Foodservice Equipment Reports Fortnightly

Welcome to FER Fortnightly Online Newsletter
June 1, 2006

Regulatory Report:
Sponsored by:
Franke Foodservice Systems
W.Va. Adopts NFPA Fire, Life Safety Codes
Companies Pull Soft Drinks From All U.S. Public Schools
Philly, Bismarck Post Restaurant Inspections Online
Vigo County Snuffs One Smoking Ordinance, Fires Up Another
UK Issues New School Lunch Nutrition Rules

Industry Report:
Sponsored by:
Server Products
Enodis Launches Programs, Financing For Major Energy Push
Dunne, O'Brien, Best Unveil Market Consulting Firm
EPA Names Victory A Manufacturing Partner
CFESA Seeks Biker Members To Ride To Santa Fe
H&K, Sodexho, Snyder Win NSF Food Safety Leadership Awards

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In This Section:
Public E&S Companies Show Strength In First Quarter
Technomic Says Gasoline Prices Starting To Bite Foodservice
Sentiment Down, Inflation Up, GDP Not Up Enough, Wall Street Down
Heard In The Aisles At The NRA Show

This issue's Regulatory ReportSponsor: Franke Foodservice Systems Industry Report
Sponsor: Server Products

Economic Report FER E&S Economic Forecast Meetings

Public E&S Companies Show Strength In First Quarter
Sales and profits for most publicly-traded equipment and supplies manufacturers rose during first-quarter 2006 compared with year-earlier figures, according to data compiled by John Muldowney, principal at Clarity Marketing.

Sales for 11 companies rose 6.1% on a blended basis. Profit gains for most companies exceeded sales gains, as the effect of price increases taken during the past 18 months began to correct the margin gap created by recent materials price increases.

Sales for eight equipment companies tracked by Muldowney were up 5.3%, though the results are skewed downward by one company that had a huge chain rollout in last year's period. Six of the eight reported gains.

The three supplies-oriented public companies measured were up strongly at a combined 8.2%. Price increases are a factor in all the gains. As reported last issue, blended list prices rose 4.8% in the year ended in March, according to AutoQuotes.

Still, the public companies appear to be outperforming the market as a whole. Manufacturers' Agents Association for the Food Service Industry Business Barometer, a reflection of rep sales of like lines, rose 2.7% in the first quarter.


Technomic Says Gasoline Prices Starting To Bite Foodservice
The surprising thing is that it's taken this long. But Technomic Inc. reported last week that sustained high gasoline prices are beginning to negatively impact the foodservice business.

"There's no doubt that higher gas prices are having a negative impact," Technomic Pres. Ron Paul said in a news release. "To say how great an impact, however, is more complicated, hinging on variables such as restaurant segment and customer demographics."

Paul said a recent Technomic poll discovered more consumers are trying to cut back at restaurants, including ordering fewer side items. There is also evidence of trading down to quick service and less-expensive full-service restaurants, choosing less expensive entrees and cutting back on alcoholic beverages.

Still, Technomic says these tactics demonstrate how ingrained foodservice is in the American lifestyle. "Many consumers would like to reduce visit frequency, but finding that difficult, they opt instead for 'trading-down' tactics," said Michael Allenson, the firm's director of consumer research.

Section sponsored by FER E&S Economic Forecast Meetings

Sentiment Down, Inflation Up, GDP Not Up Enough, Wall Street Down
Wall Street was not happy late last week. On Friday, the markets learned the University of Michigan's Indexes of Consumer Sentiment and Consumer Expectations both dropped again and that core inflation rose while personal consumption fell. This came on top of Thursday's announcement that Gross Domestic Product was not revised up for first-quarter 2006 as much as the Street anticipated. The revised GDP gain was strong at 5.3%, but not strong enough for some.

Still, the markets' sheep- or lemming-like response notwithstanding, these current signs, along with the predicted slowing of the housing market, suggest only that the anticipated slowdown in the general economy is at hand.

Section sponsored by FER E&S Economic Forecast Meetings

Heard In The Aisles At The NRA Show
(Below, Publisher Robin Ashton reports on the industry's mood and attitude based on conversations at late May's National Restaurant Association Show:)

  • Middleby's Offer For Enodis And Other M&A Activity Reflects E&S Market Strength.
    The proposal, which Enodis's board rejected May 22, stating the offer "significantly undervalued" the company and its prospects, was the first thing people mentioned at the show. It seemed to have caught everyone by surprise.

    But, in fact, it reflects both Middleby management's personality and several market realities, including the simple fact that the E&S market has been strong the past few years, despite the materials price run-ups. We are, probably, at the classic "top of the market" in the current cycle. One sign of this is the strong earnings many of the leading public companies are showing in the first quarter. (See related story.)

    It is no coincidence that Middleby made the offer on the heels of Enodis reporting strong earnings gains for the London-based company's first fiscal half year, ended in March. Sales were up 8% on a constant currency basis; earnings rose 16%. Enodis is benefiting not only from the strong market and the restructuring it undertook several years ago, but also the success of a fleet of new products generated over the past few years by a significant investment in R&D, from Merrychef accelerated cooking platforms to the Lincoln DTF dual technology finishing oven and Delfield's LiquiTec. Adding to those, the company introduced 14 new products and line extensions at the National Restaurant Association Show this year and has received multiple "Kitchen Innovations" awards over the two years of the program. Middleby is probably not the only company that would like to get its hands on these technologies.

    And the financial backers of Middleby have no doubt been watching the successful initial public offerings by Tim Horton's, Chipotle and Burger King, as well as strong growth in Asia by the big QSRs. Both Enodis and Middleby are major suppliers to McDonald's and YUM! Brands, of course. All this makes the foodservice equipment business a bit sexier at this juncture.

    The offer is also possible because there is plenty of investment money looking for a place to land, not just in our business, but everywhere. At least one dealer roll-up is also being shopped around, according to reliable sources.

    And not least, public companies always have to grow to prosper, or at least to keep their stock prices healthy. The major ways are organic growth and acquisition. Middleby has had very strong organic growth the past several years. Sales rose 10.9% in the first quarter vs. the year-earlier quarter, not including sales of the industrial baking equipment manufacturer Alkar that Middleby bought late last year. It also bought foodservice oven maker Nu-Vu early in 2005. With the acquisitions included, sales rose 29.2%, and operating earnings grew 26.2% in the quarter.

    We'll all just have to wait and see where this current activity goes. At FER Fortnightly deadline, Middleby had not responded to the Enodis rejection of its offer.

  • Manufacturers And Dealers Happy About Market Conditions, But Worry About High Materials Costs. A New Round Of Price Increases In Offing?
    Nearly everyone we spoke with said sales were good. As Rodney Wasserstrom, CEO of The Wasserstrom Cos., told us, "If you're not doing well in this market, you probably have something structurally wrong."

    But there is plenty of concern about the new run-ups in prices for materials. Stainless is a factor, but the costs of aluminum and copper have doubled over the past two years, and the plastic resins remain very pricey. Manufacturers asked me over and over whether I thought we'd see a round of mid-year price increases. I'd count on it if I were a buyer.

  • NRA's "Kitchen Innovations" Program A Hit With Manufacturers And Specifiers.
    We know it's not directly economics, but we heard strong praise of the "Kitchen Innovation Awards" program the association launched last year. Participating manufacturers are happy about it, though they would like to see the pavilion moved out closer to the center area between the two halls. Several told me they were impressed by the traffic at the pavilion and the ongoing marketing benefits.

    And chain buyers, consultants and other specifiers I spoke with were impressed with this year's crop of winners and the convenience of having significant new products in one grouping. And it sure makes it easier for our editors, not that they don't continue to pound the aisles for other new items.

    Our kudos to this year's judges for choosing great products and to Mary Pat Heftman and Greg Kirrish for creating a useful addition to the industry. And if many of you buy lots of this new stuff, it is economics after all.

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