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Buffett Banker’s BBQ bet is smoked


Barely a year after a group of grill companies went public to capitalize on an unprecedented increase in outdoor cooking, the backyard barbecue boom looks like a meltdown.

As with other pandemic winners such as Peloton Interactive Inc. which benefited from inflated demand, gravity gripped grill makers as normal life resumed. Retailers suddenly have a glut of unsold barbecues and manufacturers have shifted from increasing production capacity to cutting jobs to preserve cash.

The financial troubles of Illinois-based market leader Weber Inc. — which went public in August 2021 but remains majority-owned by investment banker Byron Trott’s private equity firm BDT Capital Partners — illustrate the dangers too much commercial success and too much debt.

The trend for home foodies to spruce up their patios with a fancy charcoal grill, smoker or egg-shaped kamado has stopped as quickly as it started.

Weber’s revenue plunged 21% in the normally busy April-June quarter, even after raising prices several times. Pellet grill specialist Traeger Inc. said grill sales volumes have fallen by around 30% so far this year – a much bigger drop even than during the 2008 recession.

What’s wrong ? People who desperately wanted a new grill (or a second or a third) probably have it now: in financial jargon, there’s been a “surge forward” in demand. At the same time, soaring inflation has shaken customer confidence and consumers have shifted their spending from household goods to experiences, including travel.

Grill makers haven’t even benefited much from the summer. Weber blamed heat waves for denting sales in several key markets – likely because when outside temperatures reach 40 degrees Celsius (104 degrees Fahrenheit), tending to a scorching barbecue becomes an ordeal, not a pleasure, whatever the temperature of the beer.

The industry has also faced a host of commodity and transportation cost pressures. In November, BBQGuys, an e-commerce site backed by soccer royalty Eli and Peyton Manning, blamed supply chain issues for dropping its SPAC listing. Some have also been affected by the strength of the dollar: about half of Weber’s sales are made abroad.

Pressing the brakes was painful. Traeger has postponed plans to open a factory in Mexico and is laying off about 14% of its staff. Weber is laying off at least 10% of employees not involved in manufacturing and distribution and has ousted its chief executive and at least two other top executives since July. The quarterly cash dividend has also been eliminated.

Weber has lost more than half of his peak market value of $5.6 billion, but Trott, a former Goldman Sachs Group Inc. banker and trusted adviser to Warren Buffett, should count himself lucky: Traeger is down more 90% from peak.

Undeterred by Weber’s dismal performance, retail investors piled into the stock, hoping to pressure short-sellers who bet on further declines (only about 7% of Weber shares are available for trading). negotiation, so they sometimes had some success).

These amateur investors are playing with fire: on average, analysts believe that Weber’s fundamental value is about 50% lower than the current price and the credit rating has further downgraded Weber to undesirable territory and warned of a potential “liquidity crisis”.

When Weber went public last year, net borrowings looked modest compared to its then windfall earnings. But leverage has gone from comfortable to borderline catastrophic because earnings have collapsed: Net debt of $1.3 billion is 26 times this year’s estimated earnings before interest, taxes, depreciation and amortization , according to data from Bloomberg.

The company held only about $40 million in cash at the end of June, and the unidentified provider of a $235 million receivables financing facility (which allowed Weber to quickly turn amounts owed to it by customers) has suspended its purchases.

Weber is working with lenders to ensure continued compliance with covenants on its $300 million revolving credit facility and is evaluating options to strengthen the balance sheet, including additional debt or equity financing, he said. to investors earlier this month.

Although BDT was a patient owner — it only sold a modest number of shares during the IPO and hasn’t sold any since — Weber has paid over $700 million in dividends in the three years preceding the IPO. The grill maker would be better off now if he had kept more of that money.

Fortunately, raw material and transport costs have eased somewhat lately and sales of consumables such as fuels are showing more resilience. Weber, Traeger and similar barbecue brands have dedicated fans and the work-from-home trend hasn’t gone away, which means there are more opportunities to cook outside.

Still, the grill industry faces a few years of testing. Potential customers have more to worry about right now than whether their garden-cooked tenderloin is optimally cooked. Weber timed his IPO to perfection, but the aftermath could leave a bad taste.

More from Bloomberg Opinion:

• Peloton’s new strategy spins everywhere: Andrea Felsted

• Factory extensions are not written in stone: Brooke Sutherland

• The era of the economic boost has only just begun: Eduardo Porter

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies in Europe. Previously, he was a reporter for the Financial Times.

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