Beyond Meat Vs Kraft Heinz Stock: Which Is Best?

Beyond Meat Vs Kraft Heinz Stock: Beyond Meat [NASDAQ: BYND] is a producer of plant-based protein food products. The alternative protein maker sells a range of meatless protein products, ranging from burgers, crumbles, strips, tacos, patties, sausages and meatballs among others, across the three main meat platforms of beef, pork sausage and poultry.

The company was founded as a California-based startup called Savage River Inc. by Ethan Brown in 2009 and changed its name to Beyond Meat Inc. in September 2018. 

The El Segundo, California-based company claims to offer greater or equal protein levels than their animal-based counterparts, with no cholesterol, no antibiotics or hormones and less saturated fat. The company went public in May 2019.

Kraft Heinz Company [NASDAQ: KHC], on the other hand, is a global food and beverage company formed by the merger of Kraft Foods and Heinz in 2015.

Berkshire Hathaway and Brazilian investment firm 3G Capital bought Heinz for $23 billion in 2013. The American multinational conglomerate holding company is the largest stakeholder in Kraft Heinz, and it is believed that its chairman and CEO Warren Buffett – often dubbed the Oracle of Omaha for his deal-making prowess – was among the masterminds behind the Kraft Foods and Heinz merger.

For investors the question is which stock is best: Kraft Heinz vs Beyond Meat?

Kraft Heinz 101

One of the largest food and beverage companies in the world, Kraft Heinz has 2019 net sales of approximately $25 billion.

Together with its subsidiaries, it manufactures and markets food and beverage products, including flavored milk powders, infant and nutrition products, baking, sauces, chilled foods, packaged drinking pouches, refreshment beverages, coffee, cheese and dairy, meals, meats, coffee, desserts, and grocery products throughout the world.

The food products giant has more than 200 household brands under its umbrella, including:

• Kraft, Boca Burger,
• Oscar Mayer,
• Heinz,
• Philadelphia Cream Cheese,
• Lunchables,
• Nabisco,
• Taco Bell Home Originals,
• Maxwell House,
• Classico,
• McCafe,
• Tassimo,
• Grey Poupon,
• Kool-Aid,
• Jell-O,
• Golden Circle and
• Wattie’s

In 2017, KHC launched an audacious $143 billion, somewhat hostile, bid for Unilever (UL), pricing the Anglo-Dutch company at $50 per share.

The all cash-and-stock offer was quickly rebuffed by its much larger rival, whose CEO Paul Polman is understood to have warned the duo (Kraft Heinz’s key investors – investment guru Warren Buffett and private equity tycoon Jorge Lemann) that the top management harbored no such intentions and it would be incredibly difficult to woo the investors.

A successful acquisition would have formed the world’s second largest consumer company by sales behind Nestle. Although the daring deal did not go through, it, nevertheless, compelled Unilever to shift its headquarters from London to Rotterdam, The Netherlands.  

       

Should you Invest in Beyond Meat?

Since its start just over a decade ago, Beyond Meat (BYND) has quickly grown to occupy the number one position in production and sales of meatless protein products.

Its plant-based protein food products can now be found in 112,000 retail and food service locations in more than 84 countries.

The company went public in 2019 and a few months later its stock soared to all-time highs, jumping more than 850%.

Beyond Meat stock has dramatically climbed down from those highs, falling as much as 80%, partly due to increasing competition in the faux meat market.

Early stage venture investors have more than doubled their bets on vegan meat substitute startups this year, raising more than $1.4 billion and backing over 20 alternative plant-based protein startups. Also, Beyond Meat was hurt by the coronavirus -enforced shutdown of restaurants, which strangled its sales.

Second-quarter earnings for Beyond Meat yielded mixed results. The company reported a loss of 2 cents a share but beat revenue expectations.

Beyond Meat earned $113.34 million during the quarter, up 68.5% in comparison to the same quarter a year ago. Analysts were expecting sales of $99.35 million. It was Beyond Meat’s first quarter where its revenue crossed the $100 million mark, with grocery sales being a major contributor.  

The company credited aggressive price cuts and promotional offers for its stellar performance on the revenue front. Also helping the company’s cause was its decision to gravitate towards retail sales as the pandemic forced restaurant closures across the country.

As a result, its net retail revenue jumped close to 160% in Q2. Restaurants were a high-growth channel, making up roughly half the plant-based meat seller’s business at the start of the year.

Now, the share of food service has skidded to a measly 12% as the pandemic keeps consumers from venturing outside.

Beyond Meat Goes Abroad… To China

The company announced in September its decision to build production facilities in China, in the process becoming the first foreign vegan meat company to establish a production footprint in the country.

The decision to start operations in China comes a month after the meatless protein company launched a new e-commerce site to facilitate the purchase of vegan meat products directly from the company.

The company is keen on expanding its retail partnerships and investments in the U.S. and Asia to push sales and growth. Experts believed a mass market exists for Beyond Meat’s patties, and this was corroborated by company’s recent announcement that Walmart will increase distribution of Beyond Meat patties to more than 2,400 stores.

Beyond Meat products recently have been added to 650 Wawa convenience stores. The company also said it will continue with its trial of Beyond Meat plant-based meat products at select KFC and Dunkin’ Donuts locations.

In Asia this year, Beyond Meat began collaborating with Yum China (YUMC), a subsidiary of Yum! Brands, Inc., which operates brands like KFC, Pizza Hut and Taco Bell. The maker of plant-based meat also has notched partnerships with Alibaba’s (BABA) Freshippo grocery stores.

Growth of Vegan Meat Market

Credit Suisse, in its report, talks about Beyond Meat’s bright prospects in the fake-meat market.

“Beyond may emerge as a net beneficiary of the pandemic in the near term due to strong demand in (the) retail channel (48% of sales) and in the long term due to rising consumer interest in healthier foods,” a Credit Suisse analyst wrote in a June report.

Though plant-based meat substitute is a relatively new industry, alternative protein makers are generating a huge amount of interest from one and all, and not without some solid reason.

Experts believe sales of vegan meat could hit $140 billion in the next 10 years as they catch the fancy of a new generation of climate-conscious eaters keen on reducing impact of livestock on the planet.

This has kickstarted a funding race with companies like Cargill Inc. and General Mills Inc., and celebrities like Bill Gates and Oprah Winfrey loosening their purse strings for meatless protein makers. Swedish oat-milk maker, Oatly AB, recently raised $200 million in a deal backed by Blackstone Group Inc., that values the company at $2 billion.

Everyone seems to be caught in the frenzy with investors also providing financial support to alternative protein makers like Memphis Meats (which grows cultured meat from cells in a lab) and Nature’s Fynd, which develops alternative protein from a volcanic microbe discovered in Yellowstone Park.

Beyond Meat Competition In Crowded Market

Despite Beyond Meat’s strong market position, it is not immune to growing threat of competition from its rivals. Privately owned Impossible Foods has been its most notable rival, and the Northern California-based company with fruitful partnerships with top restaurant chains like Burger King (QSR), has proved to be more successful at getting its beef substitutes into restaurants.

Impossible Foods, which raised $500 million to support expansion of its vegan burgers, has also been highly effective in expanding its own retail footprint during the pandemic, with the Impossible Burger now on sale in more than 5,000 grocery stores across 48 states, including the nation’s largest grocery chain, Kroger, as well as Albertsons, Fred Meyer, Walmart and many others.

Moreover, there are other, bigger consumer-product companies like Nestle and retail outlets like Kroger [KR] introducing their own line of plant-based competing products. 

The country’s largest meat producer, Tyson Foods [TSN], also entered the meatless protein space in 2019. Today, it sells plant-based meat nuggets and blended protein alternatives through its Raised & Rooted brand in more than 7,000 stores across the U.S. 

There is no doubt about the huge growth prospects of the plant-based protein market, but an overcrowded space will curb Beyond Meat’s capability to charge a premium price for its products, which, in turn, will hurt its profitability.

Beyond Meat, no doubt, has a good future with its first-mover status, and its aggressive expansion into the overseas market. However, its margins are thin and it is slightly expensive to buy, which may deter some investors to watch from the sidelines before taking a bite of its stocks.

Should you Invest in Kraft Heinz?

You would be hard-pressed to find a ketchup tastier than that manufactured by Kraft Heinz. Yet, the merger between Kraft and Heinz that created the present company has left an unsavory taste in investors’ mouths.

When Warren Buffett’s Berkshire Hathaway and Brazilian investment firm 3G Capital brought the two iconic food brands together in Kraft Heinz (KHC) in 2015, the prospects for the new company looked immensely bright. Unfortunately, things went in an entirely different direction from initial anticipations.

The company has been severely battered and left licking its wounds after the botched merger saw the company losing more than 80% of the stock’s value.

The ketchup maker has suffered double-digit share-price declines in each of the past three years amidst piling debts and dwindling market share.

Around 7% drop in sales from peak levels forced the company to take a $15.4 billion non-cash impairment charge in 2018 as consumers gravitated towards niche brands, often perceived as healthier, more innovative and fresher.

The company swung to a loss in the second quarter after recording $2.9 billion in impairment charges. Impairment describes a permanent reduction in the value or quality of a company’s fixed asset.

Impairment charge is entered as an expense in the profit & loss account. It wrote down the value of quite a few of its well-established brands such as Oscar Mayer (known for its hot dogs, bacon, ham and Lunchable products) and Maxwell House (coffee brand), shining light on the numerous challenges faced by the food maker, despite the pandemic offering the troubled company a perfect opportunity to boost sales.

How Kraft Heinz Is Faring In The U.S.

The company’s U.S. food service business also performed poorly as the pandemic gnawed at demands at restaurants, schools and hotels. The food and beverage company, though, reported better-than-expected earnings with an EPS of $0.80, beating the consensus estimate of $0.65.

The company had a revenue of $6.65 billion for the quarter, compared to analysts’ expectations of $6.54 billion. Kraft Heinz Co.’s revenue rose 3.8% in the second quarter on a year-over-year basis.

Kraft Heinz, under its new CEO Miguel Patricio, has been in the midst of a turnaround effort and the pandemic offered the company a perfect opportunity to shake off highly bearish sentiments, as shoppers found more comfort in larger and more familiar brands they knew and trusted.

Food makers benefitted from an extraordinary surge in sales in March and April as panicky consumers stockpiled food items amid pandemic-enforced lockdowns. It has slowed down, of late, but consumers are still spending more than usual on grocery shopping.  Kraft Heinz has scaled up its production capacity and continues to sell essentially everything it can make.

All in all, ridiculously low valuations, surging sales and a high dividend payout makes it the perfect opportunity for investors to add Kraft Heinz stocks to their portfolio though valid concerns remain about some of its poorly performing brands and restructuring costs as the company tries to rectify some of its recent missteps.  

Beyond Meat vs Kraft Heinz: The Bottom Line

Beyond Meat: High valuations remain a concern

The pandemic created a shortage of real meat in the market by forcing large scale shutdowns of beef processing facilities.

This presented a solid opportunity for Beyond Meat, which was quick to tap into the zeitgeist of 2020 and expand its presence in a major way.

Critics may argue that the pandemic could have led to a temporary surge in sales, but it was enough for consumers to sample the company’s product for the first time. 

Beyond Meat came into existence in 2009, but went public only a decade later in 2019. Its first big moment arrived last summer when Dunkin Donuts started serving Beyond Meat sausage sandwiches in Manhattan on a trial basis. Pan American distribution followed few months later. 

Beyond Meat has found plenty of other distribution channels over the last year and a half both, in the US and globally, thus placing its popular products within easy reach of the average consumer. You can find its vegetable-based faux meat products at Kroger, Target, Walmart, Carl’s Jr. and The Cheesecake Factory, to name a few.

The company’s overseas revenue has doubled, thanks to its aggressive investment in retail and overseas expansion. It announced two new facilities in the Netherlands to produce beef alternatives, helping it to become more accessible to its European consumers.

Increasing concern for the environment and growing awareness about how livestock contributes to climate change and are also affected by it has led to an explosion in popularity of vegan and vegetarian diets.

Even consumers who are not vegetarian are curious about how the company’s meatless protein products, such as nuggets or sausages, fare in comparison to the real thing. 

Social media has also been helping the company’s cause to a considerable extent.  Popular social media platforms are awash with videos of online celebrities or ordinary people describing their positive experiences with the company’s products.

The company’s share has risen over 100% in 2020, and some believe it to be a cause of concern.

The company seems to be running ahead of itself with its share price many times its sales and well above most other packaged-food companies’ valuations. 

Also, Impossible Foods, which has been its primary rival, is a privately-owned business. Unless, it goes public (possibility as of now is remote), it would be hard to weigh the two leading vegetable-based meat producers with respect to their detailed business plans and financial results. 

Beyond Meat, no doubt, has a bright future, but investors could still be wary of buying its stocks at these incredibly expensive levels.

Kraft Heinz: Investors should not expect it to transform overnight

It has been a downward spiral for Kraft Heinz ever since the merger in 2015 that formed the current company. Excessive cost-cutting, a lack of brand investments, and falling sales have led to a five-year downtrend that has shaved more than three-fourth off the stock’s value.

The fog, however, has started to lift slightly of late with a few things finally going right for the company this year.

Like other food companies, Kraft Heinz, too, has benefited from the coronavirus pandemic. Organic sales jumped over 7% in the second quarter as people, forced to stay at home, sought comfort food like mac, cheese and ketchup and shut restaurants buoyed grocery store sales.

Despite showing improvements in certain areas, Kraft Heinz is also a collection of worn, legacy brands, such as Velveeta, Planters, Maxwell House and Kool Aid, to name a few, suffering market-share declines owing to lack of marketing support and inadequate investments. 

This has been the primary cause of asset impairments charge of $2.9 billion this year, preceded by a $15 billion impairment charge early last year, showing the company’s worth is less than it actually believes.

Management provided no earning guidance, though it is believed that higher employee bonuses and the loss of a McCafe contract in Canada, could diminish its EBITDA margin by nine percentage points in the second half of the year, up from an initial anticipation of seven percentage points. However, organic sales growth is likely to continue, though not at the same pace as before, with easing lockdown restrictions.

As a part of its turnaround plan, experts believe KHC could replicate to some extent what another struggling icon General Electric (GE) was forced to do over the past year.

The company brought in a new CEO who was quick to slash dividends, and paid off debt by selling assets. All these measures saw the stock jump by more than 50% in 2019.

GE drastically cut costs to preserve cash and bring troubled divisions back to profitability. KHC, however, is unlikely to indulge in such measures as years of cost-cutting has not helped it much. It would be better for the company to start spending again on marketing and brand building to boost sagging sales.

Kraft Heinz almost certainly has to take the assets-selling route—and it has a lot to sell. Though concerns remain that, given the present state of affairs, prices the company will fetch might be underwhelming. However, there is a unanimous view that acting fast is better than hanging on desperately in an attempt to fix all of the brands at once.

The cash generated from assets sale could be used to take the debt load off its shoulders. The company can strive to calm investors’ nerves by setting for itself a goal of about three times debt to EBITDA—down from about five times, based on estimated 2020 earnings.

To sum it up, KHC, backed by Warren Buffett’s Berkshire Hathaway and Brazilian investing firm 3G Capital, is a well-established company with some of the most iconic food brands in the USA. Also, the company boasts of solid distribution network that gives it a distinctive edge over new entrants in the market.

However, like most legacy food brands, Kraft Heinz’s path, going forward, is unlikely to be strewn with roses, given the fact that consumers’ tastes and preferences have drastically changed and they have generally moved away from packaged, processed foods.

KHC currently offers a dividend yield of 4.6%, and the company pays out about $2 billion in dividends each year. Kraft Heinz shares are cheap, according to conventional standards, its sells are improving and the company enjoys a long-standing reputation as a defensive instrument.

But, the continued threat of future impairment charges, a weak balance sheet and high debt burden makes it less appealing in comparison to other defensive, consumer staples stock such as Walmart and global branded food company Hormel, to name a few. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.