Q2 2022 Oatly Group AB Earnings Call
Greetings and welcome to the <unk> second quarter 2022 earnings conference call.
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Question 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.
Certainties 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.
It could cause actual results to differ materially from those expressed or implied in any forward looking statements made today.
Please note that 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 this information is not intended to be considered in isolation or as a substitute for the financial information presented in it.
So I 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.
Thanks, Rachel Good morning, we appreciate you joining us to discuss our second quarter results today I will provide enough players all have strong business performance and I'm very pleased to share on these things production capacity glass Christina.
Our financial results and updated 2020 outlook the pizza question and I will be available for questions.
The second quarter, we delivered strong revenue growth of 22% year over year to $270 million with approximately 30% below $211 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 bank business.
Company globally.
Skinner data continues to show the old categories, gaining share and becoming known.
Although the challenge is of course, a key market continues to grow the category.
I believe that the combination of the OTA brands, our strategic insurance with multichannel approach.
<unk> production pulses differentiates us to consumers and our mission of converting more than just the consumer centered around scheduling and ends define you shouldn't expect us to each of our regions.
Moving to our business performance.
[laughter] globally, it doesn't confuse tremendous consumer demand with momentum even though the message on that is that we see each region.
Yeah.
In EMEA, we're seeing highly uncertain and rapidly changing environment.
Current backlog conflict economic conditions, which includes the rippling effects of the war, Ukraine mobilization and your prices changing consumer behavior at retail.
Which we can expand our channel of distribution.
Despite these challenges the recent change in consumer spending the plenty of fish 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 the breath and longevity in the UK, Germany, Sweden, Switzerland, Austria, and the Netherlands.
More importantly, our velocity has remained so far despite some macro dynamics and continues to be at similar levels as prior quarters.
Building on this performance and market leadership.
Yes against growth opportunities across our channels.
Innovation and the new markets.
Within retail, which is 2% of our business in EMEA, we expect a continued savvy and elevating our shelf space with existing partners.
Also adapting to the perfect environment for entering new retail partnerships.
For instance, we are seeing the consumers are responding to the music anomic environments are changing where they choose to shop for groceries, which now increasingly.
Softness counters to better position ourselves for this dynamic we're growing our presence in softest counsel maintaining virtually the same price point as you know.
Although retail channels, where we.
Since evolved with approximately 900 lidl stores in the U K and approximately 770 <unk> locations in Germany, I'll I'll forgive me Mark has been very successful to date and we are 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 to year over year, our foodservice business in EMEA increased 37%.
So far this year, we have problems with Deutsche bomb Chi both Dunkin' earmarked.
And I'm excited to announce a partnership with the biggest German petras through teaching in October .
<unk> products will be some of the compensation programs with 50 stores as well as some of the convenience for retail shelf none of them 50 locations.
The main innovation, there's similar runway for further growth and product development.
Most of our markets still only have limited skus.
Our historical production capacity constraints.
We're starting to accelerate the expansion of our portfolio and our recently introduced new formats of our best selling groups, but with the launch of children starting over 3000 stores in the U K, Germany, and Netherlands, as well as to have leader universal across the same market.
This new focus enable us to reach new consumers and just different usage occasions.
Are you still early visual velocity data looks very promising.
Beyond our current geographic footprint in EMEA, which is limited to four markets. We have a long runway to spend into neighboring markets that are right for disruption.
We have proven model to launch in new markets.
Category growth and has led to a leading market position. The most recent case studies of this success, our increase into the Netherlands, Switzerland and Austria.
The reason, we picked them up with Illumina called out in the spot in June overall, we're very excited about this white space opportunity and driving more commercially.
Turning to Americas.
Okay products equally there remains very strong you are the number one opening brand based on net sales and according to the Nielsen data for the 12 weeks ended June 18 2022.
The number one fastest Germany brand in total dairy plant based dairy in.
In the Americas.
Open surgery.
Okay.
Non dairy default and have market share of 22% as of June 2022, while almond and soy 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 continued ramp up of all of them and a new wholesale funding expansion is well underway on track to start initial production.
Paul.
Increase our production capacity with significant distribution outside the U S where.
Well, we only have 38%.
However, the focus near term too.
To close with <unk>.
Finally in Asia, I'd like to policies with efforts this quarter net.
Operating apartments with COVID-19 Lockdown.
Right.
And the impact it had in our foodservice 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 at the height of the lockdown more than 7000 coffee shops, 10000, new tea shops, and south in Chinas social close however, the team used to look down to sharpen our multichannel growth strategy to better position us both in the near term and longer term.
The aggregate e-commerce.
By himself.
30% per cohort.
In Q2.
From 14% in Q1, it isn't about 19 law.
We also successfully launched new products.
Including a $250 million of Prisma T Master and ISP products.
Okay.
Okay.
Okay.
E channels.
With each other estimated to be at least twice the size of the specialty coffee channel since a huge opportunity for growth.
We continue to maintain a number one position on tmall with opiate 15.
15% market share in the new plant based categories.
Sure.
Great.
June 18th promotion, which is one of the largest shopping festivals in China Oppo ranked number one in the plant based category and second and beverage category on Tmall and TMR.
Also the top selling skus in the beverage category on JD com.
But the capacity from the new production lines in Singapore, we have started to expand into new countries, such as Malaysia, Indonesia, Vietnam, and 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 completed dissipated and new variance of the virus continue to break out in many cities really mitigating asbestos we can.
To further diversify and expand our channel and geographic reach through our route to market strategy and believe we remain well positioned in Asia, It's Toby by acute headwinds subside.
Turning to production in the second quarter itself and the fashion piece of <unk>.
34% October volume compared to the co packing up 27% and hybrid at 39%.
Production volume was 124 million liters up 17% since the first quarter.
We're pleased with the recent performance of the Utah facility and successfully increased output in line with our expectations, but not taking continues to fall.
Further improve upward in the back half of this year.
In Asia, Singapore, some track to be fully ramped during the second half of the year and Marcia will continue to ramp throughout the year.
We expect to produce between 135 to 145 million liters of finished with the third quarter, driven primarily by improved production output and all of them not to Asia facilities.
As we look towards the future capacity expansion I'm happy to share that we have adjusted our capacity safety first.
Reduced 2022 Catholic guidance from the lower end of the $400 million to $500 million range to $220 $240 million without compromising upload.
We believe investing in our growth is critical to establish the infrastructure necessary for a high growth Global company and then we drive the conversion of Derby future plans.
Plant based milk consumers.
In light of the unprecedented change in the world around us.
Definitely like any fast growing company and should be taken into consideration long supply chain lead times high cost of construction and uncertainty in Europe .
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 and supply chain execution cash flow management.
We will continue to prioritize our investments in the region well Kimberly steps are the highest.
Therefore, the need for additional production volumes with the most question Americas and Asia.
We are prioritizing for apex to open first the expansion, we must kronos additional hotels months not targeted for 2023, 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.
To produce initial ramps in the fall of this year.
We continue to expect brown with capacity of approximately 900 million exiting 2022.
Now approximately $1 2 billion users exiting 2023.
Which would support our growth.
<unk> 24, so the likes to make very clear that although the world has changed the fundamentals and the strength of our winning model and therefore ambition 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're updating our revenue guidance to 800 million to $830 million for the year overall, the 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 was.
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 a seismic shift the majority of plentiful consumers joined the category in the last few years. We believe that we are driving the plant based movement as a market cancer Reception's been best for people and the planet and we'll continue to drive this global converts to compare with the same thing that is.
<unk> not changed and is as important today as it ever.
What's 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 healthier lives without retrofitting, Texas plants 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 to 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 one one.
Hundred $46 2 million.
In the second quarter of 2021 <unk>.
Excluding a significant foreign currency exchange headwind.
$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.
Barry and a broad based growth across retail and foodservice channels as well as strong growth in E com.
Most sales in China, Despite COVID-19 restrictions.
The foodservice channel accounted for 45% of revenue for the second quarter of 2022 compared to 33, 2% in the same period last year.
As 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 and <unk>.
Second quarter of 2021, mainly driven by foreign exchange headwinds in EMEA and customer and channel mix with that.
As a reminder, our highest regional leader, it's typically in Asia, followed by the Americas and <unk>.
EMEA.
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 sequentially with margin improvement that's shown on slide 21 districts.
This sequential improvement was primarily driven by improving our production model mix.
The increase in house and local production.
Due to the reliance on co Packers the implementation of the EMEA 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 usually takes at least three to four quarters and no longer due to COVID-19 impacts before a new facility reaches steady state utilization up 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.
Alrighty.
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.
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 materials logistics energy and labor globally in.
In EMEA the 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 inflation, finding a 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 of $43 5 million.
Second quarter of 2021.
Adjusted EBITDA loss for the second quarter of 2022 was $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 at the scan our global operations.
To support growth across three continents.
By positive impact from foreign exchange rates.
As we stated on our last earnings call.
<unk> operating expenses as a share of net revenue to improve.
In the second quarter total operating expenses as a percent of revenue improved to seven 6% compared to 6% to 5% in the first quarter of 2022.
This trend to continue in the second half of this year as we closely manage costs given the more uncertain operating environment today and thrive 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 for $4 5 million.
We also have a fully unutilized revolving credit facility of approximately $432 million, including 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.
Two compared to 134 4 million in the prior year period.
Capex 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 June 32.
22, 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.
That's our growth.
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.
He 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 2021 at the midpoint.
Expect accelerated revenue growth in Q3, and Q4, primarily coming from the Americas and Asia.
As the prevailing FX rates. This 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 32.
2022, accounting for approximately $4 million to $5 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 into 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 a 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, we are 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 market and.
And also taking longer to recruit new consumers at the pace, we hoped for however.
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 virus continues to break out in a minute.
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 lasting concerns over locked down as a result, we feel is the proven through.
Effect of slower foodservice recovery into our.
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.
Uncertain environment.
Well, let's 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.
We the facing of the Capex project, 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 liters of finished goods by the end of fiscal 2022.
That review, we are now ready to take your questions operator.
Thank you.
This time, we will be conducting a question and answer session if.
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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.
A reduction in 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 and liquidity issues.
You also mentioned in 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.
Past always taking much more of a growth sort of almost any cost mentality.
I was hoping you could just sort of addressed this a little bit.
Which one of those is it or is it simply as you mentioned just sort of a closer in.
A level of conservatism given the macro environment.
That'd be the first question.
Hi, Andrea this is Tony. Thank you. So much great question Hope you hope you do well.
To your question. This is this is about discipline and adjusted the unprecedented changes in the world.
We have paired with powerful demand dynamic with a laser focus capacity expansion.
Execution.
And execution, while optimizing the timing of production capacity additions to ramp we need the volumes. So we're still investing in our project, but we are facing them differently.
And I think that's what you would expect from any business leader from the high Global high growth company, and 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 fund based on capital and the timing of that which is adapted to unprecedented changes that is happening in the world.
Okay.
Sure.
Yes. Good morning, one quick follow up to that 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 suggests that can go to <unk> 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 'twenty three 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 and 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 and like you said, we're close to $1 2 billion.
$1 billion as we exit 2023.
So it's it's all about demand.
Matching the supply accordingly.
So it's not more dramatic dumbed up from our perspective.
And we are 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 the newness of the category.
I guess are you.
It doesn't sound like you're suggesting that consumer is yet sort of fading away from plant based products or the environment weakened but I wanted to make sure I'm sort of hearing you right. Thank you.
Absolutely right Andrew.
Plant based.
It is very sticky this is not about demand.
It is about the pace of growth and.
The timing of how fast you to recruit new consumers into the space.
So pace not demand.
Thank you.
Yes. Thanks.
Our next question is from Ken Goldman of Jpmorgan. Please go ahead.
Hi, 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.
Given the challenging environment, maybe maybe the implication is that in EMEA for example.
There'll be some consumers that are obviously.
Just trying to pay the bills. This year, but is there any implication or any read through we can have.
About the pricing, but 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 kind of square your comments about the ability to attract new consumers right now with your comment that it's not really about demand.
Yes, absolutely Ryan that's a really good question. So we don't see increased price elasticity.
Due to price increases so our.
Lots of good performance remains.
Sandy.
Strong and stable, we are gaining market shares across Europe , where we need distribution recent launches we see really good initial performance.
Foodservice is call it about 30% yes.
This is the backdrop here in Europe , specifically and we'll see.
Tremendous challenges.
Retailers here to just navigate around this unprecedented changes that is happening and also the consumers.
We are really monitoring their household budget.
No.
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.
That's basically exactly the same challenges as retail and then it seems you've taken more time to recruit new consumers.
Consumers into the category.
And we had planned for.
Given all of them.
Correct.
I'm precedented.
Factors that in.
In parallel the people and leaders are mitigating through so.
So this is about pace fundamentally.
As we can see.
Wow.
Claiming retail plant based milk is growing that is an important point.
Is that okay.
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.
Really not a liquidity issue for the next 12 months I believe this is how it was phrased.
It's sort of the messaging there that maybe you won't be doing the cap rates in the near term I think a lot of observers may have.
Expected that at some may 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.
How you balance that with sort of what maybe <unk>.
Writing 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 I mean, as you said, yes, we bid 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.
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 other capex projects project through 'twenty to 'twenty four.
Its also the number that sort of the reason why we set it.
Our previous in this year. So we made some capacity facing we no longer need to raise the entire amount in a single transaction this year.
We have the flexibility to match the facing of the capital raise the capex schedule.
And we're also approaching that with an objective of minimizing corporate capital as well.
Great. Thank you.
Yes.
Thanks Nathan.
Yeah.
Our next question is from Christopher Butler of Credit Suisse. Please go ahead.
Hi, 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 you're observing and as 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 absolutely.
Sure.
Yeah.
The run rate is absolutely massive.
It is.
Anybody in Europe , I understand that it is very shaky right Cooper monitoring the household budget in the middle class is definitely increasing.
But our.
<unk> performance in that environment is stable.
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 than either.
The velocity performance is absolutely massive.
It's been more of a sentiment that consumers have.
And I want to have the run rate that we have in expanding no that hasnt changed none of the fundamentals of the business.
That has.
Have changed and there's enormous white space for us to take and expanding into new markets.
More foodservice discount what 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 2022.
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.
And I'll just add.
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.
We are proving that the double double.
Double digit price increase in place in the U S study.
Yesterday.
Got it great.
Thank you next question is from.
Our next question is from the pitch Creek 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.
Stan it's of course, it's an interesting topic in today's world last year, we didn't speak about inflation.
Of course, now it's more of a more rounded.
<unk>.
In total we expect inflation to increase our total Cogs.
With another 5% to 6% in the coming quarters compared to where we are today in the second quarter. So we have slightly <unk>.
Increased inflation.
Level.
Our expectations are.
<unk> 22 versus <unk> 21, compared to where we were.
When we reported in our first earnings call.
<unk> expect on a consolidated level.
A little 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 here 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 price 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.
I know, it's I know you guys, maybe aren't providing exact guidance, but any way to frame like how.
Where 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 restored to remain in that range of mid 'twenty exiting Q4.
Okay, great. Thank you.
Yeah.
Our next question is from Michael Lavery of Piper Sandler. Please go ahead.
Good morning, Thank you.
Well, Michael I, just want to come.
I'll come back to the revenue guidance and understand.
I understand so you're calling out.
Production on some of the macro environment and you've given that color but.
You're also capacity constrained or have been and you're holding your capacity expectations for the year.
So how do we reconcile those should we expect.
Hundred percent 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.
Racing point of view, which we also have spoken to growing earnings calls.
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 with some specific products there in the U S. We increase the dose.
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.
It's 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.
<unk>.
Production definitely coming on board. So we hope for there are going to see great promise here for network. So that's 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 the conservatism update them to lower the guidance.
Well there's different matrix.
Right.
U S.
Peter light on getting the output from all of them.
At full speed and also we have Neil Bill coming on board not forget right at the end of this year.
Continues to be driven by our ability to supply there.
Okay.
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 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 that 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, yeah, we saw a tailwind of $78 million or something like that.
For Q2.
Because we have so that we have.
Just in 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.
So it's SG&A driven.
Yeah, Yeah, yeah, Okay, driven correct.
Okay. Thanks, so much.
Yeah.
Our next question is from Jon Andersen 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, but 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.
So.
When do you expect I guess to more fully be able to meet our meet demand and again shipped to kind of consumption levels.
Okay.
Yes.
Maybe I'll start and then I'm sure Tony will chime in as well.
All right.
<unk> added to our ability to scale, our facility and OIBDA is 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.
Strategic allocation that we're doing and when it comes to production.
We see we saw a great progress in August .
Yes.
Around $10 million per month by the end of the second quarter in line with our expectation.
Big uplift from quarter one.
So and then of course, it takes some time to get that out to customers.
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 and that is.
Right.
So just a quick follow up on that so is there a timeframe at this point.
Where 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 see we're very strong.
We went through.
<unk> from 34 to <unk>, 38%.
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 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 as a big opportunity in the subcategories here and we just need to have the production.
Setup to produce those type of products for us.
Thank you.
Thank you.
Okay.
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 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.
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 get 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 have with existing.
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.
But certainly.
To outperform our bill in the mail Bill coming on board is going to help us greatly in expanding or really.
Gaining market share in the ship channel.
To be visible to you again hopefully.
By the end of this year.
Okay, and then a follow up to <unk> question.
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 are position Thats remained extremely strong, especially in Europe through this turmoil.
We don't see any.
Any changes between crops and competition, where we can see Sweden, which is extreme.
Gary prices increased by 20%.
So thats like what stands out.
And what we've seen in other markets, 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, but 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 I mean 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 its the external consultants or anything else. So what do you think you can really begin to see compression in those costs.
I John It's 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 be strategic.
We are looking.
For the second half of this year, how to best manage that cost pool, but we believe over time that this is an area that we are looking at too 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.
As our revenue growth. So if you take customer distribution expenses to keep that in mind.
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's 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.
And some of your countries in Europe , and what sort of prompted that sort of reinvigorated growth going forward because it feels like some of that 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 are still in the very early innings. If you look at the household penetration from a volume perspective is very low scale and yet this space.
Once they try it we can get it must be getting to the stage.
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 you can drive new consumers into the space, giving given everything else that is happening in the world right.
The fundamentals as we choose.
<unk>.
What we said what we said all along it's still very much true. This is the opportunity is absolutely massive is this important this is.
Briefly.
Quickly with local people.
On slide.
Okay. Thank you very much.
Okay.
Yes.
Joe.
The 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.
Yeah.
This concludes today's conference. Thank you for joining US you may now disconnect your lines.
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