Why Oatly Stock Jumped Today

What happened

Shares of oat milk company Oatly (OTLY 0.50%) jumped on Monday after announcing a partnership with fast-food giant McDonald's. As of noon ET, Oatly stock was up 7%, but it had been up as much as 12% earlier in the day.

So what

According to an official press release, Oatly is partnering with McDonald's in Austria. Specifically, McDonald's McCafe will use Oatly's Barista Edition beverages -- oat milk that's foamable when warmed, just like regular milk. McDonald's says it's adding it to the menu in all locations in Austria in response to consumer demand for plant-based options.

Last week, Oatly reported financial results for the fourth quarter of 2022. And in the conference call to discuss Q4 results, CEO Toni Petersson said, "Our supply chain is finally able to fulfill all orders and strengthening customer relationships to drive volume growth in 2023."

Considering Oatly and McDonald's had an existing relationship before today, it seems today's news for expansion in Austria is part of what Petersson was talking about. And volume growth is the key to unlocking potentially higher profits, which is why the market was excited about this news today.

Now what

After an operating loss of nearly $400 million in 2022, better profitability is undoubtedly needed for Oatly. Management says it believes that it has enough money to reach "self sufficiency," which acknowledges that it's business doesn't yet generate positive cash flow. 

However, by revamping its supply chain, Oatly believes it's poised for gross margin improvements that can ultimately led to positive earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2024, which would be quite the development. 

Oatly's management expects gross-margin improvements throughout 2023, surging from 15.9% in Q4 to the high-20% range by the end of the year. Therefore, this is something investors can be watching each quarter this year to see if it's on track. And higher sales volume from improving customer relationships with companies including McDonald's could help.