💙 🔷 Not impressed by Big Tech in Q3? Explore these Blue Chip Bargains insteadExplore for free

Earnings call: Beyond Meat posts mixed Q2 results amid category challenges

EditorAhmed Abdulazez Abdulkadir
Published 2024-08-08, 10:40 a/m
© Reuters.
BYND
-

Beyond Meat, Inc. (NASDAQ:BYND), a leader in plant-based meat products, reported its financial results for the second quarter of 2024. Despite a decline in net revenues by 8.8% year-over-year to $93.2 million, the company saw an increase in net revenue per pound and a significant reduction in operating expenses and cash consumption.

The company's gross margin improved to 14.7%, the highest since Q3 2021, while it also managed to reduce operating expenses to $47.6 million and reported a net loss of $34.5 million for the quarter. Beyond Meat's updated outlook for 2024 anticipates net revenues between $320 million to $340 million, with gross margin expected in the mid-teens range.

Key Takeaways

  • Beyond Meat's Q2 2024 net revenues reached $93.2 million, an 8.8% decrease from the previous year.
  • Net revenue per pound increased by 6.1%, thanks to reduced promotions and price increases in the US.
  • Gross margin rose to 14.7%, the highest since Q3 2021, with operating expenses down to $47.6 million.
  • The company's five key objectives for 2024 focus on efficiency, new product lines, improved trade and pricing, production consolidation, and strategic customer focus in Europe.
  • Beyond Meat expects net revenues for 2024 to be in the range of $320 million to $340 million, with a gross margin in the mid-teens.

Company Outlook

  • Beyond Meat forecasts net revenues for 2024 to be between $320 million and $340 million.
  • The company anticipates gross margin to be in the mid-teens range.
  • Focus remains on achieving positive cash flow operations, though no specific guidance on timing was provided.

Bearish Highlights

  • The company experienced a 14% decrease in volume of products sold.
  • The plant-based category in the US is currently weak, with retailers adopting varied responses.

Bullish Highlights

  • Increased net revenue per pound in the US retail channel by 20.5% year-over-year.
  • Completed production network consolidation, leading to better asset utilization and cost savings.
  • Positive consumer reception and increased product velocity in certain accounts.
  • New products launched in Germany, the Netherlands, Belgium, and the UK.

Misses

  • Beyond Meat reported a net loss of $34.5 million in the second quarter.

Q&A Highlights

  • The company has not seen significant competitive counter moves in response to its pricing strategy.
  • Retailer responses to the plant-based category vary, with some exerting pressure on lower-performing players.
  • Beyond Meat is working to educate consumers on the health benefits of plant-based proteins.

Beyond Meat's Q2 2024 earnings call highlighted a mixed performance, with revenue declines being partially offset by strategic pricing and cost reduction initiatives. The company remains committed to its key objectives, aiming to strengthen its position in the market despite the current challenges facing the plant-based category. With a focus on product improvements and strategic partnerships, Beyond Meat is positioning itself for future growth and the achievement of positive cash flow operations.

InvestingPro Insights

Beyond Meat's recent financial results have drawn attention to its performance and strategic direction, particularly in light of the challenges it faces within the plant-based protein sector. Here are some key insights based on real-time data from InvestingPro that may help investors better understand the company's current financial health and market position:

  • Beyond Meat's market capitalization stands at $411.37 million, reflecting the size and scale of the company within the industry.
  • The company's stock price has been subject to significant volatility, with a 52-week low price percentage of 39.1% indicating a notable decline from its highest price point in the past year.
  • Despite the improvement in gross margin reported in the Q2 2024 financial results, Beyond Meat's gross profit margin for the last twelve months as of Q1 2024 was -4.24%, suggesting that the company still faces challenges in maintaining profitability.

InvestingPro Tips highlight some of the critical factors investors should consider:

1. Beyond Meat operates with a significant debt burden and may have trouble making interest payments on debt, which is a crucial aspect to monitor given the company's financial obligations.

2. The company has been quickly burning through cash, a point of concern for investors looking for signs of financial stability and long-term viability.

For investors seeking a deeper analysis and additional insights, InvestingPro offers a total of 17 InvestingPro Tips for Beyond Meat. These tips provide a comprehensive view of the company's financial metrics, stock performance, and market valuation, which can be found at https://www.investing.com/pro/BYND.

Full transcript - Beyond Meat Inc (BYND) Q2 2024:

Operator: Good afternoon, and welcome to the Beyond Meat 2024 Second Quarter Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Paul Sheppard, Vice President, FP&A, and Investor Relations. Please go ahead.

Paul Sheppard: Thank you. Hello everyone, and thank you for your participation on today's call. Joining me are Ethan Brown, Founder, President, and Chief Executive Officer; and Lubi Kutua, Chief Financial Officer and Treasurer. By now, everyone should have access to our second quarter 2024 earnings press release filed today after market close. This document is available in the Investor Relations section of Beyond Meat's website at www.beyondmeat.com. Before we begin, please note that all the information presented today is unaudited and that during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and beliefs, and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Forward-looking statements in our earnings release, along with the comments on this call are made only as of today and will not be updated as actual events unfold. We refer you to today's press release, our quarterly reports on Form 10-Q for the quarter ended June 29, 2024, to be filed with the SEC and our annual report on Form 10-K for the fiscal year ended December 31, 2023, along with other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please also note that on today's call, management may reference adjusted EBITDA, adjusted loss from operations, and adjusted net loss, which are non-GAAP financial measures. While we believe these non-GAAP financial measures provide useful information for investors, any reference to this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release for a reconciliation of these non-GAAP financial measures to their most comparable GAAP measures. And with that, I would now like to turn the call over to Ethan Brown.

Ethan Brown: Thank you, Paul, and good afternoon, everyone. I am pleased to report a strong quarter of progress against our 2024 plan, including exceeding our Q2 revenue objective, continued reduction in operating expenses and cash consumption, and our best quarterly gross margin since Q3 2021. Today, I'll provide more detail around this progress in the context of each of our five key objectives for 2024, including the launch of Beyond IV as a defining pillar for Beyond Meat's center-of-the-plate role in the global health and wellness trend. But first, a brief overview of our second quarter financial results. Net revenues of $93.2 million exceeded the top end of our $85 million to $90 million guidance range but still reflected an 8.8% decline from the year-ago period. As discussed on prior calls, during the second quarter 2024, we scaled back on promotional trade discounts and together with the initial appearance of price increases on certain products in the US, this resulted in a 6.1% increase in our net revenue per pound compared to the year-ago period, including a 20.5% increase in our US retail channel net revenue per pound. Gross margin rose to 14.7%, substantially higher than the 2.2% outcome in the same quarter last year and the 4.9% level achieved in the first quarter of this year. Importantly, we expect to see further gross margin progress across the balance of the year, reflecting the combined impact of more fully distributed pricing adjustments, continued moderation of promotional spending, and ongoing COGS improvements as we consolidate our network and continue on our lean management journey. Operating expenses in the second quarter fell to $47.6 million as we continued to pursue efficiencies throughout the organization, marking a $8.4 million reduction year-over-year, a $2 million reduction compared to the first quarter of this year after adjusting for the $7.5 million class-action settlement we disclosed last quarter. Lastly, our cash consumption fell to $15.5 million in the second quarter, a 67% and 52% reduction on a year-over-year, quarter-over-quarter basis respectively. We continue to aggressively manage cash use across the business and remain highly focused on working toward cash flow positive and ultimately profitable operations. With that, let me delve into our five priorities for 2024, including our clear and enhanced positioning around health, on the back of the Beyond IV launch. First, getting leaner. Q2 provides a very clear proof point that our operations are making progress toward getting leaner and more efficient. This quarter, compared with the year ago period, we realized $11.4 million more in gross profit despite lower revenue and $8.4 million less in operating expenses. Furthermore, inventory and cash consumption were both down on a year-over-year and sequential basis. Throughout the first half of 2024, we realized a reduction in operating expenses of $22.6 million, excluding the $7.5 million class action settlement accrued in Q1 2024. As reflected in our updated guidance, we are targeting a reduction in operating expenses in the remainder of 2024 compared to the equivalent period in 2023. In support of lean management implementation, continue to narrow our focus on specific products, markets, consumers, and messages. This brings us to our second priority, the Beyond IV rollout. We officially kicked off the launch and accompanying campaigns for Beyond IV during the week leading up to Memorial Day. An exciting moment for the company, one that marks the culmination of multi-year innovation for our core platforms of Beyond Burger, Beyond Beef, and Beyond Dinner Sausage. Beyond IV represents a clear manifestation of our company's product strategy. As I have often shared, despite compelling data on the health benefits of our products from peer-reviewed research such as the Stanford School of Medicine's SWAP-MEAT study, a sustained misinformation campaign championed by members of the incumbent animal protein industry, as well as the pharmaceutical industry, electing sizable antibiotic sales to the livestock sector, has substantially and negatively impacted consumer perception of our products and the plant-based meat industry as a whole. In response, we have intensified our innovation roadmap's emphasis on health. The team has made remarkable progress with regards to this objective, so much so that over the longer run, I believe it will be arguable whether Beyond Meat is, at its core, a plant-based meat company that delivers health and wellness or a health and wellness company that makes plant-based meat. The Beyond IV portfolio so successfully captures our health commitment that, as I previously noted, is worth repeating, our fourth generation Beyond Burger, Beyond Beef, and Beyond Dinner Sausage are recipe certified by the American Heart Association's Heart-Check program and are included in the American Diabetes Association's Better Choices for Life program. Reflecting the widespread corrosiveness of the false and misleading attack, I do not expect consumer perception to shift quickly and certainly not overnight. However, I do believe it will change and this change is being aided by the increasing number of highly credible doctors, registered dietitians, and nutritionists who are coming out in strong support of our Beyond IV products. This support stems from the Beyond IV portfolio's clean ingredients and nutritional profile. For those who are newer to our story, these attributes are worth highlighting. Beyond IV Burger and Beef products use protein sourced from yellow peas, brown rice, red lentils and fava beans, and fat from avocado oil to deliver 21 grams of clean protein with just 2 grams of saturated fat. By comparison, that's 75% less saturated fat than equivalently sized 80/20 beef burger. Turning to Beyond IV Dinner Sausage, we see a similar story with protein from yellow peas and brown rice, fat from avocado oil, delivering 75% less saturated fat than equivalently sized pork sausage. These strong nutritional gains are occurring within products that are also winning praise from consumers for improved taste. As I reflect on these outcomes, I'm immensely proud of and grateful for our team, from our truly tireless innovators to our adaptive production crews who routinely rise to the engineering challenges of a fast-moving company. Before moving on from our product strategy, I will briefly touch on the recent launch of an entirely new line, Beyond Sun Sausage. Beyond Sun Sausage is not intended to replicate beef, pork, or poultry, but rather is intended to be its own delicious, satisfying protein option, delivered in the context of nutritious and clean ingredients. The concept, which is receiving high praise from consumers and registered dieticians for taste and nutrition, and bears the emblem of the American Heart Association's Heart-Check Program, and the American Diabetes Association's Better Choices for Life program, is a confident step for Beyond Meat in the plant-based meat category outside of the confines of particular animal species, instead simply focusing on taste, mouthfeel, nutrition, and ingredients. The platform is built on the same protein blend from yellow peas, brown rice, red lentils, and fava beans mixed with avocado oil, delivering 12 grams of protein and only 1 gram of saturated fat and is offered in three delicious bold flavors, Cajun featuring diced red peppers and dried onions, Pineapple Jalapeno featuring dried pineapple and diced jalapenos, and Pesto featuring a blend of basil, oregano, and rosemary spices. I've watched consumer and nutrition community feedback with great interest and was pleased to read what is my favorite comment in quite some time. Short and to the point, I believe this consumer post sums up our brand, people, and culture in seven words, writing, you guys keep getting better and better. As we moved into summer grilling season with Memorial Day, we launched our Serve Love marketing campaign around our Beyond IV platform to heighten consumer awareness of the health benefits of Beyond IV products across a variety of media. We centered on Serve Love as this messaging communicates what we genuinely believe to be true, that serving Beyond IV products to family, friends, or yourself is an act of love due first and foremost the product's strong health credentials as well as attendant goodness for the world, whether that be climate, environment, or animal welfare. With our fourth generation Beyond Burger, Beyond Beef, and Beyond Dinner Sausage including a collection of heart-healthy recipes certified by the American Heart Association's Heart-Check Recipe Program and the product's relevance to cardiovascular health, the image for the campaign is two hands forming a heart shape around our burger. Further, as part of the campaign, we unveiled our first ever cookbook, Serve Love, collection of heart healthy Beyond Meat recipes certified by the American Heart Association's Heart-Check Program. The cookbook is available for free download via the Beyond Meat website, and helps to make nutritious plant-based meals more accessible to all. Now turning to our third priority, making progress to our US trade and pricing programs in support of improved gross margin. For Q2, net revenue per pound in the US retail channel is up 20.5% as compared to the year ago period and up 11.7% sequentially as compared to the first quarter of this year. The impact of pricing changes on the US foodservice channel net revenue per pound was more muted as we saw some higher trade expenses related to some of our larger customers in this channel. Nevertheless, we expect our US pricing actions to provide a tailwind to our net revenues per pound in both channels through the balance of the year. Looking now at cost of goods sold and gross margin, we have substantially completed the consolidation of our production network, which is our fourth priority. This consolidation is enabling us to benefit from better asset utilization and inventory management, which we expect to continue freeing up working capital, aiding overhead absorption, and generating production and logistics efficiencies, while also providing for better management of logistics and quality control. We believe these pricing, trade, and ultimately COGS initiatives represent meaningful steps toward restoring gross margin. Fifth, we are maintaining our investment focus in Europe by serving our strategic customers in this important plant-based meat market. In May, McDonald's (NYSE:MCD) Germany kicked off its famous meals promotion with a campaign that featured two celebrity favorite meals built around the McPlant Burger and McPlant Nuggets. Elsewhere in Europe, we launched Beyond Steak, Beyond Smash, and Beyond Burger Jalapeno for foodservice in the Netherlands and Beyond Steak at retail in Belgium while expanding availability of the Beyond Burger at Co-op stores across the UK. We are also beginning our expansion into the significant plant-based meat refrigerated category in Germany, having successfully reformulated our products to achieve refrigerated shelf life requirements in that and other European markets. Before wrapping up, I want to call attention to the return of a true fan favorite. Beyond The Original Orange Chicken, which we partnered with Panda Express to provide to consumers in a series of LTOs over the past few years, was the number one most requested dish on Panda Express's social channels, became the subject of a petition signed by over 7,000 consumers. Listening to this demand from the consumer, beginning last month, Panda Express brought back Beyond The Original Orange Chicken across hundreds of participating locations across the country for another LTO. If you have the chance to stop by and try the dish, your taste buds will not be disappointed. As with each of our QSR customers, including McDonald's, Starbucks (NASDAQ:SBUX) UK, Pizza Hut UK, and A&W Canada, we are grateful for our partnership with Panda Express. With that, I'll close by saying we are encouraged by many of the results we see this quarter, results that demonstrate clear progress against our 2024 plan and our longer-term goal of profitable operations. I look forward to taking your questions later. We'll now turn the call over to Lubi to walk us through our Q2 financial results in greater detail as well as update our outlook for 2024.

Lubi Kutua: Thank you, Ethan, and good afternoon everyone. I'll begin by reviewing our second quarter financial results before providing an update on our 2024 outlook. Net revenues decreased 8.8% to $93.2 million in the second quarter of 2024, compared to $102.1 million in the year-ago period. We were, however, pleased to see net revenues come in above our guidance range for the quarter, and we note that the rate of decline was much lower than the 18% year-on-year decline we saw in the first quarter of 2024. This decrease in net revenues for the second quarter was primarily driven by a 14% decrease in volume of products sold, partially offset by a 6.1% increase in net revenue per pound. The increase in net revenue per pound was primarily driven by lower trade discounts, pricing changes, and changes in product sales mix, partially offset by unfavorable changes in foreign currency exchange rates. Breaking this down by channel, our US retail channel net revenues decreased 7.5% to $44.9 million in the second quarter of 2024 compared to $48.5 million in the year-ago period. Volume of products sold decreased 23.2%, primarily reflecting ongoing demand softness in the plant-based meat category and the lapping of substantial promotional sales to a club channel customer in the year-ago period. However, we were pleased to see a 20.5% increase in net revenue per pound, primarily resulting from lower trade discounts, changes in product sales mix, and the early impact from recent pricing action. Regarding the latter, although it is still early days, we are encouraged by the initial read on consumer price elasticity, which appear to be generally in line with our expectations. US foodservice channel net revenues decreased 18.9% to $10.3 million in the second quarter of 2024 compared to $12.8 million in the year-ago period. Volume of products sold decreased 20%, primarily reflecting ongoing demand softness in the plant-based meat category, as well as the impact from certain distribution losses. Volume losses in US foodservice were partially offset by a 1.4% increase in net revenue per pound, primarily resulting from pricing changes and changes in product sales mix partially offset by higher trade discounts. In part, these higher trade discounts represented some trade reconciliations and true-ups for larger customers in this channel. International retail channel net revenues decreased 12.1% to $17.6 million in the second quarter of 2024, compared to $20 million in the year-ago period, primarily due to a 6.9% decrease in net revenue per pound and a 5.5% decrease in volume of products sold. At a high level, the year-on-year decrease in international retail was largely driven by weakness in our EU chicken portfolio which is lapping its year-ago market launch and channel sell-in, unfavorable changes in foreign currency particularly with respect to the Canadian dollar, and softening category demand in some geographic regions. International foodservice channel net revenues decreased 2.5% to $20.4 million in the second quarter of 2024 compared to $20.9 million in the year-ago period, primarily due to a 1.4% decrease in volume of products sold and a 0.9% decrease in net revenue per pound. Overall, the year-over-year decrease was mainly driven by reduced sales to a large QSR customer where we were lapping the launch of an LTO in the year-ago period. Gross profit in the second quarter of 2024 was $13.7 million or gross margin of 14.7% compared to $2.3 million or gross margin of 2.2% in the year-ago period. This represented our best quarterly gross margin performance since the third quarter of 2021, and our lowest quarterly cost of goods sold per pound since the second quarter of 2021, suggesting that we are starting to see the financial benefits from some of the pricing, network consolidation, and other cost reduction initiatives we have been pursuing. This quarter, we saw some abatement of the transitional direct labor costs which began to impact us in the first quarter as we brought more production volume in-house and we are continuing to realize efficiency improvements as we accumulate internal production experience of our finished goods. Also, we are pursuing some rationalization of our US warehousing network, and it's been encouraging to see the realization of year-over-year savings in our transportation and warehousing expenses. At a high level, the decrease in cost of goods sold per pound primarily reflected lower inventory provision, lower manufacturing costs, including depreciation, and lower logistics costs per pound, partially offset by higher materials cost per pound. Operating expenses were $47.6 million in the second quarter of 2024 compared to $56 million in the year-ago period. The decrease in operating expenses was primarily due to reduced marketing expenses and lower non-production headcount expenses, partially offset by an increase in general and administrative expenses. The reduction of operating expenses, combined with the aforementioned improvement in gross profit, drove a $19.8 million year-on-year reduction in our operating loss, an achievement more notable when considering that net revenue was $9 million lower this quarter than in the year-ago period. Net loss was $34.5 million, or $0.53 per common share in the second quarter of 2024, compared to $53.5 million, or $0.83 per common share in the year-ago period. Adjusted EBITDA was a loss of $23 million, or minus 24.7% of net revenues in the second quarter of 2024 compared to an adjusted EBITDA loss of $40.8 million or 40% of net revenues in the year-ago period. Turning to our balance sheet and cash flow highlights. Our cash and cash equivalence balance, including restricted cash, was $158 million, and total outstanding debt was $1.1 billion as of quarter-end on June 29, 2024. Inventory fell to $119.5 million at the end of the second quarter, down by $3 million from Q1 of this year, and by $87.6 million from Q2 of last year. Net cash used in operating activities was $47.8 million in the six months ended June 29th, 2024, compared to $88.3 million in the year-ago period. Capital expenditures totaled $2.5 million in the six months ended June 29, 2024 compared to $7.1 million in the year-ago period. Finally, I'll conclude by commenting on our 2024 full-year outlook which we are updating as follows. Net revenues are now expected to be in the range of $320 million to $340 million. Gross margin is now expected to be in the mid-teens range. Operating expenses excluding the $7.5 million accrual related to the consumer class action settlement recognized in the first quarter of 2024, are expected to be in the range of $180 million to $190 million. And capital expenditures are expected to be in the range of $15 million to $20 million. And with that, I'll turn the call over to the operator to open it up for your questions. Thank you.

Operator: [Operator Instructions] The first question is from Ben Theurer with Barclays (LON:BARC). Please go ahead.

Ben Theurer: Good afternoon, Ethan, Lubi. Thanks for taking my question. So, Ethan, to begin with, maybe as it comes out to the rollout of Beyond 4.0, the platform, and then obviously the associated price increases you've been putting through, and we're seeing that already nicely as you've highlighted on a per-pound basis. Two things around this. One, can you update us on how much of your portfolio has seen this upgrade and the new pricing already and how much is still yet to come over the next couple of months and/or quarters? And then what has consumer perception maybe been just around the product and how is the feel associated with the price point, which obviously is a higher one than prior, that would be like kind of like my first general question, and I have a quick one for Lubi.

Ethan Brown: Okay, great. So I'll go ahead and answer the first point first on what percentage of the portfolio has undergone renovation upgrade. And if you look at what we launched so far, you have the Beyond Burger, you have Beyond Beef, and then you have Beyond Dinner Sausage. All of those now have the new formula, and you have the associated endorsements and things of that nature. And that new formula is the new proteins, the new fat systems, et cetera. And then the additional application there is the Sun Sausage, which has even lower saturated fat levels. We do expect to continue to migrate the portfolio in the direction of those types of things. But for now, those are the major changes we've made. On the price increase, we've generally been pleased, as Lubi mentioned, the elasticity's come in largely where we expected. But I think the other piece to note is the significant reduction in promotional trade. That has helped us a lot on margin, and we're very pleased to see the portfolio sustain that. If you look at the consumer reception, which is for your third question, we do have data which is encouraging. If you strip away the promotional activity I talked about, which kind of tends to distort the year-over-year numbers, and just look at the base, and then you look at some of our larger accounts, you do see velocity for Beyond IV items, particularly beef and the burger, which is where we have the most data. You're seeing growth in certain accounts that are significant national grocer accounts and then seeing stabilization in others. So we're quite pleased with that given that we instituted a significant price increase, pulled back on trade. And so we think that is evidence that the product is doing well and the messaging is resonating. Also along those lines, if you look at the chatter about the product both in the medical community and in the nutrition and registered dietitian community, it is extremely positive. It's not positive in the sense of, this doesn't taste very good but it's very healthy, it's really a -- to me, something that our research and development and operations team needs to be extremely proud of. They not only improved the nutritional profile of those products, which were already strong, as I mentioned, but they also, from an organoleptic perspective, improved the products. And so, and we're seeing that in their reaction, whether on social media, whether on media coverage. So overall, we're very pleased with how that launch is going, extremely early days. We just announced it right before Memorial Day, and we continue to see some of it on the dinner sausage side flow through. So overall, quite pleased. On the price increase, I'll hand it over to Lubi to handle that.

Lubi Kutua: Yeah, Ben, I think, did you have a second part of the question? Was it specific to the price increase?

Ben Theurer: No, the price -- that was actually covered by Ethan. What I was wondering, you tend to always give a little bit of more of a near-term outlook and not only for the full year. So anything you can maybe share on your initial thoughts as to the third quarter now as we start getting into easier comps from last year, fair to assume that we're going to get into growth and continued margin expansion also on a sequential basis, or how should we think about the third quarter, maybe in context to the second quarter, as that one came already better than what you initially expected.

Lubi Kutua: Yeah, sure. So I think as Ethan mentioned in his prepared remarks, we do expect to see sequential improvement in our gross margins in the second half of the year. And our guidance would imply that as well. You're correct. In recent quarters, we have provided some directional color for the current quarter. We're not doing this -- that for Q3 specifically, but what I'll say is, if you think about just the seasonality of our business, right, typically we tend to generate most of our revenues or a bigger portion of our revenues in the second and third quarters. And so as you're thinking about Q3 versus Q4, I would just keep that in mind and then from an operating expense perspective, if you look at our guidance, right, what it would imply obviously for the back half of the year would be a lower rate of operating expenses relative to the first half.

Ben Theurer: Okay, perfect. Thank you very much. I’ll pass it on.

Ethan Brown: Sure.

Operator: The next question is from Adam Samuelson with Goldman Sachs (NYSE:GS). Please go ahead.

Adam Samuelson: Yes, thank you. Good afternoon everyone.

Ethan Brown: Hey, Adam.

Adam Samuelson: So I guess maybe first just thinking about kind of that tension between kind of the price increases and the clear desire to drive gross margins, but also kind of thinking about the unit cost reductions and kind of the ability to drive that on a lower volume base. Can you help us think about the improvement in gross margins in the second half and how much we should be thinking really is increment incremental price increases or the flow through of effectuated price increases and mix versus actual reductions in unit costs from here? I appreciate you're trying to simplify the business, but the volume base is also shrinking, so I'm trying to just balance those two figures. Thank you.

Lubi Kutua: Sure, do you want me -- I can take that.

Ethan Brown: Sorry, Lubi, I'll grab it and hand it over to you. So, I think if you look at the cadence of the price increase, we began it in certain retailers and certain products beginning in April, phased it in a little bit more in May. And so this third and fourth quarter should be the sort of fuller distribution. And so we do expect some uplift from that. And then, of course, trade reduction will continue throughout the back half. So we'll also expect a good [guide] (ph) from that. But I don't want to underestimate, and I think this is where your question is, the significant progress that we're making on cost of goods, and that is coming from several different areas. Probably first and foremost is the internalization of our network. That decision was taken for a variety of reasons, but one of the main benefits is that it's cut down on tolling fees and underutilization fees that have been some of the drag on the business. It's also allowing for significant savings in logistics as we move forward, as well as much better overhead utilization and absorption -- overhead absorption. So, we continue to think that those will drive a lower cost basis across the products for the balance of the year. Some other things that are kind of knickknacks, the inventory reserves coming down, and then reduced depreciation on a smaller asset base given the write-off we did at the end of last year. So those things all combine to have, I think, a favorable view on the top line and then some significant progress as we begin to wring costs out of the system. And I think the last piece is more -- almost philosophical. We are bought into, as I've mentioned many times over the last sort of 18 months, the lean management practice and principles. And so the established value streams, looking at our business that way and the horizontal flow of value across it has allowed us to continue to get more efficient. And so I think we're realizing cost reduction and savings and focus even on things like materials through that transition to a lean management structure. But, Lubi, anything you want to add to that?

Lubi Kutua: No, I think you've covered it pretty well, Ethan. I think what I would just say is that if you look at the results for the second quarter, yes, we did begin to see some of the benefits from the recent price increases. But as Ethan mentioned, we should get -- as that price increase starts to impact a greater portion of the overall business, we should have more of a benefit from that. If you look at our net revenue per pound this quarter in Q2 in our US retail business, that was up 20.5%. I think, one thing that's notable there is that most of that was not driven actually by simple -- by pricing, strict list price increases. It was driven by a reduction in the promotional spending relative to a year ago, and there was also some benefits from mix. And so the impact of pricing was not yet impacting that in a major way. And so we'll benefit from more of that as we go through the year. And then as Ethan mentioned, there's other things within cost of goods sold as well, where we should -- other areas where we should see some efficiencies. As Ethan mentioned, there were some temporarily high labor costs and things like that as we were bringing production volume in-house. And so the back half improvement that we expect in gross margins being driven both by the top line, better pricing as well as improvement in COGS.

Adam Samuelson: Okay that's helpful. And maybe quick follow-up with the second half. I think take the revenue, the gross profit, the OpEx and the CapEx guidance, and I wrote it all together, it would still imply kind of negative free cash flow, maybe slightly smaller cash usage than you saw in the first half of the year, depending on exactly which direction working capital trends, I guess, but that includes kind of some of the pricing and the gross margin actions that you're kind of alluding to. So, from where we are in the second half of the year, what is the -- how do we think about the pathway to actually getting to a free cash flow, a positive outcome, and kind of when do you think it's possible that that could be achieved?

Lubi Kutua: I can take that. I mean, we have not -- so I think it's absolutely true that our top priority as an organization, as a management team is, we are trying to drive this business to cash flow positive operations as quickly as possible. We have not said that that will occur this year. And as you know, we typically we don't provide guidance in terms of expected cash consumption during the year. But look, as we've said on previous calls, right, that we are working, we continue to work on bolstering our balance sheet. That's a top priority for us. But we're going to continue to do the things that you're starting to see the results of in this quarter, which is continue to reduce operating expenses, continue to drive gross margin higher. I think the team has done a really good job in terms of our working capital efficiency. You can see our CapEx spending has been pretty low as well. So all of those things will benefit us, but we're certainly not calling for getting to cash flow positive in the back half of this year.

Adam Samuelson: I appreciate that color. I'll pass it on. Thanks.

Operator: The next question is from Robert Moskow with TD (TSX:TD) Cowen. Please go ahead.

Robert Moskow: Hi, thanks. I had a question about how retailers in the US are viewing the plant-based category. I mean, you said yourself that the category still remains weak. But I was wondering, like, how are retailers responding to that? Are they reducing shelf space for the category and reaction? Or is it leading to a shakeout of the smaller players? And could you actually benefit from that as a result? Thanks.

Ethan Brown: Yeah, thanks, Rob. Appreciate it. So I think the answer is a little bit of both. Just to broaden our context, as I've said many times, we view this, although we thought initially we would escape it, we view this as just part of the process of disruption. There's going to be pushback, there's going to be a lull, there's going to be a shakeout, and that is obviously happening. My job is to strengthen our business throughout that and emerge stronger as a result and I think we're doing that. The retailers are responding to this in a number of different ways. Some are just staying the course, some are shifting products, placements between fresh and frozen, and others are executing pressure on some of the lower performing players. So in that sense, I think we do benefit as beyond and impossible emerge as the two main players. So I think it's all of the above. But I also just want to caution, I continue to view this over a much longer lens. I think what you're seeing with the Beyond IV portfolio is the main thing that destabilized this category has been the misperception around health. Obviously, there have been some pricing issues and things of that nature, which in a recessionary or difficult economic environment are always more challenging. But we are hammering away at the single most important issue in our view that is required to get the entire category growing again. The early results we're seeing from Beyond IV suggest that we're on to the right strategy. And I have no doubt that as more and more consumers become educated, not only from us, but from nutritionists who are backing in, [indiscernible], dieticians, doctors, national health organizations, et cetera, that it'll become, I wouldn't say it's a stubborn few, but it'll become fewer and fewer people that are misled around the tremendous benefits they can bring to themselves and to their families by changing out the protein that's kind of in the plate and using the odd to improve their health. So the ability of our team to create products that not only deliver on taste but really deliver on this health message, I think, can't be overstated. Over time, we'll continue to address price and in some regards if you look at certain products with certain customers in certain regions, we have already achieved an element of price parity. But that right now is not the most important factor to consider. It really is around cleaning the well a bit and making sure that the consumers understand the power of these products to impact the health of their lives and their loved ones.

Robert Moskow: Okay, just a quick follow-up. Maybe I missed it, but how much was the price increase that you took, that you mentioned in April, not including the trade spend variations, and how did it influence 2Q?

Ethan Brown: I don't think we give the exact blended amounts, but if you want to add what some of the results have been, I don't think I've ever shared the full blended amount.

Lubi Kutua: Yeah, no, that's right, Rob. You didn't miss it. We didn't say how much the price increase was. But I think you can probably get a sense if you look at consumer takeaway data. But again, if you look at the change in that revenue per pound in our US retail channel, like I said, pricing was actually not the most significant driver of that. It was -- the vast majority of that was related to the reduction in trade spend and then there was some benefit from mix which was also a bigger driver than just pricing alone.

Robert Moskow: But there was a price increase. So is it showing up more in third quarter because you're in more retailers with the price increase in third? I'm just a little unclear like, how to dimensionalize it.

Lubi Kutua: Yeah, that would be our expectation, Rob, is that it would show up more in the third and fourth quarter because as Ethan mentioned, right, there was -- the price increase was implemented in waves. The first wave really began to happen in early April and the second wave in May. And so when you look at the third and fourth quarter, we should benefit from a full quarter of more widely distributed price increases.

Robert Moskow: Okay. Thank you very much.

Lubi Kutua: Sure.

Operator: The next question is from Alexia Howard with Bernstein. Please go ahead.

Alexia Howard: Good evening, everyone.

Ethan Brown: Hey, there.

Alexia Howard: So, can I ask about your market share trends in Europe? We obviously don't have visibility into that. As I think about the US market versus the European market, it seems as though the US has been troubled as a category because of the misinformation campaign, but the category strength is actually quite reasonably robust in Europe. However, in terms of the competitive dynamics, it seems as though the European market is more fragmented, perhaps more competitive. So I'm just wondering if you could speak a little bit to what you're seeing in terms of market share trends in the retail channel and potentially in foodservice and how you see things trending from here.

Ethan Brown: Yeah, so I can take that initially and then hand it over to Lubi. It’s not only Europe, but I think if you look at Canada, we do like what we're seeing, for example, in Canada with respect to the trends for Beyond Meat in retail, where we're seeing growth and seeing some encouraging signs of broader consumer acceptance for our brand there. If you go over to Europe, it is, as you've said, it's highly fragmented, so it's hard to draw definitive conclusions about the entire geography. But I will say that if you look, for example, at one of our largest strategics, we continue to do a really nice book of business with them. And I think they're pleased with some of the launches we've had. And I think you'll see some continued activity there. And so on the strategic side, we like what we're seeing. Retail, there's so many different economies, there's just different factors considered in terms of getting into the refrigerated section and things of that nature. I'm very bullish on Germany. I think it's a terrific plant-based market. It's, as I've mentioned before, one of the top in the world. And so I think you'll see us be aggressive there. But drawing a conclusion around overall market share for the entire geography of Europe, which is difficult given the fragmentation. Lubi, I don't know if you have any further details.

Lubi Kutua: Yeah, I would just say, as it relates to the retail channel in the EU, the way we think about growth in that particular channel and region is much less about market share gains and much more about distribution expansion. So, we're starting from a very small base in the EU. I mean, generally speaking, if you look at our market shares across our key European markets there, and call it in the low single-digit percentages, because we just don't have that large of a presence out in Europe at the moment. So, it's really about expanding our distribution and which is why we were so focused on this initiative to make sure that our shelf life for our fresh products was where it needed to be. And so we are -- we expect we'll start to see some of the benefits from this in the back half of this year to start seeing more distribution expansion within the EU and in particular, as Ethan mentioned, the German market is one that we are very excited about. The vast majority of that entire market, I think it's over 95% of the category, is in the refrigerated portion of the overall category. And up until just recently, we essentially had no access to the refrigerated aisle. And so it's much more about that. I would say just sort of generally speaking, when we look at the European market, our core products, the burger and mince products over there continue to perform well. I think we've struggled a little bit more in the chicken portfolio in the EU. That's where we do see the very highly fragmented market over there. There's a large private label presence in the EU as you know. And so I think the trends certainly in the chicken portion of our portfolio in the EU have been softer than we would have anticipated, but we’re still -- we remain pleased with what we're seeing on the core side. And like I said, it really comes down to expanding distribution.

Alexia Howard: Great. Thank you very much. I'll pass it on.

Ethan Brown: Sure.

Operator: [Operator Instructions] The next question is from Peter Saleh with BTIG. Please go ahead.

Peter Saleh: Great. Thanks. Thanks for taking the question. Ethan, I was hoping you could talk a little bit about the competition, particularly in the US. How do you see the health of the competitors right now? And what exactly do you see them doing as you guys are reducing discounts and raising price? Are they doing the same? Are they doing something different? Just trying to understand the dynamics right now that you're seeing with your competitors.

Ethan Brown: Thanks for the question. Yeah, I don't see a counter move yet on the competitive side. I think we're all trying to do the same thing, which is move from one phase of this disruption to another which is sustainable and profitable operations. So I don't anticipate any significant progressive moves and reaction to us or prices as well.

Peter Saleh: Understood. And then just curious, what else can you guys do in this environment to really encourage trial or drive trial? Because that seems like to be another big obstacle at this point in time.

Ethan Brown: So the good news is, I think, when there's a debate in the public sphere about pros and cons or something, right? And at some point, one side of the debate goes way too far. You tend to get people to come in and work on your behalf just because it's the right thing to do. And we're seeing that now where registered dieticians, nutritionists, doctors are saying, cut this stuff out. Like, these products can really help you achieve some of your goals from a, whether it's cardiovascular perspective, whatever the goal that may fit the portfolio that we have, we're starting to see people come out of woodwork and talk with their patients about it, talk with their followers about it, and that I think that could have earned media and engagement with consumers while it's potentially less splashy than some of the earlier stuff we did. Very meaningful because it is so consistent with that slope of enlightenment that they talk about in the Gartner (NYSE:IT) Hype Cycle. It's where people are now finally beginning to understand, okay, wait a minute. I mean, the folks on the call, this can make a practical and real difference in your health. You can ignore it, you can get involved in the politics of it, or you can just try it. And we're hearing more and more people say, you know what, Beyond IV, I really like it, some sausage, what a neat concept, really healthy, I understand it. I'm benefiting from your products in X, Y, and Z, and that type of word of mouth is really important. And it's not all spontaneous, right? We are working within the health community to help get this message out. And you can see that with the various accreditations we have, you can see it with our broad and deep engagements in the nutrition and registered dietitian community. But it's not necessarily splashy. It's just effective.

Peter Saleh: Thank you very much.

Operator: The next question is from Ken Goldman with JPMorgan (NYSE:JPM). Please go ahead.

Ken Goldman: Hi, thank you. Ethan, there's a lot of helpful conversation on this call about nutrition and the continued battle against misinformation, and I do appreciate that. I wanted to ask a little bit about how confident you are that the products taste and texture, whichever product you want to talk about, the burger, the sausage, whatever, is where you want it to be, because when I talk to investors and I talk to friends and family about the product and obviously it's a small sample size, I don't want to extrapolate too much, it's still about the taste, where people say, look, I know a hamburger isn't good for me, but I like eating it more than a Beyond Burger, more than your competitor's burgers. The taste isn't quite there, and the texture isn't quite there where they say, I really want to eat this. And food is still about what people want to eat more than what they have. I've asked this question before on the call, I know. So, I just wanted to get a sense of an update of kind of where you are in that, in the stage of the product. Thank you.

Ethan Brown: Yeah, no, thanks Ken, good question. So, we wouldn't launch something that we felt did not represent an increase in the organoleptic or sensory experience of the product. That's not something we'd want to do. And so in particular, the shift to this protein blend dealt with some of the off flavors. The use of avocado really helped with some of the flavor notes, as well as the health and a bunch of other changes were made. And so we are seeing that simultaneous consumer reaction that this, there's obviously going to be some when you change a formula and somebody would like the old formula, so you're going to get some criticism from that. But overall, the reaction has been strong and the tests we ran prior to launching indicated that this was an improvement on taste. And so, we don't need everybody to like the product. We need enough people to like it. And there are -- there's a very large addressable market, as I've talked about before, and not everyone does what they should do, I get that. But enough have a concern that, or at least a desire to be healthy, that they enjoy the taste of this and they enjoy the health benefits and so they're going for it. And I think it's really -- if you had to say, even [yours] (ph), the X amount of dollars and all you can spend it on is either taste or health, I'd absolutely go after health because that's the misperception. There's enough people who really like the taste of the Beyond Burger and have been doing this for about 15 years. I know when they don't, I know when they do. And enough people that really like the taste, particularly this latest portfolio, that getting clear with folks about the really transformative impacts can have on their health. Look, I mean, we know this, that the standard American diet, it'll give you potentially a statin, give you stints, give you some other things. And there's a way through that, which is diet. And putting Beyond at the center of the plate is a major enabler of a healthier diet. So that's the message that I get across.

Ken Goldman: Thank you for that, it's helpful. And then I wanted to ask a follow-up about pricing. And the reason that you're not taking price internationally, and I believe that's the case, please correct me if I'm wrong, that you don't have that scale, that you don't necessarily -- you're not in a place necessarily where you have the distribution yet. And to get distribution, you kind of want to maintain a price level that is maybe a little more appealing than it would be in a larger steady state environment or are there other factors to consider?

Ethan Brown: That's right. I mean, if you look at some of the stuff we're doing in Europe, for example, with large strategic partners, that does have much more of a pricing element to it, right? And so that's where you see us continuing to be aggressive in some of those things, but yeah, primarily the folks in the US.

Lubi Kutua: Hey, Ken, maybe What I would add to that as well is, I believe it was two years ago at this point, we did take a very close look at our pricing relative to the competitive set, particularly in the EU. And we felt that the price gap, our products were at a premium, they remain at a premium today, but we felt that the price gap was a little bit too large. So we did kind of reset our pricing level relative to the competitive set out there. And so I certainly think what you mentioned is certainly one element, right? But I think we did a pretty deep dive a couple of years ago to make sure that we're sort of priced in a place that we believe makes sense for that market.

Ken Goldman: Great. Thank you so much.

Ethan Brown: Sure.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Ethan Brown for any closing remarks.

Paul Sheppard: Ethan, I think you're on mute.

Ethan Brown: Thanks, guys. I'll be very brief. I think -- just wanted to emphasize net revenue came in quite a bit higher than we were expecting. Margin is the best it's been since 2021. Cash is way down. Operating expenses are also down. Consolidation networking needs to go really well, continue to implement lean and drive cost out of the business. We're doing this while we're addressing what I think is the main issue around the category is restoring the health halo. Doing that not only on our own marketing, but also in association with a lot of very influential organizations and leaders in the health and wellness community. So a lot of really positive stuff going on and a pivotal year for us. I look forward to reporting the balance of the year and sharing with you guys how this strategy continues to unfold. But I appreciate the interest and look back soon.

Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.