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Feb 27, 2020

Beyond Meat’s slump shows investors hungry for more than growth

Ross Healy discusses Beyond Meat

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Beyond Meat Inc. shares reversed earlier gains and fell in spite of revenue that blew past analyst estimates -- a sign investors may be looking for more than rapid sales growth from the faux meat maker.

The company’s fourth-quarter sales of US$98.5 million exceeded the highest analyst projection and helped push full-year revenue beyond expectations to US$297.9 million. Beyond Meat forecast 2020 sales of US$490 million to US$510 million, also beating the average analyst estimate.

Chief Executive Officer Ethan Brown said the company is “only scratching the surface” of the U.S. restaurant market, but investors may be impatient for a bigger deal with a major player like McDonald’s Corp. Beyond Meat is in about 4 per cent of the 650,000 U.S. restaurants, Brown said, referring to the low number as an opportunity for rapid growth.

Competition is also rapidly intensifying as big-food players catch up with faux meat products of their own, although Brown said Beyond Meat cut prices less than had been expected with all the new entrants. Still, Wall Street may be pricing in slower gains following the rapid share gains of the past year.

The stock also has attracted investors who are betting on a decline: Shares on loan to short sellers make up 25 per cent of the stock’s float, according to data from financial analytics firm S3 Partners.

Beyond Meat, known for its volatility since its IPO last year, fell as much as 13 per cent after an initial gain in late trading. The company’s shares have rallied more than 40 per cent this year.

The company’s forecast that adjusted Ebitda -- earnings excluding items such as interest and depreciation -- will remain a similar percentage of revenue in 2020 from last year, may have disappointed investors, Bloomberg Intelligence analyst Jennifer Bartashus said.

“I think people were looking for a bit more than that,” she said. Ebitda was 8.5 per cent of revenue in 2019, according to the company’s statement.

The stock decline may also be due to disappointment with the company’s decision to accelerate investments to grow the business, Bartashus said.

“But at the end of the day, this is a growth company, so volatility is part of the game,” she said.

Beyond Meat, along with rival Impossible Foods Inc., also can’t ignore growing doubts about China -- a key growth market -- following the coronavirus outbreak. The virus has slowed Beyond Meat’s plans to start producing in China, Brown said, but it still expects to have production up and running in Asia this year.

“The concern is more around reaction to it than the actual virus,” Brown said. “The rate at which it’s actually causing people to die is not significant relative to other things out there so I think we need to put it in perspective.”

New Partnerships

Beyond Meat has continued to strike new or expanded alliances with big restaurant companies. Starbucks Corp. said Wednesday it will start selling a Beyond Meat Inc.-branded sausage item in Canada, following a January announcement that McDonald’s and Beyond Meat were expanding their partnership there.

While its research and development spending did not keep pace with its revenue growth, innovation remains core to the business, Brown said. Beyond Meat is planning product launches in food service and retail, while work on bacon and steak continues, he said.

The company expects to bring down prices as it tries to achieve price parity with meat, executives said on a call discussing earnings.

The company also said Seth Goldman would resign as executive chair, but would remain chairman of the board. It wasn’t immediately clear how Goldman’s role and responsibilities would change.