Welbilt (WBT) reported Q4 results and providing mixed 2018 guidance this morning. In case you're not familiar, Welbilt is a major supplier of hot and cold foodservice equipment. Products include everything from ovens, fryers, steamers, grills, ranges and induction cooktops to beverage dispensing, blending, refrigeration and ice-making equipment. The company has a global manufacturing footprint and serves quick service, fast casual and fine dining restaurants.
There is a bit of history here. In January 2015, The Manitowoc Company (MTW) split into two independent public companies: its Crane business and its Foodservice business. Then in March 2017, Manitowoc Foodservice (MFS) changed its name and ticker to Welbilt (WBT) to more fully embrace its independence from its former parent company. WBT changed its name, its logo and its brand identity to Welbilt. Wellbilt is based in New Port Richey, Florida (Tampa-St Pete area) but it operates 18 manufacturing facilities throughout the Americas, Europe and Asia. Wellbilt sells its products through a global network of over 3,000 distributors and dealers in over 100 countries.
The increasing demand for affordable dining is expected to continue on a global scale. Consumers in most markets are expected to gravitate towards more informal options, which is a trend seen among both high income consumers looking to save during a slow economic recovery, and lower income consumers looking for accessible entry points for "on the go" food consumption. Additionally, more hectic lifestyles with an eating culture changing to "on the go" and increasing demand for high-quality food prepared away from home in casual restaurants based on increasing disposable incomes is expected to lead to more and new offerings.
For foodservice equipment operators in emerging markets, this offers enormous opportunity for innovation, particularly in terms of format, as new restaurant consumers look to experiment with a variety of brands and experiences. Quick-service restaurant (QSR) chains, in particular, have proved successful at innovation in these markets. Global expansion and long-term focus on new emerging markets with new equipment will be driven by chain restaurants in countries such as India, China, parts of the Middle East and Southeast Asia in general. Increased government spending on infrastructure and investments in tourism will support this change.
Turning to the Q4 results, Wellbilt reported adjusted EPS of $0.26, which was up 62.5% YoY. Revenue fell 3.4% year/year to $365.9 mln. Both results were below market expectations. Adjusted Operating EBITDA was $74.7 mln, an increase of 7% while Adjusted Operating EBITDA margin was 20.4%, an increase of 200 basis points. In terms of guidance for 2018, it was a bit mixed. WBT expects revenue to grow 7-10%, which we compute as $1.55-1.59 bln, which is above market expectations. However, adjusted EPS guidance of $0.80-0.90 was below market expectations.
The company says it's facing continued challenging conditions in its end markets. The good news is that Q4 marked WBT's 10th consecutive quarter of year-over-year Adjusted Operating EBITDA margin improvement since the new management team took over in August 2015. The new team has been focusing on cost savings and right-sizing the business, which has led to improving margins. These savings, combined with lower SG&A expenses in the quarter, more than offset margin headwinds from lower volumes and mix.
Organic Net Sales decreased slightly in the Americas in Q4 with softer cold-side product sales offsetting increased sales of hot-side products and KitchenCare aftermarket parts. In the EMEA segment, Organic Net Sales decreased following last year's strong sales from rollouts of the Merrychef eikon e2s high-speed oven. In the APAC segment, Organic Net Sales decreased due to tough comps from last year's recovery of the large chain restaurants in the region.
In addition to earnings, WBT also announced today that it will acquire Crem Intl, a major supplier of professional coffee machines. WBT says this acquisition is the first step in realizing its ambition to complement its organic growth strategy with select bolt-on acquisitions. Crem brings Wellbilt into the fast-growing hot coffee equipment market with a full-line of products covering automatic and manual espresso and filter coffee machines as well as instant, liquid and freestanding machines.
This acquisition gives WBT the broadest portfolio of hot and cold beverage equipment of any company serving the overall beverage equipment markets. Crem is very strong in Europe and Asia, supporting WBT's strategic objective of expanding its presence in these two important regions. WBT expects the acquisition to be accretive to earnings beginning later in 2018 and beyond.
Looking ahead, WBT says the soft conditions in the general market it experienced in the second half of 2017 are expected to continue through the first half of 2018, and then stabilize in the second half of the year. WBT expects to see improved demand from large chain customers as they continue to recover and WBT expects to benefit from several new product rollouts with them. In addition, many of the fitkitchen systems WBT won over the last two years will begin their initial rollouts in 2018. The stock is not trading much in the pre-market, so it's not clear how it will open, but hopefully WBT's end markets will improve in 2H18.