Beyond Meat (BYND -2.65%), the leading maker of plant-based meat substitutes, reported disappointing third-quarter results after the market close on Monday.

Shares plunged 20.4% in after-hours trading, suggesting that their performance during Tuesday's regular trading session could be similarly unpalatable to investors. We can attribute the market's initial reaction largely to both revenue and earnings falling considerably short of Wall Street's consensus estimates. The absence of fourth-quarter guidance was likely also a contributing factor, as the market hates uncertainty.

Through the end of trading Monday, shares of Beyond Meat -- which held its initial public offering in May 2019 -- had gained 99.1% year to date. (Those 2020 gains fall to just under 44% if we include Monday's after-hours performance.) The S&P 500 has returned 11.6% over this period.

Two Beyond Burgers with cheese, greens, and a white sauce in buns.

Image source: Beyond Meat.

Beyond Meat's key numbers

Metric

Q3 2020

Q3 2019 

Change

Revenue 

$94.4 million $92.0 million 2.7%*

Operating income 

($18.5 million)  $3.6 million N/A

Net income

($19.3 million) $4.1 million N/A

Adjusted net income

($17.5 million) $4.1 million N/A

Earnings per share (EPS)

($0.31) $0.06 N/A
Adjusted EPS ($0.28) $0.06 N/A

Data source: Beyond Meat. *Calculated using exact numbers, not abbreviated ones shown. 

The company's revenue growth was primarily driven by an increase in retail sales, which was mostly offset by a decline in foodservice sales due to the continued impact of the COVID-19 pandemic. In addition, some retail demand that would have normally been fulfilled in Q3 was pulled forward into Q2 due to pandemic-driven consumer freezer-loading. Moreover, promotional activities (lower prices) intended to induce more new consumers to try Beyond Meat products also took a bite out of the top line.

The adjusted net loss and negative EPS figures exclude expenses attributable to the COVID-19 crisis. The company ate up $42.7 million in cash running its operations during the quarter, and ended the period with $214.6 million in cash and cash equivalents. 

Wall Street had been looking for adjusted EPS of $0.05 on revenue of $131.4 million, as covered in my earnings preview, so Beyond Meat missed both expectations by a country mile. For context, in the second quarter, its revenue soared 69% to $113.3 million, easily topping the $99.8 million that analysts had been expecting. On an adjusted basis, loss per share narrowed 60% to $0.02, meeting Wall Street's consensus estimate.

Revenue breakdown: International foodservice was an anchor on overall results

Geographic Distribution Channel  Q3 2020 Revenue Change (YOY)
U.S. retail  $62.1 million 41%
U.S. foodservice  $16.3 million (11%)
U.S. total $78.4 million 25%
International retail  $8.0 million 27%
International foodservice  $8.1 million (65%)
International total $16.1 million (46%)
Total revenue $94.4 million 2.7%

Data source: Beyond Meat. YOY = year over year.

Beyond Meat's performance in the United States was solid, with revenue growing 25% year over year. Poor international results -- specifically in the foodservice channel -- dragged its overall results down. If we exclude this category -- which accounts for less than 9% of total revenue -- the company's overall revenue growth was nearly 26% year over year. If that category had performed roughly in line with the U.S. foodservice business (as it did last quarter), Beyond Meat's total revenue would have increased by more than 16% year over year.

What management had to say

In the earnings release, CEO Ethan Brown summarized the quarter's challenges: 

Unlike the second quarter, where record retail buying and freezer-loading by consumers offset the deterioration of our foodservice business as COVID-19 stay-at-home and related measures set in, the long tail of retail stockpiling by consumers, coupled with continued challenges across the majority of our foodservice customers, led to Q3 results that were lower than we expected.

He also outlined some positives:

Even as the pandemic has created significant disruption, we continue to see strong growth in critically important metrics of household penetration, buyer rates, purchase frequency, and repeat rates; our brand's sales growth continues to outpace the category; and during the quarter we saw our year-over-year velocities rise even as we grew distribution.

An anemic quarter

Beyond Meat turned in a disappointing quarter. Granted, COVID-19 is hurting results and some demand from Q3 got pulled forward into Q2 because of pandemic-driven food stockpiling. Nonetheless, people around the world needed to eat during the third quarter -- and Beyond Meat's top-line result suggests that management didn't do a great job at meeting consumers where they were at, so to speak. 

That said, long-term investors should keep in mind that one quarter is just one quarter, and doesn't make a trend. The company remains the leader in a food niche that has significant growth potential. Investors should keep a close eye on the company's international business, which is significantly underperforming its domestic business.

Management didn't provide guidance, citing continued uncertainty surrounding the pandemic.