Margin mess (OTLY)
Oatly reported slight revenue upside in Q4, but an EBITDA loss of $65.6M vs. expectations of a $36.7M loss. Revenue for 2021 grew 52.6% with the addition of three new manufacturing facilities. Revenue in Q4 grew 46.3% with EMEA up 14.1%, the Americas up 96.5%, and Asia up 97.9%. Production increased 8% QOQ and 57% YOY. The re-opening drove growth in Q4 with foodservice revenue up 85.9% vs. retail growth of 23.9%. Gross margins contracted 1,180bps due to supply chain disruptions, new facility start-up costs (-500bps), inflationary pressures (-480bps), higher co-packing mix, and a product recall (-170bps). Improving the oat base utilization of 40% and filling utilization of 30% is expected to be a key driver of gross margin expansion in 2022. Oats represent 10% of COGS.
Oat milk continues to be the share gainer in numerous markets of the milk (dairy and dairy alternatives) category. Compared to markets with a longer history of oat milk, the U.S. has a much lower penetration. In Sweden, oat milk’s share of the plant-based milk category is 78% compared to 21% in the U.S. Oat milk’s share in the U.S. has grown to 21% in 2021 while almond milk has fallen to 63%. Oat milk will continue to take share of the milk category and the share gains at the expense of almond milk provide an additional degree of visibility. The U.S. is the exception to Oatly’s leading market share in every established market. In the U.S. Oatly’s share is challenged by Planet Oat (Hood) and its own manufacturing capacity. Oatly’s newest U.S. facility is expected to be fully utilized in the 1H22. Planet Oat is supplied by SunOpta (STKL) and priced at a discount to Oatly. Planet Oat has taken advantage of Oatly’s product shortages to reach an ACV of 89% vs. Oatly’s 34%.
Management guided 2022 revenue to $880-920M, below consensus expectations of $988M. Run-rate production capacity is expected to be 900M liters at year-end. Q1 in the U.S. will be negatively impacted by lower production due to Omicron-related absenteeism.
Oatly likely did not spend much time considering acquiring SunOpta before the IPO. Acquiring SunOpta would have prevented a larger decline in Oatly’s market cap. From a brand and top-line perspective, Oatly continues to impress, except for slowing growth in Europe. From a margin, capacity, and execution perspective the company is a mess. Approaching 3x sales the shares would be appealing to many larger companies looking for growth and a larger presence in the plant-based category. However, few companies want to add margin dilution of this magnitude even if they had excess capital to fund its future expansion. It makes you wish there was another company to invest in the future growth of oat milk (STKL).
Alcohol imports (STZ, TAP)
Total alcohol beverage imports grew 18% by value over the last 12 months ended January. Over the last three months, imports were up 10% by value. 36% of all imported beverage alcohol by value came from Mexico over the last 12 months. Total beverage alcohol exports grew 15% by value over the last 12 months and grew 32% over the last three months. 29% of all exported beverage alcohol by value went to Canada over the last 12 months.
Imported beer grew 7% by volume and grew 9% by value over the last 12 months. Over the last three months, imports declined 3% by volume and declined 2% by value, compared to -3% and -1% respectively in the three months ended December. 77% of imported beer by value comes from Mexico. Exported beer grew 12% by volume over the last 12 months and grew 36% by value. Over the last three months, exports declined 19% by volume and declined 20% by value. 24% of exported beer by value goes to Chile. Constellation Brands represents a majority of Mexican beer imports and 60% of imported beer.
Imported packaged wine grew 14% by volume and 28% by value over the last 12 months and flat volumes with 15% by value over the last three months. Imported packaged spirits grew 14% by volume and 23% by value over the last 12 months. Over the last three months, spirits volumes grew 8% by volume and grew 21% by value. 36% of all imported packaged spirits by value come from Mexico, while 18% of all exported packaged spirits by value goes to Canada. Imported spirits and wine are seeing a much larger increase in price/mix than beer.
Private label Tailwinds (PRGO)
According to the Private Label Manufacturers Association (PLMA) store brand dollar sales grew 1% in 2021 to $199B. Sales accelerated in the second half of the year with the last five months up 5%. In 2020 private brand sales grew 12%, outpacing national brand growth of 10%. Private brand dollar share in 2021 was 17.7% with a unit share of 19.6%. Private label share increased in six of the largest eight departments covered by IRI. The largest category, refrigerated foods, grew 0.7%. Health care products grew 0.2%. In January, private brand sales grew 4.2%, just below national brand growth of 4.4%. Private label and store brands have been critical for retailers’ margins, but in recent years they have also become a key point of differentiation. Industry inflationary pressures and declining government transfer payments are a tailwind for store brands in 2022. Perrigo is the largest store brand OTC company in the U.S.
