Beleaguered plant-based meat maker Beyond Meat’s net sales fell again in the third quarter of 2023, falling 8.7% year over year and 26% quarter over quarter, while management lowered full-year guidance for the second time this year lowered.
While Beyond Meat achieved positive free cash flow in the third quarter, the company does not expect to maintain this in the fourth quarter, with analysts at TD Cowen predicting that the company “will need to tap financial markets in 2024 to sustain operations.” .
According to CEO Ethan Brown: “We expected a modest return to growth in the third quarter of 2023, but that did not materialize.” Although we are encouraged by growth potential, particularly in the EU, where we recorded double-digit year-over-year increases in net revenue “We are disappointed with our overall results as we continue to experience deteriorating headwinds at a sector-specific and broader consumer level.”
As outlined last week, the plan is to:
- Reduced non-production workforce by 19% (65 employees or 8% of global workforce) in the fourth quarter
- Review pricing to support gross margin expansion and exit certain product lines
- Manage inventory to reduce working capital and further optimize the production site
- Focus on channels/regions with revenue growth; Review/restructuring of China business
- Addressing “misinformation” about plant-based meat in the US market
“While we appreciate the urgency of cost reduction and restructuring, we believe declining demand for Beyond’s plant-based meat products, negative free cash flow and high leverage pose an existential risk to the business model.” TD Cowen, November 2nd
Beyond Meat Q3, 2023 in numbers:
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- Net sales: Decrease 8.7% year-over-year (y-o-y) to $75.3 million, or 26% compared to the second quarter
- Gross margins: Still in negative territory at -9.6%.
- Annual deficit: $70.5 million
- US retail sales: Decrease 33.9% year over year to $30.5 million
- US foodservice revenue: Decrease 21.6% year over year to $12.5 million
- International retail: Up 38.8% year over year to $14.2 million
- International food service: Up 78.7% year over year to $18.1 million
- Outlook for the full year 2023: $330-340 million, approximately 20% less than 2022 (Q2 forecast $360-380 million; Q1 forecast $375-415 million)
- Balance sheet: As of September 30, 2023, Beyond Meat’s cash and cash equivalents were $233 million and total outstanding debt was $1.1 billion. Read more HERE.
“[In the US] We will once again price our products so that we have a margin that can sustain our business.” Ethan Brown, CEO, Beyond Meat
Ethan Brown: US retail is the problem
On the conference call with analysts Wednesday afternoon, Brown noted that international sales in the restaurant and retail sectors were up. While U.S. restaurant sales declined, this reflected a period of limited-time offerings in the third quarter of 2022 that skewed the numbers.
“If you factor that out, U.S. foodservice has also increased quite a bit. So it really depends on US retail [where sales plummeted 33.9% YoY to $30.5 million]. That’s the main problem.”
He added: “If you look at what is happening with the McPlant platform in the EU, for example, it continues to be well received, to the point where you look at Austria, Germany, Ireland, the Netherlands, the United Kingdom, Malta and Portugal.”, Slovenia and Switzerland – all of these markets are working and developing well for us. In the EU, products are properly viewed from both a climate and health perspective and recognized for their positive effects.”
However, in the US, the category faces a “well-orchestrated campaign” from animal agriculture stakeholders portraying plant-based meat as “fake, processed and full of chemicals”, he claimed.
“In our view, category health perception is the most immediate and important variable to consider to restore growth. We must decisively and forcefully address the widespread misinformation circulating in our category before we can more effectively use pricing as a tool to attract new users and the mainstream consumer to our category.”
Pricing: “It just had no impact”
On the pricing front, the discounting in the U.S. hasn’t resulted in the volume increases hoped for, he acknowledged.
“The headwinds that this category is facing, whether it’s misinformation or misunderstanding of the value proposition or whether it’s just the incredible pressure that the retail consumer is under and the very established pattern of trading down on expensive proteins … In this environment, that’s how it is.” [reducing price] simply had no effect. That’s why we will once again price our products so that we have a margin that can sustain our business.”
Asked whether Beyond Meat is “considering a complete exit” or just a reduction in operations in China, where Chief Financial Officer Lubi Kutua referred to “the discontinuation of distribution at a certain large chain customer,” Brown said: “With respect to China , I think. “It’s just a matter of taking a look at what is our strategy for the next two, three years there and how big or small do we need to be?”
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