McDonalds And Beyond Meat Outline Diverging Fortunes Of The Restaurant Industry

The ongoing economic recovery has been defined by a K-shape. During this unprecedented crisis, only a few industries have been hit harder and are seeing more uneven rebounds than the restaurant industry. Big fast-food service chains have fared well with many of these stocks trading at record highs. Meanwhile, local restaurants faced a brutal reality that forced many to close as COVID infections and government restrictions, weigh heavily on the industry.

On Monday, McDonald's MCD and Beyond Meat BYND third quarter earnings reports reflected diverging fortunes that are present across the restaurant landscape.

Beyond Meat

On Tuesday, shares of Beyond Meat plunged more than 16% after the company reported revenue grew just 2.7% compared to the same quarter last year. CEO Ethan Brown said these results reflected a full brunt and unpredictability of the pandemic. The biggest hit to Beyond Meat came from its restaurant customers. As for the U.S. segment, although the retail channel skyrocketed 40.5%, foodservice sales dropped 11.1% compared to last year.

Internationally, foodservice revenues dropped 65% whereas sales at retail locations merely increased by 26.7%. Bars, pubs, local restaurants and smaller regional chains, movie theaters and many more businesses that were among the worst hit by the pandemic make up as much as two-thirds of Beyond's foodservice sales.

Sales across the industry to these customers fell 37.5% in the quarter whereas Beyond's sales were down 34.7% in the third quarter. The paradox is that while these figures show that Beyond is gaining share, its main customer base is getting crushed by the pandemic.

But, Beyond Meat knows its success depends on getting its product out there as much as possible. It has partnered with McDonald's on a McPlant burger venture, with some analysts already estimating the expansion of this partnership could bring in $300 million annually to Beyond. Also on Tuesday, Beyond Meat announced a new deal with Yum Brands-owned Pizza Hut YUM which involves its Beyond Sausage toppings which will be offered both the U.S. and U.K.

McDonald's

Unlike Beyond, the fast-food giant's earnings topped estimates as they were fueled by U.S. sales recovery. McDonald's delivered fiscal third-quarter net income of $1.76 billion, or $2.35 per share. This an increase from last year's comparable quarter when net income amounted to $1.61 billion, or $2.11 per share. Revenue edged 2% down to $5.42 billion, yet beating expectations of $5.4 billion. Digital sales accounted for 20% of overall revenue.

Although international comps fell 4.4% in the third quarter, they grew during each month of the quarter at McDonald's U.S. locations while recording low double-digit sales growth in September. CFO Kevin Ozan stated September was the best month for U.S. comps in almost a decade.  What a contrast compared to Beyond's international foodservice decline that expanded to 65% in the third quarter, after an already bad decline of 56.5% in the second quarter. Moreover, McDonalds will increase its quarterly cash dividend by 3% to $1.29 per share.

Outlook

Last week, the October jobs report showed employment at food and drinking service businesses is still more than 2 million jobs lower than back in February when all this mess began. Moreover, a deeper look within this segment shows the unequal impacts of the pandemic.

Although analysts at JPMorgan found there was no meaningful data that explains why the third quarter was so weak for Beyond Meat, the truth is that many small businesses simply do not have the means to compete with global giants like McDonald's in a pandemic-shaped reality that is present across the globe. This week's example of McDonalds and Beyond Meat simply outlined how cruel reality can be if you are on the "losing" side.

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