Tencent Technology News On November 10, Beyond Meat, an artificial meat producer, announced the company's third-quarter earnings after Monday. The financial report shows that Beyond Meat’s third-quarter revenue was US$94 million, higher than the US$92 million in the same period last year, but far below market expectations of US$132 million; the net loss was US$19.3 million, and the net profit of the same period last year was US$4.099 million. The profit was US$3.067 million; the loss per share was US$0.28, and the market expected a loss of US$0.05. After the earnings report was released, Beyond Meat's stock price plummeted 25% after the market and announced the suspension of revenue guidance. After the release of the
financial report, Beyond Meat founder, president and CEO Ethan Brown (Ethan Brown), chief financial officer Mark Nelson (Mark Nelson), and vice president of investment relations Rubi Kutua (Lubi Kutua), etc. Guan attended the subsequent analyst conference call to interpret the key points of the financial report and answer analyst questions.
The following is the record of Beyond Meat’s earnings conference call:
Analyst: Thank you very much! I know that you did not provide guidance for the fourth quarter, but can you provide us with some details about trends in retail business and food service channels? Looking forward to the fourth quarter, do you expect continuous improvement in these businesses? In addition, there are things that are happening internationally. So, I just want to understand the development trend of some things. Then, I think my second follow-up question is, given the news that McDonald’s released the McPlant platform this afternoon, can you talk a little bit about your possible role on this platform? Over time, how do you hope this project will develop? thank you very much! (Note: McDonald’s announced plans to launch a plant-based meat alternative product line called McPlant in 2021, which includes the cooperation with Beyond Meat to produce artificial meat) Z9z
Brown: Okay, thank you for your question. Before I delve into the details in this area, I want to review and reiterate our achievements in the last quarter. I think what really needs attention is that catering services are still facing huge challenges. You can look at our sales in this area in the fourth quarter of 2019. Our net sales are approximately $58 million. As of today, our net income is $24.4 million. Therefore, it is clear that the new crown pneumonia epidemic has had some impact. People are trying our products, but in the third quarter, they did not maintain the same speed as before. But for us, this does not mean that it is not a very healthy and long-term market segment. In fact, I will share the reasons, but we think we will see many signs of a benign recovery.
Secondly, you can look at what happened to the retail business, which was largely obscured by consumers’ large stockpiles in the second quarter, because consumers believed that the in-state asylum ban would become a very long-lasting economy part. Therefore, the stockpiles that masked the weak food service activity in the second quarter did not appear in the third quarter. In fact, this situation has exacerbated this situation to some extent because households across the United States have freezers. Then, you will see the impact of the decline in the food service sector.
Despite this, we are still encouraged by the performance of the brand, especially in the retail industry, and then some activities that we will discuss in the catering service area. But if you look at household penetration, purchase rate, purchase frequency, and especially repeat purchase frequency, these are things that any brand will really be happy to own. Then look at the market share, the market share increased by 270 basis points year-on-year. Therefore, I think our performance in these areas is quite strong.
Finally, two questions about retail and catering services, as we enter the fourth quarter from the third quarter, do we see signs of recovery? We really avoided this question, and I want to warn you not to provide any guidance for the fourth quarter. But one thing I can share is that this year's consumer buying patterns are unpredictable, and this pattern continues until the fourth quarter, because some of the activities we saw earlier are more in line with what we will see in the summer. Therefore, considering the hoarding behavior, there have been some transactions in the consumer sector, and then as we enter the fourth quarter, the hoarding behavior has decreased. But I want to say it again, I don’t want these data to be used to do the fourth quarterMake any predictions because it is too variable. But we see that we are buying on a large scale, rather than the more even distribution we have seen in the past.
In terms of catering services, we have seen many signs of recovery, but it is too early to draw conclusions. But in the next period of time, you will see that we are actively working with some of the large QSR partners we talked about, provided that the epidemic will not hit the economy again. Therefore, I think that in general, we are very optimistic about our direction of development and look forward to sharing some good results. We think we are doing well and we look forward to continued growth.
I think the second question is about McPlant. As I watched this unfold today, I remembered Mark Twain's famous saying: "Reports of my death are greatly exaggerated." Our relationship with McDonald's is very good and very strong. The work we are doing on their behalf continues. I really respect our big customers, they can share supplier information by themselves and share their release plans. I don't want to get ahead and let myself occupy the headlines of their investor day.
Therefore, I respect their decision to refer to large-scale factory platforms in a general sense. We work closely with them on many issues. I think people just need to continue to be patient. But I think, as I said in the past, this relationship is very good, and our contribution to the McPlant platform is also great.
analyst: Thank you! Brown, you mentioned that consumer retail activity may accelerate again in the fourth quarter, and I think you have answered my first question. I wonder, does this mean that the contents of consumers’ own refrigerators are now normalized, and perhaps all the large stockpiles caused by panic buying are now over. Can you tell us that if the stockpile in the retail industry is normal, then we will not see too much stockpile by retailers in the third quarter. Can you tell us about the current situation?
Brown: So, we don’t see customer-level buying behavior. I'm referring to the grocery store level, which shows that they are still trying to consume a lot of stock. I think they reacted fairly quickly to the consumption downturn in the third quarter, so I think they are well calibrated. So, like I said, we made some pretty good returns at the beginning of the quarter, and I think we just have to wait and see what the rest of the quarter will look like. This is a fickle year, and the reason why we avoid providing guidance for this quarter stems specifically from this.
Analyst: Nielsen's data seems to be lagging, I haven't seen it for a few weeks. But I think, at least until October 7th, it did not show a dramatic rebound. Growth is decelerating slightly and may fall to 42%. It is still strong, but there is no similar rebound. When you look towards the end of October, do you think growth will go higher?
Brown: I think many things that have happened can give you more details. At the end of the third quarter, we did see a large number of purchases from the retailer level. Then we completed many such orders in the first half of October. So, I don't think it directly matches the Nielsen data you see. But again, we have seen a pretty strong start. Whether this situation will continue for the rest of the quarter, we are still not sure.
Analyst: I know, you don’t want to comment on McDonald’s plans. But if your product does not appear on the QSR menu, can you accept it?
Brown: Yes, in fact, I would say there is no problem. I think that considering the resonance of consumers with our brand and our momentum among consumers, we have established this brand, and we think it should appear on the menu. Almost all of our QSR partners have achieved this and benefited from it. If you look at how PLT is positioned, all the sales promotional materials and signs clearly indicate that it was launched with the Beyond Meat Burger. At this time, we cannot specify or explain on behalf of McDonald’s how we interact with McPlant Burger. But we obviously believe that it is in everyone’s interest to use our brand, and I will resist efforts not to use it.
Regarding the issue of growth rate, I mean, I am studying our data and other data. We have dramatically expanded our distribution points, I thinkOur annual growth rate is about 55%, and the growth rate is about 3.5 times the average rate of similar brands. Compared with the same period last year, the increase in the past 12 weeks is about 15%. Therefore, there will be different opinions, depending on the SKU (smallest stock unit) and whether a particular competitor will increase promotion efforts. But overall, the speed increased by 15% year-on-year, coupled with the issuance growth of 55%, this is quite difficult to achieve.
So we feel good about this, even if we expand on the overall distribution, you will see a higher overall speed level. I think this illustrates some of the potential advantages of the brand in the household data we share. I think our current household penetration rate is 5.2%, higher than 2.7% a year ago. But what happened there too, I found it very attractive and inspiring for our brand, which has been the buyer's price since June. The entire country is facing huge economic challenges, and there have been huge disruptions in retail shopping models and catering service participation.
However, what is the family doing? They are still buying more Beyond Meat products. So, if you look at it, I think our buyer price in September was about $36.5, which is higher than the $32 in June. Therefore, from June to September, you will see a substantial increase in cross-family purchases. Obviously, I read all the scout reports about animal protein and our competitors. Relatively speaking, these figures are very impressive.
Analyst: Thank you, good afternoon everyone! Brown, I think my problem is that as we transitioned from summer to autumn, you put things in the refrigerator all summer, except for meat products, as well as burgers. I think, since we have passed the barbecue season, can you talk a little bit about the changes in merchandise sales between the fourth quarter and the first quarter of next year, or whether there will be changes? So, in terms of retail inventory, is there anything we should consider? Or, when we transition between the fourth quarter and the first quarter, will this cause any kind of disruption to revenue? Then, maybe it's just related to seasonality? I know that demand has always been strong, but is there still seasonality in the barbecue season? Or, with the increase in household penetration, do you really think that the seasonality of this situation has weakened compared to the past few years?
Brown: I intend to answer your first question from this perspective. Our brand does have some seasonal characteristics, especially during the barbecue season. But as we continue to provide new SKUs to the public, I think this will be suppressed to a certain extent. Therefore, we expect to see seasonal factors play a role in the fourth quarter. This year's buying pattern is so unusual. We cannot say exactly what impact this will have. This may be some buying, we have not seen it. It will happen in the third quarter and may not happen in the fourth quarter. Seasonality is fully reflected.
However, there is one thing I do want to talk about, as we are thinking, in the fourth quarter and the first quarter, Beyond Meat is its core innovation engine. This is what we are going to do. Our core asset is to understand the protein and fat in plants and let them express. As well as the structure of animal proteins, they provide the experience that consumers are used to. So I am happy to announce that we will launch Beyond Burger 3.0. This makes me very excited. We have always insisted that our brand not only represents the ability to do great things for the world from the perspective of the environment, animal welfare, and climate, but also represents your own body and health.
Therefore, when people think of Beyond Meat, they should think of the deliciousness that we are working hard to introduce every day, which is getting closer and closer to the equivalent of animal protein. But it will also help me lead a healthier lifestyle and help me do something good for the planet. The vegetarian burger fulfilled these promises, and we conducted extensive consumer testing on it. It is better than our current version, and we want to make our current version obsolete. It performs very well in the competition and has improved in many features. So I am very excited to come out, I think this represents our continued growth potential. Therefore, when this happens, we will not say exactly now, but we will soon announce that we think this will have some impact, just as we are talking about the fourth quarter, especially the first quarter of next year.
Analyst: Thank you. I think your comment on McDonald'sTo be more polite, I think many investors may see this. My impression is based on Beyond’s quasi-public statement. You don’t like this, do you? It's kind of like you said that we are working with them, but I don't think this is what you intend to do. So to me, I think you're a little scared, right? You did not disclose any substantive information to investors, such as what might become your biggest growth driver. So we rarely assume a worse situation. You didn't produce anything at all, you just authorized some technology patents. I think, can you give us some suggestions today to help us understand your relationship with this customer?
Brown: Okay, this is a good question. I mean, like I said, I really value my relationship with customers. Although I want to assure Wall Street and all those who have helped us over the years, this is the way it is. If I have one hypothesis about why their comments today are more common, it is my own, or even Brown’s observation, except for Beyond Meat and McDonald’s, this is their good day. Today is their investor day, and if news of Beyond Meat appears on the McDonald's factory platform, it will destroy their desire to keep the information unchanged.
So I respect and understand this. I really need to get them to comment further on how we plan to interact in this "nuclear power plant". What I want to say is that everything I say is true and we have developed a very long-term relationship with them. We worked very hard to develop the burger in PLT, which will enter the meat factory. But it really has to be decided by them, where it will be and how it will be there. But everything that my research team and I have been doing is working with them towards a specific result, and I am very happy about it.
Analyst: Good afternoon, thank you for answering my question, I want to know more about your retail distribution. At this point, would you worry about over-distribution in retail? So, it's interesting to hear that you plan to launch the CVS chain later this year?
Brown: is not. What I worry more about is that this is rooted in our company’s patients to some extent. We know that consumers want different and additional SKUs from us. We know that they want to have options provided by Beyond Meat for different dining occasions throughout the day. Therefore, the sense of urgency we feel is very real, allowing us to get more SKUs. Therefore, whether it is Kroger or Walmart, etc., we can only touch the fur of these large grocery stores.
So, really, our feet just stepped into the door, but that's it. We have the opportunity to add up to 25 or 30 SKUs in these stores. In the coming months, you will hear about our exciting progress in this area. But our goal has always been, whether it’s the McDonald’s discussion we just mentioned, or some of the other partnerships we have established, all to meet with people who buy goods.
CVS has now become a place where people choose household daily necessities, so we want to go there. We hope to do well in this regard. So it has 7,000 new branches, people can go to CVS’s Beyond Burger, we have 5,000 new branches in CVS, where people can buy Beyond Meat Galls. This is good, and we plan to try to increase distribution with other products suitable for this channel. So, I really think we are just getting started.
Analyst: Good evening, Brown, Nelson, thank you for answering my question. I want to learn more about the dynamics of the international market, including the retail industry and the catering industry. So, if we look at it, at least the European market, but also the Asian market to some extent, at least in the last quarter, many catering service stores were not actually blocked because it was like the first wave of epidemics. Everyone can go out again, and I expect more meaningful growth here. But in fact, if we look at the food service, it is only slightly better than in the second quarter. At that time, most of the impact of the epidemic-related restrictions occurred in food sales, such as Europe and other markets, but some were also in Asia. . Similarly, if we look at the retail industry, the performance in the second quarter is clearly very strong. However, on the basis of continuing into the third quarter, a significant slowdown occurred. SoSo, I would like to know if you can introduce the dynamics of the international market, food service and retail sector in detail, so as to better understand the development direction of these markets in the next few quarters.
Brown: is good. Therefore, in terms of catering services, if you look at our sales distribution in this channel, as I mentioned in the opening remarks, I will give more details here. About two-thirds of our risk exposure is in independent institutions and institutions, and those that have either closed down or have significantly reduced operational capabilities. Then there is the strategic market, which accounts for about one-third of our distribution. These are all well done drive-through restaurants that can simplify menus and cash flow, etc. But our participation in this area of catering services is not high. Therefore, even in the international arena, we have not participated in the recovery.
If you look at some of the tests we have done in the past, you will find that these tests have done a good job, but due to the uncertainty surrounding the epidemic, these tests have not been promoted, and many of them are conducted in such locations. Therefore, whether it is Pizza Hut in Puerto Rico or KFC or Taco Bell in China, the test is underway, but I think people are waiting for the recovery of full economic activity before they really start adding things to the menu. This situation is happening in the United States and also in the European Union. We understand this. The menu has become very complicated. When you are trying to survive a pandemic, it is understandable to postpone adding new menus.
In terms of retail, we are very pleased to see an increase of 27% in international retail sales in the third quarter, provided that the global rise of the epidemic will not stop this growth. We believe that we have seen some good signs of recovery there.
Analyst: Thank you, and good evening everyone! My question involves cost. So there are two parts: First, it seems to come to United Packaging to invest, about 14.5 million US dollars. I just want to know what impact this will have on the unit cost, at least part of your products do not have to pay the joint packaging fee? Second, regarding the purchase commitment of pea protein isolate. It seems that the purchase commitment in the fourth quarter and the purchase commitment by 2021 have greatly exceeded your consumption in the third quarter and year-to-date? I only know that there is a shelf life, but what I mean is that this means that income will more than double. I just want to hear what you think about the ability to consume these products? Thank you.
Nelson: Okay. We can look at the internalization of the back-end, product formation, mixing and packaging elements. This accounts for a considerable part of our costs. Therefore, we believe that internalization through this acquisition is a good way to offset this impact, transfer costs to internal, and then use this to achieve a better cost profile. For us, this is a very attractive return, whether it is a return over a period of time, or from a unit cost perspective.
We don't want to elaborate, but this is a compelling argument and we can start to study some back-end internalization, and we are excited about it. We are really happy to work with 180 new employees and really start to take advantage of this. So we will continue to update more information. But needless to say, this is a larger part of our current cost structure. Therefore, we can work on reducing costs, which is a great thing.
Regarding pea protein isolate, we are indeed paying close attention to this point. We have signed contracts with pea protein isolate suppliers. We work with these suppliers to ensure that the protein is up-to-date. It usually has a two-year shelf life. Therefore, we work hard to ensure that all the inventory we have can be traded very efficiently. We know that as the economy slows, we have more funds. But as we continue to move forward, we are optimistic that this will stabilize and we will match the inflow and demand. And it is not linear. We absorbed more funds earlier this year to prepare for areas with stronger growth, usually in the second and third quarters. Therefore, the superposition of the slowdown in demand in the third quarter did lead to an increase in inventory levels, but this is something we feel relieved. We continue to check and make sure we have current inventory, which is the correct inventory.
Analyst: Good afternoon! I want to return to the topic of consumer inventory. Compared with August, how have your expectations changed? I guess that this is probably because the consumption in these various fields can be expanded when the starting point is low. burnThe baking season and working at home overlap, which may also be a driving factor for demand. So this looks like a fairly solid background. I mean, don’t you see that the consumption intensity is in line with your expectations? Then I thought, how do you think about how fast your eating habits can change in the short term so that marginal buyers can maintain these growth rates? Thank you!
Brown: As we talked about in the second quarter conference call, we saw a 195% increase in shipments throughout the second quarter, and according to SPINS/IRI data, our sales increased by 121%. We believe that most of this has proved to be correct, and there are some classic COA shipment delays because the deadline is not included in the consumption data.
Therefore, consumers made a lot of purchases in the second quarter. If you think about it, the shelter-in-place restrictions are relaxed and people are returning to the catering industry, where people will get buckets of KFC and other large strategic fast food services, and we are not really involved because of the streamlined menu Among them, our catering services are more from other two-thirds of institutions, such as small restaurants and accommodation, casinos and entertainment centers and other places. Therefore, we are not actually involved.
Therefore, consumption has entered another category, and our performance in this category is not very good. In our view, this is the reason for the continuous slowdown in retail purchases. But in my opinion, you can't bypass these very strong numbers to prove that the diet is changing to some degree. This will operate on the basis of rising household penetration, rising repeat interest rates, and rising purchasing power. Of course, every buyer buys more in every household. Therefore, all the right trends are here.
Similarly, I think we have gone from a record quarterly net income of US$113 million in the company's history to US$94 million during the epidemic, and we feel good about it. This is one of the reasons why I have not taken any action to undermine our long-term infrastructure investment, whether in China or the EU, where our new factory is purchased and leased. But to play the role of new facilities, deploy new workers, new personnel and leadership, and so on. We will not low-key sales, because although we believe that the model has not been properly adjusted because we cannot provide guidance, we do not believe that this is a huge regression.
I mean, compared to what is happening in the world, this is still a pretty strong quarter for us. So I will not point out changes in diet. I think that if diet changes, more and more people will enter this field, including more young people. If you look at some of the latest data from Gen Z and their enthusiasm for this brand and plant-based diet, we will continue to see the huge benefits of consumer behavior change.
Analyst: Good evening! When we look at your direct sales stores internationally and in the United States, and look at the sales of each direct sales store in terms of food service, they don’t look much different, but in terms of retail, sales in the United States seem to be much higher many. Canada's reclassification can be compared, but it may be 10 times that of regions outside the United States. How should we think about what is driving some of this growth? Is this just some consumer preferences, or lack of awareness? How has the international retail industry evolved? What should we expect?
Brown: Thank you for your question. This is an area that I look forward to very optimistically. We are still in the early stages, I think we have now entered 80 countries and regions, but this really only touched the skin. So if you think about our sales team here, our network of brokers, and our partnerships with Costco, Kroger or Whole Foods, we are still on a global scale Establish these relationships within.
Therefore, I think what these numbers really show is that we do not yet have a mature sales organization on a global scale. This is something you will see that we invest, we have been investing. We just hired some sales teams. For example, we set up a sales team in China. I think that for competition reasons, we will not disclose this number, but we will hire some more employees in the EU.
So, for me, the bottom line of the problem is let us test the market and let us make sure we understand it. Let us make sure to make the right recruitment in terms of building partnerships and move on. ThisIt is happening to some extent. I think you will see substantial growth in retail stores. I mean, in the last quarter, I think we started with 27,000 retail stores, and now we have added 33,000 internationally, so it feels good.
Analyst: Therefore, if you see the number of stores growing, but sales have not really followed this growth, do you have other indicators of international concern in terms of measuring early or initial success?
Brown: I mean, we don't put so many new SKUs in every new store that is about to go online. Therefore, I think that as long as we have the opportunity to expand our brand portfolio in these aisles, you will start to see these sales rise. But overall, we are looking at the same indicators. This is the reason why our sales have increased year by year, both domestically and internationally.
Analyst: Thank you, guys. You said that 1 billion US dollars will be spent at the end of this year, and you mentioned China’s second phase. Can you talk about the second phase of work? Then, I thought, obviously, the current concern is demand, and how do you adjust future capacity based on what you see in the market? Then my second question is about your visibility. Because I think this stock tells us that we are all surprised by it. Can you remind us of your visibility in the future and all channels? Thank you.
Brown: We are very cautious about providing new guidance. However, I will continue to pay attention to some of the data we see, whether it is in the food service and retail fields, which are positive, you will soon hear about some of the upcoming products. Therefore, all this has returned to the same central point. As an economy, at what point can we say that the epidemic is under our control or completely freed from it. Before that, I think we can't provide much guidance whether it is retail or catering services.
Analyst: I think my bigger question is about your capacity building. You also talked about spending 1 billion dollars this year. Then, in the next stage of China, you talked about the EU, the Dutch production capacity. But I want to know what China’s next stage of income will bring to you. I want to know how much impact this will have on your profit margins if you cannot fill this capacity.
Brown: We cannot give specific guidelines for China, but I think you can see our investment quotas in China's energy and key areas. According to our own capabilities, we have done a lot of work to ensure the safety of T protein, and we feel good about it because this ingredient has a long shelf life. This is not something we must eat right away. But we have no reason to revoke our more optimistic long-term growth forecast. We want to make sure that we are capable of serving these people. This is the true meaning of capacity. This is not a promise to the market, and we will not achieve this goal on any given date. But we are ready. We now have both supply contracts and production capacity. Therefore, when the economy does recover from the epidemic, we can resume the higher levels of growth we have seen in the past.
Nelson: , especially in China, is the ability to create a new market for us. Therefore, the expectation is that as sales in the region increase, this number will match, but these capacities can meet this demand. The same is true for the design of European factories to truly align with growth in these regions. Therefore, we will not ship products from the United States to Europe or Asia. These products are manufactured in this region. We expect that from a supply chain perspective, this will be beneficial and will ultimately enable us to obtain better prices for products produced in the region.
Analyst: I guess, only in terms of profit margins, but if you build such a capacity, you can't sell it. How do we view the impact of this on profitability?
Nelson: Of course, our plan is to match production capacity in these areas with growth. Therefore, when we need it, we will continue to move forward to ensure that this level of production capacity is online. With the emergence of these facilities, we are still working hard to achieve a good match between the two.
Brown: I mean, even during the epidemic, there are some activities, whether it is KFC in China, Starbucks in Thailand and Puerto Rico, or Pizza Hut in Belgium and Puerto Rico. We don't seeFor any reason not to continue on the path we pioneered around growth. The dilemma related to the epidemic is only temporary. As I mentioned in the comments, I think our growth path is long-lasting. Therefore, if we must have a higher absorption rate because we do not accurately grasp the timing, that is fine. We are not developing this business quarter by quarter, we have been shaping it for many years. Therefore, we will continue to make this investment. If for some reason, it is not exactly the same as our growth pattern, we can accept it.
Brown: thanks everyone for calling and asking great questions. As the holiday season approaches, let us all pay attention to safety, and we look forward to talking with you again in the next quarter. thank you very much! (Tencent Technology Review/Golden Deer)
