BEDMINSTER, N.J. – Freshpet, the marketer of refrigerated dog and cat food with factories in Bethlehem and Quakertown, reported better than expected results for the third quarter and Wall Street barked its approval. Monday morning shares were up over 9% to $146.12, close to the 52-week high of $146.34.
The value proposition for Freshpet, according to Yahoo Finance, involves meeting the logistical challenges to provide dog and cat owners natural meals and treats for their pets every day. To achieve this, the company must efficiently manage inventory, distribution and quality control while adhering to strict food safety standards, regulations, and labeling requirements.
Billy Cyr, Freshpet’s Chief Executive Officer, told analysts in a webcast that the financial results were directly related to the company exceeding its retail goals. Year-over-year household penetration, he commented, increased 17% and the buy rate grew 6%. In addition, the store count increased by 6% and total distribution points were up 22%.
Cyr extolled the strength of the Freshpet growth model that achieved volume-based growth of 26% in the quarter. Improved operational effectiveness meant adjusted gross margin, input, quality and logistics costs all exceeded long-term targets in the quarter. In addition, Cyr commended the company’s operating discipline to balance capacity and demand at a high growth rate.
Cyr also pointed out that the humanization of pets and the consumer recognition of quality for a price are long-term tailwinds supporting the company’s growth.
Third Quarter 2024
"Our third quarter results demonstrate the strength and consistency of both net sales and profitability growth we have been striving to deliver. We delivered our 25th consecutive quarter of over 25% year on year net sales growth and matched that with a very strong operating performance. This further strengthens our confidence in our ability to meet or exceed our 2027 goals,” Cyr commented in a statement.
Net income was $11.9 million for the third quarter of 2024 compared to net loss of $7.2 million for the prior year period. The company said the increase in net income was due to contributions from higher sales, improved gross margin, and reduced logistics costs as a percentage of net sales, partially offset by increased SG&A (Selling, General & Administrative) expenses.
Freshpet reported net sales increased 26.3% to $253.4 million for the quarter compared to $200.6 million for the prior year period. According to the company, the increase in net sales was primarily driven by volume gains of 26.1%.
Gross profit was $102.2 million, or 40.4% as a percentage of net sales, compared to $66.3 million, or 33.0% as a percentage of net sales, for the prior year period. The increase in reported gross profit, Freshpet claimed, was primarily due to lower input costs and reduced quality costs. Adjusted gross profit was $117.7 million, or 46.5% as a percentage of net sales, compared to $80.6 million, or 40.2% as a percentage of net sales, for the prior year period.
The company noted selling, general and administrative expenses (“SG&A”) were $90.3 million for the third quarter compared to $73.4 million for the prior year period. SG&A as a percentage of net sales decreased by 90 basis points to 35.7% compared to 36.6% for the prior year period, primarily due to reduced logistics costs and the non-recurring charges in the prior year, partially offset by increased media spending as a percentage of net sales, higher share-based compensation and increased variable compensation accrual.
First Nine Months of 2024
Net income was $28.8 million for the first nine months of 2024, Freshpet reported, compared to a net loss of $48.9 million for the prior year period. The improvement in net income was due to contribution from higher sales, improved gross margin, reduced logistics costs as a percentage of net sales, and gain on equity investment, partially offset by increased SG&A expenses.
For the first nine months of 2024, the company said, net sales increased 29.2% to $712.5 million compared to $551.5 million for the prior year period. The increase in net sales was primarily driven by volume gains of 28.2%.
Gross profit, according to Freshpet, was $284.4 million, or 39.9% as a percentage of net sales, for the first nine months of 2024, compared to $176.3 million, or 32.0% as a percentage of net sales, for the prior year period. The increase in reported gross profit as a percentage of net sales was primarily due to lower input costs and reduced quality costs the company pointed out.
For the first nine months of 2024, adjusted gross profit was $327.2 million, or 45.9% as a percentage of net sales, compared to $218.1 million, or 39.5% as a percentage of net sales, for the prior year period.
Selling, general and administrative expenses (“SG&A”) were $265.7 million for the first nine months of 2024 compared to $221.6 million for the prior year period. Freshpet noted SG&A as a percentage of net sales decreased by 290 basis points to 37.3% for the first nine months of 2024 compared to 40.2% for the prior year period, primarily due to reduced logistics costs and media spending as a percentage of net sales and the non-recurring charges in the prior year, partially offset by higher share-based compensation and increased variable compensation accrual.
Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) was $109.2 million for the first nine months of 2024, compared to $35.2 million for the prior year period. The company claimed the increase in adjusted EBITDA was a result of increased adjusted gross profit partially offset by higher adjusted SG&A expenses.
Balance Sheet
As of September 30, 2024, the company reported it had cash and cash equivalents of $274.6 million with $394.6 million of debt outstanding net of $7.9 million of unamortized debt issuance costs. For the nine months ending September 30, 2024, cash from operations was $103.9 million, an increase of $65.0 million compared to the prior year period.
Outlook
Cyr commented, “We are raising our net sales and adjusted EBITDA guidance for 2024 to reflect this continued strong performance and our confidence in our ability to finish the year strongly and, as a result, create significant shareholder value in a way that serves pets, people, and the planet."
For the full year 2024, the company now expects:
Net sales of around $975 million, an increase of around 27% from 2023, compared to at least $965 million in the previous guidance;
Adjusted EBITDA of at least $155 million, compared to at least $140 million in the previous guidance;
Capital expenditures of about $180 million, compared to about $200 million in the previous guidance.
Freshpet, Inc. is an American pet food company. Its cat food and dog food products are marketed as fresh and need to be kept refrigerated. It is listed on the Nasdaq exchange with the ticker symbol FRPT.
