Beyond Meat earnings: Growth story ‘up in the air right now’, analyst says

Mizuho Analyst John Baumgartner joins Yahoo Finance Live to discuss Beyond Meat earnings, cost reductions, growth in the plant-based industry, and retaining customers while iterating on the product.

Video Transcript


BRAD SMITH: Beyond Meat shares, ticker symbol BYND are on the move higher. A little more than 15% after a mixed picture in its latest quarterly results. The plant-based meat company reporting a wider-than-expected loss on earnings, but beating revenue estimates as Beyond Meat targets cash flow positive operations within the second half of 2023.

Joining us now to break all of this down and much, much more, we've got John Baumgartner who is the Mizuho Americas managing director and Equity Research analyst. John, great to have you here with us this morning. Help us break down some of these results, if there's one thing that sticks out to you from the quarter, and perhaps the reaction that the shares are also pricing into. What is it?

JOHN BAUMGARTNER: Well, I think you can attribute much of the share upside, I'd say, to the NASDAQ being 4% or 5%. I think it's more of a macro trade today. In terms of the results itself, we did have a pretty negative pre-announcement from the company a few weeks ago, taking down numbers for the full year for revenue.

What really stands out is just the degree of softening of this category over the past two years, which is now backing up with excess inventories at retail. And really necessitating a change in the strategy from sort of a, you know, "growth at all cost" mentality, to one now focused more on managing for cash flow, managing for profit, and really culling a lot of the excess capacity in the sector.

BRIAN SOZZI: John, Beyond's cash flow really plunged year-over-year. Do you think they're looking at a capital raise next year?

JOHN BAUMGARTNER: We don't think so. You know, the company's-- they're being pretty aggressive removing costs from the model right now, in terms of headcount reduction. So you should see a significant improvement in the cash burn rate, at a minimum, for next year, even if they don't get to cash flow positive in the back half of next year, which we think is a little bit of an aggressive target to begin with. But worst-case scenario, you should see a significant reduction in the cash burn rate. So we don't see a need for an imminent capital raise at this point in time.

BRAD SMITH: They've also tried to take more of the manufacturing under their own roof, instead of licensing out space and other manufacturing hubs or just warehouses, in order to build up their own manufacturing prowess. You know, how does that really get hit or restructured in the event that they do have a cash crunch, if you will?

JOHN BAUMGARTNER: Well, I mean, it's very difficult in times like these because they've built internal capacity. They still have a number of copackers that are out there. And the notion that the market is not growing as fast as they thought that it would when they budgeted for this, you know, two, three, four, five years ago, they have the ability now to at least repatriate some of that volume from third parties, in-house to get the operating leverage back up. And that's what we're going to see them doing over the next year or so.

But the bigger question is, just how does the model work in terms of growth that's baked into this story? What's the growth for the industry structurally overall? And that's really up in the air right now.

BRIAN SOZZI: John, what's the end game here for a company like Beyond? Do they have to join forces with their rival Impossible at some point? Or do they sell out to PepsiCo where they have a partnership?

JOHN BAUMGARTNER: I think the end game is just patience. There's been, I think, a number of strategic missteps here over the past couple of years in terms of, you know, launching products that have not been very incremental to the portfolio. Launching in channels that, again, are not that incremental to where your core consumer really is.

And I think as the company sort of tightens the reins a bit here, and you know, looks at what more is impactful and more structural to the growth of the business, growing at a more measured pace, thinking smarter about innovation, in terms of what's more incremental in terms of new products, more value added products, less commoditized products. I mean, we see a path forward organically for the company. But it's really just having the right frame of mind and the right relevant speed of growth going forward.

BRAD SMITH: For the consumer, this was a more expensive product at the end of the day. So for a premium product that Impossible Foods has or Beyond Meat has, in a recessionary period, is the consumer still going to be leaning into that?

JOHN BAUMGARTNER: We haven't seen that. I mean, category volume has not grown for 21 straight months now coming out of COVID. And I think part of the issue is price. You know, it is much more expensive relative to plant-based meat.

But the other issue, too, is I think you pull forward a fair amount of demand from COVID, the lockdowns at home. You had trial in this sector. And the bigger issue overall is, you know, the quality of this product. How close is the match up to taste and functionality of real meat, texture, mouthfeel.

And you know, this first generation technology is good but it's still working through. And you look at Beyond Meat, you know, they're now on Beyond Meat burger version 4.0. And the issue you run into is for your early adopters that tried version 1.0 and 2.0, if they didn't have a good experience, they may not come back for a version 3.0 or 4.0.

And this is part of the issue now with the category. You're seeing competitors, like Impossible Foods, doing more frozen entrees, you know, Tattooed Chef, plant-based bowls. You know, meeting the consumer in other areas of the store with other consumption occasions. Where the path that Beyond has chosen is more of that commoditized ground beef, burger, chicken tender, steak product, which I think has an impact right now in terms of how they're growing this business in a down economy.

BRAD SMITH: John Baumgartner, who is the Mizuho Americas managing director and Equity Research analyst. Great to talk some Beyond Meat with you this morning, and of course, the broader category sector as well. Appreciate the time.