What happened
Shares of Oatly Group (OTLY -6.46%) plunged 25.8% lower in March 2022, according to data from S&P Global Market Intelligence. The Swedish maker of oat milk and related products posted mixed results in last month's fourth-quarter report. Analysts and investors were quick to focus on the weaker bits of that report, continuing a downbeat trend that started a couple of weeks after Oatly's IPO.
So what
Oatly's fourth-quarter sales rose 46% year over year, landing at $186 million. On the bottom line, net losses expanded from $0.08 to $0.13 per diluted share. Your average analyst had been expecting a net loss of roughly $0.09 per share on top-line revenue near $174 million.
Management pointed to inflation-based cost increases and supply chain difficulties undermining the company's successful global expansion program. Looking ahead, Oatly's full-year revenue guidance for 2022 aimed approximately 10% below the analyst consensus at the time. Capital expenses are also expected to double this year as Oatly is building new production facilities in Texas, the U.K., and China.
Image source: Getty Images.
Now what
Oatly's focus on local production is a good idea in the long run, but it comes with exorbitant capital costs in these early stages of its worldwide expansion plan. Free cash flows were negative to the tune of $495 million last year, consuming nearly half of the proceeds from last May's initial public offering. The company needs to either find a more profitable operating model or rely on alternative cash sources such as loans or secondary stock offerings just to keep the lights on over the next couple of years.
I generally don't mind early-stage growth companies consuming cash while putting the pedal to the metal, but Oatly's cash burn is faster than I would like. Furthermore, the company has a tendency of running into silly and avoidable controversies such as making false claims in British TV commercials and taking financial backing from firms with a questionable reputation in Europe. On top of all that, Oatly continues to face rising ingredient costs.
If Oatly survives its early growth issues, it might become a global giant in the long run -- but the company has a lot of questions to answer and pitfalls to avoid. The stock has fallen 84% from the 52-week highs of last summer, and I'm afraid that it can continue to fall significantly lower from this point.
