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Beyond Meat Plummets on Plan to Offer More Shares to Fund Growth

Deena Shanker, Craig Giammona and Olivia Rockeman
Beyond Meat Plummets on Plan to Offer More Shares to Fund Growth

(Bloomberg) -- Beyond Meat Inc. plummeted as much as 17% on a plan by inside shareholders and the faux-meat company to sell more than 3 million shares, just three months after it went public.

The transaction will let early investors such as Kleiner Perkins and Obvious Ventures and executives including Chief Executive Officer Ethan Brown take profits on a small portion of their stakes after an almost 800% gain in the stock since the IPO. The offering will help Beyond fund increased production and marketing as the company battles it out in an increasingly crowded vegan marketplace.

The news caused the stock to slide sharply on Tuesday, before paring part of the loss, and put a damper on what had been another upbeat earnings report from Beyond Meat, with sales surpassing analysts’ estimates. The shares were down 9.7% to $200.50 at 10:12 a.m. New York time.

By dumping about 5% of the company’s outstanding shares on the market at once, the sale will hurt the value of other investors’ holdings. The transaction includes 3 million shares held by Beyond Meat stockholders and 250,000 held by the company itself.

Lock-Up Change

The optics of insiders selling shares weren’t great -- especially because board members, executives and investors had originally agreed not to dispose of any stock until Oct. 28, six months after the IPO. But underwriters Goldman Sachs and JPMorgan waived that restriction for this share sale, the company said.

Brown, who is personally offering 39,121 shares in the base offering, said on the earnings call that Beyond Meat wouldn’t answer analyst questions about the offering on Monday “due to regulatory requirements.”

News of the secondary offering came just minutes after the company released earnings for the second time since going public. Revenue in the second quarter almost quadrupled to $67.3 million from a year earlier and grew 67% quarter on quarter, while the gross profit margin widened. Still, the alternative-meat company reported another loss per share in the quarter as it struggles to turn a profit.

Raised Forecast

Despite the stock slide, investors have reasons to be bullish. Beyond Meat raised its revenue guidance for 2019 to $240 million on Monday, up from more than $210 million previously. It also now sees positive Ebitda -- a measure of profit that excludes taxes, interest expenses and other expenses.

Beyond Meat has been racking up big restaurant companies as clients in recent months, and the company said it will continue to expand its distribution channels and launch new products without elaborating.

Short sellers have argued the stock’s value is too high. Part of that concern comes from rising competition. As growing numbers of consumers say they want to eat less meat, food companies and traditional meat sellers are scrambling to jump onto the trend.

Beyond Meat already has deals in place with Dunkin’, Tim Hortons and TGI Fridays, but investors want to see if Beyond Meat can score an even bigger partner. Competitor Impossible Foods has set the bar high with its Impossible Whopper that’s going nationwide with Burger King.

‘Tremendous Lead’

Asked about the company’s strategy amid rising competition, Brown said Beyond has “a tremendous lead in terms of distribution and in terms of brand awareness.”

The company plans to boost its capital expenditures to a range of $35 million to $40 million next year to expand its production facilities in Missouri and boost capacity. That’s well above the $17 million investment forecast the company gave for 2019 in its IPO prospectus.

The surprise share sale, and Beyond’s plans to increase capital spending next year, were reminders that the company is still in its early stages and feels pressure to spend big to establish territory in a burgeoning industry. That means investors who have poured into the stock in the past few months will need to reflect on their appetite for risk

(Updates share trading in lead and third paragraph.)

--With assistance from Tatiana Darie and Brendan Case.

To contact the reporters on this story: Deena Shanker in New York at dshanker@bloomberg.net;Craig Giammona in New York at cgiammona@bloomberg.net;Olivia Rockeman in New York at orockeman1@bloomberg.net

To contact the editors responsible for this story: Anne Riley Moffat at ariley17@bloomberg.net, Jonathan Roeder

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