Investors were bracing for bad news from Beyond Meat (BYND -0.23%) in its first-quarter earnings report. The plant-based meat specialist posted surprisingly weak demand in each of its last two earnings reports, and several signs were pointing to a tougher fiscal year ahead on both the sales and earnings fronts.
The company didn't ease those concerns with its latest announcement. While Beyond Meat is back to growing in the core retailing niche, losses are ballooning, and demand isn't being lifted much by its latest product launches. While the stock soared with the market last Friday, it's still down some 70% over the past year. Let's dive right in.
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Getting back to growth
The good news is that trends have improved a bit since late 2021. Sales to retailers like supermarket chains and warehouse giants rose 7% through early April compared to a 20% decline last quarter. Management credited the successful launch of a new jerky product for lifting sales in the U.S. market, which expanded by 4% after declining by 9% last quarter.
There were more worrying signs in the report, though. Most investors were expecting higher sales overall, considering Beyond Meat introduced several new products and spent heavily on marketing and promotions . But these moves didn't spark a big rebound, and consumers still appear to be losing their appetite for the plant-based protein niche as compared to earlier phases of the pandemic.
The 92% loss
The news was far worse on the financial side of the business. Beyond Meat's profitability decline accelerated in the first quarter with gross profit plunging to $0.2 million, or a negligible percent of sales. The gross profit margin had been approaching 40% in 2020 and fell to 25% in recent quarters.
Beyond Meat also ramped up spending on marketing as well as research and development. These moves helped the company make "progress against our goal of building tomorrow's global protein company," CEO Ethan Brown said in a press release. It created a jarring 92% loss for the period, though, as operating losses landed at $98 million compared to the company's $110 million of revenue. "We took cost-intensive measures to support important strategic launches," Brown explained.
The path forward
Executives affirmed their 2022 sales outlook in what would normally be considered a good sign for the business in these volatile demand times. However, that forecast range is wide, equating to sales growth of as low as 21% or as high as 33%. For context, Beyond Meat grew at a 14% pace last year and by 37% in 2020.
That growth slowdown is more disappointing considering that it is happening while Beyond Meat is spending so heavily on its promotions and marketing. Its products often represent entirely new tastes for consumers, meaning there's a period of trial before they can move into the mainstream. That's not true for consumer staples companies like PepsiCo.
That taste-building process has been a risk for this business since the start. But the risk is amplified today now that prices are rising, and the industry is growing at a sluggish pace. Those trends together imply that it may be a while before Beyond Meat can achieve anything approaching the strong profitability it posted in 2020.
