Shares of a vegetable meat company Beyond meat (NASDAQ: BYND) had a ho-hum day Wednesday until about 2 p.m. ET. Then a report surfaced saying the fast food giant McDonald’s (NYSE:MCD) added the McPlant burger to its menu permanently, and Beyond Meat’s stock skyrocketed. The shares rose almost 34%. Then another report came out saying the first had been “misinterpreted”. Here’s what happens.
The first article comes from the Fast Company site. In the original version, the title indicates that the McPlant burger (a menu item that began rolling out in the US in October 2020) will remain on the menu permanently. The plant-based burger is not co-branded with Beyond Meat, but McDonald’s uses Beyond Meat as its plant-based beef supplier. This is why Beyond Meat’s stock has skyrocketed.
However, shortly after, Bloomberg reported that McDonald’s said the original Fast Company title “misinterpreted” the issue. According to this source, nothing new to report. That’s what brought Beyond Meat back to earth. But it was still up about 9% at 3:10 p.m. ET today.
For 2021, Beyond Meat generated $465 million in revenue, down 14% from 2020. Some investors were rightly worried about the growth. However, the most troubling decline has been the erosion of its gross profit margin, which fell to just 14% in the fourth quarter of 2021, from a gross margin that at one point was around 35%.
One of the ways a company like Beyond Meat can improve its gross margin is to achieve economies of scale. Certainly a burger co-branded with McDonald’s would be good for brand recognition. But supplying the world’s largest burger chain could help it expand, which in turn could contribute to declining profit margins.
For that reason, I’d say investors have reason to be optimistic about Beyond Meat’s partnership with McDonald’s, even if there’s ultimately nothing new to report today.
Beyond Meat is expected to report its financial results for the first quarter of 2022 in May. Investors could get more details (and more importantly, official details) regarding his then McDonald’s partnership. But if we don’t, it will still be important for investors to listen to what management has to say about improving its profit margins as well as its plans to return to top line growth.
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Jon Quast holds positions at Beyond Meat, Inc. The Motley Fool holds positions and recommends Beyond Meat, Inc. The Motley Fool has a Disclosure Policy.
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