Oatly Group Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

There are 8 speakers on the call.

Operator

Good day, and welcome to the Oatly Third Quarter 2023 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to Please note this event is being recorded. I would now like to turn the conference over to Brian Kearney, Vice President of Investor Relations. Please go ahead.

Speaker 1

Good morning, and thanks for joining us today on Oatly's Q3 2023 earnings conference call. On today's call are our Chief Executive Officer, Jean Christophe Flatin our Chief Operating Officer, Daniel Ordonez and our new Chief Financial Officer, Marie Jose Davide. Before we begin, please review the disclaimer on Slide 3. During this call, management may make forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our future results of operations and financial position, industry and business trends, Business strategy, market growth and anticipated cost savings. These statements are based on management's current expectations Please refer to the documents we have filed with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today.

Speaker 1

Also, please note on today's call, management will refer to Certain non IFRS financial measures, including EBITDA, adjusted EBITDA, constant currency revenue and free cash flow. While the company believes these non IFRS financial measures will provide useful information, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with IFRS. Please refer to today's release for a reconciliation of non IFRS financial measures to the most comparable measures prepared in accordance with IFRS. In addition, Oli has posted a supplemental presentation on its website for reference. I'd now like to turn the call over to Jean Christophe.

Speaker 2

Thank you, Brian, and good morning, everyone. Page 5 has the key messages I want you to take away from today's presentation. First, we had solid Q3 results where adjusted EBITDA exceeded our expectations and we made solid progress. The results of our bold strategic actions are clearly starting to materialize. Our EMEA segment Continued to show its strength and durability.

Speaker 2

Our Americas segment gained good momentum in its retail business, And the foodservice business helped improve the bottom line by sacrificing some top line. And the Asia segment is executing its reset plan, which is on track and delivering good results. Today, we are also announcing another bold action where we are doubling down on our asset light production model, which we expect to increase our focus while improving our cash flow outlook and improving our confidence in our longer term Margin target. Also, we are modifying our 2023 guidance to reflect An acceleration of our strategic actions, in particular, the diversification of our Americas with service business and the strategic reset in Asia. We now expect our constant currency revenue growth to be near the low end of our prior range of 7% to 12% and our 4th quarter gross margin to be in the mid-20s compared to our prior expectation of high-20s.

Speaker 2

Finally, We believe we remain on track to achieve profitable growth in 2024. On Slide 6, You can see that the profitability of the business continued to improve in the Q3. Our reported gross profit Included approximately $6,000,000 of one off costs related to our Asia strategy reset. It is primarily inventory write off and co packer penalties. This created a 320 basis point headwind In the quarter that we believe masks the underlying improvement in the business.

Speaker 2

Our adjusted EBITDA also improved sequentially in the quarter as each segment showed improvement. The $85,000,000 cost saving program that we announced last quarter is already starting to flow through the P and L, and we remain on track to achieve our targets. So whilst we still have plenty of work to do, we are clearly making good progress. Slide 7 outlines how we are doubling down on our asset light production model. As you know, we have been evaluating how to optimize our supply chain.

Speaker 2

We have been taking a holistic look at the network with the overarching goals of ensuring we have the right amount of capacity when we need it, while also being very efficient with our capital. We believe that we have enough capacity available to support our goals over the next few years. We currently have production capacity of approximately 900,000,000 liters compared to approximately 550,000,000 liters Showing network utilization, efficiency and reliability, both our own host based processing production and with our strategic co packers network. This has resulted in significantly higher and more consistent output across our established sites. We have also found new solutions that already enable us to better utilize our existing plans and expand them gradually over time to support the growth in EMEA and the Americas.

Speaker 2

Therefore, we are discontinuing the construction of new manufacturing plants in EMEA and the Americas. As part of this, we have also started to relocate some equipment that we previously purchased to ensure that we have adequate capacity to service our growing demand. We believe this will help achieve our goals of appropriately timed expansion and capital efficiency. It should also enable us to better focus by simplifying and streamlining the supply chain and reducing the complexity. This increased simplicity and focus Also increases our confidence in our longer term margin targets as we expect to be able to allocate more of our team's time and resources into improving the business.

Speaker 2

On capital efficiency, we now forecast significantly lower CapEx than we previously expected. We now expect our 2023 CapEx to be below $75,000,000 compared to our prior guidance of $110,000,000 to $130,000,000 We also expect to invest below $75,000,000 in 20.24 CapEx. This increased efficiency is a meaningful step on our way forward towards financial self sufficiency. We are continuing to evaluate our total supply chain, including our assets in Asia, where we currently have 2 active facilities and the 3rd one that is currently being built. Since we are continuing to evaluate the network in Asia, our updated CapEx guidance Continues to assume that the 3rd facility will be built and be an end to end facility.

Speaker 2

With that, I would now like to turn it over to our Chief Operating Officer, Daniel Ordonez, to give you an update on the segments. Thank you, JC, and good morning, everyone. I'll begin my discussion on Slide 9 with EMEA, which is our largest operating segment at 54% of our 3rd quarter revenue. The old drink category in EMEA grew at a very healthy 15% in the quarter, which was more than double the growth of the broader plant based meal category. I'm pleased to say though that our constant currency revenue growth was 16% in the quarter, outpacing The oat brin category.

Speaker 2

Slide 10 shows that EMEA segment has consistently reported volume growth in the mid to high single digits, driven by our established markets growing volume in the mid single digits and the new markets contributing the balance. We believe that this consistency in our established markets is a testament to the strength and durability of our business model in EMEA. And we expect this momentum going forward helped by many of our new customer wins, including Toffee Fellows, which we recently announced. We are pleased with the performance in the established markets, and we're actively working to maintain the momentum. Slide 11 gives an update on our go blue strategy, which is our approach to increasing consumer usage by launching margin accretive innovations that is best used outside of coffee.

Speaker 2

Recall that our U. K. Business is the furthest along the way with this portfolio expansion. In the U. K, Our new items are some of the fastest turning plant based products.

Speaker 2

The whole and semi products are the biggest launches in the category In the last 52 weeks according to NPD, and we have strong repeat rates with already 50% of whole and send in shoppers repeating purchase since launch. In Germany, which is our 2nd largest market in EMEA segment, The rollout of GoldBlue is progressing well. The GoldBlue introduction has driven at 24% in volume, net of cannibalization. Overall, we are seeing very good progress here. Now turning to Slide 12.

Speaker 2

We continue to make terrific progress in bringing Oakley to new geographies. Here you can see some of our activity in these markets. You can see on this slide that we are making good progress establishing an old new culture in these new markets. For example, in Belgium, We already have an established presence in place. In France, we are already the highest velocity plant based milk in supermarkets, and we are continuing to engage with customers and consumers on a personal level in the street.

Speaker 2

And in Spain, We already have the leading market share in the barista category, and we're growing rapidly by integrating it into the culinary culture. Slide 13 shows some of the highlights of our recent unique experience based brand activities, where summer coffee and soft serve tour. We showed up at the most important music festivals with food trucks all over Europe, spreading the Oakley magic with its consumer target audience. In fact, we have to extend the soft serve pop up shop in Amsterdam way after the summer. I encourage you to go to our YouTube channel to see more on how we engage consumers this summer.

Speaker 2

I close the EMEA discussion on Slide 14. You see, while engaging the consumers and driving top line is important, EMEA is a solid and profitable business throughout the P and L. As you can see on this slide, our EMEA business is generating margins that are already approaching our total company long term margin targets. We believe that EMEA margins still have room to expand as we execute on our growth plans and increase our capacity utilization from the low 70s. As many of you know, we believe we can replicate our EMEA business model in our other segments.

Speaker 2

Turning to Americas segment on Slide 15. I am pleased to report that we are back to gaining retail market share In the Americas, while the category growth rates have not been as strong as we would like, we firmly believe that Tsumeb will continue the shift towards milk over time. So we are focused on controlling the controllables and ensuring that we are building our business to achieve long term profitable growth. On Slide 16, you can see that we continue to post strong distribution gains. In the last 12 weeks period, We have increased our total distribution points by 18% and our ACV is now at 39%, which is 250 basis points versus this time last year.

Speaker 2

While this progress is good, there is Many more to come during the shelf reset this fall and this winter. You have likely seen our recent press release announcing the new Meyer distribution, and We're also launching new distribution at Costco and expanding our distribution at Walmart. I'm also We're very pleased to announce that we have regained distribution at Stop and Shop, which is a customer that we lost during our historical supply chain hiccups. Turning to Slide 17, as part of these shelf resets, we're also getting good acceptance of our new innovation. Here you can see our new product, similar to the EMEA Go Blue strategy in the Americas.

Speaker 2

We are expanding our portfolio to increase consumer choice And usage of our products. We are launching 2 new oat milk,

Speaker 3

a

Speaker 2

super basic version that has just 4 easy to pronounce ingredients and an unsweetened version that has zero sugar and has a calorie count that will directly compete with almond milk. We are also launching a line of delicious coffee creamers with a variety of popular flavors. Be on the lookout for these terrific new products. Turning to foodservice side of the business on Slide 18. 45% of the American segment's 3rd quarter revenue was in food service.

Speaker 2

This part of the business revenue declined by 6 in the quarter. While we do not like to see sales declines, we are focused on profitable growth. Excluding our largest customer, foodservice revenue grew by 10%. By winning new customers, expanding into new doors and launching new items. We are diversifying our foodservice business, improving our margins and giving us access to faster growing areas of the channel.

Speaker 2

Slide 19 shows that our co payer consolidation in America is driving solid results that are flowing through the P and L. This initiative has driven the segment's cost of goods per liter down by a healthy 10% from quarter 1 to quarter 3, which is enabled by the Yaya Foods transactions that we completed earlier this year and it's as well as our strong Ongoing partnership with Innovations Foods at our Millville facility. Both Yalla Foods and Innovation Foods have been terrific partners. As we continue to work with them to become more and more efficient, we believe we can continue to reduce our costs moving forward. Turning to Asia on Slide 20.

Speaker 2

The Asia team has moved quickly to implement the strategy reset plan that we discussed on the last quarter's call. On this slide, you can see the impact of those actions. By refocusing the business and reducing costs, there was a top line impact and a significant bottom line benefit. By implementing the reset plan, the Asia business improved adjusted EBITDA by $4,000,000 quarter over quarter and $10,000,000 year on year. Slide 21 shows how significant the change the team has executed Just in the last quarter, the team has cut over 70% of their SKUs and focus on the ones that are most profitable and can be produced more efficiently.

Speaker 2

You can see in the middle chart that we are also executing A significant shift in our channel mix by intentionally pulling back on certain SKUs, customers and geographies. We have increased the percentage of revenue sold through the core full service channel by a full 11 percentage points. And the result of this refocusing is a reduction in cost of goods per liter by 16% year on year and 8% quarter over quarter. The team has done a good job executing the first phase of the recent plan. Now turning to Slide 22.

Speaker 2

While we are pleased with the progress to date, we know that we will still have to work to do to get this segment to where it needs to be. And the team is clearly focused on achieving profitable growth. As Desi mentioned, our SG and A cost saving program remains on track and Asia remains on track to deliver their portion, which is $40,000,000 The team is continuing to drive efficiencies in the supply chain by focusing on things such as optimizing which facilities we produce, which products in and maximizing production runs for our largest selling SKUs. We expect that they will continue to find ways to drive additional efficiencies. Finally, the sales team remains active and energized.

Speaker 2

We have been given the direction to continue to build the business with our core channels, geographies and SKUs, so that we can build a strong, profitable and sustainable business. I would now like to turn the call over to our new CFO,

Speaker 3

Thank you, Daniel. Good morning, everyone. Slide 24 Give you an overview of the P and L for the quarter. We reported 3% year over year revenue growth and flat constant currency revenue growth. Gross margin for the quarter was 17.4%, which is a 14.7 percentage point improvement versus the prior year quarter and 180 basis points sequential decline from Q2.

Speaker 3

As Jean Christophe mentioned, our reported gross margin includes approximately $6,000,000 of 1 off costs associated with the ongoing Asia reset, which is a 3 20 basis points headwind that we believe mask The underlying improvement in our gross margin. Adjusted EBITDA was a loss of €36,000,000 which was ahead of our expectations. This was €47,000,000 improvement versus the prior year and €17,000,000 improvement versus the 2nd quarter. Slide 25 shows the bridging items for our quarterly revenue growth. You can see volume declined 1%, pricemix improved 1% for a flat constant currency revenue growth.

Speaker 3

Foreign exchange was a tailwind of 3%, resulting in 3% total revenue growth for the quarter. Slide 26 shows the revenue bridge by segment. EMEA continued to report strong growth with 16% constant currency revenue growth led by 10% pricemix improvement, which was driven by the price increase we to last winter and will start to anniversary this coming Q4. Americas 4% decline Was driven by a 6% volume decline, which was driven entirely by the foodservice channel as the rest of the business grew volume. Asia, 28% constant currency decline was driven by the actions we have taken as part of the segment strategic reset plan.

Speaker 3

Volume declined 15% as we refocus the business on our core channels and geographies and price mix declined 30%, largely driven by antiviral sales mix as we rationalize SKUs that were higher priced, but lower margin. Slide 27 shows you the sequential quarter over quarter gross margin bridge. A year over year bridge is provided in the appendix of this presentation. Overall, gross margin declined 180 basis points. The sequential decline in gross margin was driven primarily by 190 basis points headwind from the Asia business, which includes the $6,000,000 or approximately 3 20 basis points of one off costs related to the strategic reset.

Speaker 3

Pricing and mix in EMEA and Americas improved gross margin by 110 basis points. Cost of goods per liter in EMEA and Americas was a headwind of 90 basis points as the co packer consolidation in Americas is improving our cost per liter, while EMEA experienced increased co packing costs. Finally, foreign exchange was a 20 basis points headwind. Slide 28 Shows our adjusted EBITDA by segment. As you can see, each segment shows good sequential improvement as our strategic actions are showing results.

Speaker 3

The cost savings program that we announced last quarter is on track, and it is most clearly helping drive the improvement in Asia and Corporate. Similar to last year, We do expect corporate to increase several $1,000,000 sequentially in Q4 as we seasonally spend more in our 4th quarter. Turning to our balance sheet and cash flow on Slide 29. Overall, our Leaky EBITD position is strong and we're improving our The left hand chart shows how liquidity positioned at the end of the quarter. We ended the quarter with $487,000,000 of total liquidity comprised of $283,000,000 of cash and equivalents and €204,000,000 of undrawn bank facilities.

Speaker 3

The sample chart shows that we have made good progress in improving our free cash flow. Improving our free cash flow is a priority for me and our organization is very focused on it. As such, We expect our cash flow to continue to improve, driven by the items shown on the right side of this slide. We expect to continue improving our adjusted EBITDA and reach profitability in 2024. As Jean Christophe discussed, We are continuing to optimize our manufacturing footprint and we are continuing to evaluate options elsewhere in the network.

Speaker 3

We believe that we have the opportunity to improve our working capital metrics. Slide 30 Shows you an updated guidance. For 2023, we now expect constant currency revenue growth to be near the low end of our guidance range of 7% to 12%. This is primarily driven by a revised outlook in the Americas As we diversify its foodservice business. We now expect our 4th quarter gross margin to be in the mid-20s.

Speaker 3

This estimate now includes our expected costs related to the Asia reset as well as the absorption impact of reduced volume expectations in the Americas segment. As Jean Francois said earlier, we also now expect CapEx to be below €75,000,000 this year as well as in 2024. As mentioned in our earnings press release, In our Q4, we expect to incur a non cash impairment in the range of $110,000,000 to $150,000,000 related to the production facilities in EMEA and Americas segments, where we are discontinuing construction. We also expect to incur restructuring and over exit costs of approximately $40,000,000 $50,000,000 We currently estimate this to result in no more than $20,000,000 of net cash out over the next 2 fiscal years. After taking into consideration anticipated proceeds from selling certain equipment.

Speaker 3

Finally, We remain on track to achieve positive adjusted EBITDA in 2024, while enabling our future systems growth. We are confident that the actions we are taking will strengthen the business and position us for success. This concludes our prepared remarks. Operator, we are now prepared to take questions.

Operator

We will now begin the question and answer session. Our first question comes from Ken Goldman with JPMorgan. Please go ahead.

Speaker 4

Hi, good morning. Thank you. I wanted to ask if it's not too early, if we could get a little bit of a read on What you think some of the key tailwinds and headwinds we should look for as we head into next Gerry, not looking for numbers necessarily, but just an idea of kind of how you think about progression. Obviously, it looks like you're feeling pretty good about America is recovering and some of the new doors going in there. Just want to get a general sense of your thoughts early on, on the direction there and kind of The milepost we should look for.

Speaker 3

Hi, Ken. Marie Jose David speaking. Nice meeting you today.

Speaker 4

You too?

Speaker 5

Thank you

Speaker 3

for the question. Thank you. Look, as we speak, we are working on our 2024 budget. So for sure, we will share more next earnings call. But what I can tell you today is that Our first priority is to bring this business to profitability.

Speaker 3

What also we see is that the second half It's going to be better than the first half, both from absolute EBITDA dollars as well as organic sales growth. Asia reset plan and the actions we are taking in Americas will be behind us, and we will continue to deliver on our SG and A savings as well as the supply chain productivity as we discussed. So this is what we can tell you today. I really want to reinforce the fact that we're working on it and this is where we stand today.

Speaker 4

Thank you. And then just a quick question about the status of your relationship, I guess, with your largest customer in Americas. How How you see that progressing from here? Any color you can provide on that would be helpful, I think.

Speaker 5

Thanks, Ken. Daniel here. Good To hear from you today. Well, listen, we're looking to drive profitable growth. You heard us in the prepared remarks and you heard MJ talking about it now.

Speaker 5

And that means that we are prioritizing the quality of our growth according to our strategy, and we believe we're here for the long run. So, this doesn't mean we're walking away from any contract and any customer. We're just rebalancing Our out of home and food service channel sales, which have a variety, as we discussed in previous earnings, a variety of sub Channels that are more margin accretive to us and more profitable, and we're rebalancing that. So that's what we can share with you today. There is ample opportunity to grow in both channels as you see our recent distribution gains in the U.

Speaker 5

S. With Some early signs of market data improvements and the same thing goes for out of home and foodservice. Ample growth opportunities It's just a rebalancing of the equation between both to make sure that we're true to our quality of growth and the that only becomes a much better and stronger business before it becomes a bigger business.

Operator

Our next question comes from Max Gunport with BNP. Please go ahead.

Speaker 6

Hey, thanks for the question. Sticking with the Americas, So you acknowledge that category growth rates and the retail channel have slowed. Does it sound like you believe that the shift to oat milk We'll continue. I was just hoping for more color on what's driving the conviction behind that. Thanks.

Speaker 5

Yes. Thank you, Max. Thanks for the question. Daniel again taking it. Yes, as you have seen, we've seen Units and dollar growth recently in our scanner data, and And we have also seen market share progress within both plant based milks and oat milk.

Speaker 5

So This is consistent with the early signs of distribution gains we've seen as and as we consistently said, We're head down on execution. It may sound a bit self centered, but Oakley is the proven brand that ignites category growth. And therefore, as opposed to spend time worrying about the category, what we're doing is stimulating that growth. Sustained field rates, as you would have heard us speaking a few earnings call ago, now strong innovation coming And ongoing disruptive brand activation at the back of solid distribution gains. This is what we're doing in EMEA Max and with visible results.

Speaker 5

And As a strong runway for distribution gains in the Americas too, and that will help with the strong velocities we have to stimulate further demand.

Speaker 6

Got it. And then just on the supply chain changes, I realize they're being positioned as Doubling down on the asset light production model and they should increase your focus and improve your cash flow and the confidence in your longer term margin target. I guess To play devil's advocate, a skeptic could say, you've stepped back from Asia, you're seeing declining sales In the Americas, partly due to the step away from your largest customer in foodservice. It sounds like you've got the capacity to produce more than you're selling. You've lowered your sales targets throughout the year and your volumes did decline in 3Q on a year over year basis and maybe You could conclude that growth is just has come down a lot for this business over the last several months.

Speaker 6

What would your pushback be to that type of narrative?

Speaker 2

Hi, Max. Jean Christophe speaking. I have a very strong pushback for you, which is there is no demand issue for us. What drives demand is our ability to fully deploy our playbook. The underlying demand for the oatmeal category remains strong.

Speaker 2

And as Daniel said, OT is the key driver of category growth, especially when we combine sustained capacity, distribution gains and ground building investments. EMEA is a very good example for that. We have consistently stimulated growth in our core markets, and we are still gaining significant share. Just take the example of Germany or the Netherlands. Oatmeal continues to grow in a consistent high single digit in volume despite pricing.

Speaker 2

And that's why in the U. S, we are confident that with the recent and upcoming distribution gains As well as increased brand activity, we will be able to replicate the same playbook and results. And of course, In China, we just started recently to adapt to the new context. So really, when you look at the reduction in CapEx, It is therefore simply a consistent ongoing calibration acknowledging the fact that we have found asset light ways to service our goals and expansion within our established network and by doing so, strengthening further Our confidence in our long term margin. So that would be my pushback, Max.

Speaker 6

Great. Thanks very much.

Operator

The next question comes from John Baumgartner with Mizuho Securities. Please go ahead.

Speaker 7

Good morning. Thanks for the question. I guess, first off, looking at Asia, there's a lot going on there, I think, just sort of restaging the portfolio, pulling back on profitable items. Is there a way to think about where this business sort of bases out in terms of just seeing the year on year decreases in revenue? What's the right run rate for this business at this point do you think?

Speaker 7

I mean is this sort of the bottom and is there more to go in terms of absolute sales declines this year? Like how do you think about resetting the base in Asia?

Speaker 5

Thanks, John, and it's great to hear from you. Thank you for joining us today as always. I'll try to unpack that for you. And you're right, there are multiple dimensions to our reset in Asia. The first one has to do with the context, Right.

Speaker 5

Accepting and acknowledging that there is a much tougher consumer and customer environment with very Clear repercussions when it comes to demand sensitivity, but also especially price sensitivity more than demand. That's number 1. So we're reacting to that first, right? And as explained in prepared remarks, not just on these earnings, but in previous one, the team has moved in record time to implement that reset plans that we announced. So that is focusing the portfolio with a strong reduction of 70% in SKUs So this is almost behind us in terms of operational execution.

Speaker 5

So now it's all hands on deck towards generating further growth. So we are pleased to see that the reset is moving in the right direction. Now I know your question is about the outlook and what we expect moving forward. And of course, we cannot predict the future, right? So we are controlling the controllables And we are in the early steps of our RESET plan.

Speaker 5

We do expect, and I think M. J. Was referring to that, to report better results in 2024, but it's too early to give you exact details on the shape of the growth curve at this point in time. The 3 of us, I can tell you, will be in Shanghai and in the factory in Manxuan again in 2 weeks' time with our team in the field. We will obviously keep you updated and we'll give you full 2024 guidance in our quarter 4 call and the perspective Our go forward plan has been proven, John, to work In EMEA is starting to show early results in the U.

Speaker 5

S. So we see no reason why we cannot follow suit in Asia. However, I would like to repeat one of the previous mantras with which we are driving the business since the last two quarters. We really seek, John, a stronger business before we seek a bigger business, and I cannot In fact, the region to apply that mantra than in Asia at the moment.

Speaker 7

Okay. And to follow-up in the Americas, Yes, I think you've quietly built up some pretty nice TDP growth year on year despite the absence of any kind of big bang 1 off increases in sizable retailers. But looking at the Americas results today, seeing the volume being softer coming from foodservice, How should we think about that sort of volatility from foodservice in the Americas numbers going forward? I imagine to the extent that you've got volume declines in foodservice, You're shifting leaders to more profitable outlets. How do we think about preparing for further Declines in the Americas going forward.

Speaker 7

If we see that, is there a trade off of more profitability going forward? Just help us walk through the non measured channel

Speaker 5

Thank you, John. Well, I'll spare you the same words of how I'll be seeking profitable growth here. But imagine the 2 buckets, as you call them out, foodservice and retail. In the retail environment, you've seen the baby steps and with a very promising outlook when it comes to distribution gains And with our continued solid velocities and very promising ACV gains when It comes to the new items, the new innovations. So expect a promising solid outlook when it comes to retail, which you know is approaching 50% of our sales.

Speaker 5

In foodservice, it's a balancing act. Expect some headwinds in the net, because we have made some proactive decisions to manage growth profitably. Now if you look at one slide We are growing solidly outside some of the Some of our largest customer in foodservice. So we believe now that we have put focus, teams and resources To multiply growth in these channels, which are more margin accretive, to give us that balance that MJ was referring to, more towards the second half of twenty twenty four. So expect more growth and more profitable growth.

Speaker 1

Thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Brian Kearney for any closing remarks. Great.

Speaker 1

Thank you, operator. Thanks, everybody, for joining us. Feel free to reach out to me if you have any follow-up questions. Have a great day.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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Key Takeaways

  • In Q3 Oatly’s adjusted EBITDA exceeded expectations as bold strategic actions began to materialize, leading management to double down on an asset-light production model that lowers CapEx and strengthens cash flow.
  • The EMEA segment delivered 16% constant currency revenue growth, sustained mid-high single-digit volume gains, and go-blue innovations, with margins now approaching the company’s long-term targets.
  • In the Americas, Oatly regained retail momentum with 18% more distribution points (ACV at 39%), new placements at Costco, Walmart and Stop & Shop, and is diversifying its foodservice business to improve profitability.
  • The Asia segment reset boosted adjusted EBITDA by $4 M QoQ and $10 M YoY by cutting 70% of SKUs, refocusing on core channels, and achieving a 16% YoY reduction in cost of goods per liter.
  • Oatly now guides 2023 constant currency revenue growth near the low end of 7%–12%, Q4 gross margin in the mid-20s, CapEx below €75 M for 2023 and 2024, and remains on track to reach positive adjusted EBITDA in 2024 despite a $110–150 M non-cash impairment and $40–50 M of restructuring costs.
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Earnings Conference Call
Oatly Group Q3 2023
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