Shares of plant-based meat company Beyond Meat (BYND 0.95%) fell 37.9% in October, according to data provided by S&P Global Market Intelligence. The company is considered to be a more speculative investment. And this type of stock did very poorly in October generally as the S&P 500 dropped 2% for the month.
That said, investors seem to worry about the long-term sustainability in demand for plant-based meat -- the products that Beyond Meat makes. And it's not just retail investors who are worried, but also analysts. For example, John Baumgartner of Mizuho Securities recommended selling Beyond Meat stock in mid-October, citing a consumer demand problem.
Beyond Meat stock steadily sold off for the rest of October after Baumgartner's commentary. And news in November shows that Baumgartner's opinion was actually well founded.
The numbers back up the suspicions
In the fourth quarter of 2022, Beyond Meat's net revenue fell by 20.6%, driven by a 16.9% drop in total pounds of plant-based meat sold. By the second quarter of 2023, Beyond Meat's products still had 190,000 points of distribution like they did in Q4. But sales volume has fallen in each quarter since.
Interpretation: Beyond Meat is still available in stores as much as ever but fewer people are buying.
In Q2, Beyond Meat's management lowered its full-year guidance. And on Nov. 2, it did so again. The company won't report official financial results for the third quarter of 2023 until Nov. 8. But Beyond Meat is making drastic changes due to lackluster results.
As CEO Ethan Brown said, "We anticipated a modest return to growth in the third quarter of 2023 that did not occur." In other words, Baumgartner was right. And the nearly 38% drop for Beyond Meat stock, therefore, makes sense.
What is Beyond Meat doing now?
For 2023, Beyond Meat now expects to generate net revenue of $330 million to $340 million. That's way down from its guidance to start the year of $375 million to $415 million.
What's particularly troubling is that Beyond Meat says it expects to break even this year on a gross profit basis. In other words, it's selling products for what it costs to make them. Add additional operating expenses on top and it's losing a lot of money.
Beyond Meat's gross profit margin has plunged from nearly 40% a few years ago as it lowers prices to stimulate demand. And it's apparently not working.
BYND Gross Profit Margin (Quarterly) data by YCharts
Since it can't seem to grow its top line, Beyond Meat is trying to improve the bottom line by lowering expenses. It's laying off 19% of its workers and doing a review of its operations around the world. But in my view, the company's products do clearly have a consumer demand problem. And until that changes, this company will struggle to grow, earn profits, and reward shareholders.
