In the summer of 2022, I believed that shares of Beyond Meat, Inc. (NASDAQ:BYND) were in the meat grinder. That came as the share price and actual business implosion continued, becoming less economical by the quarter, as the business even saw negative gross margins at the time.
With losses and woes mounting, the fundamental story remained dismal, so I was very cautious to get involved. I am glad that I remained cautious, with shares down another 70% over the past year and a bit. Trading in single-digit territory, the situation looks dismal amidst a near billion dollar net debt load, falling revenues, and even negative gross profits at times.
A Boom – Bust Cycle
Beyond Meat went public in the $20s in 2019, being one of the poster child momentum stocks of its time. Just weeks after the public offering, shares traded above the $200 mark, as the business had seen incredible underlying momentum. A mere $16 million business in 2016 had grown to a $300 million revenue base in the year of the IPO, as a $12 billion valuation was very demanding around 40 times sales.
Originally guiding for 2020 sales of around half a billion dollars, being the result of consumers focusing on healthier products, animal welfare and less of an impact on the environment, the company quickly went downhill. In the year 2019, the company posted an operating profit of $0.5 million on $298 million in sales.
As it turned out, 2020 sales only rose to $407 million, as the business was of course hit hard by the pandemic, with restaurant-related sales down quite a bit from the projections. The company posted an operating loss of $49 million that year, as shares still traded at $150 early in 2021, leaving me somewhat puzzled.
In February 2022, the company posted 2021 sales at $465 million, on which a huge operating loss of $175 million was reported. This came after the business posted an $80 million operating loss on $100 million in fourth quarter revenues, with sales actually down a percent on the year before.
The company guided for 2022 sales to grow 21-33% to $560-$620 million, as operating losses should narrow, but no guidance on that was provided. There were risk to the guidance as first quarter sales for 2022 rose just 1% to $109 million, on which a huge $100 million operating loss reported, as net debt approached the half a billion dollar mark.
Trading at $35, the 63 million shares still represented an $2.2 billion equity valuation, or about 5 times sales if we factor in half a billion net debt load. This looks reasonable, but the lack of real growth, but moreover the huge operating losses made me cautious to get involved amidst a brutal competitive field.
Coming Down
A $30 stock in the summer 2022 fell to the $15 mark in the autumn, and ever since has essentially traded in a $10-$20 range, now trading at lows at $8 and change.
The reason for that is easy to understand, as the 2022 outlook has proven to be too optimistic, with full year sales coming in 10% lower at $419 million. That was just part of the bad news, as gross margins came in at negative $23 million, with operating losses exploding to $343 million. Moreover, fourth quarter sales fell over 20% to less than $80 million, on which a near $66 million operating loss was reported. Net debt ticked up to $800 million amidst the losses, which is bad enough as it is, but fortunately much of the debt is in the form of convertible debt, with both fixed and low (in this case no) coupons.
The company guided for 2023 sales between $375 and $415 million, and while sales were seen down, gross margins were seen in the double-digit range, and seen increasing throughout the year. With operating expenses seen around a quarter of a billion, investors should brace for another year of losses, albeit declining losses.
In May, Beyond Meat posted a 16% fall in first quarter sales to $92 million, with revenues increasing on a sequential basis. Following a $6 million gross profit, operating losses were reported at nearly $58 million.
In May, Beyond Meat announced an At The Market (ATM) equity offering program, to sell up to $200 million in shares. In August, Beyond Meat posted second quarter sales at $102 million, down 30% on the year before, as gross profits were stuck around $2 million, although reduced operating expenses meant that operating losses fell to $54 million
The company cut the full year sales guidance from a midpoint of $395 million to $370 million, with gross margins seen at just mid- to high-single digits. This marks a huge setback on the bottom line as well, even as operating expense guidance has been cut by five million to $245 million.
And Now?
With 64 million shares trading at $8 and change, the market value of Beyond Meat has fallen to just over half a billion. This is due to the continued losses, as well as the fact that net debt has risen to more than $900 million. While Beyond Meat, Inc. is not hurt by interest expenses, a day of reckoning will come at some point in time.
The fact that the ATM program has been established is very telling in this environment. A $200 million equity program is sufficient to finance losses for less than a year here, but if executed in its entirety at current levels, investors will incur some 40% dilution over the same period of time. Note that this is only to finance losses for a year, not even make a dent in a near billion dollar net debt pile.
This debt load has very favorable attributes, including a maturity which is not due before 2027, as the debt does not carry a coupon. The issue is that it is impossible to earn this money before maturity, and given today’s performance it will be impossible to refinance the debt as well.
With so many disappointments having followed each other in such a short period of time, I am very cautious to get involved with Beyond Meat, Inc. The category at large has huge headwinds, despite the (arguable) benefits for human and the environment.
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