Beyond Meat and McDonald’s have co-created a plant-based patty which will soon comprise a new category of food offerings at the #1 fast food company in the US. The McPlant platform will start with a meat-free burger in several markets next year after having completed test runs in Canada. The McDonald’s announcement of its new meatless menu line, however, didn’t mention that Beyond Meat was its plant-based burger supplier — Oops!
As a result of this linguistic mishap, shares of Beyond Meat collapsed at end of day Monday, with a nearly 29% loss in value. That stock shock was a double-whammy, as the plant-based company also reported it generated $94.4 million in revenues and a loss of 28 cents per share. In contrast, analysts had forecast a very different $132.8 million in revenue and 5 cents per share loss.
A McDonald’s company spokesperson declined to identify its supplier during the company’s media call, but did admit that McDonald’s would not be manufacturing its new plant-based products. International President Ian Borden utterly confused the situation when he said that the McPlant line was created “by McDonald’s and for McDonald’s” and could also include chicken substitutes.
Later, Beyond Meat clarified its part in the McPlant line, and its shares leveled out a bit.
Shares of McDonald’s, in the meantime, rose about 1% in Monday’s afternoon trading. Earlier, the company reported third-quarter earnings and revenue that topped analyst estimates. It also released an investor update, predicting system-wide sales growth in the mid-single digits in 2021 and 2022 and sharing more about its strategy for boosting sales.
McPlant, Language, & Sustainable Investments
“War is what happens when language fails.” — Margaret Atwood
Anyone who invests in the stock market knows that it’s volatile. Volatility can mean major catastrophic market crashes, or it can mean large price swings. Since World War II, the stock market, as measured by the S&P 500 Index, has had average declines of 34% during bear markets, but it has risen 175% during subsequent market advances. As a result, investors who kept faith in the market during unsettled times were usually rewarded.
Today’s investors often have a short amount of time to make decisions, thus experiencing feelings of urgency. We can find ourselves immersed in what seems like an endless search for information to reduce uncertainty. But situating ourselves like this can make us susceptible to rumors that go around the market and that emerge like solutions — ways out of our lack of information.
Financial rumors accelerate and become more trustworthy when they are released by the press, which sometimes publishes non-official information. An eagerness for information to dilute uncertainty can propel investors to make decisions based on rumors. Investors sometimes succumb to believing the credibility of the media that disclose them, even though knowing that the information is not always reliable.
Today, research suggests that the stock market volatility and the number of publicly available global news stories are strongly linked. Globally important stock markets and the volatility in the major stock indexes in these markets have much in common, including robust and significant positive contemporaneous correlations between the amount of news in circulation and the volatility in various major stock markets. Importantly, pessimistic (negative) news has a somewhat stronger connection to stock return volatility than neutral news.
One of the tasks of the information transparency policy in publicly traded companies is to broadcast any information and material facts that could modify their securities. Therefore, when information is announced but not confirmed by the company, rumors can become stronger while the company remains silent. A company’s responses to rumors does influence price fluctuations of its stock, as the longer a company takes to respond to the rumors, the higher is speculation and, consequently, the greater is price fluctuation.
Investors can make calm decisions by comparing recent news stories about stock performance with chronological data and other factors like price trends. Pragmatic investors, according to The Motley Fool, place themselves in a position where they try to understand the current stock market conditions as a whole, analyze the risk involved with any particular security, and construct a stock portfolio that is an appropriate match for their growth objectives and risk tolerance.
The Effect of COVID-19 on Beyond Meat
The failure of language in the McDonald’s reveal of its McPlant line was only part of Beyond Meat’s recent valuation problems. COVID-19 changed the way consumers thought about eating out, take-out, and grocery shopping.
Foodservice channels — those supply chains through which Beyond Meat and others move their goods to restaurants, markets, schools, and institutions — had weakened demand in Q2 as a result of the pandemic. Yet consumers did stock their home shelves significantly as safety measures, and companies like Beyond Meat benefited. This habit, however, was not sustained in Q3, and Beyond Meat described the retail buying tendencies as “panic” in Q2 and “moderation” in Q3.
Beyond Meat’s president and chief executive, Ethan Brown, analyzed the company’s value fluctuation.
“Our financial results reflect a quarter where for the first time since the pandemic began, we experienced the full brunt and unpredictability of COVID-19 on our net revenues and accordingly, throughout our P&L. Unlike the second quarter where record retail buying and freezer loading by consumers offset the deterioration of our foodservice business as COVID-19 stay-at-home and related measures set in, the long tail of retail stockpiling by consumers, coupled with continued challenges across the majority of our foodservice customers, led to Q3 results that were lower than we expected… Our relationship with McDonald’s is really good and really strong. I respect their decision to refer to the McPlant platform in the generic sense. We are working with them on a number of matters.”
The short-term decrease in valuation hasn’t stopped Beyond Meat’s expansion efforts, which include acquisition of a new factory in Pennsylvania and moves into China and Europe according to Brown.
“Even as the pandemic has created significant disruption, we continue to see strong growth in critically important metrics of household penetration, buyer rates, purchase frequency, and repeat rates; our brand’s sales growth continues to outpace the category; and, during the quarter we saw our year-over-year velocities rise even as we grew distribution.”
Now that things have settled down a bit at Beyond Meat, the news seems more hopeful. Analysts as measured by Yahoo Finance expect Beyond Meat’s 2020 sales to hit $477.8 million and then rise to $748 million in 2021. So the addition of McDonald’s as a major partner could, ultimately, be a winner for Beyond Meat’s financials and its stock price, even if the initial announcement was disappointing.
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