No heat in Weber, Inc outlook, stocks fall
There was a lot of hope Weber, Inc (NYSE: WEBR) and the grilling industry in general, but those hopes have gone up in smoke. While business is still good, growth is slowing due to inflation, supply chain headwinds, and a lack of stimulus and equities are suffering. The news that investors are dealing with is that the downward trend in price action could continue due to: declining sentiment among the analysts and there are no charities for support.
MarketBeat.com – MarketBeat
Analysts still stick to Weber because it’s a great brand with global reach. Eventually, supply chain problems will ease or compositions will ease again and the headwinds facing price action will ease. Until then, the price target trend is clearly downward and the Marketbeat.com consensus has moved lower following the release of the Q2 results. Four of the seven analysts who followed the stock lowered their price targets to a range of $6.50 to $9.00 from the consensus of $8.92. The low price target means the stock is slightly overvalued at current levels, while the high price target suggests that 30% of the upside potential is possible.
Weber, Inc is being burned by inflation
Weber, Inc had a good quarter given last year’s compositions and the supply chain headwinds blowing through the economy. The company reported net sales of $607.92 million, down 7.2% from last year but up 46% in the two-year stack. The bad news is that sales lagged Marketbeat.com’s consensus by 775 basis points on weakness in the Americas. Sales in the Americas were down 18% but are up 41% from two years ago, while EMEA grew 9% and APAC shrank 6%. APAC, it should be noted, is up 157% in the two-year stack as a result of the company’s growth efforts in the region.
As we go down in the report, there is both good news and bad. The good news is that margins improved nearly 1,200 basis points on a sequential basis as a result of pricing efforts. The bad news is that margins are still 1200 basis points lower than last year due to volume reduction, inbound freight, shipping and material costs. This has left GAAP EPS deep in negative territory, despite an expectation of earnings, and puts the dividend at risk. GAAP -$1.02 missed by $1.18, resulting in both cash burn and debt increases.
Weber paid a dividend a week or so before earnings were announced, but we’re not convinced of its safety. The $0.16 annual payment is worth about 2.32% in revenue, but the payment is not covered by revenue, at least not in 2022. Based on the margin issues and cash burn in the second quarter, we think the company is will have to suspend before the next quarter unless there is a serious change in business conditions. As it stands, the company’s cash position has halved from last year and there’s no reason to believe it won’t deteriorate by the end of this quarter. Price increases can improve margin, but they won’t boost sales.
The technical outlook: Weber is under pressure from short selling
Weber, Inc has remained stable downward trend since the IPO due to the hype going into the IPO and the growing number of issues that have arisen since then. The downtrend is also driven by high and rising short-term interest rates that have sold more than 40% of the market 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 right now. What we now expect to see is side trading at best and another low at worst, possibly several new lows because it doesn’t seem like anyone is very interested in buying this stock. 
