Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Oatly Group AB (OTLY, Financial) reported a 10% year-over-year increase in total company volume for the second quarter.
- Gross margin improved by approximately 200 basis points sequentially to 29%, a significant improvement from the previous year's second quarter.
- The North America segment reported its first quarter of profitable growth.
- The Greater China segment generated positive adjusted EBITDA for one month during the quarter.
- Oatly Group AB (OTLY) updated its full-year guidance to be slightly more favorable, expecting constant currency revenue growth in the range of 6% to 10%.
Negative Points
- Adjusted EBITDA for the quarter was a loss of $11 million, despite improvements.
- The Greater China segment experienced a 15.9% constant currency decline in revenue, impacted by strategic resets.
- Price-mix was a 5.7% headwind for the company's overall revenue growth.
- The company is still undergoing the process of exiting manufacturing facilities in the US and the UK, which has financial implications.
- Despite improvements, the company acknowledges that it still has plenty of work to do to reach its longer-term profitability targets.
Q & A Highlights
Q: Can you elaborate on the pricing strategy for China and globally for the rest of the year?
A: In China, we made solid progress, particularly with a new important customer in the mid-priced tier segment. This has positively impacted our overall company margin and segment EBITDA. Globally, in Europe and North America, we expect consistent performance with slight improvements due to favorable terms with key customers. (Daniel Ordonez, Chief Operating Officer)
Q: What are the key risks or upside scenarios that could impact your updated guidance?
A: We have outperformed our internal expectations in the first half. We are reinvesting part of this outperformance into demand-driving activities. The downside risk in our EBITDA range assumes these investments may not yield the full expected returns. (Jean-Christophe Flatin, Chief Executive Officer)
Q: Can you discuss the EBITDA progression for Q3 versus Q4 and potential cost savings for 2025?
A: Broadly, Q4 is expected to be better than Q3. We believe in continuous efficiency improvements but are not planning new massive SG&A reductions. Our SG&A structure will be appropriately sized once current reductions are completed. (Jean-Christophe Flatin, Chief Executive Officer)
Q: What was behind the provision recorded in Q2 cash from operations, and what are your expectations for cash burn in the second half?
A: Provisions were mainly for legal settlements and severances. Our liquidity remains strong at $335 million. Exceptional elements like factory exits will not recur, and we focus on improving adjusted EBITDA, net working capital, and CapEx management. (Marie-Jose David, Chief Financial Officer)
Q: How are you managing entry approaches in new European markets with different competitive landscapes?
A: We tailor our approach to each market's maturity and competitive dynamics. For example, in Spain, we are now the number one turning brand, and in France, we see exponential growth due to the market's lack of maturity in oat milk. Our model works across different market conditions. (Daniel Ordonez, Chief Operating Officer)
Q: Are the SG&A cuts primarily within the segments, and should we expect corporate costs to remain flat?
A: Yes, the SG&A cuts are mainly within the segments. Corporate costs are expected to remain approximately flat, including expenses related to global initiatives that benefit all segments. (Marie-Jose David, Chief Financial Officer)
Q: How are you addressing the generalized market slowdown in away-from-home consumption?
A: We have not seen a slowdown for ourselves. We continue to invest in quality and quantity across regions, particularly in foodservice, where we see significant growth and profitability. (Daniel Ordonez, Chief Operating Officer)
Q: Are the exit costs largely complete, or should we expect more over the course of the year?
A: Year-to-date, we have incurred $13 million out of the planned $20 million exit costs. The remaining $7 million will occur as planned through the end of fiscal 2025. (Marie-Jose David, Chief Financial Officer)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
