How long can a company last by selling products for less than it costs to make them? One would imagine not for very long, but Beyond Meat (BYND -0.87%) seems willing to try to find out, as its fourth-quarter earnings results showed sales tumbling 21% for the period while its costs skyrocketed 27%, resulting in negative gross margins of 3.7%.
The market seemed to focus instead on Beyond Meat's net losses narrowing to $66 million from last year's $80 million loss, and ran the stock some 10% higher in the process (it had been up as much as 33% at one point). But its results mean that it cost the company $1.84 for every $1 in plant-based burgers it sold.
Beyond Meat did beat Wall Street expectations on the top and bottom lines, but if you set the bar low enough, anyone can easily step over it. This was not a good quarter for the maker of meat substitutes or its investors, and the risk of a further implosion for the food stock is rising.
Image source: Getty Images.
A quickly diminishing market
Beyond Meat is losing sales across the board, in grocery stores and in restaurants, and here at home as well as abroad.
U.S. supermarket sales fell more than 17% as the number of pounds sold dropped 22% for the period and 24% internationally as well, while U.S. restaurant sales were down 30% after McDonald's ended its test with the McPlant burger last year. Foodservice sales were down 16% internationally, too.
The company's deteriorating condition led it to dismiss one-fifth of its workforce in October to save on operating expenses. But with the cost of producing its plant-based burgers exceeding how much it brings in from selling them, it could fire everyone and reduce its costs to zero, and Beyond Meat will still not make money.
Management maintains it's on track to be cash-flow positive by the second half of 2023 along with getting a grip on expenses so that its gross margins are in the low double-digit range, but it's not a good outlook for the meat-substitute company. This is not a growing business, but instead one that is hunkering down trying to coalesce around a much smaller (and hopefully profitable) base.
Burning through cash
For a company that sought to upend the trillion-dollar meat industry, these are dramatically lowered expectations, and ones that don't point to a long, prosperous business.
Beyond Meat burned through more than half the cash it had on hand in 2022, or over $423 million, and now has $310 million left. It did see fit, however, to boost the stock-based compensation that management received from $27.7 million to $33.9 million, though the company's position could hardly be deemed worthy of being rewarded.
Burning through cash like that with dwindling resources on hand and a limited ability to replenish it indicates Beyond Meat will need to raise money in some fashion, either by issuing more stock or debt.
It already carries $1.1 billion in debt, and fortunately the convertible notes aren't due until 2027, giving it time to get its business in order. But at the rate it's reducing its losses, Beyond Meat won't be profitable until a year later at best.
A small fish in a tiny pond
Plant-based meat alternatives aren't necessarily a fad, but rather a trendy niche that struggles to expand the customer base beyond vegetarians and vegans. The product may have a place in the market, but the same can't be said of the companies producing them.
With numerous players in the field now, particularly among bigger, better-financed protein producers like Tyson Foods and Hormel Foods, it's hard to see how small and unprofitable pure plays like Beyond Meat survive independently for very long.
