Beyond Meat (NASDAQ:BYND) reported strong second quarter 2020 results earlier this month. The leading maker of plant-based meat substitutes grew revenue 69% year over year to $113.3 million, and adjusted loss per share narrowed 60% to $0.02. Revenue easily beat the $99.8 million Wall Street consensus estimate, while the bottom line hit the consensus on the bull's-eye. 

Shares fell 6.7% the day after results were released. We can probably attribute the stock's drop largely to earnings "only" meeting the analyst expectation. Since its initial public offering (IPO) in May 2019, the company has usually sailed by top- and bottom-line estimates. So investor expectations were super high -- probably unrealistically high during a global pandemic. 

Despite the pullback, in 2020, Beyond Meat stock is up a whopping 66.6% through Aug. 21, while the S&P 500 has returned 6.5% over this period. 

Earnings releases tell only part of the story. Here are three key things management shared on the earnings call that you should know.

Two Beyond Burgers with cheese, onions, spinach, and a white sauce in buns sitting on a white cloth on a wood surface.

Image source: Beyond Meat.

Product mix has drastically changed due to the COVID-19 pandemic

From CEO Ethan Brown's remarks:

[A]t the beginning of the year, the split between our retail and foodservice businesses was approximately 50-50. And as we report today, the [revenue split] was 88% retail, 12% foodservice in the second quarter of 2020. Adapting to such a dramatic change in mix over a short period of time was no small feat. Led by the [pandemic-driven] shift in consumer behavior toward retail, the team repurposed assets and repacked and rerouted inventory to this sector.

For context, at the end of the first quarter, Beyond Meat's revenue was split 58% retail, 42% foodservice. So, the shift toward retail that began in the first quarter accelerated in the second quarter. This wasn't a surprise since the pandemic mostly just affected the last two weeks of the first quarter, whereas it affected the entire second quarter. 

The crisis has significantly hurt foodservice demand because many restaurants have either temporarily closed or have scaled back their operations. Moreover, it's caused delays in some of the company's product launches and tests among its foodservice customers. However, Beyond Meat was still able to achieve robust 69% year-over-year total revenue growth thanks to its ability to quickly shift its production away from foodservice product and toward retail product.

In the second quarter, foodservice revenue fell 59% year over year to $13.7 million, while retail revenue soared 192% to $99.6 million. Global retail growth was driven by "expansion in total distribution points, higher sales velocity at existing outlets, and new product introductions," Brown said. In the United States, the company also got an added tailwind from its "expansion in the club stores, including most recently [Walmart's] Sam's Club and BJ's Wholesale," he added.

Beyond Meat is benefiting from three key U.S. consumer trends

From Brown's remarks:

In what may be the most meaningful combination of metrics for our growth story, we are fortunate to be in a position where three critically important consumer trends are concurrently increasing:

  • One, more households are buying our products.
  • Two, [...] the average spend per household on Beyond Meat products is increasing.
  • Three, more consumers who try our products are buying them again. That is, our repeat rates are rising.

Brown went on to provide SPINS/IRI data for these retail trends. According to this data, 4.9% of U.S. households have bought a Beyond Meat product as of June, up nearly 40% from the company's 3.5% U.S. household penetration rate in January and more than double its 2% penetration rate in June 2019. 

As to the second item, the company enjoyed a 23% increase in average household purchase frequency since January. And lastly, its repeat purchase rate rose to nearly 50% from approximately 45% in January. Brown said that a repeat rate of 30% to 40% "generally constitutes success in the retail CPG [consumer packaged goods] sector."

The company has "very significant growth and activity" in China

Brown characterized Beyond Meat's growth and activity in China as "very significant." Given the country is the most populous in the world and its middle class is growing quickly, it will be a huge positive for the company if it can gain considerable traction in China.

From Brown's remarks:

We've done well with Starbucks in China. ... They're promoting our products now as permanent items, not as an LTO [limited time only products]. 

[W]e've set a goal to have production up and running in China by the end of the year. And we do plan to accomplish that and with that be able to bring lower pricing into that market.

We had a great test with KFC [Kentucky Fried Chicken], Pizza Hut, and Taco Bell in China. And I think we can expect some more activity there, although I can't make any promises or provide details. We're also beginning to work with local Chinese QSRs [quick-service restaurants], which is a new set of business for us and something that we're going to, I think, continue to see growth around. 

Beyond Meat just entered the Chinese market on April 22 via its partnership with Starbucks (NASDAQ:SBUX), which involved the launch of three Beyond Beef menu items in the coffeehouse giant's locations throughout Mainland China. So the company has greatly ramped up its activity in this market in a brief period. China is well ahead of the U.S. and most other countries in recovering from the COVID-19 pandemic, which means that its restaurants and other food service outlets have largely been open for some time.

As for the test with the three well-known fast-food restaurants that Brown mentioned, all three are owned by Yum China Holdings. On that note, Beyond Meat's "small team" in Shanghai is led by a former executive from Yum China.

In addition to the above noted activity in China, the company's "recent wins at retail include our availability at 50 Freshippo stores, which are part of the Alibaba Group in Shanghai, with a plan to expand into 48 more in September, and our availability in METRO China with Beyond Meat products sold at select Shanghai locations," Brown said.

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