After staying largely unaffected in the early months of the virus outbreak, when people stockpiled food products, Beyond Meat (NASDAQ: BYND) seems to be feeling the heat as the uncertainty deepens. On the bright side, the management is continuing with its growth strategy with focus on partnerships and expansion in international markets like China and the EU.
Foodservice Woes
The company that pioneered the concept of plant-based meat products might remain on the slow track during the remainder of the year because the panic buying that boosted retail sales earlier is subsiding, adding to the weakness in the foodservice business. Worse, the recovery of the foodservice segment has lagged the sector, mainly due to the company’s exposure to certain badly-affected markets.
Commenting on the growth strategy, Beyond Meat’s CEO Ethan Brown said during his interaction with analysts, “We continue to make strong progress in research and development despite the continued impact of COVID-19 on our ability to operate at full scale at the Manhattan Beach Project, our Innovation Center here in Los Angeles.”
Investing in BYND
Taking a cue from the downtrend, the management withheld its regular guidance in the recent earnings report. Profitability has remained under pressure from costs related to COVID-19 safety measures, lower net price realization due to heavy discounts, and high overhead production costs linked to reduced production capacity.
The negative outlook on the broad sector calls for caution as far as investing in Beyond Meat is concerned. Obviously, this is not the right time to buy the stock, which carries a target price that indicates a decline from the current levels. So, it makes sense to keep watching/holding the stock until the smoke clears.
Dismal Q3
People’s unwillingness to visit food outlets continues to reflect in the financial results of Beyond Meat, which slipped to a loss of $0.28 per share in the third quarter from a profit a year earlier. Margins were affected by a double-digit decrease in foodservice revenues. That was more than offset by a 39% growth in the retail segment, resulting in a 3% increase in total revenues. The latest numbers also missed the Street’s view.
From Beyond Meat’s third-quarter earnings conference call:
“Despite the near-term impact on our business, we fully understand and respect the propensity of large customers to maintain menu status quo or streamline offerings during the pandemic. Here again, it’s important not to interpret this near-term pandemic-induced drop in activity as a weakening in our long-term value proposition in this critically important space, we certainly do not.”
McDonald’s Tie-up
The pessimism that followed the earnings release eased to some extent after Beyond Meat announced its tie-up with McDonald’s (MCD), under which the latter will serve plant-based McPlant patties to its customers. The initiative is part of the company’s efforts to expand market share through strategic partnerships, offering plant-based alternatives like Beyond Burger to customers of traditional fast-food chains.
Read management/analysts’ comments on Beyond Meat’s Q3 results
Shares of the company entered a phase of high volatility last week. After suffering a big loss soon after the quarterly report, the stock bounced back to the pre-earnings levels later. But, it changed course again and slipped into the negative territory on Tuesday, losing about 22% in the early hours of the session. The stock has moved up 79% since the beginning of the year.