Oatly Group AB (OTLY) Earnings Call Transcript & Summary

Hello, and welcome, everyone joining today's Oatly Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this call is being recorded. We are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to [ John Pam Gardner ], Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us today. On today's call are our Chief Executive Officer, Jean-Christophe Flatin; our Global President and Chief Operating Officer, Daniel Ordonez; and our Chief Financial Officer, Marie-Jose David. Please review the cautionary statement regarding forward-looking statements and other disclaimers on Slide 3. And which are integrated into this presentation and includes the Q&A that follows. Please also 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. Also, on today's call, management will refer to certain non-IFRS financial measures, including adjusted EBITDA, constant currency revenue and free cash flow. 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, Oatly has posted a supplemental presentation on its website for reference. I'd now like to turn the call over to Jean-Christophe.

Thank you, John, and good morning, everyone. Slide 5 features of key messages. First, our second quarter kept a very successful first half with strong volume growth and positive mix driving our revenue momentum. The results reinforce the success of our growth playbook and notably, innovation that solidifies our identity and appeal as a full beverage company. The positive impact of our execution is evident in our expanded distribution in both retail and foodservice outlets. Second, we are driving improvements in our strategic needs of channels, customers and products to enhance our underlying profit margin. As expected, the second quarter included headwinds from cost pressure due to the conflict in the Middle East. In addition to absorbing this financial impact, we are choosing to invest for growth while continuing to improve our structural profitability. Third, looking at our full year guidance. We are upgrading our revenue guidance while remaining confident in maintaining our outlook for 2026 adjusted EBITDA. With what we know today, our full year outlook for EBITDA takes into account absorption of increased costs, including from the Middle East conflict, which remains unchanged relative to our expectations communicated in April. Our plan also reflects continued investments for further growth. Turning to Slide 6. Here, you can see our solid second quarter score card for important KPIs. Our revenue grew by 15.2% and 12.7% in constant currency. Our gross margin reached 33.9%, which represents an improvement of 140 basis points compared to last year. Our adjusted EBITDA was positive $0.4 million and 0.2% of our net sales. This is an improvement of $4 million versus last year despite reinvestments and the absorption of headwinds, including from the Middle East conflict. Revenue momentum and a resilient bottom line show progress in building a stronger growth model in a profitable manner. Finally, our free cash flow in the quarter was a negative $0.6 million which is an improvement of $4.6 million versus last year. Our business plan remains fully funded and we maintain focus on achieving positive free cash flow, a milestone that will be reached through putting on all available levers including continued improvement in the P&L and working capital. Slide 7, reiterates our focus areas for the rest of 2026. As Daniel will turn outlined, we continue to see positive traction from our investments and brand building. As they will exceed our expectations, we remain focused on executing our growth playbook. Second, we continue to navigate the uncertainty and valuability created by the conflict in the Middle East. I'm pleased to report that our proactive approach has helped us manage the related impact on our business. In the second quarter, costs matched our expectations and based on what we know today, the pressure that we expect in the second half remains consistent with our initial outlook communicated in April. The global cost impact has been largely fuel-related, is directly in logistics or indirectly through areas such as packaging. As a reminder, we are utilizing this disruption in part to evaluate and improve the flexibility in our supply chain. Finally, as it pertains to China, our strategic review is ongoing, and we intend to complete this review prior to the end of the year. We continue to evaluate our range of options, including a potential carve-out. Our goal is to accelerate growth and maximize the value of this business. We will update the market on our progress as necessary. In closing, Slide 8 summarizes our guidance. In 2026, we expect stronger convention from the rollout of our refreshed growth playbook. We now expect to drive constant currency revenue growth of 8% to 10%, up from our prior outlook for growth of 3% to 5%. Further, we expect to maintain our ability to mitigate the cost impact of the Middle East conflict. Despite this inflationary impact and gross building spending, we believe we are on course to deliver adjusted EBITDA towards the low end of the range of $25 million to $35 million, consistent with our outlook from last quarter. With that, Daniel, over to you.

Thank you, JC, and good morning, everyone. I will start my discussion on Slide 10. As we enter the second half of the year, are confident remains strong on the results brought by the methodical deployment of our growth playbook. Over the past 2 years, we have focused on the barges to consumption, creating new occasions and driving consumer relevance. We remain well positioned to serve the lactose intolerance community and those who are primarily environmentally conscious in their choice. However, these segments represent only a portion of our addressable market opportunity. As shown by the success of our growth playbook across European markets, established all new multiple new doors are opening as only pivots to become a full-on beverages company, which is relevant to a much broader population and across multiple new occasions still anchored on the same brand uniqueness, generational relevance with taste, health and sustainability at the core. Our expanding portfolio of flavors and formats drive differentiation in the beverages market undergoing significant change as customers are eagerly renovating their menus and shelves to be more relevant in meeting rising expectations of younger generations. Closing the loop relevance is manifested again through the brand's iconic live events and digital presence. So first, let's discuss our thought leadership in setting global beverage trends on Slide 11. As we did in Berlin with Oatly on the rocks in October last year, last month, we hosted 250 key players from the food and beverage industry at the aftertaste event at the Flatiron District in New York, attendance included members of the media, trendsetting leaders in coffee and beverage, key commercial partners, culture opinion leaders and creators. In addition to sharing some of our newest flavors and exciting drinks innovation, we hope that follows that explore how new generations are changing the coffee culture, social media's influence on beverage development and other discussions at the forefront of this space. In the following weeks, the event generated over 17 million media impressions and reached over 9 million people online globally. The event was one of our largest brand investments in North America this far, a clear manifestation of what local relevance with global scale means for the Oatly brand. Building on these on Slide 12, you see the latest iteration of our recipes look book that is hitting this summer in full. So far, we have introduced 63 new drinks, many of which have become category standards, like, for instance, Coconut Matcha Cloud, Salty Banana Split and the Matcha Jell-Oat Shot. They are open to the public, representing the backbones for only progressive innovation, and we're highly confident in our ability to continue to surprise and set the industry space. On Slide 13, you can see how prompted by the look book and with the recent expansion of our chronic Barista offering, notably with the launch of Cold Foam, Oatly becomes increasingly relevant to the growing refreshment and mixology movement, significantly expanding the creativity of our foodservice partners. The most promising drinks make it all the way into the retail space for in-home consumption as seen on Slide 14 with the recent successful launches of Popcorn, Churros and Coconut flavor Barista, as well as the expanding matter range. This model explains why we are growing penetration more strongly with younger consumers, and we view this demographic as strong foundation for multiyear's growth. On Slide 15, you see a concrete example of the cultural relevance of the Oatly brand at global scale with the recently announced second iteration of our partnership with Nespresso present in over 220 boutiques across 26 markets during the coming months. Next, let's turn to a discussion of our regions to link our strategic initiatives with market success. In the Europe and International segment on Slide 17, second quarter's constant currency revenue grew by 18%, driven by very strong volume growth. This is particularly impressive as we had volume growth of 9.4% in the last year's second quarter. Contributions are balanced from established and expansion markets and included growth in household penetration across our long-standing markets. At category level, growth in retail takeaway for plant-based beverages has remained solid in absolute terms, up high single digits driven by volume and far above the rate of GDP growth. In our case, the story is even better. Oat milk is outgrowing other plant-based milks and only is the main driver with strong market share gains across all markets. We believe the growth opportunity across this segment is promising and I'd like to emphasize the reasons why we are outperforming the market on Slide 18. First, we are engaging the broader beverages industry and seeing strong traction as taste, refreshment and health combined are particularly relevant to the young. Secondly, we're steadily evolving our strategic choices on channels and portfolio to be decisively accretive to our profit margin and volume together with the pipeline of new retail and food service customers that underscore our outlook for continued strong growth. Finally, the conscious choice we made to decisively expand our geographic footprint in multiple new markets is paying off handsomely. They continue gaining critical mass with growth rates that keep accelerating as we see with an impressive 82% growth year-on-year for quarter 2. On Slide 19, I would like to emphasize the brand's culture of relevance being part of the local communities in key cities and generating disproportionate level impacts thanks to a seamless brand playbook, and efficient social media strategy. Two very concrete examples. In Mexico City, our loses cafe console the funds of losing World Cup teams through free drinks such as the lost Matcha [indiscernible] reaching so far more than 600 million people globally. In Amsterdam, [indiscernible] some of Europe's best coffee roasters with open inspired signature drinks in one of the bicycle capitals of the world. We not only delighted the local consumers, but has reached so far over 100 million people globally. It shows the power of our lay book as we see now significant market share and penetration gains in Sweden, our home market. Brand penetration in Sweden is 3x higher than any other key plant-based markets, like, for instance, the U.K. and is home to the most affluent plant-based consumer there is. Growth in Sweden have been flat since JC and I joined back in 2022. But 18 months following the execution of the beverages book, we're now seeing increasing household penetration, notably among younger consumers. More trial and stronger velocities are driving accelerating growth in our share of new alternative sales, up 10 percentage points in 2023 and we have also gained nearly 2 percentage points of category market share in the past year. This gives us confidence that there is no such thing as a mature market. Slide 21 shows how our beverages stands drive significantly bigger standout in retail display, geared to both ambiance temperatures, for at home or on-the-go consumption, this impact of presence reflect our importance to retailers to better engage shoppers. Shifting now to North America on Slide 23. I'm very happy to report that growth keeps accelerating. In the second quarter, the segment constant currency revenue grew by 5.9% year-on-year, driven by positive volume growth of nearly 2%. This performance clearly exceeds the mid alternative category and includes decisive incremental mix effects. At the retail market level, the macro backdrop remains challenged by tight household financial conditions and the saturation of protein-fortified products. Retail takeaway of plant-based products continue to trail of traditional customers vary. In this context, our growth keeps accelerating strongly thanks to the relevance of our portfolio, steady distribution gains and improved execution. So as we have seen in Europe 2 years ago, macro category dynamics can't be explained by the retail performance alone, especially when that doesn't represent the new beverages playbook. We are conscious and at the same time optimistic about our ability to change this dynamic. On Slide 24, we see that in retail measured channels, we have reached our near-record high market shares in both old milk and plant-based beverages. Let's look at our out-of-home channel performance on Slide 25. As previously discussed, we see growing consumer and customer excitement in this space, which is way closer to culture and for us, defines more clearly the underlying category dynamics. I am very pleased to report that momentum from new and existing customers will soon eliminate the headwind from the customers who was previously our largest in this channel. At the end of the second quarter, the related year-on-year headwind to sales has substantially ended, and we have made significant progress diversifying our customer base. This will provide greater balance and resiliency for the channel in the future. On a like-for-like basis, our go-forward foodservice portfolio continues to grow strong. following the beverage playbook with drinks opted to the local consumer, posting an exceptional 18% growth this quarter. As we discussed before, our confidence is not simply anchored on our growth in the channel, but the fact that we see an identical evolution in the beverage space driven by preferences of the younger generations. As you see on Slide 26, we're citing significant penetration gains, all stemming from capturing these young generations of consumers. So not enough yet to return the category around in retail but we're confident it is a matter of persevering in execution. Moving forward, as you see on Slide 27, we expect to gain share of category distribution and new consumers from the full expansion of the new range. We also expect to build breadth and depth across key customers in the mass, club and natural channels. This builds on already solid year-to-date volume growth in the retail and club channel. Our growing appeal among retailers is particularly evident in off-cycle product uptakes, retailers will lease a products outside of the traditional category reset window starting later this year, a significant sign of momentum to our brand. Last, shifting to Greater China on Slide 28. Although macro headwinds persist in the foodservice channel, our second quarter growth was encouraging. Constant currency revenue grew by 5.6% and included volume growth of 5.5% on a positive offset from the retail channel. Segment sales largely recovered from last year's decline of 6.6%. As JC mentioned, we intend to complete the strategic review this year. To wrap the business update, I would like to focus on the trajectory of the key business metrics on Slide 29. Strong growth continues to drive a direct positive effect on cost absorption and profit margin, put simply, steady progress on our model to drive profit growth through demand generation, essential to future value creation. And with that, I will now turn the call over to Marie-Jose. MJ?

Thank you, Daniel, and good morning, everyone. Slide 31 summarizes our solid financial delivery for the second quarter. Aside from strength in Europe, this quarter marked our second consecutive period of positive volume growth in North America following declines throughout 2025. In Q2, we grew net revenue 15.2% and 12.7% on a constant currency basis. Gross margin was 33.9%, an increase of 140 basis points compared to last year's Q2 and the result of efficiencies, including facility optimization, volume absorption, productivity improvements and favorable mix. Q2 adjusted EBITDA was a positive $0.4 million and an improvement of $4 million relative to last year's Q2. Although the magnitude of year-on-year improvement was smaller than $8.7 million. This year's Q2 absorbed incremental headwinds from a full quarter of cost pressure due to the miles conflict and the anticipated phasing of brand reinvestment. As a reminder, our investment in the growth playbook has been more concentrated in Q2 than the expected average for the year. Considering the strong growth in household penetration and consumption we are pleased with the return on our brand investment. We also remain very pleased with the underlying trajectory of structural profit improvement. I will now provide more detail about our financial performance. Slide 32 shows the bridging items of our revenue growth. Volume grew 11.2%, price/mix increased by 1.5% and Foreign exchange was a 2.5% tailwind compared to 7.5% last quarter. Moving on to Slide 33 and the year-over-year gross margin bridge, which shows a 140 basis point improvement. This improvement is explained by 210 basis points from fixed cost absorption and supply chain efficiencies, 30 basis points from product and channel mix basis points from foreign exchange currency tailwinds and partially offset by a negative impact of inflation for 100 basis points. Slide 34 shows the quarter 2 year-over-year improvement in our adjusted EBITDA. The $4 million improvement was driven by $13.7 million increase in gross profit partially offset by $9.7 million increase in SG&A and over. In SG&A, the increase is driven nearly in equal part by customer distribution costs which are linked to sold volumes and an increase in branding and advertising spend in addition to foreign exchange headwinds that are offset by cost-cutting initiatives. As a volume-driven business, our cost structure scales with growth, and we remain focused on delivering profitable growth over time. Slide 35 shows segment level details. Europe and International grew net sales by 18% in constant currency. However, brand reinvestment and cost inflation related to the Middle East conflict limited year-on-year growth in segment adjusted EBITDA to 0.7 million, yet still achieved a solid adjusted EBITDA margin of 17.5%. North America revenue grew 5.9%. The segment adjusted EBITDA increased by $3.1 million to $7.7 million in article with last quarter as we proactively manage incremental headwinds from brand investments and costs related to the middle is complete. Greater China constant currency revenue increased by 5.6%. The increase was explained by growth in the retail channel that more than offset strong competition and weak macros in the out-of-home channel. The segment reported negative $15 million in adjusted EBITDA. In Q2, corporate expenses was $1 million lower year-over-year as our continuous focus on increasing efficiencies has more than offset foreign exchange headwinds. Turning to our cash flow on Slide 36. I reaffirm that our business plan remains fully funded and we remain focused on bringing the company to positive free cash flow following the positive inflection on our adjusted EBITDA. In Q2, free cash flow was a net outflow of $0.6 million, which is $4.6 million better than last year. The year-on-year improvement results from growth in smaller capital expenditures and benefit from net working capital. The improvement exceeded our expectations and reflects our efforts to structurally improve profitability and cash generation. We believe that our progress is increasingly evident and see opportunities for further improvement across all levels of cash flow. We maintain our expectation that we do not anticipate positive free cash flow for the full year 2026, given the impact of phasing factors in the second half including larger inventories to support volume growth as well as capital expenditures. Turning to our 2026 outlook on Slide 37. As Jean-Christophe mentioned, at the top of the call, we are renting our outlook for constant currency revenue growth from 3% to 5%, now up to 8% to 10%. Although our outlook implies year-on-year growth deceleration in second half, it is a result of a harder comparison relative to first half. On a reported basis, considering recent FX rate and assuming no change for the rest of the year, we estimate FX to add approximately 200 to 250 basis points to net debt, a stronger tailwind relative to our prior expectations for a benefit of 100 to 200 basis points. For adjusted EBITDA, we maintain our outlook to deliver towards the low end of the existing range of $25 million to $35 million, including absorption of the cost impact of the middle is contract. Based on what we know today, our expectation for related cost pressure is unchanged from our forecast in April. And we are pleased that proactive management has allowed us to maintain the EBITDA guidance range that we provided pre conflict in February. We expect support from favorable reinvestment savings in SG&A and sustained improvement in gross profit from revenue growth and operating leverage. Our price mix is offsetting cost pressure from the contract in the Middle East and the tight market for freight in North America. As a reminder, our outlook is provided in the context of what we know today and set against elevated macro volatility. Our fundamentals remain strong, and we continue to execute against our growth playbook while maintaining agility to adapt to external factors. Last, our guidance for CapEx remains unchanged in a range of $20 million to $30 million for the full year. This concludes our prepared remarks. Operator, we are now prepared to take questions.

[Operator Instructions] We'll take our first question from Kaumil Gajrawala with Jefferies.

So well done on the revenue front on the volume front. If we could maybe break down a little bit, Daniel, and some of your comments on the drivers of that growth. But specifically, is it bringing in new users? Is it existing users consuming more? Is there maybe a pricing component to it? So just sort of like more of a breakdown on what is driving some of the acceleration in your revenue growth would be helpful.

Kaumil, great hearing from you. Thank you for the well done. That's certainly the sentiment here. I agree with you, we see momentum getting stronger. The specific answer to your question, is it existing or new? It is certainly both -- in both regions, if I focus in North America and in Europe and international is existing and new, with existing consumers and new consumers, its existing customers and new customers, and its existing, I would say, countries and new countries. That's the kind of in a nutshell, the balance that we see between existing and new. Now giving you a bit more color on both regions, Kaumil. We see growth accelerating, if I start with Europe, and I take a couple of minutes is accelerating under 2 strong consecutive quarters of growth volume-driven growth with mix on top and we're lapping, I mean, in this quarter, in particular, we're already lapping an almost 10% volume growth in 2025. So we're really seeing incremental demand and we also went fully back to this dynamic where the Oatly growth brings a to milk growth on top and certainly outweighs or outgrow plant based in general. So plant-based by the way, is in solid high single-digit growth. So outlook positive in this region in Europe and international. Why? Going back to your point about existing and new we see relevance of the beverage new portfolio with focus on new usage occasions, again, new that allow the taste strategy to lead the reframing of the space. Coffee that now is full on beverages with solid defined mix effect. And then the other thing that is working really well, as you saw with 82% growth in Europe and international, the new markets gaining -- maintaining the growth, but gaining in critical mass. So this is concludes Europe and international came with a very nice livewheel. And this, as we always insist 70% of penetration growth ahead of us, right? The users that still don't adopt -- haven't adopted the category. If you allow me 1 more minute, I'm packing North America for you and your colleagues on the call, very encouraged with the progress we have done still step by step. Two key dynamics here. Again, very strong -- as strong as in Europe, dynamics in out-of-home at the back of the identical consumer strength coffee, flavors, taste, signature drinks, et cetera. And this segment now is 1/4 of the total revenues of this segment and counting. So we're very excited about that and I'm glad not having any questions about legacy customers here, but we are nicely lapping all that legacy effects. And then on top of that, and that's my final remark for you and your colleagues in the retail space, still soft, but clearly outperforming and gaining penetration, again, gaining penetration, gaining share, gaining share of shelf and gaining penetration with very strong velocities and new TDPs already in the making and much more to come in the remaining parts of 2026, but also the early parts of 2027. That's the summary on the drivers, Kaumil.

We will move next with Max Gumport with BNP.

You had another strong quarter of top line momentum, and you've meaningfully raised your top line outlook for the year. And it seems like the costs associated with the Middle East conflict remained unchanged from your estimate in April. So just looking for more color on why your EBITDA outlook was not raised today. It seems like it's likely largely due to increased reinvestment. If that's true, can you talk a bit more about that increased reinvestment?

Thanks a lot, Max, for the question. Great to hear from you, JC speaking here. Let me impact our EBITDA guidance for you, and I will split it in 3 inputs. First, we are clearly harvesting the demand generated growth of margin, and we do that both through volume growth and positive price/mix effects. We are confident that this momentum will continue in H2. So that's the first part of the equation. Second, when it comes to the Middle East conflict impact, we continue not only to monitor, but to absorb it. As I said, it's mostly on logistics and packs, and our full year estimate remains in line with what we have said. Practically, that means that when you think of Q3 and Q4, we expect a Middle East conflict impact that is broadly in line with what we had in quarter 2. And finally, because we are confident in our beverage playbook, because we see this momentum, we have decided, despite the Middle East complete headwinds to consciously and carefully reinvest behind the growth in Europe and international in order to fuel the success. How are we doing that? These choices are done meticulously market by market, channel by channel. And of course, we will caveat these choices going forward based on our overall profit delivery equation. From a pure phasing standpoint, you heard MJ say in a remark that probably Q2 was the strongest of these growth investments and therefore, you can expect them to continue, but probably on a slightly lower end. And by the way, we continue to monitor them. So when I got these 3 factors together, has a net impact in an environment that remains super volatile and unpredictable, we choose to be conservative and to confirm our expectation to deliver adjusted EBITDA towards the low end of the range of $25 million to $35 million.

We'll move next with Andrew Lazar with Barclays.

I was hoping maybe to get into a little bit more detail on some of the drivers of growth in North America because, obviously, you're seeing pretty solid growth despite the category remaining weak and despite still in the quarter having been lapping some of the loss of a food service customer. And then also maybe just a little bit on what is going on with the oat milk category specifically even though, obviously, Oatly is outperforming. .

Thank you, Andrew. I will try my best not to repeat myself, but if I do, I apologize upfront. How to bundle. So the drivers of performance were clearly outperforming the market. market share, share of shelf, velocities, all the classic metrics of how we measure success in terms of our competitiveness, the strength of the brand the resilience of our portfolio. Remember, as we are lapping, we have fully lapped portfolio delistings, right, 98% of the I hope you appreciate and giving you more level of detail now, right? 97%, 98% of our portfolio is cleaning beverages, all with strong velocities. That's one driver. Then customer base, you see we are just clean and meet. So moving forward, what we see the drivers of category growth, we see 2 things that make us feel very optimistic about the outlook. Number 1 is the out-of-home performance. And I know you asked about retail, but we insist out-of-home is where the category is created, and that is where it's giving us, we have growth at the level of growth rates that we see in Europe with the exact identical dynamics. Some of the innovations may be slightly decent, but we see the same dynamics. The second one is penetration. You saw the chart of penetration, especially on Gen Z. So we are recruiting new consumers into the brand and into the category. And of course, I will pause there because you see what -- why in aggregate that builds up to soft category total. And I cannot comment about the other competitors in the field, right? But you see movements there. that are perhaps not helping with the mathematics. And that's why controlling the controllables, we are obsessively focused on executing. And then if I move into the -- before moving into the outlook, I have another very good data point here to provide, which is our share of old mill. PDP is now 22% up, up from 17% last year. We generate 30% of the old mall category sales and growing. So we have significant opportunity for further share of shelf gains. So as we said before, we are engaged in a retail all traditional school retail wake-up call for the retail space to adopt what we see in the dynamics on out-of-home. And we have every hope that the new portfolio, when you see what's happening now, and that's my last data point. The off-cycle uptakes in retail, which means normally you will start getting the new distribution, new TDPs coming in February 2027, you will see them coming in late in quarter 3 and quarter 4 already. That gives us hope or that I would remove the word hope. That is a proof point of the relevance of the portfolio we're bringing in front of consumers and the velocities that they see could be coming. That's pretty much the double click on the question answered to Kaumil at the beginning, Andrew. Let me know if that's okay.