Beyond Meat (BYND 4.85%) just delivered a second-straight earnings report that contained almost no good news for investors. The plant-based meat giant announced weak growth, falling market share, and huge losses for the final quarter of 2021 and the wider year.
Management set the stakes just right in the conference call that followed when CEO Ethan Brown said, "The key question is whether this reduced growth rate is an aberration or a harbinger of things to come."
NASDAQ: BYND
Key Data Points
The company believes a modest rebound is on the way with help from the launch of several new Beyond-branded menu items at fast-food and restaurant chains. Should investors buy into that recovery idea following a terrible fourth quarter? Let's take a closer look.
The latest results
Beyond Meat's 1% sales decline through late December met management's reduced expectations but reflected major demand challenges. The retailer segment, which involves sales to supermarket chains and warehouse retailers, shrank 20% in the core U.S. market. That's a jarring result for a growth-focused stock.
In the earnings call, Brown and his team said that much of the demand pressure came from temporary pandemic shifts in consumer behavior. They cited a move toward comfort foods and away from health-oriented options. Shoppers became less interested in trying out new tastes, too.
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The news was even worse on earnings. Beyond Meat's net losses were a staggering 80% of sales for the quarter and were driven by rising costs, lower gross profit margins, and aggressive investments into the business. Management warned that these issues would likely worsen in early 2022 before improving later in the year.
The case for a rebound
The rebound thesis relies on big changes happening over the next few quarters. Beyond Meat will see many more menu item launches at popular restaurant chains after these releases were delayed due to supply-chain issues. The company also plans to scale up its sampling promotions at retailers following a quiet period in Q4.
The promotional spending is expected to then slow in late 2022, which should help the company's gross profit margin to start climbing back toward the 35% level it briefly reached in 2020.
But those positive factors won't matter much if Beyond Meat's management team is wrong about the health of the wider plant-based meat industry and the company's place in this niche. Investors buying the stock today have to believe that the category's decline in the second half of 2021 was just a one-time blip. People will once again make plant-based meat products a small but growing part of their spending budgets, both for at-home cooking and restaurant meals.
The trouble with that prediction is that sales trends are pointing in the opposite direction through early 2022. Management's full-year forecast doesn't spark much confidence either. Sales are expected to rise between 21% and 33% in 2022 -- well below what investors were hoping to see. The plant-based meat industry itself has slowed, producing close to flat growth in the past year vs. the 45% spike that preceded it in 2020.
That's why the key factor to watch is whether shoppers' appetites return for plant-based meats over the next few quarters. "Tasting is believing," Beyond Meat executives like to say. The company is betting a lot on the prospect that customers will enjoy the flavors they'll be tasting over the next few months.
