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Beyond Meat Has Been Burning Cash Like There Is No Tomorrow

A Beyond Meat sandwich. Source: Flickr

Beyond Meat (NASDAQ:BYND) is one of the fastest-growing food packaging companies in the world, offering a portfolio of revolutionary plant-based meats.

The company literally builds meats out of its factories, using plant-based protein. Its plant-based meat products look almost, if not 100%, the same as the animal-based products in terms of not only the physical attribute but also the taste, texture as well as other sensory attributes of animal-based meat products.

For this reason, Beyond Meat has been selling its plant-based meat products like hotcakes, making hundreds of millions of sales annually. Beyond Meat’s revenue growth in 2019 exceeded more than 200% compared to 2018, making it one of the few food companies that have been gaining attention from Wall Street since 2020.

The company stock price was valued more than $120 as of this article was published, representing a growth rate of nearly 500% since going public in the mid of 2019 with an IPO share price of only $25.

However, behind the glory and the growth, Beyond Meat has been burning cash like there is no tomorrow. As with all the new startups, Beyond Meat has been not only making losses all these years, to the tune of more than $10 million in 2019 but also consuming a large amount of cash that was close to $50 million during the same year.

In this article, we will examine Beyond Meat’s cash flow from the perspective of the company’s operating cash flow, capital expenditure and free cash flow. Besides, we will also look at Beyond Meat’s cash on hand over several quarters to find out how the company had performed in terms of cash reserves in the last few quarters.

Let’s move on!

Beyond Meat’s Operating Cash Flow

Beyond Meat operating cash flow

Beyond Meat operating cash flow

Let’s first look at the company’s operating cash flow which is shown in the chart above over the past 2 quarters from 2019 to 2020.

For your information, the operating cash flow is one of the most critical cash flow metrics that measures a company’s cash inflow or outflow from its core operation. In other words, the operating cash flow takes into account of only cash flow due to the company’s main operation such as cash inflow from sales of products and cash outflow for working capital as in inventory purchase, overhead, interest expense payment, etc.

Other cash inflow and outflow due to repayment of debts, cash raised from stock issuance, and cash outflow for investment in equipment and tools are not included as part of the operating cash flow.

As the chart above shows, Beyond Meat’s operating cash flow has been in the red in the last 2 quarters from 4Q19 to 1Q20, burning a cumulative of cash close to $50 million in just 2 quarterly results.

A negative operating cash flow implies that Beyond Meat’s core business operating such as the sale of its primary products has failed to generate enough cash to cover the respective operating expenses.

Fortunately, Beyond Meat’s operating cash outflow has declined to only $17 million as of 1Q 2020, making the company on track to possibly generating positive operating cash flow by the end of 2020 or early 2021.

What is causing Beyond Meat’s cash burn?

Beyond Meat cash burn root cause

Beyond Meat cash burn root cause

The snapshot above shows Beyond Meat’s operating cash flow for the 1Q20 quarter. It also points out that the company’s quarterly operating cash flow was -$17.2 million in 1Q20.

According to the cash flow statement, the negative operating cash flow in 1Q20 was primarily due to a surge in inventories build-up, causing a cash outflow of as much as $39 million. In other words, Beyond Meat has spent nearly $40 million in operating cash flow to expand its inventories. The cash spent could be on the purchase of raw materials and packaging.

The operating cash outflow in 1Q20 for inventory purchase was quite significant compared to the corresponding quarter a year ago, representing a year over year increase of close to 10X when the corresponding quarter a year earlier reported a cash outflow for inventories of only $4 million.

Beyond Meat’s Capital Expenditures

Beyond Meat capital expenditure

Beyond Meat capital expenditure

Other than spending on inventories, Beyond Meat also spent considerably on capital expenditures as depicted in the chart above for the past 2 quarters from 2019 to 2020.

According to the chart above, Beyond Meat’s cash outflow for capital expenditures totaled more than $26 million over the past 2 quarters.

Capital expenditures are a form of investment in properties, plants and equipment. In Beyond Meat’s case, continuous cash outflow for capital expenditures implies that the company is expanding its production capacity which should bode well for investors as it represents growth for the company.

Beyond Meat’s Free Cash Flow

Beyond Meat free cash flow

Beyond Meat free cash flow

Free cash flow is defined as operating cash flow minus capital expenditures as shown in the following equation:

Free cash flow = operating cash flow – capital expenditures

Free cash flow is a powerful indicator of cash generation capability of a company.

As the above chart shows, Beyond Meat’s free cash flow has also been in the red in the last 2 quarters from 2019 to 2020, consuming more than $70 million of free cash flow in just 2 quarters.

The negative free cash flow is sort of expected since the company has failed to generate any positive operating cash flow, causing free cash flow to further deteriorate when capital expenditures were taken into account.

Despite having 2 quarters of negative free cash flow, Beyond Meat has managed to reduce the consumption of free cash flow to around $30 million in 1Q20, suggesting that the company may possibly be on track to generating positive free cash flow by the end of 2020 or early 2021 on expected higher sales volume.

Beyond Meat’s Cash On Hand

Beyond Meat cash on hand

Beyond Meat cash on hand

Judging from the free cash flow burn rate for Beyond Meat, how long will the company survive? To answer this question, we can look at the company’s cash on hand which is shown in the chart above for the past 3 quarters from 2019 to 2020.

According to the chart, Beyond Meat has quite a substantial amount of cash on hand as of 1Q 2020, which was a meaningful sum of more than $246 million.

However, Beyond Meat’s cash on hand has been consistently declining over the last 3 quarters, dropping from as much as $312 million in 3Q19 to only $246 million in 1Q20.

Thanks to the company’s significant free cash flow burn rate of roughly $70 million in the past 2 quarters, Beyond Meat’s cash reserves have dropped substantially.

Unless the company can generate positive operating cash flow in the coming quarters, Beyond Meat will continue to consume more free cash flow, possibly using up all of its existing cash on hand by the end of 2021.

In short, the existing cash balance may only last until the end of 2021 if Beyond Meat keeps burning free cash flow at the current rate.

Thereafter, the company may need to raise capital again by either issuing more stocks or offering debt.

Conclusion

Beyond Meat is a unique company in the sense that it literally manufactures meats out of its facilities, using only plant-based protein.

For this reason, the company has been enjoying a break-neck growth rate from 2018 to 2019, growing its revenue at more than 200% annually.

Along with the growth, Beyond Meat has also been consuming a large amount of cash flow, thereby generating a negative operating cash flow of nearly $46 million in the last 2 quarters from 4Q19 to 1Q20.

The negative operating cash flow has resulted in a negative free cash flow of as much as $72 million in just 2 quarterly results from 4Q19 to 1Q20.

At the current cash burn rate, Beyond Meat will most likely use up all of its existing cash on hand of $246 million by the end of 2021.

Other than being negative free cash flow, Beyond Meat’s profitability has also been in the red in the last couple of quarters, making the company even more susceptible to a capital raise in the future.

References and Credits

1. All financial numbers in the charts in this article were obtained and referenced from Beyond Meat Quarterly and Annual Reports.

2. Featured images in this article are used under creative commons license and sourced from the following websites: Jon Fisher and Open Grid Scheduler / Grid Engine.

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