Bryan Mittelman: This is Bryan. There is not, I’ll call it, an overweighted amount of that comes from volume. I mean volume is somewhat of a contributor because I think the volume also gets after customers adopting more of that leading technologies and such. But I think if you look at — we’ll actually post some bar chart, some waterfall charts on it by tomorrow morning as we’ll be attending a conference. And you’ll see, I’ll say, three quarters of the driver of it are from mix or self-help type measures, whether it’s improving costs, the integration activities and the like.
Jeff Hammond: Okay. Appreciate it.
Bryan Mittelman: You bet.
Operator: The next question is from Tim Thein of Citi.
Tim Thein: Thanks. Good morning. I think, Bryan, I think you’re touching on this, but just going back to a year ago, being down in Dallas, you outlined some of the drivers for commercial to get to that journey to 30% plus margins and price cost and sales mix were two big drivers of that. You’ve touched a lot on the sales mix. Where are we in terms of price cost and obviously, the market outlook isn’t quite as robust as it was a year ago. I’m just curious as to your confidence level in terms of that being significant of a tailwind for Middleby looking out to 2024 and beyond?
Bryan Mittelman: Yes. As I look at it, I’ll say in commercial that we’re operating, let’s call it, around 27.5% or so, right? And we need to get to 30% over the next couple of years. How we’ve gotten to the 27.5% over the past couple of years? Obviously, there’s been some price/cost in there as well as the self-help and a bunch of mix. As we look at what’s left to be done, I would say price cost is a good chunk of it. But a lot of that at this point, I will say, it’s more of the cost side of it as opposed to the price side of it because we think pricing will be more moderate going forward. But we do have some cost benefit coming through as we work down inventory and as we manage our costs and look at what’s happening in commodities, as well.
So, again, fortunately, this journey is not just dependent on volume or it isn’t just dependent on, again, taking price. And again, you’ll see by tomorrow that price piece of it is not as much. But we still have operating efficiencies and acquisition integration, maturing of businesses we had a little bit of volume of some undersized businesses helps as well. And again, mix is not one to be, I’ll say, underappreciated either.
Tim Thein: Got it. Okay. And then I don’t know if it’s for you or Steve. Where would you to the extent you can get at this, where revenues for commercial will be, call it, 30% higher than pre-COVID or since 2019. Where do you think volumes for that business are relative to 2019? I’m just curious how much — where we sit just from a throughput standpoint compared to that time.
Bryan Mittelman: This is Bryan. I’ll start with it, and then Steve can jump in. Volumes are a tough one to put out there just given how many different brands we have out there. But I think as you look to correlate that also with looking at, I’ll say, the number of establishments that are out there, there is building going on. But I wouldn’t say that volumes are up appreciably, obviously, we’ve had a good amount of pricing coming in over that period and then are starting — have been seeing some of the benefits from, I’ll call it, the unit expansion, but we believe there’s more volume gains to be had as build-out plans continue. And as people trade into higher technology solutions.
Steve Spittle: Yes, this is Steve. I would just add on to that. I agree with all the comments. Obviously, we’ve had the benefit of pricing over the last year or two, which certainly gets a little bit tougher from a pricing standpoint going into the next couple of years. So it definitely shifts back to volume. I fundamentally come back to probably three key initiatives Tim, and what’s driving that. Again, we talked about new store development that continues. I do think I’ve said before in prior calls, the replacement cycle that has been kicked down the road from going into COVID, got kicked down the road going through supply chain, new store priority. So I still think you have that underlying replacement cycle that has to take place And then you still have all the issues that all of our customers still have to address whether it’s labor, whether it’s utilities going up more and more.
So I think when you kind of think about those three underlying demand drivers, that’s where I think you really still see the volumes start to pick back up, call it, over the next year or two and away from, obviously, the pricing benefit we’ve seen in the last 12 to 18 months.
Tim Thein: Got it. Okay. Thank you.
Operator: [Operator Instructions] Next question is from Tami Zakaria of JPMorgan. Please go ahead.
Tami Zakaria: Hi. Good morning. Thank you so much. So on Slide 9 of your presentation, I think there are some targets for EBITDA margin for the year. That would suggest both commercial food service and food processing EBITDA margins down sequentially. And so could you walk us through some of the puts and takes behind that sequential step down
Bryan Mittelman: I’m going to — unfortunately — this is Bryan, by the way, I have to disagree with you. I don’t think we are seeing a step down in Q4 versus Q3. I think as I noted, food processing should at least be the same as Q3, and commercial is also expected to be in a similar neighborhood. I mean, the numbers in the 2023 column there is a rough forecast, a rough estimate for the year in total, not for specifically the fourth quarter. So I don’t know if that makes a difference and how are you reviewing the numbers versus how we believe they will come to be.
Tami Zakaria: For sure, for sure. Great. And then my second question is, I think we’ve heard some home appliance companies in recent weeks talk about some higher promotional activity, especially in North America. Is that — does that also relate to the high-end segment that you service as part of the residential kitchen segment, and how are you thinking about price versus price realization in the fourth quarter or even for next year as we prepare for the next spring selling season?
Tim FitzGerald: Yeah. So there’s definitely some promotional pricing that’s going on at, I’ll say, lower levels. And I think one of the reasons we’ve put together the portfolio that we have is it’s premium performance, we sit in a different category versus, I’ll say, the white goods guide. So on the margins, we’re trying to be very smart and tactical on pricing. Pricing has moved around a lot in the last couple of years given all the inflationary impacts. And so we will look at that tactically. But it’s more resilient at that top luxury end of the appliance market. So I mean I think we’re not seeing quite the same impact that the other guys would.
Tami Zakaria: Got it, great. Thank you so much.
Operator: The next question is from Brian McNamara of Canaccord Genuity. Please go ahead.
Brian McNamara: Hey, good morning guys. Thanks for taking our questions. First, we’re wondering if you’re seeing any change in your restaurant customers order behaviors given the recent popularity in these GLP-1 drugs. It feels like several restaurant stocks along with your own have reacted negatively to the news flow over the last couple of months?
Tim FitzGerald: So it’s very early on. I mean I don’t think anybody has seen any impact to actual behaviors of orders, business, people walk in, if you listen to the CEOs of other restaurant chains, et cetera. So, obviously, it’s getting a lot of headline news. It’s too early to indicate what the long-term ramifications are of that. But I mean I think we don’t expect that there would be really any significant long-term impact to our business at this point in time right now.
Brian McNamara: Great. And secondly, can you confirm that your tailored double-sided grills are being trialed with a popular Mexican fast casual grill chain? And if so, how is that testing phase going? Thanks.
