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Beyond Meat’s Margins Comparison With Peers

Time to go vegan during the grilling season. Flickr Image.

This article deals primarily with Beyond Meat’s margins. This said, the margins that we are going to discuss here are gross margin, operating margin and net profit margin.

Margins are some of the most-used metrics that measure the profitability of a company. For instance, gross margin measures the gross profitability of a company. Of course, the higher the gross margin, the higher the gross profitability will be.

Additionally, margins can also be compared across a list of companies that operate in the same industry to find out their performances with respect to each other.

In this article, we will look at the gross margin, operating margin and net profit margin of Beyond Meat (NASDAQ:BYND), and compare these margins with that of Beyond Meat’s peers or competitors such as Kellogg Company (NYSE:K) and Conagra Brands (NYSE:CAG) that also produce plant-based protein products.

From the comparison, we can find out how Beyond Meat has performed in terms of a range of profitability margins with respect to the company’s peers.

Let’s get started!

Beyond Meat’s Gross Margin (Quarterly)

Beyond Meat gross margin (quarterly)

Beyond Meat gross margin (quarterly)

The chart above shows Beyond Meat’s quarterly gross margin and the respective margin comparison with that of competitors such as Kellogg and Conagra Brands.

For your information, gross margin refers to the mark-up of the products that the company sells. The gross margin normally considers only the costs of goods sold while excluding other operating expenses such as selling, general and administrative (SGA) and interest expenses.

In Beyond Meat’s case, research and development costs are also excluded from the company’s costs of goods sold and are disclosed as part of the company’s operating expense.

According to the chart above, Beyond Meat’s gross margin is comparable with that of its competitors such as Kellogg and Conagra Brands. The company’s gross margin improved significantly in recent quarters and even exceeded that of its competitors.

For instance, from 2Q19 to 1Q20, Beyond Meat’s gross margin has gone above 30% and shot up to as high as 39% in 1Q20, driven mainly by a higher volume of products sold, production efficiency and improvements, reduced materials and packaging costs as well as labor efficiency, according to the company’s 1Q20 earnings presentation.

However, Beyond Meat’s gross profit margin suffered a setback in Q2 2020, dropping dramatically to only 30%. The decline in gross margin in 2020 2Q was largely attributed to the disruption caused by the COVID-19 outbreak.

According to the 2Q 2020 earnings release, Beyond Meat has to spend extra costs on product repacking in an effort to re-purpose certain foodservice inventory into retail products as a result of the sudden shift in consumers’ demand related to COVID-19.

Understandably, Beyond Meat’s foodservice revenue in 2020 2Q declined to its lowest at only $13.7 million, largely driven by the temporary closure of bars and restaurants.

On the other hand, Beyond Meat’s competitors such as Kellogg and Conagra Brands’ gross margins in 2020 Q2 were largely unaffected and even slightly increased quarter over quarter.

Beyond Meat’s Gross Margin (TTM)

Beyond Meat gross margin (ttm)

Beyond Meat gross margin (ttm)

On a trailing 12-months (TTM) basis, Beyond Meat’s gross margin was the highest among its competitors at 34% in 2Q 2020 even though it suffered a considerable decline in gross margin on a quarterly basis in the same quarter.

For your information, the TTM plot was created to smooth out any irregularities and to rule out any seasonality effect.

In short, Beyond Meat’s gross margin has ranked 1st compared to Kellogg and Conagra Brands from 3Q19 to 2Q20 from a TTM perspective.

Beyond Meat’s Operating Margin (Quarterly)

Beyond Meat operating margin (quarterly)

Beyond Meat operating margin (Quarterly)

The chart above shows Beyond Meat’s quarterly operating margin and the respective comparison with that of its peers from 2019 to 2020.

For your information, Beyond Meat’s operating margin takes into consideration of operating expenses such as R&D, SGA and restructuring costs.

Despite having a gross margin that has been higher than that of its peers, Beyond Meat’s operating margin has been considerably lower than that of its peers, and even went negative in some quarters, indicating that the company’s generated gross income has failed to sufficiently cover the operating costs.

Beyond Meat’s operating margin has gone as low as -7.2% in 2020 Q2, reflecting the devastating effect of the COVID-19 pandemic has on the company’s operations.

On the contrary, companies such as Kellogg and Conagra Brands have managed to maintain their operating margins at relatively the same level.

Beyond Meat’s Operating Margin (TTM)

Beyond Meat operating margin (TTM)

Beyond Meat operating margin (TTM)

From a TTM’s standpoint, Beyond Meat’s operating margin has also been considerably lower than that of its peers and has been in the negative in most of the quarters.

Fortunately, Beyond Meat’s operating margin has significantly improved since 2Q19 and ticked higher to 1.9% in 1Q20 before slightly declining quarter over quarter to -0.9% in 2Q20.

On the other hand, Kellogg and Conagra Brands’ operating margins have been relatively constant between 2Q19 and 2Q20, suggesting the strong earnings power that these companies possess.

Beyond Meat’s Net Profit Margin (Quarterly)

Beyond Meat net profit margin (quarterly)

Beyond Meat net profit margin (quarterly)

In terms of net profit margin, Beyond Meat also falls considerably behind that of Kellogg and Conagra Brands.

As of 2020 Q2, Beyond Meat reported a net profit margin of -9%, representing a quarterly decline of more than 10 percentage points.

On the bright side, the 2Q20 quarterly result was about 5 percentage points better than the corresponding quarter a year earlier.

Moreover, Beyond Meat’s net profit margin has been improving from suffering huge losses in 3Q18 to achieving net profitability in 1Q20. However, in 2Q20, the company succumbed to the damage of the COVID-19 outbreak, causing the profit margin to decline to -9%.

Similarly, Beyond Meat’s peers such as Kellogg and Conagra Brands have been profitable during the same period, achieving a net profit margin of around 10% and 6%, respectively, in 2Q20,

Again, the steady net profit margin of these companies over the years suggests the immersed earnings power that lies within these firms, which in this case, Beyond Meat has been lacking.

Beyond Meat’s Net Profit Margin (TTM)

Beyond Meat net profit margin (ttm)

Beyond Meat net profit margin (ttm)

On a trailing 12-months (TTM) basis, Beyond Meat’s net profit margin was seen improving tremendously from 2Q19 to 2Q20, narrowing from as low as -20% in 2Q19 to only -1.2% in 2Q20.

While Beyond Meat’s net profit margin of -1.2% in 2Q20 was one of the best ever reported, the result was still far from the 8% profit margin reported by CAG and Kellogg in the same quarter, suggesting that there is a lot of rooms for improvement for BYND.

Conclusion

Of all the margins reported by Beyond Meat, only the gross margin was seen having positive figures. The rest of the margins such as the operating margin and net profit margin have all been in the red.

As bad as these margins may seem, they have actually been improving for the past several quarters, especially from the perspective of the TTM basis. For example, Beyond Meat’s operating margin has improved from -11% in 2Q19 to -1% in 2Q20, illustrating the improving fundamentals for the company.

Most of Beyond Meat’s margins are falling behind that of its competitors such as Kellogg and Conagra Brands. On the bright side, the lagging of Beyond Meat’s margins compared to its peers may turn out to be a blessing in disguise for the company.

If Beyond Meat can achieve the same level of margins as its peers, Beyond Meat’s stock valuation will absolutely shoot to the moon.

References and Credits

1. All financial figures in all charts and tables on this webpage were obtained and referenced from the quarterly and annual filings between 2018 and 2020 which can be found in the following websites:

a. Bynd earnings releases
b. CAG earnings releases
c. Kellogg earnings releases

2. Featured images in this article are used under the creative commons license and sourced from the following websites: marcus eubanks and Ashbridge Studios.

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