No Bottom in Sight for Beyond Meat's Crashing Sales

Beyond Meat (NASDAQ: BYND) reported a 13.3% revenue decline in the third quarter, an expected result following the company's release of preliminary results in late October. Gross margin was just 10.3%, and Beyond Meat reported a net loss of $110.7 million on $70.2 million in sales. That net loss more than quadrupled from the prior-year period.

CEO Ethan Brown mostly talked about cost reductions and improving the balance sheet in his comments embedded in the earnings release, but neither will solve Beyond Meat's core problems. Demand for plant-based meat alternatives is weak, and within that category, Beyond Meat is just one of many fighting for a piece of a shrinking pie.

Image source: Beyond Meat.

No good news for Beyond Meat

Beyond Meat's revenue decline in the third quarter was driven by a 10.3% drop in volume and a 3.5% decline in net revenue per pound. Volumes were hit by soft category demand, fewer points of retail distribution in the U.S., and a decline in sales to international quick-service restaurants. Meanwhile, net revenue per pound was impacted by higher trade discounts, unfavorable changes in product sales mix, and price decreases.

The U.S. foodservice segment was particularly rough in the third quarter, with volumes down 27.1% year over year. U.S. retail suffered a 12.6% volume decline along with a 6.6% drop in net revenue per pound. The international market looked better, but revenue still declined slightly.

Beyond Meat has been working to lower its manufacturing costs as sales volumes decline, but higher materials costs and higher inventory provision offset those benefits and led to a steep decline in gross profit. The company booked an impairment charge of $77.4 million against long-lived assets in the third quarter, which dragged down the bottom line. However, even absent this charge, the company's operating loss would have worsened from the prior-year period.

New distribution deals aren't helping

Beyond Meat has announced some notable distribution deals recently. On Oct. 21, the company announced an expansion of its partnership with Walmart that would increase availability of some products at more than 2,000 stores across the U.S., including a new value pack for the Beyond Burger. The company also recently announced new distribution deals with upscale grocery chain Erewhon Market and multiple retailers in Canada, with the latter bringing the company's products to more than 1,300 stores.

These deals don't appear to be enough to offset an overall decline in distribution points. Beyond Meat was being sold in fewer locations in the third quarter compared to the same period last year, and that trend looks like it will continue into the fourth quarter, based on the company's guidance.

Beyond Meat expects to generate revenue between $60 million and $65 million in the fourth quarter, a sizable decline from both the third quarter and the fourth quarter of last year. Beyond Meat's quarterly revenue hasn't been this low since the pre-pandemic period.

A comeback looks like a long shot

It's not clear how a turnaround would even play out for Beyond Meat. A recovery in category demand is possible, but even under that rosy scenario, there's an incredible amount of competition. Beyond Meat's brand doesn't carry much weight with consumers, and the company has zero pricing power, as evidenced by its sales volume and net revenue per pound tumbling in tandem.

This lack of brand power also makes an acquisition that rewards shareholders seem unlikely. Many major food companies and retailers have already launched their own plant-based meat lines, including Tyson's Raised & Rooted and products under Target's Good & Gather brand. The barrier to entry into the plant-based meat market appears to be extremely low.

With Beyond Meat's sales in free fall, and with profitability only getting worse, there's little reason to bet on a Beyond Meat comeback.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Beyond Meat, Target, and Walmart. The Motley Fool has a disclosure policy.