Business

Beyond Meat’s rocky relationship with PepsiCo helped sales but squeezed margins

Beyond Meat Inc. said revenue was boosted by the launch of Beyond Meat Jerky through a collaboration with PepsiCo Inc., but the product hurt margins for the quarter.

“The Company’s first quarter results included the launch of Beyond Meat Jerky, which is estimated to have reduced gross margin by approximately 940 basis points compared to the same period last year,” the earnings release said.

However, the company said margins should improve going forward.

“Beyond Meat Jerky first uses a complex and costly manufacturing process. Manufacturing costs associated with Beyond Meat Jerky are expected to decrease significantly through process optimization beginning in the second half of 2022.”

See: McDonald’s McPlant sandwich created with Beyond Meat falls short of franchisee sales expectations, analysts say

Beyond Flesh BYND,
-4.45%
Jerky debuted in March, Planet Partnership LLC’s first product featuring PepsiCo PEP,
-0.22%.
While Chief Executive Ethan Brown addressed the product’s success on the conference call, including an appearance on Amazon.com Inc.’s AMZN,
+0.86%
On the New Releases page, analysts at Mizuho say “early economic data is weak” and wonder if the product’s return will justify the cost.

“We expect economics to improve and distribution through the Pepsi system to increase in the second half, but we question whether the magnitude of the opportunity warrants a launch amid the current economic climate and the penalty of another negative margin surprise.” has,” the note reads from Mizuho.

Mizuho cites Nielsen data showing US meat snacks is a $4.5 billion business, but says, “You have to see how plant-based snacks can make sustainable advances.”

Mizuho is neutral on Beyond Meat shares with a price target of $21.

Likewise: McDonald’s has made the McPlant available across the UK and Ireland, but no word on the US yet

Aside from jerky, there were also problems in the foodservice category. Beyond Meat said sales were impacted by the loss of a customer, although the company did not specify which customer. CEO Brown said March was “one of the strongest months in revenue in our company’s history,” but the start of the quarter wasn’t as robust.

“We believe the slow start to the quarter is likely related to Omicron, labor shortages and a late return to school, among other things,” he said on the conference call, according to FactSet.

BMO Capital Markets maintained its market performance stock rating for Beyond Meat, citing all the headwinds the company is facing, including pricing, a “profit-dilutive growth strategy” and a challenging retail environment. However, analysts were more positive about the company’s restaurant partnerships.

“We wouldn’t be surprised if Beyond Meat generates at least $100 million annually with its top five foodservice launches (eg, McDonald’s US, McDonald’s
UK & Ireland, KFC, Panda Express and Pizza Hut Canada) in 2022 with the ability to significantly accelerate if it can expand to additional McDonald’s locations in the US before the end of the year,” BMO said in a statement .

BMO halved its price target to $30 from $60.

See: The market value of plant-based foods in the US peaks at $7.4 billion, but the industry faces a bumpy road to continued growth

Beyond Meat also noted a change in the placement of its products in grocery stores that may have had an impact.

“[W]We’ve seen a shift in consumer buying from chilled to frozen,” Brown said on the call.

“Chilled plant-based meat, where we have a strong presence, fell 3.6%, but frozen plant-based meat was up 7.2%. This move from chilled to frozen reflects in part the increased consumption of plant-based chicken in the frozen section compared to plant-based beef in the chilled section.”

Mizuho says it might be time to reconsider growth opportunities in the plant-based meat category.

“We don’t want to get too caught up in near-term weakness, but we also believe it’s far too early in the lifecycle to rely on simple comps for growth. The surge in retail sales from COVID in 2020 has driven demand and with early adopters likely to be saturated, new consumers are proving to be easier,” wrote Mizuho’s John Baumgartner.

And while CEO Brown says Beyond Meat is making good progress towards its “goal to build the global protein company of tomorrow,” BTIG analysts say investors are concerned about how much the company is spending to meet that goal.

“We believe the level of cash burn over the past few quarters is compelling for investors
increasingly nervous that a capital raise is on the horizon,” wrote analysts led by Peter Saleh.

“The company’s cash position decreased by $185 million this quarter, leaving it with about half of the $1.15 billion in capital it raised a year ago. Our conversations indicate that many investors believe Beyond Meat will need to raise additional capital later in 2022 to sustain operations unless there is a significant turnaround in sales and gross margins.”

And: The White House has slammed meat giants for ratcheting up prices after Tyson’s win

BTIG gives Beyond Meat a stock-neutral rating.

Beyond Meat reported a higher-than-expected loss for the first quarter and revenue that fell short of FactSet’s expectations. Shares fell 3.4% in Thursday trading and 61.2% year-to-date.

https://www.marketwatch.com/story/beyond-meats-jerky-collaboration-with-pepsico-helped-sales-but-hurt-margins-11652372407?rss=1&siteid=rss Beyond Meat’s rocky relationship with PepsiCo helped sales but squeezed margins

Brian Lowry

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