Betting on turnarounds can be lucrative, but it's important to remember that successful turnarounds don't happen very often. A successful turnaround requires, at minimum, a solid foundation. There must be some good buried underneath all of the bad.
Beyond Meat (BYND 0.95%), a pioneer in the plant-based meat industry, is in serious trouble. It's the kind of trouble that has no easy solution. Not only has the company made mistakes, but the fake meat industry is also struggling. Beyond cost-cutting, there's no real strategy for Beyond Meat.
This is not the type of turnaround that's likely to succeed.
Selling at a loss
For companies with pricing power, an inflationary environment can be lucrative. Input costs will rise, but companies with strong brands can often pass those costs off to customers, or even raise prices faster and boost profits.
For companies with no pricing power, inflation can be a killer. It's clear now that Beyond Meat has no pricing power at all. Its brand means little in the eyes of consumers. As prices at the grocery store have risen, Beyond Meat is suffering from deflation. The price at which it sells its products is declining.
Let's look at the U.S. retail segment. In the third quarter, Beyond Meat generated $4.23 of revenue per pound of product sold. Rewind to the third quarter of 2022, and that number was $5.21 of revenue per pound of product sold.
Beyond Meat has made some progress in cutting manufacturing costs, but that's not why the company is accepting lower prices. Demand just isn't there. Even as prices tumble, volumes are declining in its biggest segment. In U.S. retail, Beyond Meat sold 18.8% less product by pound in the third quarter on a year-over-year basis. Total volumes were up 3.5% thanks to stronger sales in international markets, but the overall picture was bleak. That slight increase in volume came with an 8.7% decline in revenue.
Beyond Meat's gross margin is negative, which means the company is selling its products below the cost to produce those products. Part of the problem is competition. The number of plant-based meat brands has exploded, but the overall market has stagnate. In the United States, plant-based meat sales didn't grow in 2021 and declined by 1% in 2022.
Cost-cutting isn't a solution
Beyond Meat's strategy right now involves aggressive cost-cutting. The company is reviewing its global operations looking for ways to bring down costs. On the manufacturing side, consolidating facilities and finding ways to be more efficient can help push gross margin into the black. On the operating side, the company has already slashed spending across the board, but deeper cuts may be necessary to slow the rate at which Beyond Meat is burning cash.
Even if the company dramatically brings down costs, there's still a demand problem. It may not be possible for Beyond Meat to turn a profit at its current sales volumes. With $75.3 million in revenue during the third quarter, the company posted a net loss of $70.5 million. Beyond Meat is going to need consumer demand for plant-based meat to explode, which would likely allow the company to push up prices. There's just no reason to believe that's going to happen.
Beyond Meat has less than two years of cash left based on its current burn rate. It already has $1.1 billion of debt. Book value, or assets minus liabilities, is falling deeper into the red with each passing quarter. Raising cash, either through selling stock or additional debt, will be costly if it's even possible in this environment.
Even with the stock down 97% from its all-time high, my view is that Beyond Meat needs a miracle to deliver a positive long-term return for investors. Cutting costs can drag things out, but I'm struggling to see a viable path forward for this company.
