Oatly’s Earnings Call: Balancing Growth and Challenges

Oatly Group Ab ((OTLY)) has held its Q1 earnings call. Read on for the main highlights of the call.

The recent earnings call from Oatly Group AB presented a balanced outlook, reflecting significant improvements in cost efficiencies and gross margin expansion, alongside strong volume growth in key regions such as Greater China. However, the modest top-line revenue growth and challenges in North America tempered the overall performance. While there are positive signs of progress, particularly in profitability and operational efficiency, the mixed revenue performance and regional challenges create a balanced sentiment for the future.

Improvement in Gross Margin and Adjusted EBITDA

Oatly reported a notable expansion in gross margin by 450 basis points year-over-year, reaching 31.6%, alongside an improvement in adjusted EBITDA by $9.5 million compared to the previous year’s first quarter. These results mark the best quarterly performance since the company went public, highlighting significant strides in financial efficiency and profitability.

Strong Volume Growth

The company experienced a solid 9.2% growth in volume during the quarter, with significant contributions from the Greater China segment and solid growth in Europe and International markets. This volume growth reflects the company’s successful expansion efforts and increasing market penetration in these regions.

Cost Efficiency Gains

Oatly achieved substantial cost reductions, decreasing the cost of goods sold per liter by 15% year-on-year. This reduction translated into a $10 million decrease in total cost of goods, underscoring the company’s focus on operational efficiency and cost management.

Progress in Greater China

The Greater China segment demonstrated strong performance, particularly in the foodservice channel, with the retail channel also beginning to gain traction. This progress highlights the region’s potential as a growth driver for Oatly’s future expansion.

Cash Flow Improvement

Oatly reported a positive free cash flow of $21 million, marking the best quarterly performance as a public company and a $25 million improvement compared to the previous year’s first quarter. This improvement in cash flow is a testament to the company’s enhanced financial health and operational efficiency.

Mixed Top-Line Performance

Despite the positive developments, Oatly’s constant-currency revenue growth was modest at 0.7% for the quarter. The company faced headwinds in North America due to issues with its largest customer and SKU rationalization, impacting overall sales performance.

Challenges in North America

Oatly continues to face challenges in North America, with discrete headwinds affecting sales. These include a change in sourcing strategy at the largest customer and SKU rationalization, which have impacted the company’s performance in the region.

Price Mix Decline

The quarter saw a decline in price mix by 8.5%, which offset some of the volume growth achieved. This decline highlights the challenges Oatly faces in maintaining pricing power amidst competitive market conditions.

Forward-Looking Guidance

During the earnings call, Oatly’s management reinforced their commitment to structural, consistent, profitable growth. They maintained their full-year guidance, projecting constant-currency growth of 2% to 4% and adjusted EBITDA between $5 million to $15 million. Despite challenges in North America, the company remains optimistic about accelerating growth later in the year, driven by continued cost efficiencies and a focus on expanding gross margins.

In summary, Oatly’s earnings call painted a picture of significant progress in cost efficiencies and profitability, with strong volume growth in key regions. However, the modest top-line revenue growth and challenges in North America present a balanced outlook. The company’s commitment to structural growth and operational efficiency remains a focal point as it navigates these challenges and seeks to accelerate growth in the coming quarters.