The Middleby - Q1 2024
May 8, 2024
Transcript
Operator (participant)
Thank you for joining us for the Middleby First Quarter 2024 Conference Call. With us today from management are CEO, Tim Fitzgerald, CFO, Bryan Mittelman, Chief Technology and Operations Officer, James Pool, Chief Commercial Officer, Steve Spittle, and Vice President of Investor Relations, John Joyner. We will begin the call with opening remarks, then open the lines for questions. Instructions on how to join the queue will be given at that time. Now, I would like to turn the call over to Mr. Fitzgerald. Please go ahead.
Timothy Fitzgerald (CEO)
Good morning, and thank you for joining us today on our First Quarter Earnings Call. As we begin, please note there are slides to accompany the call on the investor page of our website. First quarter proved to be challenging, with a backdrop of the housing market, interest rate environment, and price-cost pressures at our restaurant and food processing customers weighing out our businesses as we started the year. Even though challenges persist, we are seeing improving order activity and expect this to continue as we move through the year, as customers execute on stated business plans and as opportunities in the pipeline begin to convert.
While customers are slow to restock inventories, given shorter lead times and higher carrying costs, inventories in the channel have returned to normalized levels and now provide a tailwind as end user sell-through occurs, and this bodes well for the later part of the year. At our commercial food service business, customer execution has been slow starting the year, given continued longer lead times for permitting and construction, along with longer deliberation on their business plans, given economics of higher restaurant operating costs. However, our channel partners are building backlogs weighted to the second half of the year, and our chain customers continue to maintain their plans for operational upgrades and store openings, which are also weighted to the second half.
We are gaining market share in new and large product categories such as beverage and ice, and we are well positioned to capitalize on our market-leading positions, capturing growing trends in ventless and electrified cooking. We have early-stage traction with some of our game-changing innovations as we lead the future of automation, digital, and IoT. At our residential business, the housing market remains very challenged in terms of existing home sales, new home starts, and remodels. While the residential market will take time to fully recover, it has stabilized, with the luxury end of the market showing improvement over the past several quarters. We're now seeing growth in order rates, and we expect that will continue as we progress through the year.
We are well positioned to benefit from the many investments that we have made in new product innovation as we move beyond the current market conditions. Many of these new product innovations were on display at the recent Kitchen and Bath Show. We were proud to receive a Best of KBIS Award at Viking for our new RVL series, and we were also awarded Best of KBIS at Novy, one of our newest Middleby Residential brands, which we're now launching into the U.S. market, featuring state-of-the-art induction cooking, integrated ventilation, and unique accent lighting. Our industry-leading brand portfolio, with launches of new colors, new designs, and new technologies, generated tons of excitement with builders, our dealer partners, and the design community at the show, leading to new business opportunities coming out of the show and a much greater awareness for all the Middleby Residential portfolio has to offer.
In our food processing business, our customers are proceeding somewhat cautiously as they monitor food costs, demand levels, and the interest rate impact on larger projects. Still, the pipeline of active projects continues to build for expansions and needed upgrades, with requirements to increase throughput, reduce labor, minimize food waste, and with a growing focus on sustainability. Automation remains in great demand. Our backlog remains healthy, and as market dynamics have become more stable, we're expecting the pipeline will convert into orders. Our strategy to become the leading provider of best-in-class, full-line integrated solutions for the protein and bakery markets is resonating, and we are best positioned to offer our customers state-of-the-art automation to address their operational efficiency challenges.
We posted continued overall strong profitability at our commercial and food processing segments in the quarter, despite revenue declines, while residential margins were significantly challenged, given the more significant market conditions and our strategic decision to invest in KBIS. We expect to return to the path of longer-term margin expansion as we benefit not only from revenue recovery, but also as we realize greater benefits from profitability, profitability initiatives, including investments made at our factories to realize greater production efficiencies, along with the impact of favorable profitability on our newer product innovations. Supply chain also provides a continuing opportunity as we have moved away from the crisis management of the past several years and are now focused on leveraging our scale and realizing synergies across our businesses.
While we navigate the near-term market conditions, we continue to focus on the execution of our business strategies, expanding profitability and growing our cash flow, while building upon our competitive advantage at each of our three industry-leading food service businesses that we are confident is setting us apart in the long term. Now I'll pass the call over to James to spotlight some of our exciting award-winning products we'll be unveiling at the National Restaurant Association Show in Chicago later this month. Again, highlighting the results of our strategic focus to invest in and accelerate the pace of innovation. James?
James Pool (Chief Technology and Operations Officer)
Thanks, Tim. Last quarter, I remarked that Middleby had won eight of the 28 coveted Kitchen Innovations Awards. But because of timing, I couldn't say which Middleby brands won. Well, with a little more than one week to go before the NRA Show in Chicago, we are excited to introduce The Great Eight: Blodgett, Pitco, Evo, Newton, Wunder-Bar, Wild Goose Filling, Varimixer, and L2F, now known as Middleby Automation. These eight brands are the National Restaurant Association's KI winners. If you are attending the show, May 18th through 21st, please make sure you visit the Kitchen Innovations Awards Pavilion to see and experience these new products from The Great Eight, and then come check out Middleby to experience our latest solutions around digital, embedded, and robotic automation, as well as beverage solutions and the launch of our newest combi, the Invoq, a Red Dot Design Award winner.
We couldn't be happier with these new products. These innovations are as diverse as our brands, but they were all developed with our customers' daily challenges in mind. Labor reduction and simplification, consistency of product, throughput, all aimed to maximize our customers' profitability. In the interest of time, I won't go through each innovation, but you can find each in the deck that Tim referenced. The first is the Pitco TorQ Fryer. The TorQ introduces continuous filtration and convective frying. With continuous filtration and auto oil top off, the TorQ essentially provides infinite oil life for the operator. And the continuous filtration comes forced convection, as oil is forced to circulate around the food on its way to being filtered. This forced circulation reduces our cook times up to 10%. While we are talking about numbers, let's cover a few more.
The TorQ is 10% more efficient than the typical ROV fryer and boasts flue temperatures 60% lower than the typical gas fryer, thus substantially reducing your kitchen ventilation requirements. Lastly, the TorQ reduces labor needed to filter a traditional fryer by up to 90%. By the numbers, this fryer stands to obsolete most fryers in the market today. Moving on to the Blodgett Invectio Oven. This is a first-of-its-kind oven, allowing the operators to select between a high heat transfer, accelerated cook oven or a gentle convection oven by simply selecting a menu item from its Middleby One Touch controller. Once the operator selects a menu item, the Invectio's mechanics can configure the oven for the optimal cooking profile, whether it be high velocity impingement air or gentle convection.
This innovation enables a multi-cavity convection oven, typically found in the back of the house, to also function in the front of the house as an accelerated cooking oven, thus offering our customers the ability to cook à la minute. So whether you need to cook delicate laminated pastries in 20 minutes, or you need to cook 16-inch pizzas in three minutes and 30 seconds, the Invectio is your solution. Now on to beverage dispensing. We have three brands introducing beverage dispensing products aimed at reducing waste while improving speed of service and delivering a better-tasting, highly consistent product. I've spoken about Newton CFV valves in the past, but now we have two new products that feature the valve's patented design that enable the consistent, precise delivery of beverage and/or ingredients, regardless of the factors that plague traditional valves: the Newton Discrete Valve and the Wunder-Bar M5 Bar Gun.
With these innovations, our customers now have confidence that they are serving bottle-quality beverage or dispensing individual ingredients without the expense of consistently calibrating their systems or wondering if their systems are in calibration. The Newton Discrete Valve and the Wunder-Bar M5 Bar Gun eliminate calibration, waste, reduce service calls, and improve customer satisfaction through consistent delivery of product. The Newton CFV valve is also being used throughout Middleby to control mixing and dispensing of highly concentrated ingredients, such as individual flavors, even cleaners. These concentrations can be as high as 500-to-1, which unlocks our customers' ability to change how they distribute and dispense ingredients or even clean their equipment, say, with Newton's new clean-in-place technologies. The final dispensing solution that I'll discuss is a Wild Goose Cervis, which utilizes the same filling systems to dispense beer that Wild Goose uses in its industry-leading, high-speed canning lines.
Cervis turns anyone pouring their first beer into a seasoned bartender by automatically dispensing beer twice as fast as a normal tap system, while also minimizing waste by precisely controlling the pour volume to the nearest fraction of an ounce or just a few milliliters, all with no training. Cervis also improves keg yield from 75%-95% by controlling the pour volume and the beer serving conditions. While I didn't get a chance to cover the other products, such as the PizzaBot 2.0, Evo EVent, the Varimixer ERGO, we will hit those in later calls, or again, you can see them at the NRA Show. But know they share the same traits as the other innovations I described today. They all reduce waste, increase throughput, maximize consistency, decrease, simplify labor, all of which improve our customers' profitability. Thank you, and over to you, Bryan.
Bryan Mittelman (CFO)
Thanks, James. For the first quarter, we generated revenue of $927 million and adjusted EBITDA of $186 million at a margin of 20%. Q1 GAAP earnings per share were $1.59, and adjusted EPS was $1.89. Commercial food service revenues globally were down 4% organically over the prior year, yet the adjusted EBITDA margin was consistent with the prior year at 26%. All the margin values I will go through are on an organic basis, meaning excluding any acquisitions and foreign exchange impacts. In food processing, revenues for the first quarter were nearly $163 million. This was our second-best Q1 ever for this segment, with a tough comp, given the Q1 record was set last year. Our adjusted EBITDA margin held strong and was also consistent with the prior year at nearly 24%.
In residential, we saw an organic revenue decline of 22% versus 2023. The adjusted EBITDA margin was over 6% and was negatively impacted by our investment to attend the Kitchen and Bath Show for the first time since 2016. We've seen a recent inflection in order rates, which is driving our view that the residential revenues have hopefully started to move off their low point. A high point for the quarter was our exceptionally strong operating cash flows of nearly $141 million for the quarter, and nearly $678 million for the trailing four quarters. It was our best first quarter ever, and our free cash flow conversion was around 135% for the trailing four quarters. Our total leverage ratio is now down to 2.4 times.
Despite the challenging quarter we faced from a revenue perspective, our business model demonstrated that we have resilient margins and continually generate strong cash flows. Nonetheless, in Q2, you will see some further restructuring charges as we continue to take actions to appropriately manage the business, given market conditions. As we work to protect our margins, we are also aggressively controlling costs. In terms of an outlook, I will start by reminding everyone that the second quarter of 2023 was our strongest revenue quarter ever. So given recent order rates and demand for our innovation, we expect total Q2 revenues to be up at least mid-single digits sequentially from Q1. But given the tough comp, we anticipate falling a little short of the prior year revenue level overall. To provide greater insights, I will separately address each segment.
In commercial, the year-over-year comparison for Q2 is especially tough, given the all-time record revenue for us in 2023. While we may fall a little short of the prior year revenue in Q2, sequentially, revenues could be up high single digits as compared to Q1. Our viewpoint is based on our backlog, which is currently up slightly from year-end, and that order rates have been improving over the past three quarters. Orders through April of this year are up 15% over the back half of 2023. We also expect margins to be in line with prior year levels. Looking into the back half of the year, at this time, we expect revenues to continue to grow sequentially and be at least mid-single digits above prior year levels. Moving on to food processing, recall that the Q2 of 2023 was our second highest revenue quarter ever for that segment.
While I expect us to fall short of that revenue level in Q2 of 2024, margins should be, you know, margins should be up over the prior year. And then on a sequential basis, Q2 revenues and margins should be up meaningfully versus what we just posted for Q1. So recall that, you know, lumpy is a word used to describe this business sometimes. As I look back to last year, we did see a big drop in revenues when we moved from Q2 to Q3, but that is not our expectation for Q3 of this year. We continue to see strength in this business overall. Orders in the past two quarters have been amongst our strongest intake periods for the segment. Thus, we are expecting that the second half revenues for this year will be above the first half of this year and above prior year levels.
In residential, the good news is that the order trend is moving slightly upward. Looking at the past couple of quarters and extrapolating on the start of Q2, we are trending above the first three quarters of 2023. Revenues for Q2 of 2024 will likely not be ahead of the prior year, and this is due to a year ago our domestic premium indoor appliances having posted a relatively strong quarter. Nonetheless, we are anticipating stable conditions in our European businesses when comparing Q2 of this year back to 2023, and we should see growth in the outdoor market in Q2. So this all results in that Q2 revenues should be above Q1.
Visibility to the second half of the year in residential is certainly limited, but given recent trends, revenue comps, and building upon our showing at KBIS and the overall strength of our portfolio, our view for the second half of 2024 is currently for growth, both as compared to the prior year and over the first half of this year. We are also working to maintain double-digit profit margins for the year. Bringing it back all together, for the total company, we should continue to build and strengthen as we progress through 2024. We look forward to Q2 being stronger than Q1, and we continue to firmly believe at this time, that for the second half of this year, we will deliver sequential and year-over-year growth. We remain focused on operational efficiency and optimally managing our resources. We are sharply focused on controlling and reducing our costs.
We remain committed to improving our margins. These actions should drive year-over-year growth in cash generated and consistently high levels of free cash flow conversion as well. So to further understand how we will achieve this, along with enjoying many tasty creations from both humans and cobots, please come and see our people and products in action at the National Restaurant Association Show later this month here in Chicago. Please reach out to us to arrange a visit so you can deeply understand how we are solving the needs of our customers, which will drive our growth in 2024 and beyond. We remain committed to our mantra, more in 2024. Thank you, and we will now take your questions.
Operator (participant)
We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Mig Dobre with Baird. Please go ahead.
Mircea Dobre (Analyst)
Thank you for taking the question. Good morning, everyone.
Timothy Fitzgerald (CEO)
Good morning, Mig.
Mircea Dobre (Analyst)
So if I understand your guidance commentary correctly, it sounds like book-to-bill in commercial food service was above one, because backlog went up a little bit in the quarter. When you sort of think about the outlook that you've laid out for Q2 and the rest of the year, are you essentially baking in stable backlog and just sort of orders ramping relative to Q1 and that flowing through? Or is there still sort of a backlog conversion element here that comes to sort of help us in the back half of 2024?
Timothy Fitzgerald (CEO)
Yeah, so I think we are thinking it's not converting, we're not reducing our backlog further. That's not the assumption, if that's the question.
Mircea Dobre (Analyst)
That is the question.
Timothy Fitzgerald (CEO)
Yeah. I mean, I think, I think as we see order improvement as we go through the year. So I think we've, backlog has come down, you know, as we had a lot, you know, backlog, I'll say, orders that were, were pulled ahead. We've kind of gone, I'll say, maybe to a certain extent, the other way, where inventory is not only at, at normalized levels, but a lot of our partners are slow to place orders because they know lead times are short. They don't want to carry inventory, and our channel partners, they see kind of their end users, a lot of the projects are geared towards the half of the year, so they're not gonna buy the product right now. They're, they're gonna buy it closer to, to you know, execution.
So when we started the year, January was pretty slow, not unexpectedly, for a whole variety of reasons, some of it even weather driven. And then we saw it progressively improve as we went through the first quarter, and then it improved, you know, a fair bit more as we've kind of gone, you know, into the early part, you know, the second quarter. So that kind of lines up with a lot of the commentary that we get from our channel partners, along with the discussions that we have with our chain customers.
So I think a lot of the you know, the view and the confidence we have is you know, is based on kind of the transparent discussions that we have with them, including what they see as the outlook, where their inventory is in the channel, and then kind of line that up with the order trends that we've had as we progress through the first four months of the year.
Mircea Dobre (Analyst)
Understood. Thank you for that. Then my follow-up, sticking with this segment, is on the margin side. You know, comparisons are tougher in the back half of the year. So how do you encourage us to think about margins?... especially on a year-over-year basis, and maybe related to all of this, are you seeing any sort of signs of price erosion or, you know, changing competitive dynamics in North America, specifically? Thank you.
Timothy Fitzgerald (CEO)
Yeah, so I'll kind of tag team with, with Steve here. I would say it, you know, not, not wholesale changes. I think the mix out there in the marketplace was a little bit different to start the year. I think some of the kind of more immediate replacement type business that tends to be more economy-driven was a little bit more, you know, prevalent. So I don't think that's more of a pricing element as it is a mix element. And as we kind of get back to more of, I'll say, specified, you know, project-driven and chain, chain-driven, we expect some of the mix to improve as we go through the year. So I think that's a little bit of the dynamic that we saw at the beginning of the year. And then maybe you want to touch on pricing.
Steve Spittle (Chief Commercial Officer)
Yeah, Mig, it's Steve, we actually just recently announced a price increase that will be upcoming in commercial, going into effect in mid-June. Our approach there was, you know, making sure our divisions were really going, you know, SKU by SKU, customer by customer, to make sure that we had captured, you know, all the price-costs, you know, dynamics that we've obviously all gone through over the past several years. So it'll be a, I'll call it a relatively minimal increase or a low single-digit increase as compared to prior year increases. But still want to make sure we're being very thoughtful back in pricing.
Again, it's been one of the more strategic initiatives in the company the last couple of years to make sure we're capturing costs, but also making sure we're certainly in a good place from a competitive standpoint. So that, again, was recently announced, a couple weeks ago, and goes into effect in mid-June for commercial.
Bryan Mittelman (CFO)
And then, you know, I'll bring it around, this is Bryan, to the margin side of the question. Obviously, you saw in Q1 that even with lower revenues, we're able to protect the margins, and that's, you know, coming from a variety of things, right? There's some, you know, commodities impacts in there. There's the impact of investments we've made in the business. There's impacts of, I'll call it, you know, ongoing, you know, striving for greater efficiency, cost control, you know, headcount control, actions in there. And so as, you know, we look forward, as volumes grow, we'll also have, you know, greater absorption. I think we'll have some, you know, modest pricing benefits. As Tim was getting after, we, we believe, you know, mix will improve as well.
So we put that all together, and, you know, as I think about, you know, how the segment will operate for the entire year, I do think we will be, you know, slightly, you know, modestly above, you know, the prior year. Obviously, there's some challenges, you know, always to overcome with cost of inputs and supply chain and the like. But nonetheless, think it is still will be, you know, a positive year over year.
Mircea Dobre (Analyst)
Super. Thanks for the color.
Bryan Mittelman (CFO)
Yep.
Operator (participant)
The next question comes from Jeff Hammond with KeyBanc Capital Markets. Please go ahead.
Jeff Hammond (Analyst)
Hey, good morning, everyone.
Timothy Fitzgerald (CEO)
Morning, Jeff.
Steve Spittle (Chief Commercial Officer)
Morning.
Jeff Hammond (Analyst)
Just want to stay on commercial food. I think you mentioned, you know, some permitting delays, you know, customers kind of contemplating strategy. It was interesting that you said, you know, you think for the year, you're up mid-single digits in commercial food, and that kind of implies, you know, high single digit, low double-digit growth in the back half. And so just wanted to get a better handle on, you know, if you're seeing some of these delays kind of move forward, and what gives you the confidence in that second half growth rate?
Timothy Fitzgerald (CEO)
Yeah, maybe just to add a little bit color around the delays. I mean, I think the world is not fully recovered from supply chain in some regards. I mean, I think as, you know, customers have tried to identify locations, open locations, right? They got to get through construction, documentation, permitting. Those things have taken, you know, a bit longer. We saw that in the back, you know, the back half of the year. So, I mean, I think, you know, those things are improving in terms of you know, just the world normalizing, you know. But that is one of the things that we know that they've, you know, a lot of our customers have struggled, and that's, you know, delayed. So I think those things get better.
I think there's a little bit of muscle memory as, as well as customer with, the world has kind of gone from, you know, you know, from crisis management, you know, back to a strategic execution of, you know, business plans. And, you know, so I think there's, you know, we're in a little bit of a, you know, restart, and I think some of those things, you know, cause slowness coming out of the gates, plus there's a lot of just dynamics that people were absorbing, right? Again, you know, interest costs, while they've been up for a bit here, people have been monitoring it, and interest rates haven't been higher for that long.
And then just, you know, where was pricing on menus, because I think a lot of our customers had very favorable overlaps to the pricing that they had, you know, put through and were absorbing, you know, what was that impact to the consumer? What has been the traffic at the end of the year, at the beginning of the year? Where are food costs? So I think they've been absorbing a lot of that relative to the plans they had coming into the year and then re-auditing, you know, those plans. And I think those plans have, by and large, held up, you know? And I think it's just taking a little bit more time to make sure, Hey, are we doing the right thing? And how are we, you know, working with our operators, etc.
I think, you know, we still see...
... you know, the strategies out there, you know, what they want to execute to. So again, I think that's where maybe they weren't ready to go on January one. But I think they're, you know, those things are still progressing, and I think that kind of gives us some of the, you know, the confidence and the visibility. So again, why maybe things were—the engine will start slow to start, not entirely surprisingly, and but, you know, while we think the, you know, the engine will be, you know, it will be stepping on the gas pedal, as we kind of progress through the next couple of quarters.
Steve Spittle (Chief Commercial Officer)
Okay. Can I-
Timothy Fitzgerald (CEO)
Yeah, please go ahead.
Steve Spittle (Chief Commercial Officer)
Jeff, this is Steve. I'd just add on to that. I mean, I've talked about it before. Yeah, I think one of the nice byproducts of the last several years is a lot more transparency from the chains in terms of, you know, new store opening plans. And I'll just say, even though, as Tim alluded to, a little bit slower start from a new store order or a new store build perspective, they pretty much all recommitted several times to their overall plans for the year. So I think that's what gives us confidence in more of the back half of the year.
I think the other thing, too, I would point out, I know we've talked about before, the dynamic between new store, you know, orders and the replacement orders that, you know, we feel like have been, you know, deferred over the last, you know, three, five, seven years. What's been exciting is there's been a number of the large chains that have announced, you know, initiatives, where the corporate entity is going to help franchisees, you know, do, you know, refreshes to build, you know, their stores and help them in that replacement cycle. So I think that's a relatively new nuance. So we think new store builds, you pick up the back half of the year, and we're still very bullish on, you know, this replacement cycle that we feel is gonna really kick in over the next, next couple of years, specific to the chain customers.
Jeff Hammond (Analyst)
Okay, that's great color. And then just a couple on Res Kitchen. One, can you quantify the kind of one-time KBIS investment? And then, seems like you're, you know, maybe the destock's done finally in outdoor grills, and you feel a little bit better about that, but the, you know, kind of the U.S., you know, indoor kitchen is still, you know, maybe one of the choppier areas. Is that correct?
Bryan Mittelman (CFO)
Yeah, on the KBIS investment, I'd put it, you know, 150-200 basis points of drag in the quarter. And do you wanna address the market commentary?
Timothy Fitzgerald (CEO)
Yeah, so, yeah, no, I think that's right. I mean, we're, you know, as the inventory in the channel was, you know, far less of an issue. I mean, that was true in commercial as well as residential start in the year. So it really starts coming down to end user, you know, demand. Sell through, probably in outdoor has not been, you know, very, you know, strong, so it's kind of a, I'll say, a neutral factor so far. But we're early in the grill season, right? So I think it is what has yet to come as we start moving into, you know, spring, you know, and summer months.
So, you know, so I think, you know, our revenues there will be highly, you know, dependent on, on how grill season, you know, performs not only through that, but then that will lead into how do we think about, you know, the restocking going into 2025. And we do feel like they're, you know, we're winning in some areas, you know, picking up floor space and the way the grill market works is some of those floor planning that happens right now really, you know, is geared toward next year, not even this year. So we don't get some of those benefits till later in the year. With the indoor market, yeah, I mean, I think again, we're kind of, you know, bouncing along, you know, at the trough.
While we think the, you know, a lot of our consumers are really geared, obviously, to that, that upper, you know, echelon and the, and the luxury market, and we see some, you know, improvement, some of that is a little bit longer, you know, lead time. So we've seen improvement in order rates and sometimes the, the, you know, the remodels and the new, the new builds, they don't need that product next week, like they may in the replacement market. So we see some of that starting to pick up. I think the KBIS show was very good for us because, again, it was a large investment, but we've really transformed the portfolio over the last number of years, adding new brands, new products, innovations, colors.
So it was a very exciting show, not only for us as a company, but for, you know, our channel partners, the builders, the dealers that came through. So I mean, I think that was really, you know, the intent is to kind of take the world a little bit by surprise of how far we've come in, in the last, you know, five years, and now start funneling them, you know, to our residential showrooms that we've also invested in over the last, you know, couple of years with, you know, our Chicago showroom opening in the middle of last year. So I think those are the things that help pick up traffic there and build, kind of long-term, you know, pipeline of, of opportunities as people start, you know, converting over to the, the Middleby portfolio.
So, I mean, I think we see the gears turning there, and then we start seeing the housing improve, but I think it's gonna be modest improvement that's gonna, you know, take some time here. So, but I think that's where directionally, you know, we're at the beginning of kind of those signs, and I think it'll just, it'll kind of, you know... We would like it to be V-shaped. I think it's a little bit more U-shaped, but, you know, I think we will, you know, see progression as we move through the year.
Jeff Hammond (Analyst)
Okay. Appreciate it, guys.
Operator (participant)
The next question comes from Saree Boroditsky from Jefferies. Please go ahead.
Saree Boroditsky (Analyst)
Hi, good morning. I just kind of wanted to build a little bit more on the residential questions. Could you just quantify the performance in resi and, you know, in grills versus Viking versus AGA? And then when you talked about the improving order rates, it sounded like that was largely driven by the industry show, or if not, where did you see that uptick in demand come from?
Bryan Mittelman (CFO)
Sorry, this is Bryan. Sorry, could you repeat the first part of your question?
Saree Boroditsky (Analyst)
Just the performance in the quarter, of grills versus Viking versus AGA.
Bryan Mittelman (CFO)
Okay. You know, got you. Yeah, I mean, it was a challenging quarter, across the board in terms of, you know, the year-over-year, you know, comps. You know, I noted, you know, that Q2 last year was really strong for, I'll call, you know, domestic premium or, you know, mostly Viking, but we have other brands as well. But we started the year there, last year strong, as well. So certainly, you know, that market, you know, has been down. AGA and the, you know, also the European markets, have been, you know, continuing to be, you know, under in challenging environments. We haven't seen things, you know, relief or improvement in the U.K. housing market.
I'll say on the continent, you know, we've been maybe faring a little bit better, you know, given how Novy's product offerings are, are resonating. And, you know, on grills, we've seen a different, you know, buying pattern, you know, this season, as compared into the past with later load-in by our customers, albeit also they're being, you know, reserved in their buying. So, you know, Q1 did see weakness in grills, but, you know, we're actually looking forward to much improvement there should trends continue in the second quarter.
Saree Boroditsky (Analyst)
Great. And then, I know, obviously, residential margins were weighed down by the show. What do you need to see to support double-digit margins in that segment? Is it just volume or anything else? And then how do you think about incremental margins when you do see volumes turn positive there? Thank you.
Bryan Mittelman (CFO)
Yeah, you know, I think, you know, once you strip out some of the show impacts, that, you know, recent history, you know, has been, you know, a good indicator of right where, where the business, you know, can, and does perform. So, you know, as we start getting, you know, closer to, you know, $200 million or even $190 million, you know, we're likely to see, closer to the double-digit margins. You know, we continue to evaluate, you know, costs, you know, in this, in this business, and you've seen obviously, we've been taking charges, and we, you know, continually, you know, to, you know, to address that.
So we will, you know, do more of that to make sure we are, you know, right-sized for the current, you know, environment. But, you know, operationally, we've been making significant investments, you know, in these operations, and that really does drive really positive, you know, increments. And I, I've noted to some before, you know, our factories in this segment, you know, tend to have, you know, more throughput than in commercial, right? We have a fewer, yet larger factories in terms of the volumes they run. So, I'm not trying to minimize at all our focus on, again, looking at all the current costs and actions, but, you know, dare I say, as the volumes come back, the margins will come, you know, racing back, as well.
Saree Boroditsky (Analyst)
I appreciate the color, and I'll see you at the NRA show. Thank you.
Bryan Mittelman (CFO)
See you next week. Thanks.
Operator (participant)
The next question comes from Tami Zakaria with J.P. Morgan. Please go ahead.
Tami Zakaria (Analyst)
Hi, good morning. Thank you so much. I have two questions regarding the commercial food services segment. So first of all, can you comment on the price realization you saw in that segment in the first quarter? I'm hoping to learn whether the negative organic growth was purely volume driven or there is a mix of both price and volume.
Bryan Mittelman (CFO)
Tami, this is Bryan. It is, it is mostly, you know, volume driven. We haven't taken, you know, many price actions recently. Obviously, Steve noted that we'll be, you know, taking one, you know, a modest one, currently. So it's, it's fair to assume that that is, you know, very highly dominated by, by volume.
Timothy Fitzgerald (CEO)
Yeah, maybe I'll just... We did not have a price reduction, right? So it really is volume, and we did not take a, I'll say, a typical price increase at the end of the year. We've taken significant price increases over the last several, you know, supply chain related, and I think as we went into this year, we were monitoring, you know, where we were at with the price-cost standpoint. And we did see some cost increases, not only labor related, but, you know, even a little bit of supply chains we went through the year had, you know, as the evaluation, as we went through Q1 to why, you know, Steve's taken a price increase now in Q2. But as you kind of think about Q1, we got, you know, didn't go backwards on price.
We didn't get a benefit, and we probably had a little bit of weight of supply chain still coming into the year.
Tami Zakaria (Analyst)
Got it. That, that's very helpful. So I wanted to follow up on that. So in June, you're taking some price increase. I think you mentioned low single digit. Again, I'm trying to understand whether the price increase might actually stick?
... or face some resistance, given demand is weak, and you just mentioned there's some price-cost pressure in the industry right now. So can you speak to the rationale for the June increase and how distributors are reacting to it, if you have already communicated to them about it?
Steve Spittle (Chief Commercial Officer)
Yeah, Tami, this is Steve. It has been communicated out to the marketplace at this point. I do believe it will be, it will be relatively sticky. I mean, obviously, it's always a task to make sure it does come through. But I think given the thoughtfulness the team has put behind, again, I keep coming back to, it's not an across-the-board kind of peanut butter approach. It really is being thoughtful on a SKU by SKU, customer by customer approach, so it's hitting both general market and chain customers. So we do believe it mostly holds or is sticky and certainly comes through in early third quarter.
Tami Zakaria (Analyst)
Understood. Thank you.
Operator (participant)
The next question comes from Brian McNamara with Canaccord Genuity. Please go ahead.
Brian McNamara (Analyst)
Hey, good morning. Thanks for taking the questions. I guess two for me on residential. First, a question we often get from investors is the breakdown in sales in grills versus the rest of residential kitchen. I don't expect you to quantify, but can you give us maybe a qualitative picture of kind of how grills look today relative to when you first acquired them?
Bryan Mittelman (CFO)
This is Bryan. I mean, obviously, the grills are down, you know, quite significantly from when we bought them. You know, I think we've said before, over 50%, and I'll, you know, probably leave it at that, you know, at this time. You know, I think it's fair to in general terms, you know, I think about the segment in fourths. You know, I'd say, you know, you think about, I'll call it, you know, U.S. domestic, indoor premium, European, or I should say U.K., the U.K. business, the outdoor business, and then all else, which would primarily be, I'll call it, the European, you know, continental European businesses.
Brian McNamara (Analyst)
Got it. That's helpful. Then secondly, on grills again. I'm curious what you're seeing currently with your retail partners in the category. Are they willing to either add to or at least hold floor space for the category? And if not, how do you break in, given your, you know, your relatively small size and brand recognition compared to the bigger players? Thanks.
Timothy Fitzgerald (CEO)
I'm not sure if you, with the holding floor space, if that was specific to us or grills overall.
Brian McNamara (Analyst)
Well, I mean, it's specific to the category, but, I mean, presumably, you would need to be a part of that, just given your relative size at the moment.
Timothy Fitzgerald (CEO)
Yeah, I mean, I think, you know, we've, we've focused kind of on, you know, product differentiation, some of the new technologies that we've had, and I think, you know, one of the items that we've highlighted here is our connected platform, you know, both for Masterbuilt as well as Kamado Joe. That's, you know, definitely something that we think we've got a lot of innovation that, that you, you don't see across the grill platform. Also, you know, we've had the heavy focus on charcoal, which is, you know, differentiated, you know, particularly with the, you know, vertical charcoal, the Masterbuilt.
So I mean, I think there's things that, that we offer, that some of the other players out there do not have, and we think we follow some of the, you know, the, the trends of the fuel type, which ties to, you know, flavor and digital, which, you know, ties to convenience and culinary. So I mean, I think those are some of the things that, we think some of the retail partners recognize, you know, also, and I think we've had, you know, some success with, you know, certain partners there with, picking up, you know, floor space over the, the, you know, the last 12 months there and, and, you know, probably going into 2025 as well.
Operator (participant)
As a reminder, if you would like to ask a question, please press star then one to be joined into the question queue. The next question comes from Walt Liptak with Seaport Research Partners. Please go ahead.
Walter Liptak (Analyst)
Hi, thanks. Good morning, guys. Yeah, I wanted to just back up to Bryan, when you gave the guidance. Can you just repeat the sales guidance for the year? I think you said the sales, you were expecting sales to go higher, or, you know, to grow this year, and margins, as well as cash flow to be higher. Is that correct?
Bryan Mittelman (CFO)
So, on a total company basis, you know, I started with that Q2 will be stronger than Q1, right? And that as we look at the second half of the year, we will grow sequentially, you know, so Q3 above Q2, Q4 above Q3, as well as for Q3 and Q4 being above prior year levels. I did note that for Q2, you know, will be a little bit of a challenge to achieve the prior year revenue level. So Q2, better than Q1, maybe a little short of prior year. Q3 and Q4 ahead of prior year and, you know, also sequentially improving as we move through this year.
And with that, so those comments were very, you know, specific to revenues, but they do also, you know, generally apply, you know, to margins, as, you know, as well. I do expect total company margin, you know, to improve, you know, sequentially as we move, you know, through the year. Obviously, we demonstrate we have a business that really gets nice increments and has, you know, nice leverage. And, you know, I'd expect to see that in the, you know, the segments, individually as well.
Walter Liptak (Analyst)
Okay. And just to make sure I'm, I'm totally clear on this, so the revenue, you're expecting revenue to go up this year, even with the tougher first quarter?
Bryan Mittelman (CFO)
Yeah. You know, and I think, you know, I know you're, you know, when you tear it apart and that you do look at things, you know, by segment. So total company revenue, we do expect up. Obviously, the challenging—the most challenging segment and the one where I'd say we have, you know, some of the lesser visibility right now, is exactly how, you know, residential, you know, will play out, you know, where we have started weaker. So, you know, higher conviction in the other two segments, I think, and I, you know, in terms of the year-over-year, and I think we do end up, you know, still total company up year-over-year.
Walter Liptak (Analyst)
Okay. Okay, good. And then, just to follow up, when you guys were talking about the CFS segment and some of the strategic changes or, you know, maybe strategy normalizing from crisis. You know, I noticed that Shake Shack commented that they were decreasing some investments this year. Was that what you guys were referring to, or is there something else out there in the market that you were referring to?
Bryan Mittelman (CFO)
You know, and you're talking about the overall, you know, building kind of new stores and the strength of what's happening out there?
Walter Liptak (Analyst)
Yeah.
Bryan Mittelman (CFO)
I mean, you know, our
Walter Liptak (Analyst)
Yeah.
Bryan Mittelman (CFO)
... our comments are not specific to one chain, certainly not specific to Shake Shack. I think as you look at the print across the board from, you know, the, you know, the very large, you know, QSRs, right? That they have you know started the year slower in terms of, you know, completion of projects, right? There was weather and permitting and such. So again, I think it's a pretty consistent comment we've seen, you know, across the large QSRs, that no one... They're all still committed to their build plans. It just, you know, did not start off the first quarter as probably exceeding any of their, you know, internal, you know, benchmarks for the total number of new doors to be opened.
Walter Liptak (Analyst)
Okay, great. And maybe just one final one on the NRA Show. I think you guys mentioned the Invoq combi oven that we've heard some things about. You know, how I wonder if you could tell us a little bit about the features and what you're expecting as you commercialize that product.
James Pool (Chief Technology and Operations Officer)
Yeah. So, I'll jump in and talk about the Invoq. So we've spent, you know, the last several years, you know, designing the Invoq, and finally, you know, have it out on the, the market. We think there's a, you know, a ton of, novel, you know, features in the, the Invoq. You know, kind of one of the first things that I like to talk about is the fact that, you know, we've developed a half-size combi oven that fits full-size, you know, combi, pans. So that means that, you know, if you think of a traditional full-size combi oven, it's got, you know, kind of X dimension.
If you look at a half-size combi oven, it's about a third less in volume than a full-size, you know, combi. So what does that mean for the kitchen? That means more space for other equipment in the kitchen. That means less, you know, hood requirement. It means, you know, lower energy input rate into the product. More efficient, you know, product. A couple other features we've done is that we've, you know, really spent a lot of time on the wash cycle. Reduced the amount of power going into the wash cycle. We have a steam-on-demand, you know, feature that is incredibly efficient, using 17% less energy for the steam on demand.
And then I will say, you know, the last cool feature that we've done is we've been able to, you know, add another shelf in the oven. So traditionally, you know, your combis are either six or 10 pan. You know, here we have combis that have seven or 11, you know, pans. So we've been able to increase the production capacity in the oven, and by doing that, we improve the efficiency of the oven as well. So we're pretty excited about it. Our combi has the Middleby One-Touch control. It is open kitchen ready. So it is really one of the more advanced pieces of, you know, technology that we've got coming out at Middleby.
I think, you know, when you compare it to the other combis in the marketplace, you know, this puts us right up at the number 1, number 2, you know, combi on the global market.
Walter Liptak (Analyst)
Okay, great. Thank you.
Timothy Fitzgerald (CEO)
Yeah. I mean, I just, you know, I think I'm glad you asked the question 'cause, I mean, I think we are excited about it. I think it's a good example of a lot. We talk about innovation a lot. James goes through it. These are significant investments that we've made over a number of years on a lot of different products.
... that we think some of them are the future of, you know, innovation, where the restaurant is going, which a lot of that has yet to be realized, and some of it are existing large markets. Combi is clearly one of those. It's a large market. You know, we lead in a lot of categories. Combi has not, not been one, and this was a multi-year development project to make sure that we had the best-in-class features. James just went through them all, but water, energy, space, throughput, and again, that, the ease of use with the control that also James, you know, a team have developed over multiple years and connected to IoT, which we think is, you know, is the future.
So it does have a lot of, you know, likes here, and I think it is gonna be one of the things that, that, helps us, grow. And we have a lot of expectations, for it over the next several years, and we have a lot of channel partners, that are highly, not only intrigued, but engaged right now as we, we start bringing it to market. So I think just another, you know, great example of a lot of things that, that we talk about. And I think this one will gain, gain traction, much like, you know, last quarter, James talked about, you know, ice, right? Like, again, another, large market of similar size. We'd not necessarily been a player, as you kind of went back a number of years ago.
And we are gaining a lot of, you know, traction in that. We've got a full lineup of solutions there, and so whether that's success with some channel partners and some chains, we're starting to see that early this year. And again, I think, again, you know, I think one of the things that bodes well for us growing in certain targeted product categories as we go through the next, you know, several years, so.
James Pool (Chief Technology and Operations Officer)
I'll just add one more point. The, the Invoq combi is shipping now, so we are, you know, we've been distributing the product in, in Europe now for a number of months, and now we have just started distributing the, the product in the, the U.S. So it is actively being sold.
Timothy Fitzgerald (CEO)
Great point. Thanks, Walt.
Operator (participant)
This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.
Timothy Fitzgerald (CEO)
Yeah, no, I'd like to thank everybody for being on the call. I've just got one final comment, which is a little bit more of a follow-up to some of the questions on residential. So I'll say it's an answer to a question earlier. Just as we think about margins, fundamentally, our residential business is much stronger today than it's ever been, from new products, manufacturing efficiencies, quality, the investments that we have made in distribution and some of the capabilities, things that are, you know, our design team, showrooms, it's, you know, et cetera. So Bryan made a comment of margins come racing back. We're operating at volumes that are far less than normalized periods, so pre-COVID, if you look at the number of units, you know, that are going through a factory.
So just kind of reanswering a little bit of the, you know, question of what gives us confidence for the margins in that platform and why it is a great, you know, platform. You're seeing it, you know, at its worst right now, but it's actually the strongest it's ever been right now. So a normalized, you know, period, we're pretty excited about all that, you know, residential has to offer. So certainly, we've got a couple quarters still here of rocky road ahead, but we see it, you know, inflecting, and just something that I wanted to hammer home, given that question that was put to Bryan earlier. So with that, we'll wrap it up, and thanks, everybody, for attending the call today.
Operator (participant)
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.