Beyond Meat (NASDAQ:BYND) reported weak third-quarter 2020 results last week. The leading maker of plant-based meat substitutes grew revenue 2.7% year over year to $94.4 million, and turned in an adjusted loss per share of $0.28, versus adjusted earnings per share (EPS) of $0.06 in the year-ago period. Both results fell far short of Wall Street's consensus estimates: revenue of $131.4 million and adjusted EPS of $0.05.
Shares plunged nearly 17% the day after the release. Despite pulling back about 29% since hitting its 2020 high in mid-October, Beyond Meat stock is still up 82% this year through Thursday, Nov. 19. The S&P 500 has returned nearly 13% over this period. Moreover, shares are up a beefy 451% since the company's initial public offering (IPO) in May 2019.
Earnings releases tell only part of the story. Here are three key things management shared on the earnings call that you should know.
Focus on year-to-date (not quarterly) results due to the COVID-19 pandemic
CEO Ethan Brown summarized how the pandemic affected Q3 results:
First, in line with the overall food category across retail, we saw a clear and prodigious pattern of consumer panic buying in Q2, followed by moderation in Q3. Second, the recovery in our foodservice business has lagged the overall foodservice sector, given our exposure to certain segments have been disproportionately affected by COVID-19. And third, we continue to contend with COVID-19-related [new product launch] timing delays with large strategic quick-serve restaurants.
In the second point, Brown is talking about foodservice segments such as independent restaurants, bars and pubs, movie theaters, and sports arenas. These categories have been hit harder by the pandemic than large fast-food chains because they don't typically have drive-thrus or offer delivery.
Investors should keep in mind the pandemic's effects on Beyond Meat's business have been different in each reported quarter of 2020. For instance, retail channel sales in Q2 were inflated due to consumers stocking up their freezers. That dynamic, in turn, took a big bite out of that channel's sales in Q3. Given this skewing of quarterly results, it's best to focus on year-to-date 2020 results.
So far this year, Beyond Meat's sales have risen by a robust 53% year over year. By comparison, sales in the plant-based meat category as a whole rose 41% over this period, according to Brown. So the company is performing wonderfully, which would not be obvious to investors focusing on just Q3 results.
Bottom-line results have worsened. But that's because Beyond Meat is investing heavily in growth initiatives, which is common for a newly public company. In the first nine months of 2020, adjusted for one-time items, it had a loss per share of $0.25, compared with EPS of $0.01 in the year-ago period.
The retail business continues to benefit from key U.S. consumer trends
From Brown's remarks:
[D]espite challenging macroeconomic conditions and highly variable buying patterns, more households are buying our products, they are buying them more frequently and on average, they are spending more per household on our products over time. [...] I obviously look at all the scouting reports on animal protein and on our competitors, and [our] numbers are great on a relative basis.
According to SPINS/IRI data that Brown provided, 5.2% of U.S. households have bought a Beyond Meat product as of September, up from 4.9% in June and 2.7% a year ago. Purchase frequency increased 8% from June to September. Repeat purchase rates increased to 51.9% in September from 49.3% in June. And U.S. households that bought the company's products spent an average of $36.50 on them in September, up from $32 in June.
The company aims to bring more production in-house
From CFO Mark Nelson's remarks:
We recently completed the acquisition of a former co-manufacturing facility in Pennsylvania. Over time, we expect bringing this manufacturing in-house will lower our cost of production, while increasing our supply and U.S. distribution capabilities. As a reminder, this acquisition complements our ongoing capacity expansion projects in Europe and China, all of which collectively advance our long-term strategic goal of closing the price gap of our products relative to animal protein.
Beyond Meat's performing more of its own production operations and depending less on independent companies should result in two key benefits: cost savings and better control over its supply chain. The pandemic has demonstrated how critical it is for companies to have a robust supply chain.