OTLY - Oatly falls as RBC downgrades; firm still believes in the brand

2023-07-31 12:42:53 ET

Oatly Group AB ( NASDAQ: OTLY ) fell 4% on Monday after RBC Capital Markets downgraded shares.

Last week, the oatmilk purveyor missed estimates when it reported Q2 earnings, driving the stock lower. OTLY reported revenue up 10.1% to $196.0M vs. the $210M consensus. The company’s EPS loss for the quarter was $0.15 vs. -$0.13 consensus and Oatly ( OTLY ) lowered revenue guidance for 2023 to a range of +7% to +12%.

RBC Capital Markets downgraded OTLY to Sector Perform from Outperform and dropped its price target to $1.80 from $7 following the earnings print.

“OTLY reported underwhelming Q2’23 performance and provided major updates to its strategy in China,” RBC analyts led by Nik Modi wrote in a note. “Post-pandemic shifts in consumer behavior are forcing the company to forgo high-growth initiatives and focus on the core business.”

The firm noted that volumes in the Americas are lagging internal expectations, leading to the cut in sales guidance.

“While the brand is healthy, there will be pain points along the road to profitability due to the lack of visibility,” RBC wrote.

RBC notes its previous bullish view on OTLY was premised on the belief that the brand was healthy and should translate to strong double-digit top-line growth.

“While our view on the brand health has not really changed, the external environment has changed dramatically and is causing Oatly management to scale back on top-line growth initiatives in an effort to prioritize margins/profitability,” RBC said.

“We still believe in the Oatly brand story, but we acknowledge that the next few quarters, maybe even years, will be choppy and volatile.”

Last week, Seeking Alpha analyst The Value Investor wrote that, “Oatly Group AB has not lived up to its promises.”

“The valuation was far too demanding for me to see a compelling risk-reward situation, as this has [painfully] played out with losses being substantial, now casting a doubt on the future of the business.”

OTLY is down 60% over the past 12 months.

More on OTLY:

• Oatly crumbles after earnings miss, disappointing guidance
• Oatly Group: Sour Milk
• Oatly GAAP EPS of -$0.15 misses by $0.02, revenue of $196M misses by $13.68M

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