Oatly (OTLY) Q3 2025: Europe & International Segment Delivers 12% Revenue Growth, Driving First Profitable Quarter

2025-10-29 | By EarningsIQ Research

Oatly’s strategic playbook drove its first profitable quarter since IPO, anchored by a 12% revenue surge in Europe & International and disciplined cost control. The company’s taste- and experience-led approach is reinvigorating demand and market share in core European markets, while North America remains in turnaround mode. Guidance reaffirmation signals management’s confidence, but margin headwinds and execution in the US remain critical watchpoints into 2026.

Summary

• Europe & International Outperformance: Refreshed growth playbook is accelerating share gains and profitability in key markets.
• North America Turnaround Tactics: Execution lags Europe, but diversification and club channel expansion are building a foundation for future growth.
• Profitability Milestone: First-ever positive adjusted EBITDA marks a strategic inflection, but sustaining margin progress will require continued discipline.

Performance Analysis

Oatly delivered its first quarter of positive adjusted EBITDA since going public, a pivotal milestone underpinned by robust performance in the Europe & International segment. Segment revenue rose 12% year-over-year, driven by 8% volume growth and effective deployment of the company’s refreshed growth playbook. The segment’s EBITDA margin reached 18%, up 700 basis points, signaling strong operating leverage from both demand generation and cost discipline.

North America remains challenged, with revenue declining 10.1% due to a large customer sourcing shift and frozen SKU rationalization. However, excluding these headwinds, underlying revenue grew 5%, and the company has reduced its dependence on its largest customer from nearly 30% to 10% of segment revenue over three years. Greater China outperformed expectations with 28.7% constant currency revenue growth, though management cautioned that this was impacted by timing and unlikely to repeat in Q4. Company-wide, gross margin held steady at 29.8% as supply chain efficiencies and mix management offset inflation and regional product mix headwinds.

• Europe & International Margin Expansion: Absorption gains and supply chain efficiencies delivered 700 basis point EBITDA margin improvement.
• North America Diversification: Largest customer now 10% of segment revenue, creating greater growth flexibility.
• Cash Flow Progress: Free cash outflow improved by $22 million YoY, with the cash conversion cycle below 40 days for the first time post-IPO.

Disciplined cost control and a more focused channel mix have allowed Oatly to reaffirm guidance, but Q4 margin pressures and North America’s slower recovery remain headwinds for sustained profitability.

Executive Commentary

Strategic Positioning

1. Europe & International: Playbook Execution Unlocks Growth

Oatly’s experience- and taste-driven strategy is reinvigorating category demand, especially in Europe. The company’s “growth playbook”—focused on driving relevance, attacking conversion barriers, and boosting availability—has delivered double-digit revenue growth and market share gains in Germany, UK, and Sweden. Food service channel momentum precedes retail acceleration, with Germany’s food service revenue up over 45% for five consecutive quarters and retail share up 70 basis points in plant-based milk. This approach is now being replicated in other European and expansion markets, where year-over-year growth neared 50%.

2. North America: Turnaround in Progress, Structural Shifts Underway

Despite headline declines, Oatly is actively diversifying its North American business away from dependence on a single large customer and frozen SKUs. Food service (excluding the largest customer) grew 11%, and club channel sales (not captured in scanner data) expanded to 6% of segment revenue, up from less than 1% a year ago. The company’s barista-led, food service-first approach is driving trial and brand engagement, but retail shelf resets and SKU rationalization will continue to weigh on near-term growth. Management emphasizes a step-by-step approach, with expectations for new distribution and club expansion to drive incremental gains into 2026.

3. Cost Structure and Capital Allocation Discipline

Oatly’s shift to an asset-light model is visible in both SG&A and capital structure improvements. SG&A was cut by over 25% since 2022, with ongoing indirect procurement savings. Recent refinancing actions—including a smaller revolving credit facility and Nordic bond issuance—are expected to reduce annual interest expense by $5 million and lower potential convertible dilution by 10%. Working capital management has driven a $20 million year-to-date cash inflow, and capex remains tightly controlled at $20 million for the year.

4. Greater China: Strategic Review and Profitable Growth

Greater China delivered strong growth and positive adjusted EBITDA, but management flagged the ongoing strategic review, including a potential carve-out to accelerate value creation. Operations remain stable, with continued investment in the Mancham facility and customer relationships, but near-term visibility is clouded by timing effects and macro uncertainty.

Key Considerations

This quarter marks a strategic inflection for Oatly, but the company’s ability to sustain profitable growth will depend on disciplined execution, especially in North America, and navigating margin volatility as the business scales.

Key Considerations:

• European Growth Playbook Scalability: Success in Europe provides a template, but adapting the playbook to the complex US retail environment will test execution.
• Margin Headwinds Persist: Inflation, particularly labor in Europe, and unfavorable product mix in China offset some supply chain gains; Q4 gross margin faces 200–300 basis point pressure from one-time items.
• Club Channel as Growth Lever: Rapid expansion in club sales offers a new vector for North American growth, but club and food service channels are less visible in traditional market tracking data.
• Strategic Review in China: Ongoing evaluation of options (including carve-out) introduces uncertainty but could unlock value if executed well.

Risks

Margin sustainability is at risk from inflation, regional mix, and operational penalties, particularly in North America. Category softness in US retail, timing of shelf resets, and ongoing frozen SKU rationalization will continue to pressure topline and margins into early 2026. The Greater China carve-out process introduces execution and valuation risk, while FX volatility and macroeconomic shifts remain persistent external headwinds.

Forward Outlook

For Q4 2025, Oatly guided to:

• Constant currency revenue growth of approximately flat to +1% for the full year
• Adjusted EBITDA in the $5 million to $15 million range (likely at the lower end)
• Capex of $20 million for the year

Management highlighted several factors that will shape results:

• Q4 gross margin will be pressured by the absence of a Q3 true-up, with a 200–300 basis point impact expected
• Greater China’s Q3 outperformance was timing-related and not expected to repeat

Takeaways

Oatly’s first profitable quarter is a credibility milestone, but sustaining momentum requires translating European playbook success to North America and managing margin volatility as the business scales.

• Europe & International Playbook Delivers: Market share and volume gains validate Oatly’s taste-driven strategy, which is now being adapted for other regions.
• North America Remains a Work in Progress: Underlying growth and channel diversification are positive, but structural and executional hurdles persist.
• Margin and Cash Discipline Will Remain in Focus: Ongoing cost reductions and capital structure improvements are essential, but investors should monitor inflation and operational penalties closely.

Conclusion

Oatly’s Q3 marks a turning point, with profitability driven by European execution and disciplined cost management. North American recovery, margin durability, and strategic moves in Greater China will be decisive for long-term value creation.

Industry Read-Through

Oatly’s success in reigniting demand through taste-led, experiential marketing signals a broader shift in plant-based beverages toward brand differentiation and premiumization. The company’s channel-first approach—leveraging food service to seed retail demand—offers a replicable model for other beverage and CPG players targeting Gen Z and younger consumers. Margin volatility and the importance of a flexible, asset-light supply chain are recurring themes across food and beverage, while the club channel’s growing relevance highlights the need for omnichannel agility. Strategic reviews and carve-outs in international markets may become more common as global brands seek to unlock value and adapt to regional dynamics.

OTLY Consumer Staples Beverages Plant-based Profitability Omnichannel Brand Strategy