Oatly Group AB American Depositary Shares 2026 Q3 Earnings Call

Good morning, and thank you for joining us today. On today's call are our Chief Executive Officer, Jean-Christophe Flatin, our Global President and Chief Operating Officer, Daniel Ordoñez, and our Chief Financial Officer, Marie-José David. Please review the cautionary statement regarding forward-looking statements and other disclaimers on slide 3, which are integrated into this presentation and include the Q&A that follows. Please also refer to the documents we have filed with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Also, on today's call, management will refer to certain non-IFRS financial measures, including adjusted EBITDA, constant currency revenue, and free cash flow. Please refer to today's release for a reconciliation of non-IFRS financial measures to the most comparable measures prepared in accordance with IFRS.

In addition, Oatly has posted a supplemental presentation on its website for reference. I'd now like to turn the call over to Jean-Christophe.

Thank you, John, and good morning, everyone. Slide 5 features our key messages. First, our third quarter tells the story of business resilience. Not only did we deliver strong top-line growth, but we also delivered substantial growth in total adjusted EBITDA both year-on-year and sequentially, despite another quarter of elevated and tightening cost inflation. Our results exceeded consensus expectations despite this pressure. Second, in Europe and International, volume momentum remains robust. On-trend innovation drives growth, and we believe that our new products are capturing incremental demand both for Oatly and the plant-based category while attracting younger consumers. In North America, where the macro backdrop remains challenging, we are activating on the controllables as we accelerate retail distribution growth, now at a record high number of distribution points, and we continue to narrow the market share gap in pursuit of category leadership.

Third, I am excited to announce our entry into the wellness space through our new platform of fiber beverages. Our first platform launch planned across both Europe and North America. One of the reasons that our founders chose oats is for its nutritional power, including the fiber naturally present in oats. As many populations consume less fiber than recommended by dietary guidelines, creating what we refer to as being the fiber gap, our fiber platform is designed to offer consumers a convenient and delicious way to incorporate more fiber into their everyday diets. Our fiber line has launched in Europe and arrives in North America in January 2027. Fourth, our cost structure maintained strong resilience through the third quarter, including absorption of higher costs related to the Middle East conflict, both in Europe & International and North America, which allowed us to deliver a strong Q3 performance.

However, the latest wave of logistics and fuel inflation in North America has finally exceeded our capacity to offset. For perspective, in the U.S., diesel prices have increased approximately 70% since the beginning of the conflict in the Middle East in February and approximately 40% since early July. This unexpected and sharp acceleration during Q3, combined with broader logistics pressure, drives the downward revision to our full-year adjusted EBITDA outlook. In response, we continue to engage key mitigation levers, including continued cost efficiencies and product mix, and we will implement incremental pricing effective in the first quarter of 2027. Amid these volatile and challenging macro headwinds, we choose to protect our profit margins and resources to reinvest and fuel our growth. Despite these profit headwinds, we remain on a positive structural trajectory of profitable growth.

Our reiteration of 2026 constant currency revenue, despite more difficult year-on-year comparisons and macro consumer pressure, reinforces our confidence and visibility into our demand-generating growth strategy. Turning now to slide 6. Here you can see our solid third quarter scorecard for important key performance indicators. Our revenue grew by 9.1% and 8.9% in constant currency. Our gross profit margin reached 34.1%, an improvement of 436 basis points compared to last year. Our adjusted EBITDA was positive $9.4 million and 3.9% of net sales, an improvement of $6.3 million versus last year, despite reinvestment and cost inflation. Finally, our free cash flow in the quarter was a negative $18.4 million, a decline from last year outflow of $5.4 million and attributable to timing elements that MJ will detail in the finance section. Our year-to-date cash flow is evolving consistent with our expectations, and our business plan remains fully funded.

We maintain focus on achieving positive free cash flow through continued improvement in the P&L, growth in adjusted EBITDA, and working capital efficiencies. Slide 7 reiterates our focus areas for the rest of 2026. As Daniel will soon outline, not only do we maintain high conviction in the traction of our growth playbook on existing portfolio, but our combined taste and fiber products strongly position us to participate in more consumption occasions across more consumer segments as a full beverage company. In addition, we remain fully mobilized across all parts of the company to mitigate the continued macro volatility and cost headwinds to protect our profit margin and our ability to further fuel our growth momentum. Finally, as it pertains to Greater China, we expect to complete our strategic review by the end of this year as we evaluate a range of options, including a potential carve-out.

Our goal is to accelerate growth, enhance operational focus, and improve our consolidated cash returns whilst maximizing the value of this business. We view North America and other international expansion markets as our priorities for growth, and we commend our management team in Greater China for navigating challenging local headwinds in recent years. We will of course update the market on our progress as necessary. Slide 8 summarizes our guidance. For full year 2026, continued execution of our growth playbook underpins our unchanged outlook for constant revenue growth of 8%-10%. As discussed, the reduction of our adjusted EBITDA outlook from the prior lower end of $25 million-$35 million to a new range of $16 million-$20 million reflects incremental pressure from fuel and logistics in North America since the end of July. With that, Daniel, over to you.

Thank you, JC, and good morning, everyone. I will start my discussion on slide 10. We are very pleased with our strong year-to-date performance from the deployment of our growth playbook, which demonstrates Oatly's relevance in shaping the beverages culture. As I discussed last quarter, over the past two years, we have made substantial progress reducing the barriers to consumption and creating new occasions for consumers to enjoy the taste, functionality, and versatility of our oat drinks. We are encouraged by the growth in household penetration, which we believe reflects growing consumer preference of Oatly as a full-on beverages company. As we close 2026, this approach is gaining momentum through new platforms and unique flavors, appealing to a much broader population and anchored on taste, health, and with sustainability at the core.

It is important to reflect on Oatly's ability to shape global beverages trends, so we captured the most prominent in the upcoming slides. in Q3, we strengthened our presence in the global matcha phenomenon with Monochrome events in Berlin, Toronto, and London, as featured on slide 11. Our presence at the London Fashion Week reinforces Oatly's relevance at the intersection of beverages and culture, which led to a high-profile London Embassy event last week, as featured on slides 12 and 13. Following Aftertaste in New York back in June, our London Embassy event attracted media, influencers, and commercial partners to celebrate the collective momentum for beverages and the launch of our latest trendsetting recipe lookbook, the Volume Four, and our Future of Taste Report 2026. We hosted over 500 attendees on day one alone before it was open to the public.

They experienced signature drinks, panel discussions exploring taste, trends, fiber, sustainability, and participated in hands-on drinks master classes. As demonstrated in our Future of Taste Report on Slide 14, our ambition is to shape what is next on menus. The insights that inform this work are collected from our very own beverage market developers based in each coffee capital of the world as well as coffee houses, experts, and mixologists for more than 20 countries. And finally, validated by data identifying what is trending online. As traditional nightlife culture declines, cafes have become the hub where new ideas are cultivated and subcultures are formed. Oatly is uniquely positioned to offer our commercial partners the expertise into the trends shaping coffee culture, and how these trends can be realized via our look book.

In this year's Future of Taste Report 2026, we explore the farmification of drinks from fibers to ferments, with the expectation that functionality cannot come at the expense of taste. Emerging health trends, including gut health, fiber maxing, fiber layering, and skincare are increasingly delivered through drinks. Slide 15 shows how the coffee menu is transforming, fueled by customization and visual appeal, and moving away from the traditional offers of flat whites and cappuccinos. As an example, we expect the Mont Blancs and Oatly Barista Cold Foam to enter the mainstream. Oatly's versatility is highly relevant for inclusion among these trends, and we close 2026 more confident than ever before that Oatly provides the ultimate base for functionality, fun, and experimentation, as captured in our Volume Four. Through flavors and formats, we believe Oatly is strongly positioned to lead this new taste world order.

This leads me to our next big announcement on slide 16, the launch of our new Oatly Fiber platform. I emphasize that the fiber range is not simply innovation. It's a natural evolution of who we are. Oatly is built on over 30 years of oat research and innovation, which provides unique legitimacy in the fiber space. Our Oatly Fiber line complements our tastemakers platform, as the breadth of our offering has significantly expanded over the last three years. The fiber range is available in two options: a low calorie, no sugar option, well-suited for use in shakes, and a low sugar Barista Edition for coffee and similar drinks. An approximate 250 ml serving, roughly equivalent to one oat latte, provides 5-6 grams of fiber. So we expect that platform to accelerate Oatly's penetration in new consumer occasions.