Traeger Falls On Weak Earnings, Outlook Is Cloudy
Traeger, Inc (NYSE: COOK) is far from being a market bellwether but its earnings report is something all investors should be aware of. The company is growing and outperforming expectations in all areas save one. The company's earnings are under pressure from inflationary pressures and supply-chain headwinds that are getting worse. During the company's conference call execs let it be known that headwinds were trending in a negative manner and we see this as a problem for all businesses, not just Traeger, and one that could lead to a market correction very soon. That aside, Traeger is a solid company with a solid product and a robust outlook for growth over the long term. The near-term headwinds are a problem but one that will ultimately be overcome, until then investors can start scooping up some of these shares at some of the lowest prices since the IPO.
Traeger Beats Consensus And Guides Higher
There were really only two things wrong with Traeger’s second-quarter earnings report and one of those came during the conference call and not the report itself. While margins are under pressure and headwinds are mounting, the company's revenue continues to grow and is on track to continue growing at a high double-digit pace for the next few quarters at least. The $213 million in net consolidated revenue is up 39% over last year and beat the consensus by 100 basis points on strength in all segments. Grill sales rose by 40% and account for 73% of revenue while sales of consumables rose by 28% and Grill accessories by 65%.
Moving down to the operational level, the company reports a 440 basis point contraction in gross margin. The gross margin came in at 39.1% due to rising freight cost, supply disruption centered in Vietnam, and FX conversion of the Renminbi in China. The company also reported an increase in marketing-spend as well as SG&A cost that all cut into the bottom line. On a GAAP basis, the - $0.05 in earnings miss the mark by a penny while the adjusted earnings of $0.15 beat by a dime.
Looking forward, the company is guiding fiscal 2022 revenue and earnings higher but there is downside risk in the guidance. The revenue guidance of $760 to $770 compares to the consensus of $755 but may not fully factor in the impact of inflation and supply chain disruption. Supply chain disruptions are systemic and not limited to Traeger, and they are mounting.
The Bulls And Bears Both Like Traeger
A dozen or more analysts have come out in the wake of Traeger’s quiet period, only once since the earnings report was released, and all are bullish. The one analyst comment to be released since the report comes from Telsey Advisory Group which reiterated a Buy rating and a price target of $30. This compares to the consensus of $31 and the high price target of $36 and assumes about 30% upside. The Pricetargets News Sentiment Rating shows the investing media are overwhelmingly bullish on the stock and see it moving higher as well.
The Technical Outlook: Traeger Retreats To Support
Shares of Traeger are falling for the second session since the Q2 earnings report was released and look like they may fall further. For now, it is our expectation that support will be found near the IPO price of $22 but it's too soon to make a bet on that. In the near term, we expect to see price action continue to move lower before finding support while in the mid to long-term we see Traeger consolidating at or near the IPO price and then resuming an upward bias and eventually retesting the all-time high above $30.
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