Q2 2022 Oatly Group AB Earnings Call
Greetings and welcome to the second quarter 2022 earnings conference call.
At this time all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Rachel <unk>. Please go ahead.
Okay.
Good morning, and thank you for joining us on Otis second quarter 2022 earnings conference call and webcast on today's call are Tony Peterson, Chief Executive Officer, and Christian Hanky, Chief Financial Officer.
Peter Berg Chief strategy Officer will also be available for questions. Before we begin please remember that during the course of this call management may make forward looking statements within the meaning of the federal securities laws, including financial projections for future periods in fiscal year 2022. These statements are based on management's current expectations and beliefs and involve risks.
And uncertainties that could differ materially from actual events or those described in these forward looking statements. Please refer to the company's annual report on form 20-F for the year ended December 31, 2021 filed with the SEC on April six 2022, and other reports filed from time to time with the Securities and Exchange Commission 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.
Please note on today's call management will refer to certain non <unk> financial measures, including EBITDA adjusted EBITDA and constant currency right now while the company believes these non <unk> financial measures will provide useful information for investors. The presentation of the information is not intended to be considered in isolation or as a substitute for the financial information presented.
So the idea for us please.
Please refer to today's release for a reconciliation of non <unk> financial measures and the most comparable measures because I've seen in accordance with IRS. Please also note all retail scanner data is based on Nielsen for the 12 weeks ended June 2022. In addition, we have posted a supplemental presentation on its website for reference.
Now I'd like to turn the call over to Tony Peterson.
That's Rachel good morning, we appreciate you joining us to discuss our second quarter results today I will provide enough. Please on our strong business performance and I'm very pleased to share on these things productions basketball Christian.
All financial results and updated 2022 outlook than pizza, Kristian and I will be available for questions.
The second quarter, we delivered strong revenue growth of 22% year over year $270 million with approximately 30% below $200 million in constant currency.
This strong performance reflects our belief that we have significant growth opportunity ahead of us and continue to be sufficient to become the number one thing.
There's no company globally.
Skinner data continues to show that the old categories, gaining share and becoming longer default, although challenges across our key markets and continues to grow the category.
I believe that the combination of the OTA brands, our strategic mature because multichannel approach.
Military production process, and French's us to consumers and our mission of converting more of the.
Consumer centered around using them and define you shouldn't expect us to each of our regions.
Moving to our business performance.
This doesn't continue to see tremendous consumer demand growth momentum, even though the message on that.
We just are very different.
In EMEA, we're seeing highly uncertain and rapidly changing environment.
Current cyclical effect of economic conditions, which includes the rippling effects of the war Ukraine mobilization.
Prices changing consumer behavior at retail and the speed at.
Which we can expand our channel of distribution.
Despite these challenges and then with the change in consumer spending the plant based dairy categories has proven to be resilient and continues to grow reflecting how consumers have adopted all products, which are the everyday lives. Okay. Specifically continues to be the number one selling rambo weekend marketshare in the month.
While the loss of revenue known varies in the UK, Germany, Sweden, Switzerland, Austria, and the Netherlands.
Even more importantly, our velocity has remained stable so far despite some macro dynamics and continues to be at similar levels as prior quarters.
Building on this performance and market leadership to see significant growth opportunities across our channels.
Innovation and in new markets.
Within retail, which is 2% of our business in EMEA, we expect to continue expanding and elevating our shelf space with existing partners.
Also adapting to the perfect environment for entry new retail partnerships.
For instance, we are seeing that consumers are responding to the mute economic environments are changing where they choose to shop for groceries, which now increasingly.
Softness counters to better position ourselves for this dynamic world.
Growing our presence in softness counsel, maintaining virtually the same price point as in our other retail channels.
Since evolved with approximately 900 lidl stores in the U K and approximately 776 locations in Germany, although even in March has been very successful to date and we're seeing strong velocity performance.
Mhm services represents approximately 18% of our business in EMEA in Q2, and it's a core focus for expansion going forward year over year, our foodservice business in EMEA increased 37%. So far this year, we have partnered with Deutsche bomb Chi both Dunkin' RMR.
And I'm excited to announce the partnership with other the biggest German Petro space featuring tober.
<unk> products will be some of the compensation telephones 50 stores as well as one of the convenience store retail shelf nothing in 50 locations.
The main innovation, there's similar runway for further growth and product development.
Have a market still only have limited SKU when students are at historical production capacity constraints.
We're starting to celebrate the professional portfolio and recently introduced new formats of our best selling groups, but with the launch of children, starting over 3000 sports media U K, Germany, and Netherlands, as well as to have leader universal across the same markets.
This performance enabled us to reach new consumers and just different usage occasions, while it is still early initial velocity data looks very promising.
Beyond our current geographic footprint engine, Yeah, which is limited to four markets. We have a long runway to expand into neighboring markets that are right for disruption.
Have proven model to launch new markets. The cross category growth and has led to leading market position. The most recent case studies of this success, our increase into the Netherlands, Switzerland, and Austria, and Italy recently.
Kona and just thought in June overall, we're very excited about this watson's opportunity and driving more commercially.
Turning to Americas.
Demand for <unk> products equally there remains very strong rather number one opening brand based on net sales and according to the Nielsen data for the 12 weeks ended June 18, 2022 remains the number one fastest Cherokee brand in total dairy plant based dairy and all groups in.
In the Americas.
Ultimate casually.
Okay.
Non dairy default and have market share of 22% as of June 2022, while almond and soy meal, both declined year over year.
Starting yesterday August 1st double digit price increases went into effect across our channels.
We'll start to see a positive margin contribution impact in Q3 and expect to realize the full benefit in Q4.
From a production standpoint, we achieved record levels of production volumes during the second quarter with the.
The continued ramp up of all of them and a new fund expansion is well underway on track to start initial production runs and default.
The production capacity with significant distribution upside in the U S where.
Well, we only have 38%.
However, the focus near term too.
To close the gap.
Finally in Asia, I'd like to policies with the efforts this quarter.
Operating apartments with COVID-19 Lockdown.
Right.
And the impact it had on our food service channel the team managed to achieve record revenue of $44 million in the second quarter over 70% yields and good growth in constant currency and a 52% increase.
Compared to the first quarter.
Put in perspective.
Part of the Lockdown more than 7000 coffee shops, 10000, with tea shops, and starting to source will close however, the team used to lockdown to sharpen our multichannel growth strategy to better position us both in the near term and longer term.
In aggregate e-commerce sales accounted for 30% for <unk>.
In Q2.
14% in Q1, it was about three months.
We also successfully launched new products.
And with $250 million of Prisma T Master and ISP products.
We spoke.
Okay.
Well that's the story.
E channels.
Right.
The teacher estimated to be at least twice the size of the specialty coffee shuttle huge opportunity for growth.
We continue to maintain a number one position on tmall with 15% market share in the new plant based categories.
So I think the whole defense.
June 18th promotion, which is one of the largest shopping festival in China.
Number one in the plant based category and second and beverage category on Tmall and TMR with also the top selling skus in the beverage category on JD Dot com.
With the capacity from the new production line in Singapore, we have started to expand into new countries, such as Malaysia, Indonesia, Vietnam, Cambodia, Mongolia, and the first half of the year and expect to launch in additional countries in the back half of the year.
While COVID-19 has not completely dissipated and new variants of the virus continue to break out in many cities really navigating asbestos. We can we tend to further diversify and expand our channel and geographic reach.
Route to market strategy and believe we remain well positioned in Asia, It's COVID-19 headwinds subside.
Turning to production in the second quarter softened effects increased to 34% October volume compared to the co packing, a 27% and hybrid at 39%.
Total production volume was 124 millimeters up 17% since the first quarter.
We're pleased with the recent performance of the Utah facility and successfully output in line with our expectations do not take them continues to further improve upward in the back half of this year.
In Asia, Singapore subtract to be fully ramped during the second half of the year and Marcia will continue to ramp.
Every year.
We expect to produce between 135 to 145, new diseases are finished shipped in third quarter, driven primarily by improved production output and all of them now to Asia facilities.
As we look towards the future capacity expansion I'm happy to share that we have adjusted our capacity safety plan.
We reduced our 2022 Catholic guidance from the lower end of the $400 million to $500 million range to 220 $240 million without compromising our growth.
We believe investing in our growth is critical to establish the infrastructure necessary for a high growth Global company.
Five the conversion of daily users.
As more consumers.
In light of the unprecedented change in the world around US we are definitely like in fast growing company would and should be taken into consideration long supply chain lead times high cost of construction and uncertainty.
So our focus is on investing in our growth will be in Mexico, with our Capex project management in order to balance speed to market with supply chain execution cash flow management.
We will continue to prioritize our investments in the region.
<unk> are the highest and therefore the need for additional production volumes has been most question Americas and Asia.
We are prioritizing for core analytics.
Jochen first expansion in much Kronos additional hotel loans is not part of it for 2020, So Peterborough not plans to open 24% in line with timing of production with when we need the volumes. The mills with expansion project also continues to be a near term priority.
First to produce initial run through the fall of this year.
We continue to expect borrowing capacity of approximately 900 million exiting 2022, and now approximately 1.2 billion users exiting 2022.
Which would support our growth through 2024, so the likes to make very clear that although the world has changed the fundamentals and the strength of our winning model and therefore ambitions and confidence have not.
We expect to have enough liquidity to support the global growth and expansion of our business where at least the next 12 months.
We are updating our revenue guidance to $800 million to $830 million for the year over 835 million to $865 million in constant currency in light of the uncertain operating environment and macro factors, especially in EMEA and Asia, but we cannot ignore Christian.
Review, our annual guidance in more detail momentarily.
Q do you expect accelerated revenue growth in the back half of this year.
In closing I want to reiterate how strong the global demand opportunities.
In the early innings of the size and shape. The majority of plant safety of consumers joined the category in the last two years. We believe that we are driving the plant based movement as the market cancer receptions thats better for people and the planet and we'll continue to drive this global converts a comparative landscape that is.
<unk> not changed Antitheft importer today.
What has changed is the global macro environment, we are adjusting our projections and plans accordingly, but not deviating from our mission to make it easier for people to eat better and lead healthier lives with a retrofit, Texas claims resources with that I would like now to turn the call over to questions.
Thanks, Tony and good morning, everyone. It's nice to speak with you today turning to the financials revenue for the second quarter of 2022 was $178 million.
An increase of $31 8 million or 21, 8% compared to revenue of $146 2 million in.
In the second quarter of 'twenty one.
Excluding a significant foreign currency exchange headwind of $11 7 million revenue for the second quarter would have been $189 6 million or an increase of 29, 7% in constant currency compared to the prior year period.
In the second quarter of 2022, we experienced broad based growth across retail and foodservice channels as well as strong growth in e-commerce sales in China, Despite COVID-19 restriction.
The foodservice channel accounted for 45% of revenue for the second quarter of 2022 compared to 33, 2% in the same period last year at.
At the reported on a year over year basis. The foodservice channel was up 28, 3% compared to Q2 of last year, which reflects the significant focus that we are placing on expanding the channel.
The retail channel accounted for 56, 8% of second quarter of 2022 revenue compared to 61, 5% in the prior year period.
As reported on a year over year basis, the retail channel. It was up 12, 5% compared to Q2 of last year.
Consolidated net sales per liter was $1 47 in the second quarter of 2022 compared to $1 54 in the second quarter of 2021, mainly driven by foreign exchange headwinds in EMEA.
Customer and channel mix effects.
As a reminder, our highest regional leaders typically in Asia, followed by the Americas.
Yeah.
Gross profit in the second quarter was $28 1 million or 15, 8% gross profit margin compared to $38 6 million or 26, 4%.
In the prior year period.
Compared to the first quarter of 2022 gross profit margin of nine 5%.
630 basis points sequential margin improvement as shown on slide 21.
This sequential improvement was primarily driven by improving our production model mix.
The increase in house and localized production.
<unk> reliance on co Packers the implementation of the EMEA, a price increase and last thing the co Packer consolidation charge recorded in Q1 with no such charge in the second quarter.
As we have indicated in the past, it's usually it takes at least three to four quarters and no longer due to COVID-19 impacts before a new facility reaches steady state utilization of the production line.
During their ramp up phase, we carry the full fixed and variable cost structure, but have not yet reached a steady state levels of production output that fully utilizes the capacity of the facility.
We continue to expect that the localization and expansion of our production capacity within the region should improve our production economics over time.
With increased production volume.
The Singapore among Shawn we expect gross profit margins to continue to improve sequentially throughout the remainder of 2022.
The positive impact of the highest share of self manufacturing with unlock multiple margin accretive benefits at the same time.
Additionally, we have executed on broad based price increases in both EMEA and the U S to offset a portion of the inflation, we are experiencing for raw material energy and labor globally in.
In EMEA with price increases were completed in may and in the year with double digit price increases went into effect yesterday August 1st across all channels.
Based on the impact of supply chain challenges installation timing of new capacity coming online mix of the production model as well as mixed by sales channel or region. We continue to expect variability in our gross profit margin quarter to quarter. Additionally, we continue to monitor that.
Geopolitical impacts of the war in Ukraine as well.
As the COVID-19 restrictions based on the impact of these events.
On commercial execution and consumer demand.
Second quarter of 2022, EBITA loss was $62 $6 million compared to an EBITDA loss for the three from $5 million.
Second quarter of 2021.
Adjusted EBITDA loss for the second quarter of 2022 50.
$53 4 million.
The adjusted EBITDA loss was primarily related to the lower gross profit higher branding and customer distribution expenses public company costs and other operating expenses that's a scan.
Operation to support growth across three continents.
<unk> <unk> positive impact from foreign exchange rates.
As we stated on our last earnings call, we expected operating expenses as a share of net revenue to improve.
In the second quarter total operating expenses as a percent of revenue improved to 57, 6% compared to 6% to 5% in the first quarter of 2022.
Expect this trend to continue in the second half of this year.
<unk> and manage costs, given the more uncertain operating environment today and drive to achieve profitable growth.
Now focusing on our balance sheet and cash flow as of June 32022, we had cash and cash equivalents and short term investments of $275 1 million.
And total outstanding debt to credit institution.
$4 5 million, we also have a fully unutilized revolving credit facility of approximately $432 million.
An accordion.
Net cash in operating activities was $127 3 million for the six months ended June 30th 2022, compared to $72 5 million during the prior year period.
Capital expenditures were $111 $3 million for the six months ended June 30th 22, compared to 134 4 million in the prior year period.
<unk> spending was lower than expected in the first half of 2022 due to the phasing of our facility investments.
Net cash used in financing activities was $6 9 million for the six months of June 2022, primarily reflecting the repayment of lease liabilities and repayment of liabilities to credit institution.
Turning to guidance.
In the third quarter, we expect production volume in the range of 135 to 145 million liters, which is typically a leading indicator of our revenue expectation and reflects that our growth is a function of our production output as I.
Stated a few moments ago compared to the second quarter of 2022, we expect gross margin improvement and operating expenses as a share of net revenue to improve sequentially in the second half of this year, we are highly focused on achieving profitability.
As Tony mentioned for fiscal year 2022, we are updating our outlook and now expect.
Revenue of $835 million to $865 million based on constant currency, an increase of 30% to 34% compared to fiscal year 'twenty to 'twenty one at the midpoint.
<unk> accelerated revenue growth in Q3, and Q4, primarily coming from the Americas and Asia.
As the prevailing FX rates.
Implies a revenue guidance range of $800 million to $830 million, an increase of 24% to 29% compared to fiscal year 2021.
As you know currency exchange rates are volatile and difficult to predict our previous guidance was based off of the exchange rate as of March 32022 at the time, we originally provided guidance.
And our updated guidance is now based on spot rates as of June 30th.
2022, accounting for approximately $35 million of the change versus the previous revenue guidance.
The update to our guidance range is driven by our assessment of the overall macro environment, Although our second quarter performance was strong on a constant currency basis and in line with our full year guidance.
Debated at our first quarter earnings our outlook for the second half reflects a range of outcome, where there are several external factors that could impact our business performance to provide more context.
In EMEA.
Clearly continues to take market share within the plant based category.
<unk> established itself as the non dairy default.
At full penetration in the category is also proving to remain resilient, which reinforces that consumers have adopted plant based dairy into their day to day routine.
Across our key markets, we remain a market leader with clear velocity outperformance against our competitors.
That being said given the many uncertainties in the macro environment in EMEA ranging from the award in Ukraine to rising inflation and interest rates and changing retail dynamics.
Taking a more cautious approach in our outlook for the remainder of the year.
More specifically it is impacting the speed at which we are able to expand our distribution footprint in 2022, particularly in foodservice and new market.
And they're also taking longer to recruit new consumers at the pace. We hoped for however, we are still highly confident in our ability to accelerate growth in all these areas going forward.
In Asia.
COVID-19 related restrictions remain in place and the new Covid sub variant of the Bay area continues to break out <unk> 50.
During our Q1 earnings call, we communicated that our guidance assumes lockdowns in China with E by the beginning of the third quarter. However, the recovery in the foodservice channel. So far has been slower than we expected because of last two concerns over locked down as a result, we feel is the proven through.
Effect of slower foodservice recovery.
Expectations for the balance of 2022.
Turning to Capex as Tony stated, we are strategically managing spend in order to balance speed execution growth and cash flow management in this uncertain environment.
Well.
Focus on the geographic regions that need more supply sooner.
Given the pacing of certain projects and prioritizing Americas and Asia, We now expect capital expenditures to be in the range of $220 million to $240 million for fiscal 2022.
With the phasing of the Capex projects, we believe that our sources of liquidity and capital will be sufficient to meet our existing business needs for at least the next 12 months.
We continue to expect run rate production capacity to be approximately $900 million majors with finished goods by the end of fiscal 2022.
That review, we are now ready to take your questions operator.
Thank you at this time, we will be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
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It might be a start and then who would like to move to a question from the queue.
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One moment, please while we poll for questions.
Our first question is from Andrew Lazar of Barclays. Please go ahead.
Great. Thanks, very much so.
First I wanted to get a little bit of a better handle on the significant capex cut for the year.
I guess in the release and in your remarks, you talked about a.
<unk> and Capex due to the sort of the current operating environment and I guess there were some concerns that this move could be driven by sort of closer in liquidity issues.
You also mentioned a more difficult time converting dairy to plant based users. So I guess, there's concern that some of this could be a demand driven decision as well.
So it was taking much more of a growth sort of almost any cost mentality.
I was hoping you could just sort of address this a little bit.
Which one of those is it or is it simply as you mentioned just sort of a closer in.
Level of conservatism, given the macro environment.
That'd be the first question.
Hi, Andrew This is Tony. Thank you so much for your question I Hope you hope you're doing well.
So to your question. This is this is about discipline and adjust this unprecedented changes in the world.
Perry with powerful demand dynamics with a laser focus capacity expansion.
Execution, so the expansion execution optimizing the timing of production capacity additions to ramp we need the volumes. So we're still investing in our project.
Our phase two them differently.
And I think that's what you would expect from any business leader from the high Global High growth company, we just have to be smarter and work harder to optimize our capital use without compromising growth.
So this has absolutely.
Nothing to do with.
The foundation capital and the timing of that this is adapted to unprecedented changes that is happening in the world.
Yeah.
Sure.
Yes. Good morning, one quick follow up to that with I guess youre looking for something pretty similar in 'twenty three in terms of the production volume one two versus one three previously I.
I guess I'm curious.
Would that still suggest that can go to one I think originally you were looking for $1 8 billion liters in 'twenty four.
Maybe that's a little too far out now to give perspective on but what I'm trying to get a sense of just capex ramp up significantly more in 2003 to get to a sort of similar place from a production standpoint in 'twenty four or is this just suggest maybe a slower production ramp.
Even for the next couple of years in terms of how we should think about capex.
So I mean, I think like you.
You said, Andrew we are Christian here by the way so it's we're.
Still exiting this year with 900 million leaders as we've indicated.
Like you said, we're close to $1 2 billion.
As we exit 2023.
So it's it's all about demand.
Matching the supply accordingly.
So it's not more dramatic than that from our perspective.
And we're still investing for future.
Got you last thing is just we've not really seen how.
Plant based products like this.
Perform in a tougher consumer environment, given some of the newness of the category.
I guess are you.
It doesn't sound like you are suggesting the consumer is yet sort of fading away from plant based products or the environment weakens, but I wanted to make sure I'm sort of hearing you right. Thank you.
Absolutely right Andrew.
Plant based.
Hey, Thanks, Nick is very sticky and this is not about demand.
This is about the pace of <unk>.
Both <unk> and <unk>.
The timing of how fast you to recruit new consumers into the space.
So pace not demand.
Yeah.
Thank you.
Yes. Thanks.
Our next question is from Ken Goldman of Jpmorgan. Please go ahead.
Alright, Thank you and just to clarify or build on that last point, Tony you say, it's not about demand, but I think there was some implication in your works today that it's a little more difficult to attract newer consumers to the product just given the challenging environment, maybe maybe the implication is that it.
EMEA for example.
Some consumers that are obviously.
Just trying to pay the bills. This this year, but is there any implication or any read through we can have.
About the pricing, where the price level of your product, whether that's a little bit more of a hindrance to some people coming in and what we thought I'm just trying to square your comments about the ability to attract new consumers right now with your comment that it's not really about demand.
Well, you're absolutely right and Thats a really good question. So we don't see increased price elasticity.
Due to price increases so our.
The loss of this performance remains.
Sandy.
Strong and stable we are gaining market shares across Europe , we are winning distribution with recent launches we see really good initial performance.
Food service is call it about 30% yes.
This is a backdrop, where is Europe , specifically and we'll see.
Tremendous challenges.
Retailers here to just navigate around this unprecedented.
That's the change that is happening and also the consumers.
Who are monitoring their household budget.
So.
And that goes to food service as well.
So this is there are basically three different things here that is related to timing and empty it takes longer to expand into new markets. It takes longer to expand into foodservice.
They're basically exactly the same challenges as retail and then it seems to take more time to recruit new consumers.
Consumers into the category.
So we had planned for.
And this.
Given all of them.
Oh, I'm precedented set of facts for you Pat.
In parallel the people and leaders are mitigating.
So this is about pace fundamentally.
As we can see.
Walking into a.
Decline in retail plant based milk is growing that is an important point.
And is that openly.
Extremely strong in our position so the timing thing and not about demand.
Okay. Thank you for that and then for my follow up.
You mentioned that there was.
Clearly not a liquidity issue for the next 12 months I believe this is how it was phrased.
It's sort of a messaging there that maybe you won't be doing the cap rates in the near term I think a lot of observers males.
Expected that if somebody have even hoped for it just to kind of get that overhang behind us. So can you talk a little bit about.
How that comment reflect sort of your desire or need to raise capital right now and how you balance that with sort of what maybe overriding investor desire to kind of just focus on the fundamentals rather than maybe some shorter term balance sheet questions.
Yeah, Hi, Ken It's Christian here.
With these adjustments we have sufficient liquidity to fund the business now for the next 12 months. So what we have done is.
Provided ourselves with more flexibility in terms of the timing to fund our growth and we're still confident that we have multiple options to access capital.
So we're still looking to raise that capital capital to fund our growth and that's 400 million dollar amount that we've put out there is a good estimate of how much capital required to fund all of the Capex projects project to 'twenty to 'twenty four.
There's also the number that sort of the reason why we said at a previous this year. So we made some capacity facing we no longer need to raise the entire amount in a single transaction this year.
And we have the flexibility to match the phasing of the capital raise the Capex and.
We are also approaching this with an objective of minimizing corporate capital as well.
Great. Thank you.
Thanks Nathan.
Our next question is from Ashwin <unk> of Credit Suisse. Please go ahead.
Alright. Thank you when you think about some of your commentary on macro.
And your answer to Ken's question on how conversions, maybe getting a little harder and stuff can you just talk about what your expectations are for that going forward and that we might just be at the beginning of these macro issues, particularly as we get into the.
The winter in Europe . So can you just talk about what you're expecting versus what Youre. Observing is this is the adjustment to topline just more about what you're observing so far or do you have expectations for.
The chance that things might get materially worse in the next six months or so.
So yes.
The revised guidance reflects what we see.
The back end of this year, especially in Europe , and then Asia that is not opening up the way we would hope for.
Yeah.
The run rate absolutely massive.
If.
Anybody in Europe , I understand that it is very shaky right people monitoring the household budget in the middle classes is definitely increasing.
But our.
<unk> performance in that environment.
It's stable.
It's proven to be resilient, even with the price increases. We also see that people are moving more into soft discount. So when we see when we are launching our ido.
The velocity performance is absolutely massive.
It's been more sentiment that consumers have.
I wanted to have the run rate that we have in expanding no that hasnt changed none of the fundamentals of the business.
Has that changed and there's enormous white space for us to take and expanding into new markets.
More foodservice discount we are saying is that.
It just takes longer to close those deals.
And also people are expected with everything else that is happening in the world. So this is about the remainder of <unk> two.
And nothing nothing more than that according to us.
Okay got it and then as it relates to the price increases.
I'm sorry go ahead, Ken I'd just add.
Okay.
That said, we are expecting accelerated growth.
For the company.
For the last half of the year.
Okay got it.
And then on price increases can you talk maybe a little bit more about your price increases versus price increases of your competition.
Maybe by region and then also just how are you thinking about.
Sure the price gaps you typically the premium offering in the space.
As we are going into maybe a bit of a different macro world. How are you thinking about price gaps between yourself and some of the other players in the space.
So very very good question. So first of all no increased price elasticity due to the price increases that we made in Europe and also the <unk>.
Relative price gap between us and competition.
Overall the thing.
So nothing has really changed from that perspective.
Great. Thank you.
Thank you.
Putting that the double.
Double digit price increase in place.
Placed in the U S starting yesterday.
Got it great.
Thank you. Your next question is from.
Our next question is from the pitch Perique of Oppenheimer. Please go ahead.
Good morning, Thanks for taking my question. So on the cost side I was hoping to get an update in terms of the cost pressures that you're facing just curious what level of cost inflation youre seeing right now versus I think the 8% to 9% expectations you had last quarter.
Hi, It's Christian here. Good question I understand that it's of course, it's an interesting topic in today's world last year, we didn't speak about emulation.
Of course not.
It's more around it so in total we expect inflation to increase our total Cogs.
Another 5% to 6% in the coming quarters compared to where we are today in the second quarter, we have slightly increased inflation.
Levels or expectations.
2022 versus <unk> 21, compared to where we were.
When we reported in the first earnings call.
<unk> expect on a consolidated level.
A.
Low double digits.
Globally.
Previously we were high single digits.
And this is probably primarily as a consequence of the.
Coming out of the macroeconomic situation with the war in Ukraine, we have elevated energy costs are in Europe , but it's also impacting cost of materials.
And you do your pricing actions contrary, so far incorporate these additional cost pressures or do you expect to make more adjustments later in the year or next year.
We are evaluating.
Additional.
Increases in Europe .
Okay, Great and then maybe one follow up question just on the gross margin front. So obviously, we saw some sequential improvement from Q1, but last year you did have gross margins at 20% plus range for the full year.
Yeah, I know I know you guys, maybe aren't providing exact guidance, but any way to frame like how.
We could shake out an exit rate for Q4 on the gross margin line.
I think you know compared to what we have communicated in the past we've been sort of remain in that range of mid 'twenty exiting Q4.
Okay, great. Thank you.
Okay.
Our next question is from Michael Lavery of Piper Sandler. Please go ahead.
Good morning, Thank you.
Well, Michael I, just want to confirm that's what.
I'll come back to the revenue guidance.
I understand so you're calling out.
<unk> on some of the macro environment and you've given that color but.
You're also a capacity constrained or have been in your.
You're holding your capacity expectations for the year.
So how do we reconcile those should we expect.
100% customer service levels through the rest of the year and on just a weaker demand profile, how do I tie that altogether.
I mean.
Mike and then I think Tony will definitely jump in I mean, it's not a demand issue.
It's all about us increasing the output from our new facilities in the second half of the year and that will be converted into revenue I think we have talked about is the pace of growth in Europe , driven by the macro environment is a bit different but we still expect very solid and strong growth.
On a consolidated level, but more specifically in Americas and Asia.
And we are prioritizing U S and Asia from a capex are facing point of view, which relative to spoken to growing earnings call.
Yes.
Michael just to clarify on fill rates with 96% in Europe , we still have and spread out throughout the whole product range.
There is more to do in some specific products there in the U S. We increased the food.
Good rate gaps or close to the right gaps.
The quarter from 60% up to plus 70% and Thats going to continue to increase over time here, but again, it's good.
This is not a demand thing it's going to be a catch up game for us as we always mentioned.
<unk> continues to increase for our products, even though it's going to be more difficult for us to close the gap.
Production definitely coming on board. So we hope for there are going to see great progress here for the next part the last part of the year.
Oh.
If you'll indulge me, maybe one more try I don't mean to be done, but if it if there is no supply issue in terms of change and if you're saying there's no demand issue.
Is it just a conservatism update them to lower the guidance.
Well.
Different matrix.
Right.
Yes.
Completely relied on getting the output from Ogden.
At full speed and also we have Neil Bill coming on board not forget right at the end of this year.
Driven by our ability to supply there.
Yeah.
Okay, and then just if I could do one more with the.
Color on EBITA, you called out a positive currency contribution.
But obviously, it's had a headwind on the translation on the top line. So presumably there's some transactional impact there can you just explain how that works.
Yeah.
Yes, so I mean, if you think about FX, which we are calling out from a translation point of view like you said Bev headwind on revenue, but we do have tailwind both in Cogs and Opex.
So it's pretty neutral on gross profit.
But net net with Opex, yes, we saw a tailwind up $7 $8 million or something like that.
For Q2.
Because we have so that we have.
And the European currencies.
Chubb.
Depreciated quite significantly versus U S dollar as compared to last year and that is the impact that you see.
Okay, Yes.
So it's SG&A driven.
Yeah, Yeah, yeah, Okay, driven correct.
Okay. Thanks, so much.
Yeah.
Our next question is from Jon Andersen with William Blair. Please go ahead.
Yes, hi, Thanks for my first question I wanted to focus on the Americas.
It looks like.
Your shipment growth in the Americas in the quarter was quite a bit below the retail takeaway in the IRI or Nielsen data.
Also the.
The America sales dollars that you reported on an absolute basis.
Relatively flattish around $50 million over the past four quarters or so so just could you give us a bit of an update on what's happening from a capacity standpoint.
And what's.
When do you expect I guess to more fully be able to meet our.
To meet demand and again shipped to kind of consumption levels.
Okay.
So maybe I'll start and then I'm sure Tony will chime in as well so it's all right.
Related to our ability to scale of our facilities and all of them, having more supply and that will help us.
From a channel and customer mix allocation, that's sort of what you're seeing.
In terms of retail performance.
Compared to your expectations.
The strategic allocation that we're doing and when it comes to production.
We see we saw great progress in August .
Yes.
Around $10 million or per month by the <unk>.
End of the second quarter in line with our expectation.
<unk> uplift from quarter one.
And then of course, it takes some time to get that out.
Our customers and Thats, what we expect for quarter, three and quarter four so.
Great improvement in production output, both in Americas and Asia.
And also want to add.
The channel mix that we have that we have to balance that.
Alright.
So just a quick follow up on that so is there a timeframe at this point.
You would be comfortable or semi comfortable saying, we expect to be able to ship that 90, 95% kind of fill rates across channels based on continued ramp at Ogden and the upgrade at Melville.
Or is that just too uncertain at this point.
Yes, it is uncertain, but we do expect definitely improvement in Q4 demand continues to increase that we've seen we're very strong.
We went through.
From 34% to 838%.
This year, but.
Still with very strong velocity numbers, but we do hope and we do expect that to improve in Q4.
Okay, just one quick follow up.
So you talked about.
It's a more challenging time to recruit new consumers into plant based.
And so I'm wondering if.
You might focus on.
Leveraging existing plant based consumers.
Across a broader range of plant based products and products.
Things outside of milk.
Is that something that makes sense or you're focusing on or is the effort again.
With with milk in the near term.
Converting customers, even though it's a bit more challenging at the moment. Thanks.
Well I.
I think that's a relevant question our focus is definitely as we've said previously note and that's going to that's going to be the biggest contributor of growth.
The company.
We're not.
We absolutely see a big opportunity in the sub categories here and we just need to have the production.
Setup to produce those type of products for us.
Thank you.
Thank you.
Our next question is from Bill Chapell of curious please go ahead.
Thanks, Good morning, or good afternoon to you.
A couple of follow ups.
Looking again to the.
The U S were to North America, and kind of the acceleration in the back half.
Is that the thought that that's going to be largely foodservice driven as you meet capacity.
Fill rates, where do you I guess the question has been for the past year.
<unk>.
We're not shipping.
The full fill rates you had lost a lot of shelf space at retail.
Do you still think you can get some of that shelf space back at retail or is most of the growth's going to come kind of I guess I said through foodservice.
So first of all we didn't lose any shelf space in the U S.
And then it's going to be a balanced growth between all these cameras. So to all the channels are going to growth.
Okay, I guess that isn't that lose but it seems like a lot of competitors have filled.
Tangential shelf space. So it doesn't sound like you will be adding shelf space from here. It's just it's more sell through at retail.
It's first of all it is.
Close to fill rate gaps that we had with <unk>.
Customers.
And we are still the number one sorry, the number too.
In measured channels in the U S and the number one overall U S in terms of net sales.
That's certainly.
They outperformed and the naval Bill coming on board is going to help us greatly.
Expanding our ore really.
Gaining market share in the ship channel, which is going to be visible to you.
Hopefully.
By the end of this year.
Okay, and then a follow up to <unk>.
Question on pricing.
Not necessarily your direct competitors, but how will the pricing change the gaps.
Between dairy between almond between soy does it put you at a more of a premium or less of a premium versus the others is there even within plant based there's there's more switching or trading up for trading around.
No.
No.
I think we our position has remained extremely strong, especially in Europe through this turmoil.
We don't see any.
Any changes between crops and competition, where we can see in Sweden, which is extreme.
Gary prices increased by 20%.
Uh huh.
So thats like what stands out.
What we see on the market, but other than that.
Balance is intact.
Okay, great. Thank you.
Thank you.
Our next question is from John Baumgartner of Mizuho.
Please go ahead.
Good morning, Thanks for the question.
I wanted to focus on the middle of the P&L on the SG&A line, it's still a pretty big number relative to the size of the business and I'm wondering how you think about discretionary costs and adjustments within that as revenue growth is more moderate obviously youre leverages more moderate as well, but how do we think about the ability and timing for outright cost reductions in that line.
Whether it's the external consultants or anything else. So when do you think you can really begin to see compression there in those costs.
I John is Christian here, I mean, I think we are already today and more disciplined in our spending.
Related to our day to day.
<unk> and business operations.
And I think we're being also a bit strategic as we were looking at.
For the second half of this year, how to best manage that cost pool, but we believe over time, but this is an area that we are looking at to ensure that we are finding the right level.
In relation to how are we growing at the company. But then you also have part of our SG&A that is growing.
Our revenue growth. So if you take customer distribution expenses to keep that in mind as our top line is growing in the second half of the year, our SG&A will grow as well and that is sort of a direct link to what to revenue growth.
Thanks, Christian and just a follow up when we think about sort of the macro pressures delaying consumption increases I'm curious just given how long. The company has been around look at per capita consumption in North America. It is higher than a lot of places in Europe lower than places like Spain have you ever seen over the years sort of a period, where the rate of consumption.
Levels off even independent of macro environment.
Some of your countries in Europe , and what sort of prompted that sort of reinvigorated growth going forward because it feels like some of it may just be growing pains for the category, where you get a moderation of new consumers coming in maybe even independent of the macro backdrop I'm just curious your thoughts there. Thank you.
No we don't see any such things and we have been driving.
The category and we're still in the very early innings. If you looked at the household penetration from a volume perspective is very low scale and yet this space.
Once they try it we can get it unless we get into the space. It is very sticky you don't go back and Thats, what we see across all our markets now it's about the pace, especially in Europe , and how fast we can drive new consumers into the space, giving given everything else that is happening in the world.
Right.
Fundamentals Hasnt changed.
What we said what we said all along it's still very much true existing scientific opportunities absolute domestic is it important.
Recently.
The increasing deployment of people at this time slot.
Okay. Thank you very much.
Ladies and gentlemen.
Yes.
<unk>.
Question. So I just want to thank everybody for joining us today and we look forward to speaking with you on our next earnings call in November and we certainly hope everyone has a great rest of the summer.
Okay.
Thank you.
This concludes today's conference. Thank you for joining US you may now disconnect your lines.
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