From Plant-Based Boom to Bond Bust: Beyond Meat's Financial Rollercoaster
A Detailed Exploration of Beyond Meat's Current Struggles and Balance Sheet Challenges
Founded in 2009, Beyond Meat, Inc. (“BYND”) is a forerunner in the plant-based meat alternatives sector, offering meat enthusiasts a plant-based alternative that replicates the taste, texture, and aroma of traditional meat. The company’s products, developed through scientific deconstruction and reconstruction of animal-based proteins, have been recognized for their health and environmental benefits, including a significant reduction in carbon emissions.
In its early days, Beyond Meat experienced a surge in popularity, with its stock price reaching a peak of $239/share in 2019 following a successful IPO. Major QSR chains, including Burger King and Dunkin, incorporated Beyond Meat products into their menus, further amplifying its market presence. At its peak, Beyond Meat was valued at over $14bn!
Taking advantage of its high stock price as well as the prevailing low interest rate environment, on March 2, 2021, the company raised $1.15 billion of 0% convertible senior notes due 2026 with a conversion price of $206 per share. The proceeds from the offering were used for general corporate purposes, including expanding production capacity, funding research and development, as well as marketing and promoting products.
This is when things began to fall apart. While the pandemic might have initially boosted demand, it unfortunately did not result in higher repeat rates. Sales of certain products started to dwindle. Other chains, after testing Beyond Meat, chose not to proceed with its offerings. A significant setback was McDonald’s decision not to expand its McPlant test using Beyond Meat. To address these issues, the company significantly invested in R&D due to the need for new product formulations.
In the grocery sector, Beyond Meat faced stiff competition from Impossible Foods, which entered the market with lower-priced offerings. This forced Beyond Meat to reduce its prices, even as consumers seemed to prefer the taste and texture of Impossible’s products. In addition, Beyond Meat’s ventures into other categories such as the jerky market didn’t take off as expected.
Underlying all of these issues, since 2020, there has been a notable decline in the percentage of consumers who believed plant-based meat was healthy, dropping from 50% to 38%. From a product perspective, Beyond Meat’s offerings, while boasting zero cholesterol, still faced challenges in terms of high fat content and texture that didn’t fully mimic traditional meat. These product attributes, combined with the persistent issue of premium pricing, remained barriers to broader consumer adoption. Moreover, while BYND’s marketing emphasized health benefits, the majority of surveyed consumers prioritized taste, followed by nutrition and price. This declining interest in plant-based meat, coupled with negative perceptions of taste, negatively impacted Beyond’s brand, resulting in a market share decline of 500bps over the past three years.
In response to these challenges, Beyond Meat’s management has initiated several strategies. These include addressing health misperceptions through targeted marketing campaigns, launching a range of new products, adjusting product pricing, and focusing on European QSRs where their products have seen greater success. The company is also focusing on enhancing profitability through SKU rationalization and expense optimization. However, accelerating demand in a fiercely competitive category, which is already witnessing significant year-over-year declines, presents a complex challenge. These market and company challenges have rightfully concerned investors and weighed in on the prices of the company’s stock as well as convertible bonds, currently down from their peaks by 98% and 79%, respectively.
After a series of disappointing financial quarters, on August 7, 2023, BYND posted its 2Q’23 earnings results which showed a -30.5% year-over-year decline in revenues, attributable to both volume (-23.9%) and pricing (-8.6%). The company cited weak demand, particularly in its US retail and foodservice channels as well as a tough comparison vs. a strong 2Q’22. Despite these challenges, Beyond Meat’s CEO, Ethan Brown, emphasized the company’s operational efficiency improvements and expected a modest return to growth in the latter half of 2023.
As for guidance, Beyond Meat adjusted its 2023 outlook, projecting full year 2023 net revenues of $360 million to $380 million, a decrease of 9% to 14% compared to 2022. The company now believes it is unlikely to achieve positive cash flow in the second half of the year. BYND also highlighted its plans to reduce cash consumption for the rest of the year through inventory liquidation and cost-cutting measures, including reductions in operating expenses and CapEx.
Despite theses cost reduction efforts, a significant acceleration in volumes for Beyond Meat is crucial to enhance gross margins and achieve positive FCF. Confidence in sustained sales momentum is wavering due to the lack of evidence for US market stability. Current scanner data further supports this concern, indicating that volume declines for the plant-based category have continued into 3Q’23. If current trends continue, the company’s liquidity could drop to alarmingly low levels by mid-2024. On top of these issues, the company’s operating environment remains uncertain due to macroeconomic factors including softer demand in the plant-based meat category and inflation—Consumers, who were already grappling with the higher price point of plant-based meats, are beginning to revert to less expensive animal meat options.
Questions regarding BYND’s current strategy remain, especially given the pressures within the plant-based meat category. The company has now pivoted its focus towards enhancing consumer perception of the health and environmental benefits of their products. However, Beyond Meat has experienced two years of volume declines, which could lead to reduced shelf space during retailer resets. This decline, coupled with lower unit sales, suggests that trade inventories might be affected due to diminished retailer inventory needs. Despite efforts to boost sales by lowering prices, Beyond Meat continues to lose market share in the refrigerated plant-based meat alternatives category.
In summary, while Beyond Meat started with a strong market presence and promise, it currently faces significant challenges both in terms of market competition and financial stability. The company’s future trajectory will depend on its ability to effectively implement its turnaround and adapt to changing market dynamics. The issue of funding will persist, especially without any positive FCF and the likelihood of securing sustainable funding remains uncertain until there’s tangible evidence of a scalable concept with a higher success probability.
In the following sections, I will review the company’s current capital structure, summary financials and projections, and provide my views on BYND’s convertible bonds due 2027. These bonds are currently trading at a price of 22 cents on the dollar, implying a yield to maturity of over 50%, if repaid at par at maturity.
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