It’s been a difficult few years for Beyond Meat‘s (NASDAQ: BYND)stock, which is down 96% over the past five years, including falling 23% year to date

The company recently received more negative headlines when McDonald’s (NYSE: MCD) discussed how two test markets using its plant-based burgers had failed.

Let’s take a closer look at the news, the issues the company has been facing, and what investors should do with the stock.

 

 “While the McDonald’s news may not exactly be fresh, it certainly can be seen as a reflection of Beyond Meat’s struggles”

 

 

A lack of demand

McDonald’s recently came out and said that its test of the McPlant burger, which used patties from Beyond Meat, had failed in its test markets. The plant-based burgers were being served in about 600 locations in the San Francisco and Dallas-Fort Worth markets. However, the news is more about the headlines, as the fast-food giant was testing the burgers back in 2022. The company noted that there just was not much demand for the burger, even in a more vegetarian market like San Francisco.

While the news will not have any impact on Beyond Meat’s sales going forward, it does speak directly to one of the company’s biggest problems: Demand for its products is shrinking.

This could be seen in its most-recent quarterly results, where volume of Beyond Meat’s products sold fell 16% to 16.57 million pounds. The company sales volumes declined across its segments, with U.S. retail volumes down 10% to 7.47 million pounds and U.S. food service volumes sinking nearly 21% to 2.20 million pounds.

While the U.S. market has been a continued struggle for Beyond Meat for quite some time, the company has done much better internationally, especially in the food service part of its business. For example, international food service volumes climbed nearly 60% last year, while sales rose 34%.

However, that strong performance evaporated in Q1. In the first quarter, international food service sales volumes plummeted 25% to 4.16 million pounds. International retail sales volumes, meanwhile, fell 13% to 2.91 million pounds.

Besides declining demand for its products, Beyond Meat also has a pricing and margin problem as well. While sales volumes have been declining, revenue in dollar terms has fallen even more. In Q1, while overall volumes fell 16%, dollar-based revenue fell even more by 18%. Last year, meanwhile, while volumes dropped 8%, revenue plunged 18%.

Gross margins have been very low. In Q1, they were a paltry 4.9%. With declining volumes and sales, the company is seeing operating deleverage in its business.

 

Debt is coming due in 2027

Not surprisingly, the company is burning cash as well. In Q1, it had operating cash flow of -$31.8 million, while it was -$107.8 million in 2023. It also has an outstanding convertible note of over $1.1 billion that, while sporting an attractive 0% interest rate, will likely need to be settled in cash come March 2027.

Given the current state of the company’s operations, being able to refinance that debt seems unlikely. As such, the need to seek bankruptcy protection within a few years is a real possibility unless the company can change its fortunes.

The company is currently using an at-the-market (ATM) program to raise cash through the sale of its stock. This is diluting shareholders while trying to raise enough cash to eventually try and settle the principal amount of that note.

Thus, while the McDonald’s news may not exactly be fresh, it certainly can be seen as a reflection of Beyond Meat’s struggles. Meanwhile, there are bigger issues ahead, with Beyond Meat’s international market turning negative and a lot of debt coming due in a few years.

As such, I think it is best that investors avoid the stock.

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