Friday, February 28, 2020

Beyond Meat Shares Tank Despite 200% Sales Growth

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What’s happening: Shares of Beyond Meat tumbled in extended trading on Thursday even as the company’s sales tripled in the fourth quarter.

What happened: Beyond Meat’s shares had a volatile day yesterday, following the company fourth-quarter results. The stock initially surged 6% in extended trading in response to strong quarterly sales, only to give up all gains and settle more than 10% lower as investors chose to focus on the loss for the quarter.

The producer of plant-based meat substitutes also announced a number of new deals with leading fast-food chains.

  • Beyond Meat posted a fourth-quarter loss of $452,000, versus a loss of $7.5 million in the same quarter in the previous year.
  • The company announced a whopping 212% growth in quarterly sales to $98.5 million, exceeding expectations of $81.2 million.
  • The company’s loss of a penny per share, missed the consensus estimate 1 cent per share.
  • Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) came in at $25.3 million, versus an adjusted EBITDA loss of $19.3 million a year ago.

Why it matters: Beyond Meat had reported its first quarterly profit in the previous quarter. Investors were disillusioned at the company slipping back in the red, despite its phenomenal sales growth.

The company’s sales to the food service and restaurant segments accounted for around 59% of its total revenue for the quarter. Despite facing strong competition from traditional food firms and meat makers, the company has been forging new partnerships with fast-food giants, including KFC and McDonald’s. Starbucks also recently announced plans of introducing a breakfast sandwich using Beyond Meat’s sausage patties to its cafés in Canada.

Even as the company continues to ink new deals, its products don’t seem to have staying power on the menu. The company’s meatless burgers and sausages were removed in September from Tim Hortons’ menus in every Canadian province other than Ontario and British Columbia. These two provinces also saw the products being removed by late January, with the coffee chain struggling to turn its business around in the country.

Beyond Meat has projected revenue of between $490 million and $510 million for fiscal 2020. However, this growth is unlikely to tickle down to the bottom line due to higher spending on marketing and R&D, along with initiatives to expand in global markets. CEO Ethan Brown indicated that the company was facing a backlash from the meat industry. A campaign highlighting low health benefits of meat substitutes was recently run by the Center for Consumer Freedom, which is known for lobbying hard on behalf of fast-food companies.

Beyond Meat has also been investing into expanding its production capabilities. The company plans to expand its capacity from making meatless products worth $700 million to $1 billion by yearend. Management also plans to increase the number of co-packers from 6 to 11 in 2020.

During the earnings call, Executive Chairman Seth Goldman announced his departure effective immediately. Goldman will assume the position of non-executive chairman.

How the stock has performed so far: Beyond Meat went public in May 2019. The stock has spiked more than 40% year to date, significantly outperforming the S&P 500 index, which has lost 7.8% during the same period. This fantastic performance may have triggered some profit taking. So, the massive downturn yesterday may not have been purely on concerns surrounding the company’s performance.

What to watch: The company plans to open new production units in Asia and Europe by yearend. Investors will look out for news of how these projects pan out against the backdrop of the coronavirus outbreak. Beyond Meat’s shares are expected to remain volatile today, offering attractive trading opportunities.

The Markets Today

     

Investors will be keeping an eye on US stocks today, after the three major indices nosedived in the previous session. Economic data scheduled for release today is likely to provide some support to the markets.​

Context: US stocks extended their losses on Thursday, taking the major indices to their lowest level since October. Equities came under pressure as investors scurried towards safe-haven assets amid mounting concern over the global spread of coronavirus.

Details: Nightmare on Wall Street! The Dow delivered its worst single-day point decline in history on Thursday, after shedding more than 2,000 points during the first three days of the week.

US stocks are on course for their worst weekly performance since the 2008 financial crisis. The S&P 500 recording its worst day since August 2011 on Thursday. All three major indices tumbled into oversold territory, having lost more than 10% from their most-recent peak. The Dow index plummeted 1,191 points, or 4.4%, to settle at 25,766.60. The S&P 500 tumbled 4.4%, closing the session below 3,000 points. The Nasdaq 100 declined 4.6% to finish at 8,566.48.

The recent slide was driven by President Donald Trump failing to reassure investors and reports of a surge in coronavirus cases outside China. California’s governor announced that it is monitoring around 8,400 persons who have recently travelled to China. However, the CDC (Centers for Disease Control and Prevention) announced that a patient in California had tested positive despite not having travelled outside the country. President Donald Trump named Vice President Mike Pence as leading the government’s coronavirus response efforts.

Meanwhile, the WHO indicated that it is unclear how the virus is spreading, while saying that it has “pandemic potential.” Amid the outbreak, most US companies have warned of not being able to meet their first-quarter earnings targets. Many of the biggest American companies have production facilities in China and have been forced to pull their shutters down while the virus threat continues. Also, China represents a large market for many American products. Goldman Sachs projects that US companies on average would generate zero earnings growth in 2020.

On the economic data front, US initial jobless claims climbed more than expected in the latest week, while durable goods orders came in lighter-than-expected in January. The country’s GDP growth matched expectations.

Why it matters: The US markets seem primed for posting further losses today, after having tumbled for the first four days of the week. All eyes are now on the economic reports scheduled for release today, including trade balance, personal income and expenditure, wholesale inventories, Chicago PMI and University of Michigan’s consumer sentiment index.

What to watch: US personal income, which rose 0.2% in December, is expected to increase another 0.3% in January. Personal spending is also expected to increase 0.3%. Preliminary estimates call for a 0.6% decline in January’s wholesale inventories, versus a 0.2% downturn in December. Analysts expect the Chicago PMI to rise to 45.9 in February, versus the previous reading of 42.9. The University of Michigan’s consumer sentiment index is likely to rise to 100.9 in February.

Other Markets: Most European indices closed lower on Thursday, with the UK 100, German 30 and French 40 down 3.49%, 3.19% and 3.32%, respectively.

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What else to watch today

     

India’s bank loan growth, foreign exchange reserves and annual GDP growth rate, Brazil’s unemployment rate, Mexico’s balance of trade, South African’s balance of trade, Russia’s business confidence, Canada’s GDP growth rate, producer prices and government budget value as well as the US Baker Hughes report on crude oil rigs.