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Beyond Meat Inc(BYND-Q)

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Time to Sell Beyond Meat Stock?

Motley Fool - Fri Aug 12, 8:45AM CDT

Investors were bracing for bad news ahead of Beyond Meat's (NASDAQ: BYND) earnings update in early August. The plant-based meat specialist's sales growth has hit a wall thanks to the combination of inflation, pandemic-related shifts in demand and rising competition.

Those weak demand trends didn't improve by much in the selling period that ran through early July. Beyond Meat is still generating significant losses, too. But the management team promised a new sense of urgency around its turnaround effort in late 2022 and beyond.

Let's take a closer look at why the stock seems less appetizing today.

Mixed demand trends

The sales update unfortunately didn't break from the mostly downbeat results that shareholders have seen for the last few quarters. Beyond Meat posted a modest 2% increase in its core retailing segment in the U.S. while the restaurant division shrank slightly. These trends combined to keep overall revenue essentially flat for a second consecutive quarter.

Executives had been hoping that a flood of new product releases, plus a return in consumer appetites for novel protein options, would spur a quick sales rebound. That recovery hasn't happened yet, in part thanks to accelerating food cost inflation. "We recognize progress is taking longer than we expected," CEO Ethan Brown said in a press release.

Tough financial results

There was a stiff financial penalty associated with that demand slowdown. Gross profit margin collapsed to a 4% loss compared to a 32% profit a year ago. The operating loss landed at $90 million and the net loss was $97 million, or 66% of sales.

BYND Cash from Operations (TTM) Chart

BYND Cash from Operations (TTM) data by YCharts

That loss actually represents an improvement compared to the first quarter when losses reached over 90% of sales. Still, it was jarring to see Beyond Meat post another quarter of weak financials. The company's new product launches also appeared to struggle in today's shopping environment, where consumers are looking for deals and less interested in trying out new product categories.

Looking ahead

Beyond Meat has been conservative about the 2022 outlook, in the past citing challenges like the shift in consumer demand following the pandemic, inflation, and increasing concerns about a potential recession. These challenges have become worse in the last few months, executives said, leading to a downgrade in the short-term outlook.

Beyond Meat now sees sales landing between $470 million and $520 million this year, compared to the prior range of $560 million to $620 million. Rather than growing by at least 21%, the company might now expand sales by less than 3%.

This trajectory implies major challenges ahead for the business, but it doesn't mean investors should abandon the stock. Layoffs and cost cuts should help Beyond Meat shore up its finances as it works to find better ways to capitalize on its leading brand position.

Still, that position seems less valuable than it did a year ago when consumers were eagerly trying out plant-based meat products. Worse still, Beyond Meat doesn't seem to have much control over spurring faster growth through product releases or increased marketing spending.

As a result, investors should be cautious about expecting a quick rebound for this food stock.

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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Beyond Meat, Inc. The Motley Fool has a disclosure policy.

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