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Is Beyond Meat Profitable?

Beyond Meat’s comitted missions. Source: BYND Q1 2020 quarterly update.

Before discussing Beyond Meat’s profitability, let’s briefly introduce the company. Beyond Meat (NASDAQ:BYND) is a food packaging company committed to providing plant-based meat products that look and taste exactly like the real animal meat. According to Beyond Meat, a typical consumer may not be able to tell the difference due to the plant-based meat products having the same texture and other sensory attributes of animal-based meat products.

Over the past year, the demand for Beyond Meat’s plant-based products has skyrocketed, and revenue grew more than 200% year over year in 2019.

Beyond Meat growth

Beyond Meat growth. Source: BYND Q1 2020 update letter.

While Beyond Meat’s growth has been on fire from all aspects, it may look like a different story when it comes to profitability.

In this article, we will examine Beyond Meat’s profitability by using a top-down approach. For instance, we will start from the company’s revenue and work on the next profitability level and so on until we finally reach the earnings per share or EPS, which are usually stated at the bottom of the income statements.

Along the way, we will examine Beyond Meat’s gross profit, operating profit, and net profit to find out how the company performs in terms of profitability at each level of the income statements.

While looking at the company’s profitability, the important thing is to evaluate the trend over a couple of quarters, instead of worrying about the results of a single quarter. What we need to do is to find out whether the long-term trend is improving or worsening.

Let’s sit tight and read on!

Beyond Meat’s Net Revenue

Beyond Meat net revenue

Beyond Meat net revenue

Let’s start with the company’s revenue chart as shown above. The chart above indicates Beyond Meat’s net revenue between 2018 and 2020 every quarter.

According to the chart, Beyond Meat’s net revenue has been growing exponentially, hitting a record high at $97 million in 1Q 2020. On year on year basis, the 1Q 2020 quarterly result represents an increase of more than 140% compared to the corresponding quarter a year ago.

The revenue expansion in Q1 2020 was primarily driven by the increase in distribution channels in both domestic and international markets.

Also, the higher sales in 1Q 2020 were due to several new product launches such as the Beyond Sausage, Beyond Fried Chicken, and Beyond Beef, which were introduced after 1Q 2019.

International retail sales were impressive, growing nearly 5000% compared to the same quarter a year ago.

While Beyond Meat’s revenue growth has been nothing less than exceptional over the past 2 years, the profitability may look different.

Therefore, let’s hop on and proceed to analyze the gross profit which is shown in the next chart.

Beyond Meat’s Gross Profit

Beyond Meat gross profit

Beyond Meat gross profit

The chart above represents Beyond Meat’s gross profitability from 2018 to 2020.

Gross profit is derived from revenue minus cost of goods sold. From gross profit, we can determine the gross margin, and the higher the gross margin, the better the profitability is.

The gross margin could reveal a lot of information about the products such as brand awareness, production efficiency, labor efficiency, etc.

According to the chart above, Beyond Meat’s quarterly gross profits have also been on fire, growing exponentially since 2018. As of 1Q 2020, gross profit reached a record high at $37.7 million, representing a year over year increase of 250%.

Moreover, the company has managed to achieve gross profitability that has been mostly positive since 2018. The encouraging result indicates that the company has been profitable in terms of gross profit all this while.

As of Q1 2020, Beyond Meat’s gross profit of $37.7 million translates to a gross margin of roughly 39%, which is 10% higher compared to the same quarter a year earlier.

According to Beyond Meat, the margin expansion in 1Q 2020 was the result of several factors such as higher sales volume, production improvement, and material as well as packaging costs savings.

As the company continued to optimize its supply chain capabilities and manufacturing efficiency, Beyond Meat has been able to increase its purchasing power which directly reduced material and packaging costs. The improvement has helped to push the gross margin higher in 1Q 2020.

Beyond Meat’s Operating Profit

Beyond Meat operating profit

Beyond Meat operating profit

When it comes to operating profit, Beyond Meat’s profitability result took a hit between 2018 and 2020 as seen in the chart above.

For your information, operating profit is calculated after all costs and expenses such as costs of sales, research and development, as well as SG&A, are measured. In other words, operating profits take into account of all expenses incurred during the ordinary course of the business operations such as material, labor and production as well as overheads such as leases and utilities.

However, the operating profit is measured before interest expenses and taxes are included. As such, the operating profit is also referred to as earnings before interest and tax.

The current chart shows that Beyond Meat’s quarterly operating profits had mostly been in the red in 2018. The company has incurred losses amounting to $8 million in some of the quarters in 2018.

However, the company’s operating profit had slowly improved in 2019 when the company managed to report 2 consecutive quarters of positive operating profits of $2.2 million and $3.6 million in 2Q19 and 3Q19, respectively.

As of Q1 2020, Beyond Meat’s operating profit was $1.8 million, representing a turnaround from loss to profitability compared to the result a year ago.

On a long-term basis, we can see that Beyond Meat has been able to improve its operating profits between 2018 and 2020. In this aspect, the company has managed to turn from operating losses in 2018 to several profitable results in 2019.

Year over year, Beyond Meat’s operating loss of $28 million in 2018 was reduced to a loss of only $489 thousand in 2019.

The smaller loss in 2019 was remarkable, and it shows that the company is on its way to profitability if the trajectory does not deviate significantly from the current trend.

Beyond Meat’s Net Profit

Beyond Meat net profit

Beyond Meat net profit

In terms of net profitability, Beyond Meat’s net profit was worse than the operating profit for the past 3 years.

For your information, the net profit is also referred to as the net income and is calculated after all expenses, including interest expenses and taxes are included in the measurement. The net profit will be the final income or profit available to common stockholders. As such, the net profit can sometimes be used to pay out a dividend to shareholders.

When we look at Beyond Meat’s net profit, between 2018 and 2020, the company has incurred net losses in most of the quarterly results. Of all the quarterly results between 2018 and 2020, Beyond Meat has only 2 quarters of net profitability, which occurred in 3Q19 and 1Q20 at $4.1 million and $1.8 million, respectively.

Similarly, Beyond Meat has managed to swing from a quarterly net loss of -$6.6 million to a net profit of $1.8 million in 1Q 2020 year over year.

On a long-term basis, Beyond Meat’s net profits have also been improving as seen from the chart. The company has suffered losses in all 4 quarters of 2018. However, Beyond Meat has managed to generate at least a profitable quarter with a net profit of $4.1 million in 3Q 2019.

On an annual basis, Beyond Meat’s net loss was reduced to only $12 million in 2019 from a loss of $30 million in 2018. The profitability improvement was more than 100% from 2018 to 2019. If the positive trend continues at this rate, Beyond Meat may break even by the end of 2020, if not a positive net income.

A positive net profit marks a major milestone for Beyond Meat as it indicates that the company’s net revenue can sufficiently cover all expenses, which include everything from costs of sales to tax payments. Moreover, Beyond Meat will also be self-reliant in terms of working capital and the required funds for expansion when the company reaches profitability.

In short, Beyond Meat should aim for consistent net profits in the future if it wanted to sustain its business operation by using its own funds.

Beyond Meat’s Earnings Per Share (EPS)

Beyond Meat earnings per share

Beyond Meat earnings per share

One more profitability metric that we will examine is the earnings per share or EPS. The EPS is derived by dividing the net profit by shares outstanding. The figure is one of the most important as it drives the share price of Beyond Meat. Most investors and analysts use the EPS to calculate how much a share is worth in the stock exchange.

When we look at Beyond Meat’s earnings per share, the trend is similar to the company’s net profit. Accordingly, Beyond Meat has only managed to generate positive EPS in 2 quarterly results between 2018 and 2020.

As of 1Q 2020, Beyond Meat’s earnings per share of $0.03 marked a major turnaround when the respective EPS in the corresponding quarter a year ago was -$0.95. Beyond Meat’s success in reporting a positive EPS in 1Q 2020 has caused the share price to rocket beyond the $150 level at the time this article was published.

Nevertheless, we can see a remarkable improvement in EPS over the past 3 years for Beyond Meat. Similar to the trend of net profit, Beyond Meat’s EPS has turned from huge losses to minor profitability in recent quarters.

Conclusion

To recap, Beyond Meat is a unique company in the sense that it “manufactures” meat straight from its factories with raw materials that come from plants instead of animal protein.

From the profitability analysis, we can see that the company’s explosive revenue between 2018 and 2020 has not translated into profits.

Beyond Meat has only managed to be profitable in terms of gross profit from 2018 and 2020. Other than that, the company has suffered huge losses in operating profits, net profits, and earnings per share in most quarters.

While consistent profitability may seem unattainable for Beyond Meat at this moment, the company has made significant improvements in the past 3 years. With this said, Beyond Meat has managed to reduce losses at all profitability levels, from huge losses to minor profitability, especially in the latest quarter of 1Q 2020.

Therefore, is Beyond Meat profitable? The answer is yes when you look at only the gross profit in which the company has been generating positive gross profit since 2018 and a gross profit of $37.7 million in 1Q 2020.

Other than gross profit, Beyond Meat has largely incurred losses in operating profit, net profit and earnings per share in most quarterly as well as annual results.

References and Credits

1. All financial figures in charts and snapshots were obtained and referenced from financial statements available in BYND SEC Filings.

2. Featured image was used under Creative Common Licenses and obtained from Marco Verch.

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