What happened
Shares of oat milk company Oatly Group (OTLY -8.85%) fell by 28.9% in April, according to data provided by S&P Global Market Intelligence. Not only did the company greatly underperform the S&P 500 for the month, it's down close to 90% from the all-time high it hit in June, not long after its May 2021 IPO.
Considering how much it has already fallen, shareholders are likely relieved that Oatly stock hasn't continued to drop in May. It's flat so far this month, even though its recently announced financial results for the first quarter missed analysts' expectations.
So what
Oatly reported its Q1 results on May 4. Revenue rose almost 19% year over year to $166 million. Growth was strongest in the Americas at 40%, but the company grew and gained market share in all the regions where it operates.
Image source: Oatly Group AB.
According to The Fly, on May 5, Citi analyst Wendy Nicholson lowered her share price target for Oatly from $11 to $10, citing uncertainty regarding the company's gross margin, which declined from 29.9% in Q1 2021 to just 9.5% in Q1 2022.
Various factors are preventing Oatly from using its manufacturing facilities to their full potential. Therefore, the company isn't able to leverage these large fixed costs. Moreover, inflation is causing its costs to go up.
The tea leaves were easy to read in April -- the decline in gross profitability for Oatly wasn't necessarily surprising. But the end result is the company's net loss more than doubled year over year to $87 million in Q1. And unprofitable growth stocks are out of style with the market right now.
Now what
Oatly gave revenue guidance for 2022. For the year, it expects to generate revenue of $900 million (at the midpoint of its guidance range), up 40% from 2021. That's great growth. But it will still be spending a lot of money to achieve its long-term vision. Specifically, management expects to lay out $500 million on capital expenditures as it tries to expand its products into new markets and ramp up manufacturing capacity.
To go along with these ongoing growth plans, Oatly announced new executives on April 21. Jean-Christophe Flatin will be the company's global president. He comes with experience from Mars -- one of the most highly rated private companies around. Daniel Ordonez will be the chief operating officer, taking over for Peter Bergh, who will transition into the role of chief strategy officer.
In a press release, CEO Toni Petersson said he believes these personnel moves will help the company "position ourselves for the next phase of global growth." Therefore it's clear that between management changes and capital-expenditure guidance, Oatly will remain in expansion mode. So shareholders should expect more revenue growth, but profits will likely be elusive for the foreseeable future.
