Beyond Meat (NASDAQ: BYND) revealed disappointing results on November 10. Although revenues grew, Q3 earnings revealed losses in several areas. The plant-based meat provider reported a decline in domestic revenue and earnings per share (EPS), a dip in Q4 guidance and a drop in year-over-year comparisons. But is it all bad news?
Why did Beyond Meat stock drop?
Beyond Meat stock fell 13% in response to its whopping quarterly losses in Q3. The company incurred a net loss of $54.8 million which was a sizable 185% jump from a $19.2 million loss in Q3 2020.
What’s more, the company’s net loss for the nine months to 30 September 2021, is over $101k. That’s almost quadrupling a net loss of $27.6k in the same period last year.
This equates to an 87 cent loss per share compared to the 38 cent loss per share that FactSet analysts expected.
But it’s not all bad news.
In Q3, Beyond Meat saw its net revenues rise by 12.7% year-over-year to $106 million.
Plus, total retail net revenues rose 5% year-over-year. The company showed particular strength in international retail which increased 168% year-over-year, adding around 7,000 international customers in the period. Disappointingly this was partially offset by weaker results in US retail which declined 16% year-over-year.
Q3 US retail net revenues were lower than Q2 which is the opposite of what was expected going by its pre-COVID numbers. For in Q2, 2019, Beyond Meat reported net revenues of $67.3 million, which rose to $92 million in Q3, 2019.
Nevertheless, Beyond Meat maintains its number one top-selling SKU position across all plant-based meat and continues to own four of the top six bestselling SKUs in the category. Therefore, the company is hopeful this current slowdown will rectify itself as restaurants and retail outlets get back to normal functionality.
Has Beyond Meat made a profit?
Beyond Meat is not profitable and has yet to turn a profit since it started. Free cash flow is negative and this number is escalating. Negative free cash flow is not a positive sign of progress, particularly if it’s increasing. What’s more, total long-term liabilities have risen to an eye-watering $1.1bn this year, up from $25m at the end of 2020.
Shareholders should also be aware that the number of shares circulating is growing, meaning the share pool is being diluted. For example, there were 58.7 million shares outstanding in December 2017, which had risen to 63.1 million by June 2021. The market cap declines as the number of shares circulating grows. In June this year, it had a $9.5bn market cap and this has now fallen to $5bn.
Headquartered in California, Beyond Meat products include ready-to-cook food under the brands The Beyond Burger and Beyond Sausage; and frozen food, such as the Beyond Chicken Strips and Beyond Beef Crumbles.
The company went public in 2019 when meatless products were in the spotlight and there appeared to be a mass migration to plant-based diets. COVID-19 through a spanner in the works but the hype around sustainability and healthy eating continued to bolster the BYND stock price.
Unfortunately, the mask has slipped and the underlying numbers are doing little to justify its whopping valuation. Indeed, Beyond Meat has a price-to-sales ratio of 11.6x and a price-to-book value of 20x, both of which indicate it’s overvalued.
What is Beyond Meat’s Q4 revenue guidance?
The company recognizes its challenges are far from over and has thus reduced its Q4 guidance. It now expects net revenues for Q4 to be in the range of $85 million to $110 million. That’s a 25% drop from FactSet consensus estimates of $131 million.
COVID-19 headwinds plague BYND stock
Perhaps Beyond Meat’s record net revenues of $149 million in its Q2 earnings report gave investors false hope. And now, with Q3 revenues slowing, and Q4 guidance cut, shareholder hopes have been dashed.
COVID-19 has undoubtedly hampered progress in reaching the wider retail market. Inflation, supply chain disruption and restaurant closures have all presented headwinds.
However, the company's launch of a McDonald’s McPlant burger next year could potentially help scale the retail market once again.
The McPlant launch is not only a big deal for the wide market reach it presents. But the campaign is likely to once again promote the hard-hitting messages that led to Beyond Meat’s rise in the first place. For instance, turning to plant-based foods can help fight climate change, improve health and reduce animal cruelty.
Beyond Meat is already widely distributed in the UK through supermarkets and grocery stores. And it appears to be enjoying a warm welcome there which presents a hopeful picture as it gets set to appear in UK McDonald’s from January.
Will BYND stock fall further?
In recent weeks many stocks have seen their share prices plummet after disappointing earnings. With inflation chatter rising, and incredulity at the bubble-like state of many individual stocks and assets, there is nervousness afoot.
So, will BYND stock fall further? This is certainly feasible and the bearish sentiment appears to outweigh the bullish at this time.
Year-to-date the S&P 500 has risen over 26%. It faltered in September but resumed a bullish trajectory in October. Now investors are once again becoming nervous. Beyond Meat is joining the ranks of several plunging stocks in November. These include Bumble (NASDAQ: BMBL), Coinbase (NASDAQ: COIN), Moderna (NASDAQ: MRNA), PayPal (NASDAQ: PYPL) and Square (NYSE: SQ), to name a few.
Beyond Meat is considered the original first-mover in the plant-based meat industry. But it’s since been joined with a steady stream of competitors and own-brand alternatives.
Impossible Foods is one of its key rivals, which has enjoyed a partnership with Burger King since 2019. Now 13% of Burger King’s total Whopper sales are plant-based Impossible Whoppers. Beyond will be hoping to replicate or beat Burger King’s plant-based success with its McPlant collaboration.
Climate awareness is rising and people are keen to know how they can make a positive difference at the human level. Beyond Meat is playing to this desire with its messaging that eating meatless products can positively impact four growing global issues. These are human health, climate change, constraints on natural resources and animal welfare.
None of these factors has diminished since COVID-19 hit so there’s no reason to believe meatless products are a fad that’s now peaked.
Indeed, the company has repeatedly shown it can shift its popular meatless products. But its big problem is that it's hemorrhaging money. If it can cut costs and continue to scale its business the BYND share price may bounce back. In the meantime, it has to contend with rising costs, ongoing labor challenges, competition and continued COVID-related uncertainty.