Plant-based food stocks lack sustainable finance

Plant-based diets are more environmentally sustainable than those which involve consuming meat and dairy. But those virtues don’t translate into the financial statements of the companies which produce the foods. Fallen stock market stars like Oatly (OTLY.O), a maker of milk substitutes, and Beyond Meat (BYND.O), a purveyor of faux burgers, are struggling to make a profit and running out of options.

In the past three years, investors poured money into Oatly and Beyond Meat as climate-conscious consumers embraced cow-free milk and pea-based burger patties. Yet interest in plant-based food has failed to keep up with financial expectations. After growing 75% in 2020, industry-wide retail sales of refrigerated plant-based meat edged up only 1% last year, according to Canada’s Maple Leaf Foods.

Part of the problem is price: beef burger patties cost $5 per pound, significantly less than the $10 per pound cost of plant-based burger patties in the United States, the Good Food Institute calculates. Meanwhile, Oatly struggled to add enough capacity to satisfy demand, leaving a gap for competitors. Financial results are underwhelming. Beyond Meat’s gross profit margin in the first quarter was just 0.17%; traditional meat producers on average converted 17% of revenue into gross profit. Oatly’s projected gross margin this year is 21%, half of what analysts expect consumer giants Danone (DANO.PA), Nestlé (NESN.S) and Unilever (ULVR.L) to generate, according to Refinitiv data.

The upstarts could improve their margins by increasing prices. They could also cancel planned investments in production or cut back on marketing to reduce cash outflows which analysts expect to total $1.6 billion in the next two years, according to Refinitiv data. But such moves would come at the expense of sales growth.

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Tumbling share prices might make the upstarts tastier targets for more established rivals: Oatly and Beyond Meat shares are down 48% and 65%, respectively, this year. But they still represent a big mouthful. The $2.4 billion Oatly trades at 2.4 times its expected sales this year, slightly above the average of consumer goods giants Danone and Unilever, using Refinitiv data. Beyond Meat’s $1.5 billion market value is 3.6 times this year’s forecast revenue. Rivals Tyson Foods (TSN.N), JBS (JBSS3.SA), WH Group (0288.HK) and Maple Leaf Foods (MFI.TO) trade at an average of 0.7 times.

To have any hope of being truly sustainable, plant-based food companies will need to go on a financial diet.

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CONTEXT NEWS

Oatly is lining up a successor to its Chief Executive Toni Petersson, the Wall Street Journal reported on May 24, citing people familiar with the matter.

The board of the oat-milk maker began talks in the summer of 2021 to find a CEO with more operational experience who would allow Petersson to focus on business development, the WSJ said. The search took on more urgency when the company’s stock price fell later in the year, the report said. There are also concerns about recent losses and that the company will need a fresh injection of cash, the WSJ said.

Beyond Meat on May 11 reported a gross margin of 0.17% for the first quarter ended April 2, a 30 percentage point slide from a year earlier. Cash used for operations surged to $165 million from about $31 million a year earlier. CEO Ethan Brown said the company was taking “several measures” to reduce expenses.