Shares of Beyond Meat (BYND 0.95%) are down about 30% over the past year. But there was a big announcement on Nov. 2 that lifted its shares by around 25%. Is this a sign that Wall Street thinks the alternative meat company has turned a corner and now is the time to buy?
Beyond Meat is kind of young for a facelift
Beyond Meat held its initial public offering (IPO) in 2019 to much fanfare. The stock rose over 200% in very short order. But that turned out to be the high-water mark, with a fairly quick retreat to the IPO price. After a few big ups and downs, the stock is now around 85% below its IPO level. The early excitement here has clearly faded.
And yet, the stock is up roughly 25% from that November announcement. As CEO Ethan Brown sums it up, Beyond Meat is "conducting a review of our global operations for purposes of further and significantly reducing our operating expense base as we seek to accelerate our transition to a sustainable and, ultimately, profitable business." He also noted that the headwinds the company is currently facing are expected to continue in the "coming" quarters.
The stock popped on the news, as noted above. The overhaul taking place includes staff reductions, a narrowing of its commercial focus, and a revamp of its manufacturing assets, among other things. The staff cuts represent 8% of the company's overall workforce and 19% of its non-manufacturing employees. That's a large reduction given that the company is less than five years old.
But this is all probably needed given that Beyond Meat has yet to turn a full-year profit despite having already created the infrastructure needed to produce its products. Basically, it doesn't need to focus on building a business, it needs to focus on getting into the black.
Beyond Meat's big problem
The real concern that investors should have, however, isn't about the company's cost structure. Yes, costs are important, but there's something more fundamental happening that suggests management may not be able to cut costs enough to make Beyond Meat a viable business.
For example, the food maker reported that third-quarter volumes sold rose 3.5% year over year. That sounds great, but it requires a closer inspection. Yes, volumes increased overall. That was driven by growth in the international market, which saw volume rise nearly 43% in the retail arena and 90% in the food service space. But in the U.S. market, where the company's product has been available for longer, volume was down nearly 19% on the retail side and almost 38% in the food service space.
Moreover, the number of distribution channels has been declining. Notably, the big spike in demand in international foodservice was accompanied by a sizable drop in distribution channels. This hints that perhaps the volume growth in that space isn't quite as positive an event as it seems.
This becomes a more troubling issue when you look back at the first nine months of 2023. Over that span, total volume was down nearly 12%. The only positive on the volume front was in the international food service line, which as just noted may not be as strong as the volume numbers suggest.
It looks increasingly like Beyond Meat's products are having a hard time shifting from a hot fad to a sustainable product offering.
Beyond Meat's overhaul is not good news
When a giant, profitable food maker looks to restructure its business to trim costs, it is usually a positive event. When cost-cutting takes place at a small food maker that is bleeding red ink and appears to be facing headwinds with its only product, well, that's not quite as positive. It is a statement that the company's struggles may be bigger than they appear. Most investors will probably want to err on the side of caution here.
