(TonelsonProductions)
(TonelsonProductions)
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On Monday’s live stream, Justin took another quick look at Traeger as the stock price has dipped over 35% from its initial IPO price. The leader in wood pellet grills is trading at 13x forward EBITDA and analysts expect >20% growth in 2022.


Company Overview

  • Traeger, Inc. (COOK) designs, sources, and sells wood pellet grills.
    • The company offers three series of grills: Pro, Ironwood, and Timberline.
  • These grills are sold to retailers, distributors, and direct to customers.
    • Major Traeger retailers include Ace Hardware, Amazon, The Home Depot, and Williams Sonoma.
  • The company also produces and sells pellets used to fire the grills and also sells Traeger-branded rubs, spices, sauces, and grill accessories.
  • Wood pellet grills are used to make meals with a wood-fired flavor that cannot be replicated with gas, charcoal, or electric grills according to the company.
  • Traeger grills also integrate with an app allowing users to program cook cycles, monitor temperatures, and control the grill from their phones.
  • COOK went public on July 29, 2021 at $18 per share, the high end of the expected range.

Earnings Highlights

Note: Traeger’s financials are seasonal with a higher percentage of sales coming in the warmer, summertime months in North America. To smooth out some of the seasonality, we’ll highlight financials from the last nine months.

  • Revenue | $610.6 million, up 48.2% YoY
  • Gross Profit | $238.3 million (39.0% margin), up 29.3% YoY
  • Operating Expenses
    • Sales and Marketing | $126.6 million, 20.7% of revenue (15.6% of revenue in 2020 period)
    • G&A | Expenses increased to $114.2 million from $35.6 million in 2020 largely due to higher equity-based compensation expense and due to the acceleration of vesting of all unvested and outstanding Class B unit awards upon IPO.
  • Adjusted EBITDA | $95.2 million (15.6% margin), 24.8% margin in 2020
  • Adjusted Net Income | $63.2 million

Guidance – FY 2021

  • Revenue | Between $760 million – $770 million
  • Adjusted EBITDA | Between $103 million – $108 million

ICR Conference Presentation (January 10)

Jeremy Andrus, CEO

  • On the outdoor grilling market
    • “So in 2015, for example, Traeger had about 5% share of — a dollar share of the grilling market in the U.S., much, much lower in international markets that we play in. Fast forward to end of third quarter of last year, we were about 10% of that market. So we are taking share. We’re taking unit share, and we’re raising ASPs along the way. And so we’re at 3% household penetration in the U.S. We have about 2 million installed grills, and there are 75 million households that own grills.”
    • “If you were to rewind 10 years ago and look at share by fuel type, it was all gas. It’s 85% gas. Well, gas has declined to less than 55% share today, and wood pellet is up to about 20% share. And we’re just over half of that market.”
  • On Traeger’s price & quality
    • “Most of the new players are at low price points. They’re knock-off brands. They’re followers, they are price and value driven, and that tends to be how most consumer categories form. Our position is — it’s, I would say, premium but mass premium, because we want to — we want Traeger to be accessible to most people, not all people. We’re not going after a highly price-driven consumers.”
  • On supply chain
    • Transportation is expensive. We’re being as thoughtful as we can. All of the controllables we are going after aggressively. Some of these costs will naturally come down over time. We’re certainly not waiting for that. But we’re also having this moment to think differently about our business in terms of how we efficiently design product for manufacturing, for transportation, where we manufacture product. We have begun early manufacturing in North America and plan to lean into that in the coming years.”
    • “We are being very thoughtful around how we manage through it. And I would say on a positive, we’re not only delivering product to our retailers best-in-class. But as we said in the third quarter, we didn’t leave revenue on the table due to inventory. We are in stock. We’re leaning into inventory positions. We’re investing working capital in the inventory because we think it’s the right way to run our business right now.”

Valuation + Analysis

  • COOK’s stock price is down more than a third since its July IPO. At $11.39 per share, the company is now valued at around $1.7 billion in enterprise value.
  • Analysts project nearly 25% growth in 2022 with margins increasings slightly.
  • Using these forward estimates, COOK is trading ~13x forward EBITDA.

KR: Traeger grew revenue 50% in 2020 and it looks like it will follow up with another strong year with growth >40% in 2021. Traeger has grown its brand awareness through strong word-of-mouth growth and partnerships with popular podcasters (Joe Rogan and Dan Patrick). Management believes the wood pellet grills will continue to eat into the outdoor grill market (currently ~20%) of which COOK makes up half of all sales.

Over the past two years, some of Traeger’s revenue may have been pulled forward as more people spend time at home. In FY2020, grill sales made up nearly 72% of revenue. Traeger also sells wood pellets and consumables which made up 22% of revenue in FY2020.

At 13x forward EBITDA and growth expected to stay above 20% over the next couple of years, COOK looks interesting because of its strong brand. COOK is vulnerable to cyclicality as it falls under the consumer discretionary category.

JO:

Peloton = Just an exercise bike with an iPad

Traeger = Just an overpriced pellet grill

The above statements don’t take into account the value of brand, perception of “premium”, and community. These are both great brands that have a loyal customer base.

That said, we saw Peloton have its growth pulled forward because of the stay-at-home trend. The data show that those who bought Pelotons are still using Pelotons and have active subscriptions attached. But new sales growth has clearly taken a hit when lapping 2020 and early 2021 sales.

My gut feeling is that Traeger will have a higher “scrap” rate if people “go back to work”, as smoking and grilling take a lot of time and effort at home.

If one believes that consumer spending will continue to be very strong and people will continue to be “at home”, then $COOK could be a good (profitable) play on growth. But if one is at all concerned with the spending cycle or the back-to-work trends, then this might be a pass, given it’s not screaming cheap yet.

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