Oatly Downgraded on Volatile Consumer Environment in Europe and Asia

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By Sam Boughedda

Oatly (NASDAQ:OTLY) shares were downgraded to Neutral from Outperform by a Credit Suisse analyst.

He also lowered the firm's price target on the stock to $3.43 per share from $6, telling investors Credit Suisse expects a particularly volatile consumer environment in Europe and Asia.

"Inflation and unpredictable lockdowns have already hurt Oatly's ability to compete against peers with more capacity. These headwinds should strengthen with colder months ahead, delaying the growth and margin story yet again," added the analyst.

While Credit Suisse acknowledges "inflation is sticky everywhere," they feel the impact in Europe should be more acute due to the weaker economy. "Retail data shows consumers are turning to private label and management has cited less new customer trial/conversion (growth) from dairy. 2023 Street estimates for EMEA revs ($430m, +18.5%) look too optimistic; we estimate $364m (+7%)," the analyst added.

In addition, he pointed to sporadic China lockdowns disrupting Oatly's retail expansion plans, and with 65m people in China currently under some restriction, they expect results to be choppy.

"The U.S. (30% LTM revs) also has risk. Double-digit price hikes went through on 8/1 with August retail data showing a sharp oat milk volume (EQ) deceleration to +1.5% y/y, down from +11% in the L12 weeks. Planet Oat has not been as aggressive, raising prices just +5.5%. Even if plant-based milk demand is durable, we think widening the price gap while inflation runs hot may cause switching," commented the analyst.

Oatly shares tumbled over 7% Tuesday.