What happened
Shares of plant-based meat company Beyond Meat (BYND 0.95%) were having a ho-hum day on Wednesday until about 2 p.m. ET. Then a report surfaced saying that fast-food giant McDonald's (MCD -0.91%) had added the McPlant burger to its menu permanently, and Beyond Meat stock skyrocketed. Shares were up almost 34%. Then another report came out saying the first one was "misconstrued." Here's what's going on.
So what
The first article comes from the website Fast Company. In the original version, the headline says that the McPlant burger (a menu item that started rolling out in the U.S. in October 2020) will stay on the menu permanently. The plant-based burger isn't co-branded with Beyond Meat, but McDonald's does use Beyond Meat as its plant-based beef supplier. This is why Beyond Meat stock skyrocketed.
Two Beyond Meat burgers. Image source: Beyond Meat.
However, shortly thereafter Bloomberg reported that McDonald's said the original Fast Company headline "misconstrued" the issue. According to this source, there's nothing new to report. That's what caused Beyond Meat to come back down to earth. But it was still up about 9% as of 3:10 p.m. ET today.
For 2021, Beyond Meat generated revenue of $465 million, a decline of 14% from 2020. This had some investors rightly fretting about growth. However, the more troubling decline has been the erosion of its gross-profit margin, which dropped to just 14% in the fourth quarter of 2021 compared to a gross margin that at one time had been around 35%.
One of the ways a company like Beyond Meat can improve its gross margin is by gaining economies of scale. Admittedly, a co-branded burger with McDonald's would be good for brand-name recognition. But supplying the world's largest burger chain could help it gain better scale, which in turn could help its declining profit margins.
For this reason, I'd say investors are right to be optimistic regarding Beyond Meat's partnership with McDonald's, even if there's not ultimately anything new to report today.
Now what
Beyond Meat is expected to report financial results for the first quarter of 2022 in May. Investors could get more details (and more importantly, official details) regarding its McDonald's partnership then. But if we don't, it will still be important for investors to listen to what management has to say about improving its profit margins as well as its plans to return to top-line growth.
