Optimism surrounds still loss-making Oatly

Oatly oat drinks on sale in London, UK, 28 October 2021. Credit: Maddie Red / Shutterstock.com

The heady days of Oatly’s IPO must, in recent quarters, have felt a long time ago for the company’s management, even if it’s just two years since the Sweden-based group listed in New York. 

When the producer of oat-based dairy alternatives floated in the US in May 2021, its share price rose to $22. On 6 June 2023, its shares stood at $1.77. 

The impact of Covid-19 lockdowns in Asia, particularly in China, haven’t helped the business but the company has had issues in its supply chain, which have weighed on its margins, profitability and therefore its share price. There has also been, in the last 12 months, some notes of concern through the non-dairy drinks category about the growth trajectory for the whole market. 

Oatly, which remains loss-making at an operating profit and net profit level, has been moved to act. 

In November 2022, the company announced job cuts as part of cost-saving measures. The cuts came alongside a set of disappointing quarterly results and a reduction in its full-year sales forecast. 

Aside from the action on jobs, Oatly has also started moves to “adapt its supply chain network strategy. In January this year, the company unveiled a production deal that saw Canada-based Ya Ya Foods Corporation take control of two of its production facilities in North America. 

Oatly’s share price curdled later in January after the business set out plans to raise up to $300m in capital (plans approved at an EGM in March). 

Nevertheless, the “more asset-light supply chain strategy” centred around the Ya Ya Foods deal is a core part of Oatly’s efforts to becoming profitable. In March, when the company announced annual results that included another net loss, CEO Toni Peterson insisted the group had a “clear line of sight to reaching profitability” sometime in fiscal 2024 and was set up to start “playing offense” in 2023. 

And, in May, Oatly claimed it was making progress when, despite booking a loss of more than $75m, it reported adjusted EBITDA and revenue numbers that beat Wall Street expectations.

Petersson said the company was already feeling the benefits of the Ya Ya Foods deal. “Given that our supply chain’s stable, we have been able to drive good distribution expansion in retail, largely driven by an increase in the number of items for distribution points, while also seeing good expansion in the number of stores,” he told analysts. 

“We have started to increase our promotional rates in the last few weeks of the quarter. We expect that our promotional rates will continue to increase in the coming months. The promotions are not only intended to drive consumer demand but they also send an important signal to our retail customers. They were confident in our supply chain’s stability and ability to service the demand. It’s still early and we still have plenty of work to do but we are happy with the progress we’re making.” 

The results prompted John Baumgartner, a managing director and US food industry analysts at Mizuho Securities, to say “the transition to offense has arrived”. 

Oatly’s first-quarter results and its management’s remarks “reinforced the significant progress in Oatly’s turnaround”, Baumgartner wrote in a note to clients after the numbers were published. 

At Piper Sandler, another analyst covering Oatly received the company’s results positively. 

“We continue to believe in Oatly’s long-term outlook and, with the overhang from its capital raise removed, also believe investors can focus on its execution of its growth plans,” Michael Lavery said.  

“With capacity expansions in hand, Oatly can focus on marketing its brand and growing its business. The shift in focus to more hybrid production simplifies its supply chain and reduces execution risk, in our view.”

That’s not to say, of course, that Oatly’s management team does not have work to do. For one, the company remains a loss-making business. 

It’s an Oatly leadership team now headed by Jean-Christophe Flatin, with Petersson moving to a role of co-chairman. 

Flatin joined Oatly last year as company president. Before arriving at the business Oatly, Flatin spent 30 years with US food heavyweight Mars. He led its Royal Canin cat and dog food business as CEO and president and also managed a number of brands as president of the company’s chocolate division. 

The appointment has been welcomed on Wall Street and Petersson told analysts when Oatly announced its first-quarter numbers that he has “full faith that he will do a wonderful job and look forward to working alongside him as we continue to execute on our growth strategy”. 

Part of Oatly’s growth agenda includes newly-launched products on both sides of the Atlantic. 

In the UK, the company has launched four more oat-based drinks, with “improved recipes to work even better in drinks, cooking and baking”. 

In the US, Oatly has this month unveiled a plant-based cream cheese, a sign of its desire to expand into new segments, even if cheese alternatives can prove a tough nut to crack.

Mizuho’s Baumgartner believes Oatly’s revenue in 2023 can be “at the high end” of the company’s forecast for growth of 23-28% - and “also see upside versus the Street’s 2024 financial year estimate of 22%”. 

He said: “The Americas supply chain has turned the corner, with service levels steady at mid-90% and strongly positions Oatly to now build retail depth. 

“In Europe, Oatly continues to gain retail share at the expense of branded competitors, and expansion into new products (sugar-free oat milk, soft serve) and away-from-home customers similarly build depth.”

There have been some concerns in the last 12 months about the health of the alt-dairy drinks category, especially in Europe.  

During the period, Hain Celestial, which offers non-dairy beverages under brands including Lima, Natumi and Linda McCartney, had been one of the companies that had noted how demand had been affected by macroeconomic factors but it has sought to underline how it remains positive about the longer-term outlook for the category.

“There were some structural dynamics in the industry around capacity that definitely led to challenges for every player that was in the space, us included,” CEO Wendy Davidson told Just Food in April. “I feel very good about the business that we have. We still see great growth in demand with the consumer in the idea of non-dairy beverages and plant-based beverages.” 

Meanwhile, Canada-based SunOpta has laid out a long-term target to double revenue, with plant-based beverages at the heart of its ambitions. 

“We continue to roll up market share from our competitors in that space [plant-based drinks]. We continue to see category growth, and we continue to find new ways to drive innovation and take that plant-based milk capability into new categories and spaces,” CEO Joseph Ennen said in April. 

And perhaps it’s no surprise Oatly remains optimistic. “Looking ahead, we remain focused on our 2023 priorities of accelerating top line growth, continuous improvement in the supply chain, and driving towards positive adjusted EBITDA in 2024,” Petersson said on the back of Oatly’s Q1 numbers. “In the upcoming quarters, we plan to increase our investments in exciting demand-generating initiatives to ensure that we maintain our momentum in the marketplace.”