BYND | WELL PLAYED CHRIS K

From a factor exposure, being short BYND has been a bad call; fundamentally, the short thesis is spot on.  My biggest criticism in our BYND Black book was the TAM in the US, and they had not landed a big chain where they are successfully selling the BYND pattie.  For perspective, Burger King rolled out the impossible Whopper a year ago and has limited results, so consumers are not rushing out to buy plant-based products. 

I was vocal that they would not get a deal with MCD, which was wrong for now.  I never thought that MCD would sign an agreement with BYND because it does not make sense.  Why does it make sense for MCD to take on a branded product that most consumers don't know, and it's also a product that MCD could design for themselves as they do for every other product?  My take on last night's events is that MCD a three-year deal for a reason.  Given that MCD is still in the test phase globally, the CEO of MCD is looking to understand the process of making plant-based patties and how it will impact the MCD supply chain.  He signs up BYND for a three-year contract, gains the product knowledge, and then squeezes them in year three of the deal, just like MCD has done with every other supplier.  Remember, MCD's largest meat supplier, OSI is working with Impossible Foods, so MCD will benefit from having intimate knowledge of both plant-based products.  Given how desperate BYND was to sign a deal with MCD, it looks like Chris K has played BYND perfectly. 

From a news flow standpoint, there is a thesis change last night with Beyond Meat saying they have a three-year agreement to "be the preferred supplier of the plant-based patty in McDonald's new McPlant burger (currently being tested in Sweden and Denmark with more markets to follow later this year) and will work with them on plant-based chicken, pork and egg menu items.  They also said they had successfully collaborated with YUM (KFC has tested Beyond Fried Chicken in several US cities, while Pizza Hut launched the Beyond Italian Sausage Pizza and the Great Beyond Pizza nationwide last year).  Although, BYND's own documents suggest that these are still in limited tests.  The CEO didn't go into specifics on the 'PLANeT partnership

The BYND CEO, Ethan Brown, said, "It is my strong belief that partnerships of this nature, with partners of this caliber, are required to accelerate our flywheel of availability and scale driven cost reduction, a dominant theme in our bid for ubiquity among consumers here in the US and abroad."​  The question is, when will it have a positive impact on the financials?  "Any activity is likely to skew towards the latter part of this year, so the potential impact in 2021 is likely to be fairly modest."  At best, it will be 2022 before we know how it will impact BYND because we don know the velocity that BYND products will have in MCD restaurants.  If we assume that year 1 of the MCD agreement is 2021, it will be 2023 before we see if there is any sustainable sales velocity at MCD, and at that point, and the street will be asking will MCD sign with BYND for another three-year deal? 

Fundamentally this was a disastrous quarter for BYND.  4Q20 Non-GAAP EPS of -$0.34 misses by $0.22; GAAP EPS of -$0.40 misses by $0.27; Revenue of $101.94M (+3.5% YoY) misses by $2.17M; Gross margin of 24.9% vs. consensus of 31%; Adjusted EBITDA was a loss of $9.5M.  The company did everything possible to make the quarter look good with write-downs and questionable margin add-backs from inventory write-downs.  Impossible continues to put pressure on pricing, and they were even in violation of their debt covenants.  The CEO of BYND has built his company to serve MCD, and he now has three years to prove he and his company is up to the challenge.  Knowing that BYND is now the preferred supplier to MCD, he has now just shut out the opportunity of serving other large chains in the sandwich category.