel, certify that all of the views expressed in this research report accurately reflect my personal views about the subject
security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to
the specific recommendations or views expressed in this research report.
As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this
report receives compensation based in part on the overall performance of the firm, including investment banking income. We seek to
update our research as appropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published
on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgement.
Investment Recommendation Record

(Article 3(1)e and Article 7 of MAR)
Recommendation Published April 3, 2019 , 00:06 ET.
Recommendation Distributed April 3, 2019 , 00:08 ET.
Company Specific Disclosures

Jefferies Group LLC makes a market in the securities or ADRs of The Middleby Corporation.
Jefferies Group LLC makes a market in the securities or ADRs of Illinois Tool Works Inc.
Jefferies Group LLC makes a market in the securities or ADRs of Lincoln Electric Holdings, Inc.
Jefferies Group LLC makes a market in the securities or ADRs of Pool Corporation.
For Important Disclosure information on companies recommended in this report, please visit our website at https://
javatar.bluematrix.com/sellside/Disclosures.action or call 212.284.2300.
Explanation of Jefferies Ratings

EQUITY RESEARCH
Buy - Describes securities that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period.
Hold - Describes securities that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a
12-month period.
Underperform - Describes securities that we expect to provide a total return (price appreciation plus yield) of minus 10% or less within
a 12-month period.
The expected total return (price appreciation plus yield) for Buy rated securities with an average security price consistently below $10
is 20% or more within a 12-month period as these companies are typically more volatile than the overall stock market. For Hold rated
securities with an average security price consistently below $10, the expected total return (price appreciation plus yield) is plus or minus
20% within a 12-month period. For Underperform rated securities with an average security price consistently below $10, the expected
total return (price appreciation plus yield) is minus 20% or less within a 12-month period.
NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable
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CS - Coverage Suspended. Jefferies has suspended coverage of this company.
NC - Not covered. Jefferies does not cover this company.
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Valuation Methodology
Jefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and
expected total return over the next 12 months. The price targets are based on several methodologies, which may include, but are not
restricted to, analyses of market risk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF), free cash
flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF, P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group
P/E, sum of the parts, net asset value, dividend returns, and return on equity (ROE) over the next 12 months.
Jefferies Franchise Picks

Jefferies Franchise Picks include stock selections from among the best stock ideas from our equity analysts over a 12 month period.
Stock selection is based on fundamental analysis and may take into account other factors such as analyst conviction, differentiated
analysis, a favorable risk/reward ratio and investment themes that Jefferies analysts are recommending. Jefferies Franchise Picks will
include only Buy rated stocks and the number can vary depending on analyst recommendations for inclusion. Stocks will be added as
new opportunities arise and removed when the reason for inclusion changes, the stock has met its desired return, if it is no longer rated
Buy and/or if it triggers a stop loss. Stocks having 120 day volatility in the bottom quartile of S&P stocks will continue to have a 15%
stop loss, and the remainder will have a 20% stop. Franchise Picks are not intended to represent a recommended portfolio of stocks
and is not sector based, but we may note where we believe a Pick falls within an investment style such as growth or value.
Risks which may impede the achievement of our Price Target

This report was prepared for general circulation and does not provide investment recommendations specific to individual investors.
As such, the financial instruments discussed in this report may not be suitable for all investors and investors must make their own
investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as
they deem necessary. Past performance of the financial instruments recommended in this report should not be taken as an indication or
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Other Companies Mentioned in This Report
• Graco Inc. (GGG: $50.83, HOLD)
• Illinois Tool Works Inc. (ITW: $148.74, BUY)
• Lincoln Electric Holdings, Inc. (LECO: $86.78, BUY)
• Pool Corporation (POOL: $167.71, HOLD)

EQUITY RESEARCH
• SiteOne Landscape Supply, Inc. (SITE: $57.15, BUY)

• Wabtec (WAB: $74.76, HOLD)
Rating and Price Target History for: The Middleby Corporation (MIDD) as of 04-01-2019
150
140
130
120
110
100
90
Q1 Q2 Q3 2017 Q1 Q2 Q3 2018 Q1 Q2 Q3 2019 Q1
Distribution of Ratings
Distribution of Ratings
IB Serv./Past12 Mos. JIL Mkt Serv./Past12 Mos.
Count Percent Count Percent Count Percent
BUY 1156 54.84% 98 8.48% 15 1.30%
HOLD 809 38.38% 10 1.24% 1 0.12%
UNDERPERFORM 143 6.78% 1 0.70% 0 0.00%

EQUITY RESEARCH
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Initiating at Hold Cooking Up Modest Growth in 2019: Key Takeaway

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Initiating at Hold; Cooking Up Modest Growth in 2019 Initiating Coverage

Viking Recovery Offset by Weakness at AGA

Slowing Global Growth + Uncertainty Weighs on Food Processing

Capital Allocation Can Add Upside to Estimates

The Long View

| Scenarios | Investment Thesis / Where We Differ

| Long Term Analysis

Please see important disclosure information on pages 25 - 30 of this report. 2

Financial Summary and Market Data

Financial Summary Market Data

Book Value (MM) $1,665.2 52-Week Range: $133.27 - $96.65

Book Value/Share $29.90 Total Entprs. Value NM

Return on Avg. Equity 24.5% Avg. Daily Value MM ($) 78.95

Net Debt/Capital 0.5% Float (%) 98.3%

Long-Term Debt (MM) $0.0

Dividend Yield 0.0%

Cash & ST Invest. (MM) $71.7

Estimates and Valuation

$ Prev. 2018A Prev. 2019E Prev. 2020E Prev. 2021E

Rev. (MM) 2,722.9 3,024.3 3,124.5 3,184.2

Q1 1.20 1.36 1.47 1.52

Q2 1.63 1.79 1.90 2.03

Q3 1.56 1.77 1.89 2.02

Q4 1.79 1.96 2.07 2.21

FY Dec 6.18 6.88 7.33 7.79

2018A 2019E 2020E 2021E

P/Rev 2.7x 2.4x 2.4x 2.3x

EV/Rev 3.4x 3.0x 2.9x 2.9x

EV/EBITDA 16.0x 14.2x 13.8x 13.5x

FY P/E 21.4x 19.3x 18.1x 17.0x

Please see important disclosure information on pages 25 - 30 of this report. 3

Where we stand on Middleby:

• Modest growth in Commercial Foodservice. Commercial Foodservice organic growth

• Flattish results in Residential as Viking growth is offset by AGA declines. Residential

• Capital deployment can drive upside to estimates. Middleby transformed from a

Please see important disclosure information on pages 25 - 30 of this report. 4

We believe we are entering a period of low-single-digit organic growth in food equipment

Please see important disclosure information on pages 25 - 30 of this report. 5

Please see important disclosure information on pages 25 - 30 of this report. 6

Please see important disclosure information on pages 25 - 30 of this report. 7

• Kitchen United, backed by Google Ventures, is a similar concept to Deliveroo Editions

Please see important disclosure information on pages 25 - 30 of this report. 8

Please see important disclosure information on pages 25 - 30 of this report. 9

Exhibit 18 - FMI expects residential construction put-in-place to

Please see important disclosure information on pages 25 - 30 of this report. 10

Connected kitchens and increased competition in the premium appliance market

Please see important disclosure information on pages 25 - 30 of this report. 11

• LG launched a new line of products under LG Signature in 2016 to compete in the

Please see important disclosure information on pages 25 - 30 of this report. 12

Food Processing (14% of total sales): Slowing global growth + geopolitical

Please see important disclosure information on pages 25 - 30 of this report. 13

Commentary from US meat processing companies points to slower capacity expansion

Please see important disclosure information on pages 25 - 30 of this report. 14

Following a period of rapid expansion in 2014-2017 where meat processing capital

Based on industry commentary and expansion expectations, we are modeling 1% organic

Please see important disclosure information on pages 25 - 30 of this report. 15

Acquisitions drive upside to estimates

Please see important disclosure information on pages 25 - 30 of this report. 16

Exhibit 40 - Our illustrative earnings analysis shows potential for

Please see important disclosure information on pages 25 - 30 of this report. 17

Time for share buybacks & dividends?

In addition to share repurchases, we believe that initiating a dividend could reassure