BYND’s second-quarter earnings

Beyond Meat (BYND) reported its second-quarter earnings after the market closed on July 29. For the quarter ended on June 29, the company has reported revenues of $67.3 million, outperforming analysts’ estimate of $52.7 million. However, the company’s net loss for the quarter was sharper than analysts’ estimate. The company reported a net loss of $0.24 per share against analysts’ estimate of a net loss of $0.08 per share. Following its impressive sales in the second quarter, BYND’s management raised its revenue guidance for 2019.

Despite reporting better-than-expected second-quarter sales, Beyond Meat’s stock fell in after-hours trading on July 29. On the day, the company also announced the commencement of its secondary offering of 3.25 million shares. The existing stockholders of Beyond Meat have offered to sell 3.0 million shares, while the company is offering 250,000 shares. BYND will not receive any proceeds from the sale of shareholder offerings. The proceed from the sale of the company’s offerings would be utilized in expanding its production and supply capabilities, and marketing and promotional programs. The announcement had led BYND’s stock to fall over 14% in after-hours trading on July 29.

Why Beyond Meat Stock Fell despite Impressive Q2 Sales

BYND’s revenue growth

Beyond Meat’s revenue increased by 214.7% YoY from $17.4 million in the corresponding quarter of 2018. The increase in distribution points, growth in sales of Beyond Burger, and higher demand from existing customers drove the company’s revenue. During the quarter, the revenue from the Retail segment increased by 192%, while restaurant and foodservice reported an increase of 483%.

In the product segment, the fresh platform reported year-over-year growth of 348%. The contribution from the Fresh platform increased to 92% of the total revenue from 77% in the corresponding quarter of 2018. Despite discounting its frozen chicken strip product line, the company reported growth of 25% in its Frozen platform.

Why Beyond Meat Stock Fell despite Impressive Q2 Sales

Improvement in gross margin

During the quarter, Beyond Meat’s gross margin improved from 15.0% in Q2 2018 to 33.8%. The operating leverage from strong sales, an improvement in production efficiency, and an increase in revenue from the higher-margin Fresh platform drove the company’s EBIT margin.

The company’s adjusted EBIT came in at $2.2 million compared to a loss of $7.4 million in the second quarter of 2018. The improvement in gross margin more than offset an increase in operating expenses to drive the company’s EBIT. The expansion of the manufacturing and supply chain operations, higher administrative costs, and investments in innovations and marketing increased the company’s operating expenses.

However, the company’s net loss increased to $9.4 million compared to $7.4 million in the corresponding quarter of 2018. Noncash expenses of $11.7 million from the reassessment of stock warrant liabilities associated with the company’s IPO in May led to higher net loss during the quarter.

Why Beyond Meat Stock Fell despite Impressive Q2 Sales

Outlook

Following impressive second-quarter sales growth, BYND’s management raised its sales guidance for 2019. The management expects revenue in 2019 to exceed $240 million compared to earlier guidance of over $210 million. The new guidance represents an increase of 172.9% from $87.9 million in 2018.

Analysts expect BYND’s revenue to rise by 163.8% to $231.9 million in 2019. For 2020, they are forecasting the company to report revenue of $372.2 million, YoY growth of 60.5%. Beyond Meat continues to focus on innovation, expanding its distribution, and improving its product availability to drive its sales.

In June, BYND launched its new Beyond Burger at the grocery stores across the United States. Later in the month, the company introduced “Beyond Beef,” which was designed to replicate traditional ground beef. The company also increased its broad distribution points to 53,000 compared to 30,000 at the time of the IPO. The company’s products are currently available in 51 countries, and the management is focusing on expanding its footprint. Along with these initiatives, the company’s partnership with Del Taco, Tim Hortons, and Dunkin’ Brands could drive its revenue.

Analysts are projecting BYND to report a net loss of $15.3 million in 2019. However, it expects to turn profitable in 2020, with net profits of $7.3 million. Going forward, BYND’s management expects its gross margins to improve. The sales leverage, decline in materials and packaging costs, and improvement in supply chain and distribution efficiencies could drive the company’s gross margin.

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