Beyond Meat’s Shares Surge. Quaker Oats’ Pesticide Problem.

Beyond Meat’s Shares Surge. Quaker Oats’ Pesticide Problem.
 
Beyond Meat’s shares jumped almost 40% after it announced earnings on February 27, 2024. Is this a renaissance of the brand? What about Quaker Oats’ pesticide problem?
 
What’s interesting about Beyond Meat’s rally is that it didn’t happen because the company is selling more product. In fact, Beyond Meat is having to cut prices to compete with animal protein. Investors pushed the stock up on a promise from the CEO to stop losing money in 2024. Revenue actually dropped -8% year over year. Sales could sink another -24% in the first quarter of 2024.
 
Quaker Oats has made headlines because a pesticide that is linked to infertility in animals has been found in 92% of samples of non-organic Quaker Oats and Cheerios and in the humans who eat them. This toxic pesticide requires very special handling by farmers. It is not legal for food use in the U.S. The loop-hole is that the fertilizer is approved for imported oats. Pepsico owns Quaker. How will this impact the parent company and the consumer staples industry?
 
FYI: In a year where the S&P500 had 24.23% gains (26.3% total return in 2023), the consumer staples industry lost -2%.
 

Source: S&P Dow Jones Indices. Used with permission.

Here are the Things We’ll Discuss in This Blog 
 
Beyond Meat Shares Surged 38.8% After Reporting Earnings on Tues. Feb. 27, 2024
Meat Price Wars (Tyson Foods Way Down, Too…)
Historical Context
Climate Considerations: Plant-Based Meat vs. Animal Protein
Regenerative Agriculture vs. Pesticides and Inputs
Cash Bleed vs. Cash (Tyson is Cash Negative, Too)
Forward Outlook
 
And here is more information on each point.
 
 
Beyond Meat Shares Surged 38.8% After Reporting Earnings on Tues. Feb. 27, 2024
While Beyond Meat’s commitment to a pathway to profitability is important, the company has very tempered expectations for 2024 based on weak demand, inflation, the cost of borrowing and concerns about a slowing economy. Beyond Meat expects their gross margins to be in the mid to high teens range in 2024. With only $206 million in cash and cash equivalents, stopping the cash bleed is vital, especially since the price of animal protein has been below plant-based protein of late.
 
Meat Price Wars (Tyson Foods Way Down, Too…)
Net revenues were $73.7 million for Beyond Meat, down -7.8% year over here. According to the company’s 4Q 2023 earnings report, the decrease was largely due to a 14.6% drop-in net revenue per pound. Tyson Food’s net revenues were flat year over year. Tyson lost $648 million in fiscal year 2023. If you’d like a Protein Stock Report Card, email [email protected].
 
Historical Context
During the pandemic, some meat factories had to be closed. People were hoarding everything. Oftentimes there just wasn’t any animal protein (or toilet paper) available at the store. Grocers began placing plant-based protein in their butcher counters. People started stocking their freezers with that, too.
 
Beyond Meat’s all-time high of $240/share was in 2019. It was down to $158/share in January of 2021. Shares closed this week at $9.77/share. Once the butcher shop was full of animal protein again, at a price that was more affordable than plant-based protein, non-vegetarians went back to meat. Of course, there are plenty of vegans and vegetarians in the world, who are always going to be looking for plant-based options. However, during the pandemic, when plant-based protein was all that was available, meat-eaters were buying it, too. 
 
Climate Considerations: Plant-Based Meat vs. Animal Protein
Industrialized cattle raising is very heavy on CO2. Rain forests are razed, emitting CO2, and also wiping out one of the most valuable ways to draw down CO2 – ancient trees. Additionally, the cattle are often fed grain instead of grazing on grasslands. The grain is trucked in from far away. Animals are often farmed in foreign countries, such as Brazil or India, and then flown, shipped and trucked to consumers around the world.
 
When anyone says that cows emit more pollution than cars, the statement is inaccurate, as you can see quite clearly in the CO2 emissions chart below. However, the industrial farming model is very hard on the environment largely due to the transportation pollution and forest and soil depletion noted above.  
 

Source: EPA.gov. 2021 CO2 emissions.

It’s important to be aware of the fact that just 20 oil and gas companies (and the consumers who purchase their products) are responsible for over 1/3 of the CO2 in the atmosphere. That doesn’t give us a pass on eating a pound of flesh at every meal. The general consensus is that eating less meat protein is good for the planet, and a balanced diet that is rich in rainbow-colored produce is better for personal health. Additionally, it’s important to eat local and organic/regenerative meat and produce.

Regenerative Agriculture vs. Pesticides and Inputs
Quaker Oats made headlines this week because studies have found pesticides in Americans that are well above where they were just a few years ago. Food grown organically with regenerative agriculture practices does not rely upon pesticides, herbicides, or chemical fertilizers. So if you still want to eat oats, you might just consider an organic oat option.
 
Quaker Oats is owned by Pepsico. The company accounts for about 4% of Pepsi’s revenue, so this is unlikely to be a brand killer. In fact, just a few days before the pesticide problem was reported by the Journal of Exposure Science and Environmental Epidemiology, Pepsico launched a new campaign in Canada and Latin America to promote Quaker Oats. 
 
Chlormequat is not approved for use on food in the U.S. However, the FDA does allow the importing of oats grown with chlormequat from other countries. According to an NIH white paper published in 2020, in addition to inhibiting reproduction, “Maternal exposure to chlormequat chloride during pregnancy disrupts the embryonic growth.” Despite these risks, the EPA is considering allowing farmers to use chlormequat to increase their crop yields. Eastman Chemical is a major manufacturer of chlormequat.

 
Some important new documentaries are educating us on the importance of regenerative agriculture, and how this approach is healthier for the planet, people and the farmers. The Common Ground film is in select theaters now. You can also watch our Earth Gratitude interview with Farmer Gabe Brown and the co-directors of Common Ground at our Earth Gratitude YouTube channel. Also, check out the documentary Kiss The Ground, which is available to watch on Netflix.
 
What scientists have discovered is that regenerative agriculture can draw down CO2 very effectively. Farmers can save hundreds of dollars per acre on input costs, while growing nutrient-dense, delicious food, and ensuring that their soil is healthy and doesn’t turn to dust. There are a lot of reasons for optimism and hope that are outlined in these documentaries, and I encourage everyone to watch them. It’s time to educate ourselves about the many benefits of regenerative agriculture, and how we can support regenerative farmers with our consumer choices, and also by writing to our congressmen to have regenerative agriculture supported in our Farm Bill. Again, shopping for organic/regenerative meat and produce at Farmers Markets and grocery stores goes a long way to reducing the amount of harmful toxins in our bodies.

Cash Bleed vs. Cash (Tyson is Cash Negative, Too)
A lot of food companies lost money last year. Tyson Foods lost -$648 million. Oatly lost -$393 million. Beyond Meat lost -$338 million. Hain Celestial lost -$117 million.
 
The consumer staples industry itself was one of only a few industries to lose money on Wall Street last year, when the S&P500 had a total return of over 26%. Consumer staples were down -2.16%. Energy was down -4.8% and utilities were down -10.2%. Compare this to the cash-rich Magnificent 7 doubling their share price. Food companies typically have low profit margins. Inflation is hurting the industry, and competition makes it difficult to pass the costs along to the customer.
 
Outlook
Beyond Meat is expecting another drop in revenue in the first quarter of 2024, from $92.2 million in 2023 to $70-$75 million in 2024. That’s a drop of almost -25%. The 2nd half of 2024 might strengthen. The company expects $315 million to $345 million in annual revenue, which would be similar to 2023’s $343 million (at the top end of the range).
 
Bottom Line
Inflation is hitting all industries. Those industries like artificial intelligence and technology that are able to increase prices, have robust profit margins, a treasure trove of billions of dollars in cash, and very low debt are in a great position to continue operating without having to borrow money at today’s higher interest rates. However, many food companies have very low margins of profitability, which put a lot of them in the red last year. Be careful chasing gains on Beyond Meat just because you hear that the company’s share price jumped or their margins are expected to improve this year.
 
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Natalie Pace learning about organic and regenerative farming from David Wilson, the former Home Farm manager of H.M. King Charles III.

Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The Power of 8 Billion: It's Up to Us and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 5th edition of The ABCs of Money and the 2nd edition of Put Your Money Where Your Heart Is are the most recent releases of these books. Follow her on Instagram. 
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Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.