Analyst Note| Rebecca Scheuneman, CFA |
While no-moat Beyond Meat’s third-quarter results missed the mark, we remain confident that its long-term growth drivers remain intact. About half of the firm’s sales stem from retail, where sales grew 39%, falling well short of our estimate for 125% growth, as retailers moderated orders after the second quarter’s pantry-stocking surge. Food-service sales fell 41% in the quarter, as only 30% of channel sales are to more pandemic-resilient quick-serve restaurants, but this topped our estimate for a 60% drop. Despite the retail shortfall, we remain optimistic on Beyond’s long-term prospects. While retail orders declined sequentially, sell-through remained strong, with Beyond increasing household penetration to 5.2% from 4.9% last quarter and 2.7% a year ago. Third-quarter repeat purchase rates were a very impressive 52%, and Beyond grew market share by 270 basis points over last year. While the pandemic continues to pressure the food-service channel, delaying product launches as restaurants keep menus simple, we expect the market to recover in 2021, and new restaurant deals should resume. In fact, earlier in the day, McDonald’s announced it will test the McPlant next year in some markets, a plant-based burger developed with Beyond. While it appears the product will not carry the Beyond brand, and will likely be supplied by multiple partners, we think it represents a significant opportunity, given McDonald's large global presence. In addition, international markets also represent a large opportunity, with overseas production opening in Europe by year-end and in China in early 2021.