What happened

Shares of Beyond Meat (NASDAQ:BYND) were headed much higher on Wednesday after the company reported earnings for the first quarter of 2020. As of 11:30 a.m. EDT, the stock was trading a full 19% higher.

The headline takeaway from Q1 is that Beyond Meat turned a profit, despite all the challenges facing the food industry because of the COVID-19 pandemic.

A hamburger made from Beyond Meat's Beyond Burger product.

Image source: Beyond Meat.

So what

Prior to the Q1 earnings release, Beyond Meat's stock had already rebounded 85% from March lows. Despite this rally, investor sentiment was still tepid going into earnings. After all, 51% of Beyond Meat's 2019 revenue came from restaurants and food service, and restaurant sales have plummeted due to the coronavirus. It was logical to expect Beyond Meat to take a hit as a result.

Beyond Meat CEO Ethan Brown referenced the coronavirus in the Q1 earnings call and said, "[I]t is having and will continue to have a negative impact in the short term." That said, the Q1 results were encouraging. Quarterly food-service sales were up 100% year over year, while retail sales were up 185%. Management noted that food-service sales fell in late March but a lot of consumer demand shifted toward grocery retail outlets.

While the top-line growth is good, investors are likely cheering the bottom-line surprise today. Beyond Meat's net income was $1.3 million according to generally accepted accounting principles (GAAP), which translated to earnings of $0.03 per share. This profitability resulted from factors like higher sales volume, production improvements, and lowered cost of packaging.

A businessman draws an upward arrow on a transparent screen.

Image source: Getty Images.

Now what

Taken in isolation, Beyond Meat stock's pop today looks overdone. The company didn't previously give first-quarter guidance, but for full-year 2020, it guided for net revenue of $500 million at the midpoint, good for 67% growth. Its Q1 revenue of $97.1 million looks on pace for that, although Beyond Meat has now withdrawn 2020 guidance because of COVID-19. In other words, investors should have expected this kind of revenue.

However, broadening the lens, it's easier to understand the reaction of investors to Beyond Meat's results. Previous 2020 guidance called for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of about 8.5% of revenue -- in line with 2019 results. But the bulk of the adjusted EBITDA was expected in late 2020. In Q1, Beyond Meat delivered adjusted EBITDA of $12.7 million. That was 13% of revenue and well ahead of schedule.

Simply put, Beyond Meat is proving to be more profitable with scale, and that's reason for optimism as the business continues to scale up at an impressive pace.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.