Can Beyond Meat shares rebound after weak preliminary Q3 results?

The Beyond Meat (NASDAQ: BYND) share price reached a high of $192 on 27 January, before falling to $102 on 17 May. After spiking to $157 on 30 June, it gradually fell to $108 last week. On Friday, updated Q3 revenue guidance saw its share price fall 15% to $92, before recovering slightly to $95.

It still has a $6 billion market cap. But competitor Impossible Foods is planning a $10 billion IPO listing soon. Meanwhile, giants including Nestle and Kraft Heinz are pushing their own meat-free brands, Sweet Earth and Boca Foods. And these rivals have some competitive advantages.

The Beyond Meat business model

Beyond Meat believes by ‘shifting from animal to plant-based meat, we can positively affect the planet, the environment, the climate and even ourselves.’ And it’s not alone in this belief. In the US, roughly 2% of people identify as vegan. Meanwhile Allied Market Research believes the market for vegan food will jump to $7.5 billion globally by 2025. And speaking to the BBC in August, CEO Ethan Brown said that ‘93% of the people that are putting the Beyond burger in their cart are also putting animal protein in.’

In an interview with Time Magazine in July, he said that Beyond Meat uses ‘93% less land to grow a burger than you would use if you were using livestock. We use 99% less water and 90% fewer emissions.’ As environmentally conscious consumers start to change their dietary habits, the long-term outlook for the Beyond Meat share price seems positive.

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Preliminary Q3 results

On Friday, the company told investors that it expects Q3 revenue to rise 12% year-over-year to $106 million, compared to prior guidance of $120 million to $140 million.

The company blamed the reduced revenue on the ongoing effect of the pandemic. Order volume from a Canadian distributor fell as restaurants struggled to fully reopen. One major customer changed distributors, and the labour shortage meant grocery store shelves were going unstocked.

But CFRA Research analyst Arun Sundaram said that Beyond Meat ‘don’t really know what’s going on with their customer’s orders.’ Moreover, that they are ‘yet to fully grasp the underlying issues impacting its results.’

However, the company cited ‘loss of potable water for two weeks in one Pennsylvania facility and water damage to inventory in another.’ These are one-off problems. Moreover, it received accelerated orders from an international customer.

And the prior quarter’s results was full of good news. Revenue increased 31.8% year-over-year to $149.4 million. US food service sales tripled year-over-year, and sales in Europe and China more than doubled.

Risks to the Beyond Meat share price

Rivals Nestle and Kraft Heinz have major competitive advantages. They have large amounts of shelf space in grocery stores, and enough capital to tolerate lower profit margins. And they benefit from a larger production and distribution network and can spend more on marketing and advertising. Importantly, their strong brand recognition could be key to winning over customers who are reluctant to try meat-free alternatives.

And rising inflation means that transport, labour and ingredients are all going to be more expensive for Beyond Meat. This means that it’s facing increased costs while its competitors have the financial capacity to lower prices.

Two Beyond Meat burgers cost £5.00 at Waitrose, double the price of comparable beef burgers at £2.50. The current cost of living crisis may put them outside of many consumers’ budgets. And it’s likely to be some time before economies of scale or potential meat taxes level the price difference.

But a rebound for the Beyond Meat share price is possible. It’s signed multi-year deals with McDonalds and PizzaHut. And consumers are likely to spend more over the Christmas trading period.

The crucial factor is whether the company can increase customer orders faster than competitors can grow their offering. And this question may be answered when Q4 revenue guidance is released on 11 November.