🥛 Has Spruce Tamed Oatly?
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🥛 Oatly: Spruce On Point?
Oat-milk brand Oatly (OTLY) is contrast personified. The company reported record revenue in Q4. But losses widened, and EPS was below expectations. It guides for strong growth in 2022, but shares are battered and bruised. The outcome? A confused investor. (Tweet This)
Nostradamus Of 2021?
In July 2021, an activist short seller known as Spruce Point Capital Management went hammer and tongs behind Oatly's governance standards. Spruce Point accused the company of overstating revenue and gross margins and lack of transparency in accounting and auditing. It also highlighted that Oatly was losing market share in both its core markets - Sweden and the US.
The report also predicted that if Oatly were to grow at the same rate, it would never turn profitable and called out the “unjust” valuation, saying Oatly's shares would drop another 70% from current levels. On July 14, 2021, Oatly's stock had closed at $20.54. Last Thursday, March 10, 2022, Oatly's shares closed at $5.35, a drop of 74% from the July 14 close.
Governance may be an issue, but Oatly met the same fate as its brethren, such as Beyond Meat, Vital Farms, Tattooed Chief, and Very Good Foods - the other food-based companies that got clobbered. After much hype in the days after listing, Beyond Meat is also languishing near its 52-week low and is close to its IPO price of $25.
When Oatly reported Q3 results last November, revenue was far below expectations, despite a 49% growth Y-o-Y. Production issues in its Utah facility, Covid-related closures in Asia, and a shortage of truck drivers in the UK exacerbated an already tenuous situation. As a result, losses quadrupled from the same period the prior year.
Shares have been on a downward spiral ever since and have breached the IPO price level. The fact that the company was valued at 20 times sales, which for a loss-making company, did not provide much comfort as growth stocks were getting dumped left, right, and center. Until this moment, it’s Spruce Point - 1, Oatly - 0.
Where’s The Governance Issue?
So how did Q4 shape up?
Key Highlights From Q4:
Revenue: $185.93M Vs $174.22M expected
Loss Per Share: 0.13 Vs $0.09 expected
Net Loss: $79.8M Vs $37M Y-o-Y
Oatly attributed the wider net loss to lower gross profit, higher employee-related expenses, public company costs, and other operating expenses to scale operations across continents.
For the full year of 2021, Oatly reported revenue of $643M, a record and higher than its forecast of $635M. That’s a 53% growth Y-o-Y. Half of Oatly's top line came from the EMEA region, while 28% came from the US. The remaining was from Asia.
In the current year, Oatly expects to earn revenue of ~$900M, implying a growth of 40%, which is slower than the growth seen in 2021. It expects to end 2022 with a run-rate capacity of ~900M liters from 600M liters in 2021.
Oatly incurred inventory costs at its Singapore facility, a higher share of co-packing production than anticipated, higher container rates from EMEA to Asia, and higher energy costs in EMEA. Oatly expects to spend ~$450M as capital expenditure for 2022. Most of it will be for facilities in the US, UK, and three others in China.
There was also the buzz that Starbucks is looking at diverting its Oat Milk purchases from Oatly to its rival SunOpta. Oatly’s management had to clarify the company fully expects to supply ~85% of the total oat milk that Starbucks needs in 2022.
Oatly may have reported sound results, but the allegations leveled regarding its governance standards were somewhat dismissive. However, there can’t be much deviation from the truth if shares are to come back in the neighborhood of the IPO price and restore investor confidence. The imperative is getting back to the basics of running the business after having a glass of Oatly milk!
OTLY ended at $5.23, up 8.96%.
Company Snapshot 📈
OTLY $5.23 +0.43 (8.96%)
Analyst Ratings (19 Analysts) BUY 68% HOLD 32% SELL 0%
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Today's Market Terminology: Dim Sum Bond
This is an unofficial name for bonds denominated in Chinese yuan and issued in Hong Kong. While Chinese domestic debt market is closed to foreign investors, but they can invest in dim sum bonds
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