Executive Summary / Key Takeaways

• Oatly is undergoing a significant transformation, shifting its focus from aggressive expansion to disciplined, profitable growth, driven by aggressive cost efficiencies and strategic brand activations. The company is now guiding for its first full year of positive adjusted EBITDA as a public company in 2025.
• The company's proprietary oat-processing technology and strong Barista portfolio are key differentiators, enabling superior product performance and taste, which Oatly is leveraging through targeted marketing to overcome taste preconceptions and misinformation, particularly among Gen Z consumers.
• Operational improvements, including supply chain recalibration and overhead streamlining, have significantly expanded gross margins and improved cash flow, with Q2 2025 marking the best quarterly gross margin and free cash flow performance since its IPO.
• While Europe and International segments demonstrate strong growth and profitability, North America faces temporary headwinds from customer sourcing shifts and SKU rationalization, and Greater China is undergoing a strategic review to maximize value in a challenging macro environment.
• Oatly's refined 2025 guidance projects constant currency revenue growth of approximately flat to +1% and reaffirms adjusted EBITDA in the range of $5 million to $15 million, underpinned by continued efficiency gains and strategic investments.

Oatly's Core Business and Evolving Competitive Landscape

Oatly Group AB, founded in Sweden in 1994, has established itself as a pioneer and leader in the oat milk industry, offering a diverse range of plant-based dairy products. The company's mission-driven approach, centered on health and sustainability, resonates strongly with a growing consumer base, particularly millennials and Gen Z. Oatly's core strategy revolves around expanding its presence in the burgeoning plant-based food and beverage market, leveraging its brand strength and unique product offerings.

The plant-based dairy industry is characterized by robust growth, driven by increasing consumer awareness of health, environmental concerns, and evolving dietary preferences. A notable trend is the "taste and flavor bonanza" in coffee shops, with Gen Z leading the shift towards cold, innovative beverages, where oat milk plays a pivotal role. However, the industry also faces challenges, including consumer preconceptions about taste and a rise in misinformation regarding the nutritional value of plant-based products.

Oatly operates within a highly competitive landscape, facing both large, diversified food conglomerates and specialized plant-based brands. Direct competitors include global players like Danone (DANOY) (Silk brand) and Nestle (NSRGY), which benefit from extensive distribution networks, diversified portfolios, and significant R&D capabilities. These larger rivals often exhibit stronger cash flow generation and profitability due to their scale, making it challenging for Oatly to match their cost competitiveness across all segments. Specialized plant-based companies like Beyond Meat (BYND), while primarily focused on meat alternatives, and The Hain Celestial Group (HAIN) (Almond Dream) also present competition, particularly in the broader alternative food space.

Oatly's market positioning is distinct; it is often described as a leader in oat milk innovation, with a significant relative market share among specialized players. The company's growth trajectory aligns with the broader rise in plant-based consumption, showing trends of expansion in key regions. However, it may trail larger competitors in overall market penetration. Oatly excels in niche innovation and sustainability, giving it an edge in product differentiation against competitors like Danone and Nestle. Its strong brand appeal and focus on oat-specific products allow it to capture share from other plant-based milk categories, which are often in decline.

Technological Differentiation: The Oatly Advantage

At the heart of Oatly's competitive moat is its proprietary oat-processing technology. This specialized technology allows for the efficient extraction and conversion of oats into a range of dairy-like products, particularly its highly regarded Barista edition oat milk. The tangible benefits of this technology are evident in the product's superior taste, texture, and functionality, especially in coffee applications, where it consistently outperforms alternatives. Blind taste tests in Germany, for instance, revealed that over one in two consumers preferred Oatly over cow's milk in coffee, a phenomenal outcome that underscores the product's quality. This technological edge enables Oatly to create products that are not merely alternatives but preferred choices, directly addressing the primary barrier to plant-based milk adoption: taste preconceptions.

Oatly's R&D initiatives are closely tied to this core technology, focusing on expanding its Barista portfolio and developing new flavored products. The company's "Look Book" initiative, for example, aims to break down taste barriers and generate excitement with unexpected recipes, transforming how consumers view oat milk. New product launches, such as the popcorn-flavored oat milk in Sweden and a new Matcha portfolio across Europe, demonstrate the company's ability to quickly customize its existing Barista product chassis to tap into emerging flavor trends. These innovations are designed to increase convenience for both at-home consumption and foodservice, further solidifying Oatly's position as a vendor of choice.

For investors, this technological differentiation translates into several critical advantages. It underpins Oatly's ability to command premium pricing, drive higher sales velocities, and achieve better margins through efficient production processes. The continuous innovation, built upon a strong technological foundation, enhances customer loyalty and expands market opportunities by attracting new consumers beyond the core vegan and climate-focused demographics. This strategic focus on product excellence, enabled by its proprietary technology, is crucial for Oatly to maintain its competitive edge and drive long-term growth in a crowded market.

A Journey of Transformation: From Expansion to Efficiency

Oatly has undergone a significant transformation since mid-2022, shifting its strategic focus from aggressive, often unprofitable, expansion to a more disciplined pursuit of profitable growth. This involved a comprehensive recalibration of its supply chain, including the discontinuation of new factory projects in the U.S., U.K., and China, and the closure of its Singapore manufacturing facility in December 2024. These actions have streamlined the company's operational footprint to five existing plants globally, capable of producing approximately 900 million liters of product, and are expected to yield significant annual savings, such as nearly $10 million from the Singapore plant closure alone.

Concurrently, Oatly has aggressively streamlined its overhead structure, reducing its employee count by 500 over two years to approximately 1,500 by late 2024. This leaner organizational structure, coupled with a mindset shift towards deliberate, margin-focused decisions across all channels, customers, and products, has been instrumental in improving the company's financial health. The transformation has built a "strong efficiency muscle" that Oatly intends to "flex... in 2025 again, to drive margin expansion, simplify for speed and impact and provide further fuel for growth-driving reinvestment."

Financial Performance: A Path to Profitability

Oatly's financial performance reflects its ongoing transformation, demonstrating a clear trajectory towards profitability despite a mixed top-line environment. In Q2 2025, the company achieved its best quarterly gross margin and free cash flow performance as a public company. Gross margin expanded 330 basis points year-over-year to 32.5%, primarily driven by 270 basis points from supply chain efficiencies and absorption benefits, including the impact of the Singapore plant closure. Adjusted EBITDA improved by $7 million year-on-year to a loss of $3.6 million, also a record for the company.

For the first half of 2025, cost of goods per liter decreased by 10% compared to the prior year, marking the eighth consecutive quarter of year-on-year reductions. SG&A overhead expenses continue to be reduced, providing additional fuel for branding investments. This disciplined cost management is critical as volume growth in Q2 2025 was 2.8%, offset by a 3% decline in price/mix, though foreign exchange provided a 3.2% tailwind.

Looking back, the full year 2024 saw constant currency revenue growth of 4.8%, slightly below guidance, despite robust 8.8% volume growth. However, adjusted EBITDA landed at the favorable end of the guidance range, underscoring the effectiveness of cost controls. Compared to 2022, gross margin expanded an impressive 18 percentage points, and adjusted EBITDA improved by over $230 million, with each operating segment contributing over $70 million in EBITDA improvement.

Liquidity remains solid, with the business plan fully funded. As of Q2 2025, Oatly held $68 million in cash and $221 million in credit facilities. The Q2 2025 free cash flow outflow of $5 million was the best quarterly performance since the IPO, and total trade working capital reached its lowest level since 2021. This progress is a direct result of a "cash mindset" instilled throughout the organization.

Segment-wise, Europe and International is a clear success story, achieving its all-time highest volume quarter in Q2 2025 with 9.4% volume growth and an EBITDA margin exceeding 20%. This segment's growth playbook is demonstrably working, outgrowing the overall plant-based milk and oat milk categories. North America, however, experienced a 6.8% revenue decline in Q2 2025, primarily due to a large customer's sourcing strategy shift and frozen SKU rationalization. Despite these headwinds, the underlying business (excluding these factors) showed growth, with record retail sales and the highest ever foodservice revenue outside its largest customer. Greater China faced a 6.6% constant currency revenue decline in Q2 2025 due to a challenging macro environment, though its foodservice revenue grew 12% in the first half and retail volume hit an all-time high.

Strategic Initiatives and Growth Playbook

Oatly's 2025 priorities are clear: reduce cost, ignite top-line momentum, and drive profitability. The company's refreshed growth playbook, successfully deployed in Europe and now being rolled out in North America, centers on three pillars: increasing consumer relevance, attacking conversion barriers (especially taste), and enhancing product availability.

In Europe, the playbook has driven strong results. In Germany, it led to significant growth acceleration in foodservice and sustained retail growth, with distribution expanding over 35% for the Barista portfolio. Sweden, Oatly's most mature market, also saw solid positive retail sales growth after playbook deployment. Expansion markets in Europe grew 40% year-on-year in Q2 2025, with examples like Paris, where two out of three cafes have adopted Oatly, and Mexico City, where Oatly became the fastest-turning retail item in under two years.

To address taste preconceptions, Oatly is "doubling down on taste with the rollout of the Oatly Look Book," featuring provocative flavors and unexpected recipes. Barista market developers are collaborating with foodservice customers to create "premium signature drinks that tap into Gen Z's obsession with flavor and cold drinks." Campaigns like the "It Works in Tea" initiative in the U.K. and blind taste tests in Germany are directly confronting taste barriers and misinformation, successfully recruiting new consumers.

In North America, the playbook is in its early stages, focusing on attacking the "dormant oat milk preference" (domp) and expanding distribution across all channels. The company believes the European success can be replicated, given similar consumer dynamics and brand strength. In Greater China, a strategic review has been initiated to accelerate growth and maximize value, considering options like a potential carve-out, as the business is now "leaner and stronger" after its mid-2023 strategic reset. The segment is also expanding its retail presence by entering the Club Channel in 2025.

Outlook and Guidance: The Road Ahead

Oatly has refined its 2025 guidance, reflecting both progress and persistent challenges. The company now expects constant currency revenue growth of approximately flat to +1%, a reduction from its prior outlook. This adjustment is primarily due to slower-than-expected progress in North America and a soft macroeconomic environment in Greater China. However, management has reaffirmed its adjusted EBITDA guidance in the range of $5 million to $15 million, demonstrating confidence in the business's flexibility to deliver on profitability commitments through additional cost efficiencies. Capital expenditures for 2025 are now projected at approximately $20 million, down from the previous outlook, reflecting continued supply chain efficiencies.

The path to profitability is expected to be driven by significant improvements in gross profit, benefiting from best-in-class supply chain processes and higher sales in the second half of 2025. Additional SG&A savings have been identified, particularly within the corporate segment, with impacts expected to begin in Q3 and grow in Q4 2025. The foreign exchange outlook has also shifted, now anticipated to be an approximately 150 basis point tailwind to full-year net sales. Oatly remains committed to its long-term gross margin target of 35% to 40%.

Risks and Challenges

Despite the positive trajectory, Oatly faces several pertinent risks. Category sluggishness in key markets like Europe and the U.S. remains a concern, requiring Oatly to actively drive category growth rather than simply taking share. North America continues to grapple with specific headwinds, including a large customer's sourcing strategy shifts and frozen SKU rationalization, which have impacted revenue. The company does not anticipate an immediate inflection to growth in North America until the full growth playbook is deployed steadily and with sufficient resources over a sustained period.

The Greater China segment operates in a challenging consumer macro environment, and while a strategic review is underway, there are no assurances of a specific transaction or strategic change. Furthermore, the pervasive issue of consumer preconceptions about taste and the rise of misinformation regarding plant-based nutrition pose ongoing barriers to broader adoption. While Oatly is actively combating misinformation through science-backed advocacy, this remains a significant external challenge. Supply chain dependencies and the smaller operational scale compared to larger competitors could also impact cost structures and resilience.

Conclusion

Oatly is at a pivotal juncture, successfully transforming its business model to prioritize profitable growth. The company's disciplined approach to cost efficiencies, particularly within its recalibrated supply chain and streamlined overhead, is yielding tangible results in gross margin expansion and improved cash flow. This operational rigor, combined with its proprietary oat-processing technology and a strong, culturally relevant brand, positions Oatly to capitalize on the growing demand for plant-based alternatives.

While challenges persist, particularly in North America and the macroeconomic environment in Greater China, Oatly's strategic initiatives, including its refreshed growth playbook and targeted brand activations, are demonstrating early success in driving category momentum and converting new consumers. The reaffirmation of its 2025 adjusted EBITDA guidance, despite a revised top-line outlook, underscores management's confidence in its ability to deliver on commitments through controllable factors. For investors, Oatly represents an opportunity to participate in the long-term growth of the plant-based market, driven by a company that is increasingly focused, efficient, and leveraging its technological leadership to build a sustainable and profitable future. The ongoing strategic review of Greater China and the continued rollout of the growth playbook will be critical indicators of its sustained success.