No Heat In Weber's Outlook, Shares Fall
There were great hopes for Weber (NYSE:WEBR) and the grilling industry in general but those hopes have gone up in smoke. While business is still good, growth is slowing under the influence of inflation, supply chain headwinds, and a lack of stimulus and shares are suffering for it.
The news that investors have to contend with is the downtrend in price action may continue due to declining sentiment among the analysts and there are no good targets for support.
The analysts are still holding onto Weber because it is a great brand with a global reach. Eventually, supply chain issues will ease or the comps will get easier again and the headwinds facing the price action will lessen.
Until then, the trend in price target is decidedly downward, and the Marketbeat.com consensus moved lower following the Q2 earnings release.
Four of the seven analysts following the stock lowered their price targets to a range of $6.50 to $9.00 compared to the consensus of $8.92. The low target implies the stock is slightly overvalued at the current levels while the high price target suggests that 30% of upside is possible.
Weber Gets Burned By Inflation
Weber had a good quarter considering the comps versus last year and the supply chain headwinds blowing through the economy. The company reported $607.92 million in net revenue which is down 7.2% versus last year but up 46% in the two-year stack.
The bad news is that revenue missed the Marketbeat.com consensus by 775 basis points on weakness in the Americas. Sales in the Americas fell by 18% but are up 41% versus two years ago while EMEA grew by 9% and APAC contracted by 6%. APAC, it should be noted, is up 157% in the two-year stack due to the company’s growth efforts in the region.
Moving down the report, there is both good news and bad. The good news is that margins improved by nearly 1200 basis points on a sequential basis due to pricing efforts. The bad news is that margins are still down 1200 basis points from last year due to volume deleveraging, inbound freight cost, shipping, and materials costs.
This left the GAAP EPS deep in negative territory despite an expectation for profits and puts the dividend in jeopardy. The GAAP -$1.02 missed by $1.18 resulting in both cash burn and debt increases.
Weber issued a dividend a week or so before the earnings were released but we are not convinced of its safety. The $0.16 in annualized payment is worth about 2.32% in yield but the payment is not covered by earnings, not in 2022 at least.
Based on the margin issues and cash burn in Q2, we think the company will have to suspend it prior to the next quarter unless there is a serious change in operating conditions.
As it is now, the company’s cash position was halved versus last year and there is no reason to think that won’t worsen by the end of this quarter. Pricing increases may improve margin but they aren’t going to spur sales.
The Technical Outlook: Weber Falls Under The Pressure Of Short Selling
Weber has been in a steady downtrend since the IPO due to the hype going into the IPO and the growing number of problems that have arisen since.
The downtrend is also driven by a high and rising short interest that has more than 40% of the market sold short. This situation will eventually lead to a short-covering rally and possibly a very strong short squeeze, but there is no sign of that happening now.
What we expect to see now is sideways trading at best and a new low set at worst, possibly several new lows because it doesn’t look like anyone is very interested in buying this stock.
