Beyond Meat's Biggest Problem Just Got Bigger, and Investors Should Be Paying Attention | The Motley Fool (2024)

Beyond Meat (BYND -1.76%) took off like a rocket ship when it reported fourth-quarter 2023 earnings, with the shares gaining roughly 50% in value in a single day. Within a few days, the stock had given back much of that gain, and if you look further back in time, it's still down roughly 95% from its high-water mark in 2019. If you are looking at Beyond Meat, you need to tread very carefully. The good earnings news isn't as good as it may seem at first.

Beyond Meat had a strong quarter -- for Beyond Meat

To be completely fair to Beyond Meat, Q4 2023 was, indeed, a good one for the company. It lived up to its self-imposed goal of cutting costs, and it was able to increase volumes in new markets outside the United States. The numbers on the second point were fairly impressive, with retail channel sales in foreign markets up 22.1% in the quarter and 33.7% higher in the food service channel.

There are definitely good things going on at this food maker. But the bad news is still material, and that should worry investors. For example, despite the strength of the company's products in foreign markets, overall sales for Beyond Meat fell 7.8% in the final part of 2023. For the full year, sales were down by 18%. That's not particularly good news.

One of the negatives is that Beyond Meat had to offer price concessions to support sales. And that weakness was felt across all four of the business segments the company breaks out. While selling more at lower prices isn't a terrible outcome in the company's two foreign segments, it hints that the results may not be quite as strong as they seem at first.

Beyond Meat's really big problem

That statement actually leads into the problem that Beyond Meat investors should really be monitoring. Volume fell 22.6% in the domestic retail segment in Q4 and 25.9% in the domestic food service grouping. For the full year, volume was down 33.9% in the domestic retail segment and 26.9% in domestic food service. Both occurred despite the company charging lower per-pound prices, which should have supported volumes.

What is most likely happening here is that Beyond Meat's products have gone from being a hot new fad to commonplace. Customers across the board in the domestic market have simply moved on, or back, to other products that they like more (like real meat). It isn't at all shocking that a new product would see a spike in demand that eventually cools off. That's why food makers are constantly trying to bring out new versions of their products in an effort to keep them top of mind with customers. In fact, virtually all consumer staples companies try to do this.

But what happens if you only have one basic product and people just aren't excited about it anymore? The answer is that volumes fall dramatically, just like what has happened with Beyond Meat domestically. To the company's credit, it is trying to bring out innovative products, but that has yet to turn the tide.

That brings the story to a longer-term issue to which investors need to pay attention. The strong sales results in foreign markets are largely being driven by the novelty of Beyond Meat in those markets. If sales follow the same trends in those markets as they did in the domestic market, Beyond Meat's best news in 2023 could quickly become just more bad news at some point in the not-too-distant future.

Beyond Meat is a risky proposition

Beyond Meat's management team is trumpeting their successes, which is what you would expect the company to do. Investors, however, should take that good news with a grain of salt. Beyond Meat is still trying to figure out if it has a sustainable business model. At this point, even with the progress on costs and strong foreign sales, the evidence hasn't proven that Beyond Meat has what it takes to survive as a stand-alone company. Investors should tread carefully here.