Beyond Meat (BYND -4.70%) reported third-quarter earnings earlier this week which included an adjusted net loss per share of $0.28 on revenue of $94.4 million, well below consensus analyst estimates of $0.05 EPS on $132.4 million in revenue. The food producer attributed the weakness in the quarter to challenges at its foodservice business as COVID-19-related stay-at-home measures impacted product sales to restaurants, bars and pubs, and other recreation venues.
That's the overview of the third-quarter earnings report, released Nov. 9. Here's a more detailed dive into what stymied growth at Beyond Meat, including three takeaways and whether investors should expect growth to resume in the near term.
1. Foodservice revenue was weaker than expected
U.S. foodservice segment sales at Beyond Meat declined 11.1% year over year in the third quarter due to the continued effect of COVID-19 on foodservice demand. International foodservice suffered even more from decreased demand, with revenue dropping 65.1% year over year.
The company cited its exposure to a wide variety of non-quick-service customers as a factor that hurt revenue in its foodservice business. About two-thirds of this segment include clients like lodging venues, smaller regional chains, bars and pubs, corporate catering, and sports arenas. CEO Ethan Brown noted on the earnings call that "many of these customers have been disproportionately affected by COVID-19 and have generally experienced a slower rate of recovery relative to the overall foodservice sector."
Beyond Meat says it is continuing to see a "meaningful slowdown" in its foodservice business due to COVID-19. Currently, many parts of the world, including Spain, the UK, and France, are experiencing coronavirus-related restrictions. Often these rules include the shutdown of nonessential businesses and restrictive dining rules. With COVID-19 infection rates rising again in many parts of the world, there is uncertainty around the recovery.
2. Rising competition in the space could pressure future growth
The growing number of entrants into the plant-based meat category could have an impact on Beyond Meat's future results. Here are just some competitors that launched similar products over the past two years: Gardein, owned by Conagra; Incogmeato, owned by Kellogg; Sweet Earth, owned by Nestle; and Happy Little Plants, owned by Hormel. As the industry continues to draw more entrants, the competition will only heat up even more.
Although the number of players in the plant-based meat space is increasing, Beyond Meat is sustaining or gaining share in the market. The producer of plant-based meat substitutes noted that it gained market share in the U.S. foodservice outlets, which excludes major quick-service restaurants. Brown said on the third-quarter earnings call, "According to NPD [Research] data for Q3, sales of Beyond Meat products declined 34.7% on a year-over-year basis compared to a 37.5% decline for the overall category. In other words, we achieved a slight gain in market share of this NPD track channel even as the entire category remains significantly challenged."
While the consumer discretionary company is showing slight gains in share, the plant-based meat category is crowded and will likely continue to see new entrants. Increasing competition could pressure pricing on Beyond Meat's popular burger and sausage products. The company will also have to vie for shelf space at retailers.
3. New rounds of lockdowns present continued risk to growth
The weakness of Beyond Meat's foodservice segment will likely continue into the fourth quarter because of renewed global restrictions related to COVID-19. A number of states in the U.S. are also mulling over potential stricter restrictions if cases of COVID-19 continue rising. For instance, New York City just instituted earlier closing times for restaurants and bars. Additional states are also enacting varying degrees of restrictions.
One factor that could revive demand at restaurants and other foodservice outlets is Pfizer's recently announced COVID-19 vaccine testing news that suggests the company's candidate is at least 90% effective. If this or other successful treatments are made widely available, consumers will likely begin dining out again in larger numbers. However, Pfizer's trial has not concluded yet, nor has it yet provided a reasonable level of confidence in the vaccine's safety.
Given the high level of uncertainty around the timing of restrictions or a return to normalcy, it's difficult to predict when Beyond Meat's foodservice segment will resume strong growth. The company declined to give guidance. CFO Mark Nelson spoke of the uncertainty on the third-quarter earnings call, saying that "given the ongoing uncertainty regarding the duration, magnitude and effects of COVID-19 on our business and those of our customers, our 2020 guidance remains suspended at this time."
Beyond Meat had a challenging quarter, and it looks like the business is still plagued by uncertainties around a recovery in demand from its foodservice segment. With looming shifts in rules around COVID-19 influencing consumer behavior, investors may want to stay on the sidelines for now.