Traeger: Waiting For Things To Heat Up (Rating Downgrade)

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Traeger and its grills are synonymous with wood pellet grilling.The company's 2022 turnaround plan has been insufficient to turn around the business. 2024 looks to be another disappointing year.There ...

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(TGPX Holdings I LLC)","BK4539":"次新股","BK4588":"碎股","WHR":"惠而浦"},"translate_title":"特雷格：等待事情升温（评级下调）","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"COOK":1,"WHR":1},"content_text":"Traeger and its grills are synonymous with wood pellet grilling.The company's 2022 turnaround plan has been insufficient to turn around the business. 2024 looks to be another disappointing year.There is always the risk of a takeover, since Traeger's issues have to do with its cost structure.I am downgrading COOK to a hold for now.   xjben/E+ via Getty Images The last time I reviewed Traeger, Inc. (NYSE:COOK) was more than a year ago. At the time, I suggested there might be value in Traeger's stock, as a competitor, Weber Inc., was taken private in a private equity buyout at an attractive valuation and there were rumours Traeger might follow suit. However, in hindsight, Traeger did not get acquired and instead, the stock has plummeted by more than 50% due to poor operating performance (Figure 1).   Figure 1 - Traeger has performed poorly since late 2022 (Seeking Alpha) With another summer grilling season coming up, let us revisit the company to see if the company's turnaround prospects are brighter now compared to last year. Brief Company Overview Traeger, Inc. is the creator and category leader in high-end wood pellet grills. Wood pellet grills use all-natural hardwoods to grill, smoke, bake, roast, braise, and barbecue foods, embedding a unique wood-fired flavour to the cooked foods. Traeger's revenue mix in 2023 was 49% from grills, 32% from accessories, and 19% from consummables like wood pellets, although the percentages on a quarter-to-quarter basis fluctuates due to seasonality and product mix (Figure 2). Figure 2 - Traeger revenue mix (COOK investor presentation) Traeger was a circa 2021 IPO that has fallen on hard times, as the stock has declined by almost 90% from its $18 / share IPO price (Figure 3). Figure 3 - Traeger's stock is down almost 90% from IPO (stockcharts.com) 2022 Turnaround Plan Was Not Enough Picking up from where I left off in my last article, poor operating performance was the root cause of Traeger's poor stock performance. Compared to initial guidance of $800-850 million in revenues, 2022 full-year revenue was a disappointing $656 million, as Traeger had to work through supply chain and inventory issues (Figure 4). Full year 2022 earnings were a disaster at -$381 million or $3.19/share, which included a large goodwill writedown. Figure 4 - Traeger financial summary (tikr.com) Although management began implementing a series of strategic initiatives in the summer of 2022, like workforce reductions, gross margin optimization, and inventory clearance (Figure 5), the reality was that these efforts failed to significantly turnaround the business.   Figure 5 - Traeger's turnaround plan (COOK investor presentation) 2023 full-year revenues declined 7.6% YoY to only $606 million and Traeger reported yet another steep full-year loss of $84 million or $0.68 / share as cost cuts were not enough to bring operating margins to the black. Inventories Cleaned Up On the bright side, management's inventory clearance efforts in 2022/2023 were able to clean up stale inventory on the company's balance sheet and in the sales channel, as the company's inventory turnover improved to a respectable 1.0x in Q4/23, from a low of 0.4x in Q2/22 (Figure 6). Figure 6 - Traeger's inventory turnover improved (Author created with data from company reports) Better inventory management translated to less discounting, which is consistent with management's guidance for higher gross margins in 2024. But 2024 Looks To Be Another Dud However, management's full-year guidance for 2024 looks disappointing from a sales and earnings standpoint. For the full year, Traeger sees full-year revenues of $580-605 million, gross margin of 39-40%, and adj. EBITDA of $62-71 million (Figure 7). Figure 7 - Traeger 2024 guidance (COOK investor presentation) Based on these initial guidance figures, I suspect full year 2024 results will be another dud, as 2024 revenues are expected to decline 2.2% YoY and adj. EBITDA is only expected to grow 9% YoY to $66.5 million due to the higher gross margins. This should translate into another steep net loss. For context, Traeger reported a net loss of $84 million in 2023 with adj. EBITDA of $61 million. Management Enriching Themselves Despite Poor Returns As an investor, I have no issue if management gets fabulously wealthy when they deliver and shareholders get to share in the benefits. However, I do have issue when companies reward management with millions in shares and bonuses even when operating performance has been poor or when the shares have plummeted. In my opinion, Traeger is yet another case of the latter. Incredulously, Traeger's adjusted EBITDA financial figure back out share-based compensation of $87.7 million and $52.3 million respectively in 2022 and 2023 (Figure 8). Figure 8 - Traeger pays huge share-based compensation (COOK investor presentation) Remember, the company lost $382 million and $84 million in 2022 and 2023, and shareholders suffered a near 90% wipe out since the IPO. Why does management deserve any stock compensation at all? Risk To Being Cautious Despite poor operating performance and questionable management practices, I am hesitant to rate Traeger as a short. This is because at current valuations, I believe Traeger is ripe for a takeover. Currently, Traeger trades at a $276 million market cap and a total enterprise value of $705 million (Figure 9). Figure 9 - Traeger valuation (Seeking Alpha) Recall, in my prior articles, I have noted that Traeger's peer, Weber Grills, was taken private at $6.25 / share or $3.1 billion enterprise value vs. LTM sales of $1.77 billion (1.75x EV/Sales). A similar takeout valuation for Traeger using 2023 or 2024 sales could value the company at ~$4.50 - $4.75 / share (Figure 10). Figure 10 - Traeger takeout value (Author created) I continue to believe Traeger could be an interesting M&A target for the right company, since the product (Traeger's grills) continue to be synonymous with the wood pellet grilling category. Product margins are also strong at 35-40% gross margin. For context, Whirlpool (WHR), the owner of the Kitchenaid line of appliances and grills, only has a 16-20% gross margin. The main issue at Traeger remains its bloated corporate cost structure, with SG&A of $238 million in 2023, a decline from $298 million in 2022, but still 39.4% of sales. Whirlpool, in contrast, has SG&A less than 10% of sales. If Traeger were to be bought out by a larger player like Whirlpool, I believe the acquiring company can easily take out $100 million in SG&A (starting with its $52 million in stock compensation) and drive significant value for the acquirer. Conclusion Since my last article, Traeger's stock has declined by 50% on disappointing operating and financial performance. While meaningful, management's turnaround efforts have not been able to bring Traeger back into profitability.  Looking forward, management is guiding to another lackluster year. At the current trajectory, I do not see the stock recovering meaningfully. However, there is always the risk of an M&A takeover, as most of Traeger's issues have to do with the company's bloated corporate expenses. I am downgrading COOK to a hold for now.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.28.3","shortVersion":"4.28.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2427897648"}