These have been difficult years for More than meat‘S (NASDAQ: BYND) stocks, which have fallen 96% over the past five years, including 23% this year.
The company recently received more negative headlines when McDonald’s (NYSE:MCD) discussed how two test markets for plant-based burgers failed.
Let’s take a closer look at the news, the issues the company has faced, and what investors should do with the stock.
A lack of demand
McDonald’s recently went public and said that its test of the McPlant burger, which uses patties from Beyond Meat, had failed in test markets. The plant-based burgers were served at about 600 locations in the San Francisco and Dallas-Fort Worth markets. However, the news is more headline-grabbing since the fast food giant was testing the burgers as far back as 2022. The company noted that there simply wasn’t much demand for the burger, even in a more vegetarian-friendly market like San Francisco.
While the news won’t impact Beyond Meat’s future revenue, it does directly impact one of the company’s biggest problems: declining demand for Beyond Meat’s products.
This was evident in the most recent quarterly results, where Beyond Meat product sales volume fell 16% to 16.57 million pounds. The company’s sales volumes fell across all segments, with U.S. retail volumes down 10% to 7.47 million pounds and U.S. foodservice volumes down nearly 21% to 2.20 million pounds.
While the U.S. market has been an ongoing struggle for Beyond Meat for some time now, the company has fared much better internationally, particularly in the foodservice portion of its business. For example, international foodservice volumes increased nearly 60% last year, while sales rose 34%.
That strong performance, however, evaporated in Q1. In the first quarter, international foodservice sales volumes fell 25% to £4.16m. Meanwhile, international retail sales volumes fell 13% to £2.91m.
In addition to declining demand for its products, Beyond Meat also has a pricing and margin problem. While sales volumes have fallen, dollar revenue has fallen even further. In Q1, total volumes fell 16%, but dollar revenue fell a further 18%. Last year, volumes fell 8%, but revenue fell 18%.
Gross margins are very low. In Q1 they were a meager 4.9%. With declining volumes and sales, the company is seeing operational deleverage in its business.
The debt must be repaid in 2027
Not surprisingly, the company is also burning cash. In Q1, it had operating cash flow of -$31.8 million, while in 2023 it was -$107.8 million. It also has an outstanding convertible bond of over $1.1 billion that, while attractively yielding 0%, will likely have to be settled in cash in March 2027.
Given the current state of the business, it seems unlikely that the debt can be refinanced. As such, the need to file for bankruptcy protection within a few years is a real possibility unless the company can turn its fortunes around.
The company is currently using an at-the-market (ATM) program to raise money by selling its shares. This dilutes shareholders while attempting to raise enough money to eventually attempt to settle the principal amount of that note.
So while the McDonald’s news may not exactly be fresh, it can certainly be seen as a reflection of Beyond Meat’s struggles. Meanwhile, there are bigger problems on the agenda, with Beyond Meat’s international market going negative and a ton of debt coming due in a few years.
Therefore, I think it is best for investors to avoid this stock.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Beyond Meat. The Motley Fool has a disclosure policy.
McDonald’s Says Beyond Meat Burger Test Failed. What Could This Mean for Investors? was originally published by The Motley Fool
