Beyond Meat (BYND 0.95%) stock plunged 11.9% in Monday's after-hours trading following the plant-based meat substitute maker's release of its second-quarter 2023 results.
Investors' distaste for the report is attributable to the quarter's revenue missing Wall Street's consensus estimate and management lowering its full-year 2023 guidance for revenue and gross profit margin. Moreover, it no longer expects to be cash-flow positive in the second half of the year.
Beyond Meat's key numbers
| Metric | Q2 2022 | Q2 2023 | Change |
|---|---|---|---|
| Revenue | $147.0 million | $102.1 million | (31%) |
| Operating income | ($89.7 million) | ($53.8 million) | Loss narrowed 40% |
| Net income | ($97.1 million) | ($53.5 million) | Loss narrowed 45% |
| Earnings per share (EPS) | ($1.53) | ($0.83) | Loss narrowed 46% |
Data source: Beyond Meat.
Wall Street was looking for a loss of $0.86 per share on revenue of $108.4 million. So, Beyond Meat slightly beat the bottom-line expectation but fell short of the top-line one.
In the first half of the year, the company used $88.3 million in cash to run its operations. This is an improvement from the $235.7 million in cash it used in the year-ago period, but investors certainly don't want to see negative operating cash flows. The company ended the quarter with $225.9 million in cash and cash equivalents and $1.1 billion in total debt.
Revenue breakdown
| Geographic Distribution Channel | Q2 2023 Revenue | Change (YOY) |
|---|---|---|
| U.S. retail | $48.5 million | (39%) |
| U.S. food service | $12.8 million | (45%) |
| U.S. total | $61.3 million | (40%) |
| International retail | $20.0 million | (16%) |
| International food service | $20.9 million | (1%) |
| International total | $40.9 million | (9%) |
| Total revenue | $102.1 million | (31%) |
Data source: Beyond Meat. YOY = year over year.
The decrease in revenue was driven by a 23.9% decrease in the volume of products sold and an 8.6% decrease in net revenue per pound. The company attributed the lower volume primarily to "weak category demand, especially in the Company's U.S. retail and U.S. foodservice channels." And it attributed the decrease in net revenue per pound to "changes in product sales mix and increased trade discounts, partially offset by pricing changes [increases]."
What the CEO had to say
Here's most of what CEO Ethan Brown had to say in the earnings release:
The second quarter brought mixed results amid otherwise strong progress toward our goal of sustainable long-term growth. Ongoing category headwinds compressed net revenues, which in turn impacted product sales mix and gross margin, overshadowing significant strides in operational efficiency, including meaningful year-over-year reductions in operating expenses, COGS [cost of goods sold] per pound, and overall cash consumption.
While we are reducing our full-year 2023 net revenues outlook, we nevertheless expect a modest return to year-over-year top-line growth in the third and fourth quarters of 2023, and, relative to the first half of 2023, a meaningful reduction in cash consumption and an increase in gross margin.
2023 guidance lowered
| Metric | Prior Guidance Issued on May 10, 2023 | Current Guidance | Change Implied by Current Guidance (YOY) |
|---|---|---|---|
| Revenue | $375 million to $415 million | $360 million to $380 million | (14%) to (9%) |
| Gross profit margin | Low-double-digit percentage | Mid- to high-single-digit percentage | Metric was (5.7%) in year-ago period |
| Operating cash flow | Positive in second half of year | Unlikely to be positive in second half of year | -- |
Data source: Beyond Meat. YOY = year over year.
The gross profit margin is expected to be notably better in 2023 relative to 2022. However, a good portion of this improvement is due to a change in accounting estimates for the useful lives of the company's large manufacturing equipment implemented in the first quarter of 2023.
Another disappointing quarter
In short, Beyond Meat turned in a disappointing quarter. I am not optimistic about the potential for this stock to be a long-term winner. Why? There are low barriers to entry to this business, and it doesn't seem to me that most retail consumers and especially fast-food customers care much about brands when buying plant-based meat substitutes. Moreover, giant fast-food companies can exert significant pricing power on their suppliers.
But you're looking to The Motley Fool to give you ideas on stocks to buy, right? I'll reiterate what I wrote in May 2022 after Beyond Meat's Q1 2022 earnings release:
Would I buy Beyond Meat stock? No, but that's only because I have a strong preference for investing in companies that operate in industries with high barriers to entry and have mighty competitive advantages. Two quite diverse stocks that fall within this category, in my opinion, are graphics chip giant Nvidia and U.S. water utility leader American Water Works.
Nvidia has been a humongous winner over the year-plus since I wrote that, and I believe it still has a huge runway for growth.
