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Beyond Meat Stock Craters, Then Seesaws, After Earnings Release

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Beyond Meat (BYND -4.83%) stock is taking investors on a roller-coaster ride on Thursday after the plant-based meat substitute maker released first-quarter results on Wednesday after the market close. Shares opened down 20.2% on Thursday, but quickly recovered their loss and have since been seesawing up and down. They’re down 0.4% as of 1:59 p.m. ET on Thursday.

Beyond Meat stock’s performance on Thursday seems to be getting a tailwind from broader market dynamics. Per my quick check, many higher-valued growth stocks that have taken big beatings recently are outperforming on Thursday, as of this writing. 

Beyond Meat stock’s initial sell-off following the release of the first-quarter report is attributable to the quarter’s earnings and revenue both falling short of the Wall Street consensus estimates. On the positive side, management reaffirmed its previously issued full-year 2022 revenue guidance. However, the company has not issued a 2022 outlook for its bottom line, which probably concerns many investors.

Image source: Beyond Meat.

Beyond Meat’s key numbers

Metric Q1 2022 Q1 2021 Change
Revenue  $109.5 million $108.2 million 1.2%
Operating income  ($97.6 million) ($24.6 million) Loss widened 297%
Net income ($100.5 million) ($27.3 million) Loss widened 268%
Adjusted net income ($100.5 million) ($26.2 million) Loss widened 284%
Earnings per share (EPS) ($1.58) ($0.43) Loss widened 267%
Adjusted EPS ($1.58) ($0.42) Loss widened 276%

Data source: Beyond Meat. Q1 2021’s adjusted figures exclude $1 million of expenses related to early debt extinguishment costs.

Wall Street was looking for an adjusted loss of $1.01 per share on revenue of $112.4 million. So, Beyond Meat missed both expectations. 

The quarter’s gross margin was 0.2%, down from 30.2% in the year-ago period. The company attributed a 940 basis point (9.4 percentage point) drop to the first-quarter launch of Beyond Meat Jerky. Excluding that decline brings the gross margin to 9.6%, so what happened to the other 20.6% compared with the year-ago period?

Here’s what Beyond Meat said in its earnings release: “[G]ross margin in the first quarter of 2022 compared to the year-ago period was also negatively impacted by reduced net revenue per pound due to increased trade discounts, changes in price and sales mix, increased manufacturing costs per pound including depreciation, and higher logistics costs, partially offset by decreased direct materials costs per pound and lower inventory reserves.”

In Q1, the company used $165.2 million in cash running its operations, which included $37 million in prepaid lease costs associated with its new innovation center and headquarters facility under construction. This compared with using cash of $30.7 million in the year-ago period. It ended the quarter with $547.9 million in cash and cash equivalents and $1.1 billion in total debt. 

Revenue breakdown

Geographic Distribution Channel Q1 2022 Revenue Change (YOY)
U.S. retail $68.3 million 6.9%
U.S. food service $15.5 million (7.5%)
U.S. total $83.8 million 4%
International retail $16.1 million (6.2%)
International food service $9.6 million (8%)
International total $25.7 million (6.9%)
Total revenue $109.5 million 1.2%

Data source: Beyond Meat. YOY = year over year.

The U.S. retail channel was the only category that posted revenue growth in the quarter. The company attributed this solely to the introduction of a new product, Beyond Meat Jerky, as revenue declined for all other products within the category.

Pricing was the culprit for the bulk of the declines shown in the table. Sales volumes grew in the double-digit percentages across all categories except U.S. food service (which includes fast-food companies and other food-service operations), whose sales volume edged down less than 5%. Total sales volume grew 12% year over year.

What happened with pricing? Overall, the company realized about 10% less for a pound of its product than it did in the year-ago period. This was “primarily attributable to increased trade discounts, list price reductions in the EU, changes in sales mix, and negative foreign exchange rate impacts,” it said in the release. 

What the CEO had to say

Here’s most of what CEO Ethan Brown had to say in the earnings release:

Whether furthering strategic partnerships in the restaurant industry, the market success of our first product collaboration with PepsiCo, or the continued acclaim awarded to our products here in the U.S. and EU, we continue to lay a robust foundation for our long-term growth.

[W]e recognize that the decisions we are making today in support of our long-run ambition have contributed to challenging near-term results, including a sizable though temporary reduction in gross margin as we took cost-intensive measures to support important strategic launches[.] [B]ut we are confident in the future we are building while advancing our mission to bring plant-based meats and their attendant health, climate, natural resource, and animal welfare benefits to consumers around the world.

2022 revenue guidance reaffirmed 

Management reaffirmed the full-year 2022 revenue outlook that it issued last quarter. Management expects 2022 revenue in the range of $560 million to $620 million, an annual increase of 21% to 33% year over year. The company did not issue an earnings outlook.

A disappointing quarter

Beyond Meat turned in a disappointing quarter. A part of management’s strategy is betting that lowering prices now in order to entice more consumers to try its products or become repeat buyers will pay off in the long run. How? By leading to increased sales and, at least in the retail channel, to brand loyalty. 

Will this part of its strategy work? That’s debatable, of course. Only investors who believe it will should consider buying Beyond Meat stock because competition continues to increase in the plant-based meat category. 

Would I buy Beyond Meat stock? No, but that’s only because I have a strong preference for investing in companies that operate in industries with high barriers to entry and have mighty competitive advantages. Two quite diverse stocks that fall within this category, in my opinion, are graphics chip giant Nvidia and U.S. water utility leader American Water Works.