Beyond Meat CEO faces grilling from analysts after posting grim Q1 figures
While Rome wasn't built in a day, and Beyond Meat has bold global ambitions, said Ken Goldman, managing director at JP Morgan Equity Research, the near-term numbers are causing some consternation.
"Your sales were up 1% year on year in the quarter and your SG&A [selling, general, and administrative expenses] was up 93%, and some investors I've talked to are saying, look, it's great to hear your vision for a better future… but how do you think about balancing long-term opportunities and some of the shorter-term considerations for your shareholders?”
He added: “You've said on many occasions that your product is superior to the competition on a number of levels. If this is the case, why do you need to follow your competitors down on price to this degree?”
Analyst: If prices are coming down, why isn't plant-based meat doing better?
What everyone is now wondering, added Credit Suisse senior equity analyst Robert Moskow, is whether price is the main factor holding the plant-based meat category back, or whether other factors are limiting the category's potential.
“We're in a time of unprecedented price inflation in conventional meat," said Moskow, "and your strategy has been to reduce prices for plant-based burgers. And I guess what I'm surprised about is that that hasn't yet brought in more consumers to the category.
"So I'm wondering if you've done any research to indicate that [a lower] price will be the trigger that increases the trial and repeat, or could there be other factors that drive this?"
Price is not the only lever plant-based brands must pull to increase household penetration
Brown - who pointed out that volumes at Beyond Meat were up in double digits in the quarter, despite sluggish dollar sales growth - said bringing prices down was key to expanding the market, but not the sole lever brands in the space must pull in order to increase household penetration.
“One [other factor] is to continue to drive the taste profile, which we really do need to do, and we have some terrific innovation coming later this year. Second is to continue to communicate the value proposition, which is around health to the consumer, and then to a lesser extent environment [sustainability benefits of plant-based vs conventional meat]."
As for pricing, he added, "there is a lot of unsustainable pricing behavior going on" as "new entrants come in and use price as a way to try and capture early market share," but Beyond Meat's long-term goal of reaching price parity would be achieved through cost reductions, not discounting.
The long-term view
Addressing Goldman's question directly, he said: "Do investors want us to run the business at a smaller level and focus on maximizing margins, let's say on a retail burger, or do we continue to make the decisions that are going to create the longest term value for the investor?
"The approach we're taking is to create the longest term value and it's very consistent with the goal that we set out to do when we went public and we will continue to do that."
"If jerky is a homerun and the McPlant sees a successful US launch, Beyond Meat could yet dig itself out of this hole. Unfortunately, to date the adoption curve has lagged expectations, and efforts to stimulate growth are proving costly—exacerbated by an unprecedented inflationary backdrop and intensifying competitive forces." Brian Holland, Cowen
Q1, 2022: Dollar sales +1.2%, volumes up 12.4% in Q1; net loss $100.5m
Beyond Meat blamed disappointing dollar sales in the first quarter of 2022 (+1.2% to $110.5m) on increased trade discounts, list price reductions in the EU, changes in sales mix, and negative foreign exchange rate impacts, but stressed that total volume sold increased 12.4% year on year.
US retail net revenues were up 6.9% YoY in the quarter (volumes +11.9%); while international retail net revenues were down -6.2% (volumes +19.3%).
International foodservice sales dropped -8%, although volumes rose 28.9%; while weaker sales in US foodservice (-7.5%) were “primarily attributable to the discontinuation of distribution at a certain customer," explained CEO Ethan Brown.
"Though we navigated significant costs challenges in the first quarter of 2022 - the majority of which relate to scaling or strategic product launches and are temporary in nature - we made strong progress against our long term growth strategy, and saw encouraging signs of resumed growth."
‘A sizable though temporary reduction in gross margin’
However, the bottom line took a significant hit during the quarter, with net losses topping $100m, said Brown, who explained that Beyond Meat had experienced a “sizable though temporary reduction in gross margin.”
Some of this reflected the “complex and high-cost manufacturing process” to produce Beyond Jerky, which he said had been "a resounding success," with velocities exceeding expectations and distribution expected to increase from 56,000 stores today to 80,000 by the end of May.
However, costs to produce it should come down soon, said CFO Phil Hardin, who said the company had recently "signed a contract to consolidate operations with a 3rd party manufacturer that can produce jerky with more automated equipment, lowering fees and reducing the need for multiple processing locations… we expect this capacity to come online in mid Q3 of 2022."
Despite short term fluctuations, added Brown, "We do not see any fundamental change in our long-term margin targets of 30% plus."
‘A robust foundation for our long-term growth’
Despite the grim near-term results, Beyond Meat is laying “a robust foundation for our long-term growth,” added Brown, who said investments in product innovation and scaling with strategic QSR partners would bear fruit down the line.
The company reaffirmed its previous guidance for full-year 2022 net revenues in the $560-$620m range (up 21-33% vs 2021).
Cheaper pea protein isolate?
CFO Phil Hardin said he was “especially excited about the ongoing progress we were making in using less expensive pea protein isolates (PPI).”
He said: “While we have secured PPI supply through a previously disclosed multi-year contract [with Roquette], we're seeing success in qualifying and utilizing greater proportions of PPI from less expensive suppliers, stemming from our strategic sourcing efforts.
“Our current cost down efforts in this area are focused on allowing us to migrate to exclusive use of these lower cost ingredients, and on our initial rounds of testing are looking promising.”
While Beyond Meat posted a 6.9% increase in net revenues in the US retail channel in Q1, SPINS data for the 12 weeks ended March 20, showed Beyond Meat posted a decline of 3.3% (excluding jerky) versus a category increase of 2.8%, said CEO Ethan Brown.
This, he said, reflected the fact that Beyond Meat over-indexes in the natural and specialty channel (in which sales have been softer vs MULO), a switch among some consumers from refrigerated to frozen products, heightened competition, and increased promotional spending.
210 Analytics: US retail sales of plant-based meat +3.6% YoY in March, volumes -4.3%
According to 210 Analytics, which analyses IRI data in measured US retail channels, dollar sales of plant-based meat were up a modest 3.6% in March 2022 vs March 2021, but volumes were down -4.3%.
Frozen products fared better than refrigerated items, with sales of frozen plant-based meat, poultry, and seafood up 10.2% YoY in March 2022, while sales of refrigerated meat substitutes were down -8.6%.
Price gap between conventional and plant-based meat
While the price of conventional meat has surged over the past year, the price of refrigerated plant-based meat was “relatively flat” in March 2022 versus March 2021, said 210 Analytics.
However, there is still a large gap between conventional and plant-based products, with the retail price of frozen meat alternatives averaging $6.90/lb in the 52 weeks to Feb 27, 2022 vs an average of $4.79/lb for frozen conventional meat.
In the refrigerated segment, the price gap between conventional and alt meat is wider, with prices of refrigerated meat alternatives averaging $8.14/lb vs $4.14/lb for conventional fresh meat.
Two-year comparison data
On a two-year basis, US retail sales volumes of meat alternatives (frozen and refrigerated combined) were up double digits in the 52 weeks to Feb 27, 2022 (frozen +14.1%, refrigerated +57.4%).
However, volumes of conventional meat, which dwarf those in alt-meat, were also up solidly off a far larger base, despite surging inflation, with frozen meat in particular seeing a huge surge in volumes (+18.1%), and refrigerated meat up +3.2%.
