Thursday, January 21, 1999

TurboChef Technologies Inc.
(Nasdaq: TRBO)
Phone: 214-341-9471
Website: www.turbochef.com
Price (1/20/99): $11 3/4


The selling point of a TurboChef oven is simple. It heats things up in a hurry. The same can also be said for shares of TurboChef Technologies (Nasdaq: TRBO) itself, a hot plate special after more than doubling over the past few months.

What was the company's recipe for success? Creating a revolutionary appliance that prepares food in a fraction of the time it would take using a conventional oven has fueled investor fancy. Can this be the next microwave? Or will shareholders get nuked in the process?

While the company's patented technology has been around for five years, it is only recently, after a deal with appliance giant Maytag (NYSE: MYG), that widespread proliferation of TurboChef ovens at the retail level has become feasible.


After three years of research the company introduced its first commercial oven in March of 1994. While there have been technological enhancements since the original D-1 model, the oven's process has remained relatively unchanged.

Hot air is circulated through the oven at high speeds to cook the food from the outside in, while microwaves help ready the food from the inside out. Steak and lobster, which may require a half-hour or longer of cooking time in a conventional oven, are ready in just two minutes.


Income Statement
12-month sales: $7.1 million
12-month income: ($3.3 million)
12-month EPS: ($0.23)
Profit Margin: N/A
Market Cap: $172.7 million

Balance Sheet
Cash: $8.1 million
Current Assets: $10 million
Current Liabilities: $1.0 million
Long-term Debt: None

Price-to-earnings: N/A
Price-to-sales: 24.3


Technology is nothing without validity. While working versions of TurboChef's supercharged baking devices have been around since 1994, its acceptance has been as slow as its cooking speeds are fast.

The first step came when the company teamed up with Britain's Whitbread PLC just fifteen months after the D-1's introduction. Yet, foodservice sales, a potentially more lucrative segment than the home kitchen market, were slow to materialize. TurboChef's product made sense. What restaurant does not want to speed up the cooking process to help turn tables faster? It made sense, but it didn't make cents. Whitbread's initial euphoria faded and, by 1997, the company sought an established distribution network.

Enter Maytag. In September 1997 the companies entered into a strategic alliance. It was a perfect fit. TurboChef had the technology. Maytag had the manufacturing and marketing savvy behind a rock solid brand name. Over the next six months, Maytag paid TurboChef $250,000 a month. When time ran out, Maytag upped the stipend to $300,000. Then to $425,000.

Clearly Maytag brought validity to the table. But as the shares closed out 1996 at $22 1/8, this past September -- with Maytag backing in place for a whole year -- the stock was fetching less than four bucks a share. It was an opportunity that was about to heat up in a TurboChef-charged way.


I know what you're thinking. Why didn't Maytag just buy TurboChef back in the fall? Even at a juicy premium it could have bought TurboChef whole for less than $100 million and spared itself future royalty payments.

The time would have been ripe since the company was going through some executive changes. In September, Rick Caron, a seasoned foodservice veteran, joined TurboChef as President and CEO. Two months later the company would hire Dr. Amit Mukherjee as its new Chief Technology & Strategy Officer. TurboChef was in a spin cycle while Maytag was writing monthly checks. As practical as the acquisition seemed, it was not to be.

So if you shut the door on a logical Maytag buyout, does the light stay on? Of course. Weighing on Maytag may be the fact that a smaller appliance player will beat the company in rolling out a high-speed convection oven. Thermador's JetDirect is getting ready to hit the market. However, Thermador is a niche player serving a mere fraction of the appliance buyers that are in Maytag's reach.

Also something to consider is that sales of the revolutionary TurboChef appliances won't materialize overnight. Like any new technology, there are typically a limited number of early adopters who will buy in with price not being an issue. Most kitchen commandos will wait until the price tag drops from what analysts expect to be initial asking prices of $2,000 or higher. It happened with the microwave, and it has happened with most breakthrough appliances.

That does not mean TurboChef shareholders will have to wait another five years to hit the equity jackpot. With Maytag now looking at the commercial sales side, any deal with a major restaurant or pizza delivery chain is bound to make this hot stock even hotter. For now, domestic TurboChef foodservice use is limited to a few independent eateries. However, take the pizza business as an example -- cooking time is critical in speeding up delivery of the made-to-order pies. If a pizza chain like Domino's, Papa John's International (Nasdaq: PZZA), or Tricon Global Restaurant's (NYSE: YUM) Pizza Hut comes on board, the avalanche of those to follow suit could be a major windfall for TurboChef -- like those 60 mile per hour heat blasts racing through the oven itself.

--Rick Aristotle Munarriz

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