Oatly Group AB (publ) (OTLY)

Business Description

Oatly Group AB (OTLY) is the world’s largest oatmilk company, specializing in the development and sale of oat-based products. With over 25 years of expertise, the company focuses on providing plant-based dairy alternatives that promote sustainability and health. Oatly's product portfolio includes oatmilk, ice creams, yogurts, cooking creams, spreads, and on-the-go drinks, catering to a global market through retail, e-commerce, and foodservice channels.

Europe & International - Generates revenue from the sale of oatmilk and other oat-based products in markets such as the United Kingdom, Germany, and Sweden, making it the largest contributor to the business.
North America - Focuses on the distribution of oatmilk and related products, with the United States being the primary market.
Greater China - Drives sales of oat-based products in China and surrounding regions, leveraging a foodservice-led strategy.
Oatmilk - Represents the core product category, accounting for the majority of the company’s consolidated revenue.
Other Oat-Based Products
- Ice Creams - Offers plant-based frozen desserts made from oats.
- Yogurts - Produces oat-based alternatives to traditional yogurt.
- Cooking Creams - Supplies oat-based cooking solutions for culinary use.
- Spreads - Provides plant-based spreads for various applications.
- On-the-Go Drinks - Delivers convenient, ready-to-drink oat-based beverages.

Q3 2024 Summary

Initial Price$0.94July 1, 2024

Final Price$0.83October 1, 2024

Price Change$-0.11

% Change-11.61%

What went well

All three operating segments have turned positive on adjusted EBITDA, indicating improving financial health and progress toward profitability.
The company has made significant structural progress, including a significant gross margin increase and SG&A recalibration, positioning it well for future profitability.
Management is committed to achieving profitable growth and plans to continue driving distribution gains, market share improvements, and category creation in expansion markets, suggesting potential for future revenue growth.

What went wrong

Guidance implies a slowdown in revenue growth to around 7% in Q4 2024, driven by category sluggishness in Europe, notably in the UK.
Management did not provide specific 2025 guidance, indicating potential uncertainty about achieving positive adjusted EBITDA in 2025.
The reliance on consumer engagement and advertising to counteract market dynamics may not fully offset the broader sluggish category growth affecting the company.

Q&A Summary

Achieving Positive Adjusted EBITDA
Q: Can you achieve positive adjusted EBITDA in 2025?
A: Management reaffirmed their commitment to achieving profitable growth and highlighted significant structural progress, including increases in gross margin and recalibration of SG&A. They expect to continue making progress but are not providing specific 2025 guidance at this time.
Revenue Growth Deceleration
Q: What is driving the revenue slowdown to 7% in Q4 '24?
A: The slowdown is attributed to category growth dynamics in Europe, particularly recent sluggishness in the UK. Management is focusing on controllable factors like consumer engagement and advertising to address the issue.

Executive Team

Name	Position	Start Date	Short Bio
Jean-Christophe Flatin	Chief Executive Officer	June 1, 2023	Jean-Christophe Flatin joined Oatly as Global President in June 2022 and became CEO on June 1, 2023. He has over 30 years of experience at Mars, Incorporated, holding roles such as Global CEO of Royal Canin and President of Mars Edge.
Marie-José David	Chief Financial Officer	October 1, 2023	Marie-José David became CFO of Oatly on October 1, 2023. She previously served as CFO at Mars Veterinary Health International (2020–2023) and held finance leadership roles at Pandora and L’Oréal USA.
Daniel Ordoñez	Chief Operating Officer	June 2022	Daniel Ordoñez has been COO at Oatly since June 2022. He has over 30 years of experience in consumer goods, with leadership roles at Danone and Unilever across markets like Argentina, Spain, and France.

Questions to Ask Management

Given the recent category sluggishness in Europe, most notably in the UK , what specific strategies are you implementing to reignite growth in this key market, and what gives you confidence that these initiatives will be effective?
With your guidance now expecting constant currency revenue growth to be near or slightly below the low end of your previously provided range of 6% to 10% , what are the main factors contributing to this downward revision, and how do you plan to address these challenges going forward?
While you have achieved significant improvements in gross margin, increasing by 1,240 basis points year-over-year to 29.8% , how sustainable are these margin improvements, and what key initiatives will drive further margin expansion in the future?
Despite the progress in adjusted EBITDA, with a loss of $5 million this quarter and all three segments turning profitable , what are the main obstacles preventing you from achieving positive adjusted EBITDA in 2025, and when can investors expect to see sustained profitability?
You mentioned exiting your U.S. and U.K. manufacturing facilities and evaluating Asian supply chain options , how will these actions impact your cost structure and supply chain efficiency, and what risks do you foresee in executing these transitions?

Past Guidance

Here is the guidance provided by Oatly (OTLY) in the last four earnings calls, including the issued period, guided period, and exhaustive list of metrics:

Q3 2024 Earnings Call

Issued Period: Q3 2024
Guided Period: FY 2024
Guidance:
1. Revenue Growth: Constant currency revenue growth expected to be near or slightly below the low end of the prior range of 6% to 10%.
2. Adjusted EBITDA: Expected to report a loss near the favorable end of the range of negative $35 million to negative $50 million.
3. Capital Expenditures (CapEx): Expected to be below $55 million, refined from the prior expectation of below $70 million.
4. Foreign Exchange Impact: Expected to have a minimal impact on results.

Q2 2024 Earnings Call

Issued Period: Q2 2024
Guided Period: FY 2024
Guidance:
1. Constant Currency Revenue Growth: Expected to be in the range of 6% to 10%, updated from the prior guidance of 5% to 10%.
2. Adjusted EBITDA: Expected to report a loss in the range of $35 million to $50 million, updated from the prior guidance of $35 million to $60 million.
3. Capital Expenditures (CapEx): Expected to be below $70 million, reduced from the prior guidance of below $75 million.
4. Cash Outflow from Manufacturing Exit: Total cash outflow related to exiting manufacturing in the U.K. and U.S. expected to be no more than $20 million, with $13 million already incurred year-to-date.

Q1 2024 Earnings Call

Issued Period: Q1 2024
Guided Period: FY 2024
Guidance:
1. Constant Currency Revenue Growth: Expected to be in the range of 5% to 10%, with currency expected to be a small headwind.
2. Adjusted EBITDA: Expected to report a loss of between $35 million and $60 million for 2024. Adjusted EBITDA dollars expected to be stronger in the second half of the year compared to the first half.
3. Capital Expenditures (CapEx): Expected to be below $75 million for 2024.

Q4 2023 Earnings Call

Issued Period: Q4 2023
Guided Period: FY 2024
Guidance:
1. Constant Currency Revenue Growth: Expected to be in the range of 5% to 10%.
2. Adjusted EBITDA: Expected to report a loss of $35 million to $60 million, representing a year-over-year improvement of over $100 million at the midpoint.
3. Capital Expenditures (CapEx): Expected to be below $75 million.
4. Gross Profit: Improvement expected, primarily driven by sales volume growth and lower costs (e.g., easing inflation in certain inputs and supply chain efficiencies).
5. Adjusted EBITDA Timing: Stronger performance expected in the second half of 2024 compared to the first half.
6. Segment Reporting Changes: Effective fiscal 2024, the company will manage operations under new reportable segments: Europe and International, North America, Greater China, and Corporate.