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Sunday, February 5, 2023

Why Weber Stock Was Burnt Today

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What happened

Shares of Weber (WEBR -14.25%), a maker of popular grills, fell hard on Monday and for good reason. The company’s CEO is abruptly gone, preliminary financial results for the fiscal third quarter of 2022 weren’t great, full-year guidance has been withdrawn, and its dividend is now suspended. That’s a lot for investors to take in all at once. And for these reasons, Weber stock was down 15% as of 12:30 p.m. ET.

So what

There have been a bevy of CEO shakeups in 2022 but few have been as head-turning as Weber’s. Chris Scherzinger, the CEO of four years, has been replaced by Chief Technology Officer Alan Matula — there was no transition period. And Scherzinger is off the board of directors as well. Investors don’t like blunt changes like this because they suggest there’s a lot going on under the surface.

Besides red flags with management, Weber’s business isn’t doing well either. Preliminary fiscal third-quarter results, for the three months ended June 30, show net sales of $525 million to $530 million — down 21% to 22% year over year. It’s also down 13% to 14% just from the second quarter. For perspective, net sales were up about 2% from the second quarter to the third quarter of 2021.

To add to its slowdown in sales, it seems Weber tried to stimulate demand by offering discounts. While this may have helped somewhat boost slumping sales, it caused profit margins to fall. Added to its profitability troubles are a variety of factors, including a higher cost of shipping logistics. Because of all of this, Weber expects a loss in Q3 compared to a profit last year. And it’s withdrawn guidance for the rest of the year.

Now what

With so many things hurting its top and bottom lines, Weber is doing what it can to stabilize its business. This begins with the company suspending its $0.04-per-share quarterly dividend. And it could mean layoffs.

Weber management hinted that it needs to stay in good graces with its lenders right now and this makes sense. At the end of Q2, the company had just $46 million in cash compared to $1.2 billion in long-term debt. 

With so much uncertainty, it will be important to listen to new CEO Matula’s plan for a turnaround when Weber reports finalized Q3 financial results on Aug. 15.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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