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Beyond Meat struggles in Q3 with COVID-19, supply chain and weather events

Beyond Meat alternative meat manufacturer
CEO Brown: "We remained highly focused on the execution of our long-term strategy" during a volatile quarter.

Beyond Meat's third quarter was marred by COVID-19, labor issues and weather-related incidents, something the alternative meat company warned investors of in late October.

Not surprisingly, the continuous spread of the COVID-19 Delta variant negatively affected sales. At the same time, retail orders decreased as restaurants opened and labor shortages delayed distribution expansion and self resets, the company reported Oct. 22.

In addition, severe weather closed a Pennsylvania plant for two weeks and water damaged packaging at a nearby warehouse.

For the quarter, Beyond Meat reported on Wednesday a net loss of $54.8 million, with an adjusted EBITDA loss of $36.8 million.

The company reported record net revenues of $149 million in the second quarter of the fiscal year, Beyond Meat CEO Ethan Brown pointed out in Wednesday's earnings call. He added an optimistic take on the poor earnings report:

"We believe our long-term thesis is strengthening and undeterred by current instability. We've been making bold investments in our innovation, manufacturing, operations, and sales and marketing capabilities across the U.S., EU and China. We make these investments not as hopeful thinking, but rather prudent planning against forthcoming launches and strategic growth activities.

"The headline for the third quarter, relative to our expectations at the onset of 2021, is that it was a difficult operating environment," Brown continued, noting demand for the product was variable as COVID-19 resurged with the Delta variant.

Because restaurants began to reopen, Brown said, the company expected food service sales—"a key building block in our originally anticipated growth plan for 2021"—would resume in the United States and Europe.

Although COVID's long tail and the related labor shortages have disrupted Beyond's growth, Brown said he expects that disturbance to be short-lived. However, consumers acted differently this year than they did in 2020 when restaurants were closed. Then, consumers purchased Beyond Beef and Beyond Burger at retail; this year, they did not.

SPINS market share data from the second and third quarters showed that competition was not a factor in declining sales, Brown said. He noted that labor shortages at retail may have delayed shelf resets.  

Regarding the weather-related problems, Brown said the Pennsylvania production facility did not have water for two weeks. At the warehouse, the company lost packaging valued at about $1.9 million, said Phil Hardin, chief financial officer.  That caused a lengthy delay in filling orders as the had to wait for replenishment, Brown said.

"Through Q3 2021, we remained highly focused on the execution of our long-term strategy," he said. "We've invested heavily in readying an impressive range of products for our QSR partners and put significant resources against expanded capacity for planned launches."

Q3 financial details

In the U.S., revenue dropped 13.9%: A decline of 15.6% in retail and 7.3% in foodservice compared with Q3 of fiscal 2020. The international market showed tremendous growth, however, with a 168.2% increase in retail sales and a 117.1% growth in food service, for a net increase of 142.5%.

For the quarter, which ended Oct. 2, Beyond Meat reported:

  • Net revenues were $106.4 million, an increase of 12.7% year-over-year.
  • Gross profit was $23.0 million, compared with $25.5 million in Q3 2020.
  • Gross margin was 21.6%, compared with 27.0% a year ago.
  • Net loss was $54.8 million or $0.87 per common share, compared with a net loss of $19.3 million and $0.32 per common share in Q3 2020.
  • Adjusted EBITDA was a loss of $36.8 million.

Hardin said during the earnings call that the decrease in gross margin was a result of several factors including increased transportation costs, inventory write-offs and warehousing fees, but partially offset by improved co-manufacturer fees.

The total volume of products sold at retail increased 8% year-over-year, with a 123% increase in international and an 9% drop in the U.S., he said. For food service, total volume increased 24%, with international up 55% and U.S. down 3%.

For Q4, Hardin said the company expects net revenues to be land between $85 million and $110 million.

Beyond Meat also provided figures for the first three quarters of fiscal 2021:

  • Net revenues for FY21 were $364 million, compared with $304.8 million in FY20, an increase of 19.4%.
  • Gross profit was $103 million, compared with $96.9 million a year ago. Adjusted gross profit for the first three quarters of FY20 was $104.5 million.
  • Gross margin was 28.3%, compared with 31.8% in the first three quarters of FY20. Adjusted gross margin for the year-ago period was 34.4%.
  • Net loss was $101.7 million or $1.61 per common share, compared with $27.7 million or $0.45 per common share in FY20.
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