Can Beyond Meat regain its sizzle?
Beyond meat (NASDAQ: BYND) just released a second consecutive earnings report that contained almost no good news for investors. The plant-based meat giant reported weak growth, declining market share and huge losses for the last quarter of 2021 and the wider year.
Management set the stakes perfectly in the ensuing conference call when CEO Ethan Brown said: “The key question is whether this reduced rate of growth is an aberration or a harbinger of things to come. “
The company believes a modest rebound is underway thanks to the launch of several new Beyond-branded menu items in fast food and restaurant chains. Should investors buy into this idea of recovery after a terrible fourth quarter? Let’s take a closer look.
The latest results
Beyond Meat’s 1% sales decline through the end of December met management’s reduced expectations, but reflected major demand challenges. The retail segment, which includes sales to supermarket chains and warehouse retailers, was down 20% in the core US market. This is a discordant result for a growth-oriented stock.
On the earnings call, Brown and his team said much of the demand pressure came from temporary pandemic-related changes in consumer behavior. They cited a move toward comfort foods and away from health-focused options. Shoppers have also become less interested in trying new tastes.
The news was even worse on earnings. Beyond Meat’s net losses were 80% of sales for the quarter and were due to rising costs, declining gross profit margins and aggressive investment in the business. Management has warned that these issues will likely worsen in early 2022 before improving later in the year.
The case of a rebound
The rebound thesis is based on big changes that will occur over the next few quarters. Beyond Meat will see many more menu item launches at popular restaurant chains after those releases were delayed due to supply chain issues. The company also plans to ramp up its sampling promotions at retailers after a quiet period in the fourth quarter.
Promotional spending is then expected to slow in late 2022, which should help the company’s gross profit margin start to recover towards the 35% level it briefly reached in 2020.
But these positive factors won’t matter much if Beyond Meat’s management team is wrong about the health of the wider plant-based meat industry and the company’s place in it. Investors buying the stock today must believe that the category’s decline in the second half of 2021 was just a one-time event. People will once again make plant-based meat products a small but growing part of their spending budgets, both for cooking at home and dining out.
The problem with this prediction is that sales trends are pointing in the opposite direction through early 2022. Management’s forecast for the full year doesn’t inspire much confidence either. Sales are expected to rise between 21% and 33% in 2022, well below what investors hoped to see. The plant-based meat industry itself has slowed, producing near-stagnant growth over the past year from the 45% peak that preceded it in 2020.
Therefore, the key factor to watch is whether buyer appetite returns for plant-based meats in the coming quarters. “To taste is to believe”, like to say the leaders of Beyond Meat. The company is betting heavily on the prospect that customers will enjoy the flavors they will taste over the next few months.
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Demitri Kalogeropoulos has no position in the stocks mentioned. The Motley Fool owns and endorses Beyond Meat, Inc. The Motley Fool has a Disclosure Policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.