What happened
Shares of Oatly Group (OTLY 14.37%) were down by 21.9% as of 1:30 p.m. ET Thursday. The leading oat drink company reported 10% year-over-year revenue growth in the second quarter, and a sequential improvement in profitability.
However, weakness in Asia is forcing the company to make some changes, and that is creating uncertainty for investors. Management's lower sales forecast sent the stock tumbling after the earnings release.
So what
Sales by volume rose 7.2% in the company's Europe/Middle East/Africa region and grew by 1.7% in the Americas, but fell by 5.1% in Asia. Management attributed the decline in Asia to shifts in consumer behavior following the pandemic. As a result, the company has plans underway to better adapt the Asian business to the needs of customers. The Asia region accounts for the smallest share of Oatly's total revenue -- 19% -- but management is confident it can grow its business there significantly.
Still, a big problem for Oatly is performance on the bottom line. It reported a net loss of $86.7 million, worse than its $72 million net loss in the year-ago quarter.
Now what
Revenue growth hasn't been a problem for Oatly over the last few years, but weakening demand in Asia caused management to lower its full-year sales forecast. Management now expects its 2023 sales will rise by between 7% to 12% on a constant-currency basis, down from its previous forecast of 23% to 28% growth.
But Oatly needs to prove it can turn a profit. The company has taken on $400 million in new debt this year. Its worsening losses and weaker balance sheet explain why the stock has fallen by 52% year to date. Investors might want to keep this stock on their watch lists until Oatly sees improving demand trends in Asia and reports better margins.
