I’ve been a Beyond Meat (BYND) fan for a while now, despite the crazy way the pandemic has moved its shares around. Somehow, I really like the sound of “revolutionary plant-based meats made from simple ingredients without GMOs, bioengineered ingredients, hormones, antibiotics, or cholesterol.”
Everyone may not care for a meat substitute when they can have the real thing. But my feeling is that more and more people will have it at least sometimes, as a token to the environment, or out of animal love, or for health reasons. And when they do that, they might consider an offering from a popular brand name. Especially when it’s so easily available at the friendly neighborhood McDonalds (MCD Quick QuoteMCD-Free Report) . Or a KFC, or a Pizza Hut or, or a Taco Bell for that matter.
So it’s important to remember that we are in unusual times. And unusual things happen in unusual times.
And if that means that a company like Beyond Meat has to offer discounts, write off some inventory, or absorb extra costs, so be it. After all, nobody could have planned for a health crisis coming along and shutting down all the restaurants and sending people indoors for protection.
As investors, we should be thinking longer-term.
That means we should be looking at the long-term potential for revenue and earnings growth despite the near-term challenges.
Let’s take revenue first. In the just-reported quarter, the company managed to grow sales just 3.5% from the year-ago period, as softness at foodservice offset tremendous growth at retail (both in the U.S and international markets).
People generally buy familiar brands at grocery stores. So the surge in sales indicates strong underlying demand and growing brand awareness.
Okay, so it’s offering discounts. But so is prime competitor Impossible Foods. There’s something of a pricing war going on there with Impossible being the more aggressive. Management commentary also indicates that the absorption of higher fixed cost from operating below capacity in the prior quarter was a bigger driver of weakness.
The company is also adding IT infrastructure, it’s also adding headcount in an effort to boost R&D and marketing and support international expansion in Europe and China. It’s also adding production capacity in these two international markets.
So while on the one hand we are seeing it building its own brand and internal capabilities, on the other, it is signing long-term deals with leading brands like McDonalds, Yum Brands (YUM Quick QuoteYUM-Free Report) and Pepsico (PEP Quick QuotePEP-Free Report) . When you’re mainly selling into mom n pops, business can be more uncertain. But when you’re selling into recognized leaders in foodservice with deeper pockets to withstand near-term issues, and also testing the water in healthy snacks, the business will obviously be more stable.
But all this wouldn’t be as good if Beyond Meat wasn’t a great innovator. And it has made great strides in this. It has moved on from its burger patty to create sausage and meatballs. Its agreement with McDonalds includes a promise of co-developed plant-based chicken, pork and eggs. Its agreement with Yum includes the creation of signature menu items in different plant-based categories.
Zacks Estimates currently expect the company to swing to a profit this year while growing revenues 53.8%. Both these numbers are due for a revision given the new deals and expected increase in costs (the commencement of production at international facilities should have a mitigating effect on cost and reduce logistics complications).
While trading below their median value over the past year, Beyond Meat shares aren’t cheap. So we could wait for a better entry point.
