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Retail constitutes 68% of the Trefis price estimate for Beyond Meat's stock.
Restaurant & Foodservice constitutes 32% of the Trefis price estimate for Beyond Meat's stock.
WHAT HAS CHANGED?
Impact of Coronavirus
Beyond Meat stock declined sharply from $126 in February 2020 to $54 in March 2020 considering the impact that the virus outbreak and a broader economic slowdown could have on total consumption/consumer spending and the global food and beverage industry. However, following the announcement of stimulus measures by the Fed, gradual lifting of the lockdowns and successful vaccine rollout, the stock has recovered significantly and curently stands at $140 (as of 21st March 2021).
In FY 2020, Beyond Meat reported net revenues of $407 million, an increase of 36% compared to $298 million in FY 2019. Higher revenue was driven by an increase in volume sold, partially offset by lower net price per pound driven by the strategic investments in promotional activity. Also, strong growth in sales volumes of products in BYND's fresh platform in its retail channels, driven by expansion in the number of retail and food service points of distribution also led to higher sales. Gross margin decreased to 30% in FY 2020 from 33.5% in the year-ago period, due to lower net price realization as a result of higher trade discounts and lower absorption of fixed overhead production costs as they scaled back production to reduce inventory levels.
Most successful IPO of 2019
Beyond Meat went public in May 2019, where it sold over 11 million shares at a price of $25 per share, thus raising approximately $252.5 million in net proceeds. The shares began trading on the Nasdaq Global Select Market on May 2, 2019. The first trade for the stock was $46 and it extended gains to close its first day at $65.75, or 163% above its IPO price, making it the best performing first-day IPO in nearly two decades. As on June 25, 2019, the stock price stood at $150, i.e. 500% more than its IPO price.
Sudden drop in stock price
BYND's stock, which was trading at about $150, dropped to $100 in October 2019. The primary factor weighing on the stock price is the expiration on October 29 of the "lock-up period" on the stock following its May IPO. As of that date, executives at the company and private investors will be free to sell the shares they bought at a discount before the startup went public. About 48 million shares — some 80% of Beyond Meat's outstanding shares, are expected to free up. Shareholders who offload their shares are likely to make a killing given that Beyond Meat's stock, while down in recent months, still trades much higher than its public offering price of $25 per share. Additionally, another reason for the decline is the rising competition. Tyson, an early investor in Beyond Meat, in June announced that it would sell plant-based chicken nuggets, while in September Kellogg's said it's rolling out a number of "meatless meat" items. Kroger, the country's largest supermarket chain, also recently announced a new private label for alternative meat products
Tie-up with Dunkin' Donuts
Beyond Burger has tied-up with Dunkin' Donuts to sell the former's breakfast sandwich made with Beyond Meat's vegan sausage at 163 locations across Manhattan. The offering would be expanded to the entire country in the coming months. With Dunkin' having plans to expand its presence internationally, it would help Beyond Burger penetrate into the mainstream breakfast and meal category in a big way.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are key drivers of Beyond Meat that present opportunities for upside or downside to the current Trefis price estimate:
Beyond Meat's Retail Gross Profit Margin
Retail Gross Profit Margin : Gross margins of the retail division increased from -38.8% in 2016 to 31.6% in 2020, led by a sharp rise in volume sold and improvement in production process. We forecast the gross profit margin for the division to increase significantly to close to 60% by the end of Trefis' forecast period, driven by rising unit sales, higher price per pound as BYND captures additional market share, and better cost management. However, if sales volumes do not pick up as much as expected such that gross margins increase to 50% by the end of Trefis' forecast period, we could see the Trefis price estimate revised downward by 20%.
Fresh Restaurant & Foodservice (R&F) Product Sales: : Fresh meat volume sold through BYND's restaurant and food service outlet partners witnessed a significant increase from 0.02 million in 2016 to 19.35 million pounds in 2020. With the company pushing more fresh meat into the market and with consumers preferring fresh meat over frozen due to its health benefits, we forecast fresh meat volume from R&F to increase to 70 million by the end of Trefis' forecast period. However, if the market for plant-based meat products expand much faster and BYND is able to capture much higher share than expected, such that fresh meat volume from R&F segment increases to 85 million by the end of Trefis' forecast period, we could see the Trefis price estimate revised upward by 15%.
Beyond Meat is one of the fastest growing food companies in the United States, offering a portfolio of revolutionary plant-based meats. It produces meat directly from plants, an innovation that enables consumers to experience the taste, texture, and other sensory attributes of popular animal-based meat products while enjoying the nutritional benefits of eating plant-based meat products. The company has developed three core plant-based product platforms that align with the largest meat categories globally: beef, pork, and poultry. BYND's flagship product is The Beyond Burger, the world’s first 100% plant-based burger merchandised in the meat case of grocery stores. The Beyond Burger is designed to look, cook, and taste like traditional ground beef. Products are currently available in approximately 30,000 points of distribution primarily in the United States as well as several other countries, across mainstream grocery, mass merchandiser, and natural retailer channels, and various food-away-from-home channels, including restaurants, foodservice outlets, and schools.
SOURCES OF VALUE
Beyond Meat has two operating segments:
Restaurant and Foodservice (R&F)
Beyond Meat's plant-based meat volume sold through retail outlets increased significantly from 4.96 million pounds in 2017 to 8.71 million pounds in 2018, led by a 228% increase in fresh meat sold, partially offset by a 14% decline in volume sale of frozen meat products. Higher volume and increase in price per pound led to over a 99% increase in retail revenues to $50.78 million in 2018. The division contributed 58% of the company's total revenue for FY 2018. With more consumers preferring plant-based meat products, the segment is expected to continue contributing a little over half of the company's total revenue. However, the retail division contributes 49% of BYND's value due to slightly lower gross margins compared to restaurants and food service outlets.
Restaurant and Food service (R&F) Division
Plant-based meat volume sold through restaurant and food service outlet partners increased from 1.39 million pounds in 2017 to 6.53 million pounds in 2018, led by a whopping 811% increase in fresh meat sold, partially offset by a 3.3% decline in volume sale of frozen meat products. Higher volume and increase in price per pound led to a 424% increase in R&F revenues to $37.16 million in 2018. The division contributed 42% of the company's total revenue for FY 2018. With consumers preferring healthier meat options and with additional partnerships in the pipeline, the segment is expected to increase its share in the company's total revenue, though it is likely to remain just shy of 50%. However, the R&F division contributes 51% of BYND's value due to slightly higher gross margins compared to retail outlets.
Rise of plant-based products
According to data from Fitch Solutions Macro Research, the meat industry is the largest category in food and in 2017 generated estimated sales across retail and foodservice channels of approximately $270 billion in the United States and approximately $1.4 trillion globally. The health-conscious millennials are switching to healthier alternatives to traditional meat, such as plant-based meat which offer health benefits and environmental protection. U.S. sales of plant-based meat are rising faster than sales of regular meat. Nielsen says annual U.S. sales of plant-based meats jumped 42 percent between March 2016 and March 2019 to a total of $888 million. Traditional meat sales rose 1 percent to $85 billion during the same time. Additionally, in the United States, the current size of the non-dairy milk category is equivalent to approximately 13% of the size of the dairy milk category. Thus, following this trend, Beyond Meat aims to take advantage of rising consumer demand for plant-based meat products, which provide health benefits without compromising on taste and texture.
Higher demand for fresh meat
Though convenience is an important attribute, most of the consumers today rank product quality over convenience. The health benefits and quality of fresh meat outweighs the convenience provided by ready-to-heat frozen products, which have shifted more consumers toward fresh meat products. Sales of frozen foods over the 2016-2021 period is expected to experience a negative compound annual growth rate (CAGR) of -1.2% (as per report by Packaged facts - a leading market research publisher covering the food, beverage, consumer packaged goods, and demographic sectors for over 50 years). Accordingly, Beyond Meat has redirected its efforts toward pushing more of its fresh products in the market than frozen meat. The company discontinued its frozen chicken strips product line during the first quarter of 2019. Earlier it had discontinued another frozen meat product in 2016. The company's frozen products' volume sales have declined from 3.872 million pounds in 2016 to 3.416 million pounds in 2018. During the same period, the company's fresh meat product volume sales have increased more than 100x from 0.108 million pounds to 11.826 million pounds. Trefis expects this trend to continue with higher consumer demand for fresh meat and BYND's increased focus on its fresh meat offerings.
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