The growth in Freshpet shares reflects the strength of its business model

As popular as pet supplies are, pet supplies have been in the toilet and can’t seem to get out. The landscape is littered (no pun intended) with broken stocks like those of online e-commerce retailers Chewy Inc. NYSE: WH shares down 56%, PetMed Express Inc. NASDAQ: PETS is down 71.7%, and Petco Health and Wellness Inc. NASDAQ: BAU down 75% in the last year. However, the name of one sector of consumer staples stands out: Freshpet Inc. NASDAQ:FRPT. Freshpet shares are trading up 24% year to date (YTD). Their business is booming and their actions reflect it.

High quality pet food

Freshpet is a manufacturer of high-quality refrigerated pet foods. Their products are minimally processed and formulated with the highest quality real meats, vegetables, grains and fruits. Additionally, they are stored refrigerated to maintain freshness. The meats are farm raised and steamed to preserve nutrients. They sell under various brands, including VITAL, Nature’s Fresh, Homestyle Creations, Spring & Sprout and Deli Fresh. Keep in mind that their food is refrigerated, not frozen. They can be found in the refrigerated section of pet stores, if they have one.

Freshpet meets the growing demand for fresh, high-quality, premium pet food. Their distribution network includes availability at major grocery chains, warehouse clubs and online. Their products can be found on Target Co. New York Stock Exchange: TGT, Kroger Co. NYSE: KRPetco, Safeway, ShopRite and Amazon.com Inc (NASDAQ: AMZN).

Overwhelming estimates for the fourth quarter of 2023

Freshpet reported fourth-quarter 2023 earnings per share of 31 cents higher than consensus analysts’ estimates tripled by 8 cents and higher by 23 cents. Net income was $15.3 million compared to a net loss of $2.9 million in the same period a year earlier. Adjusted EBITDA was $31.3 million compared to $18.8 million in the prior-year period. Revenue increased 29.9% year-over-year to $215.4 million versus consensus estimates of $204.93. Freshpet exceeded company forecasts for the sixth consecutive year. The company ended the year with $296.9 million in cash and cash equivalents.

Key financial data for the full year 2023

For 2023, net sales grew 28.8% year over year to $766.9 million. Net loss was $33.6 million compared to $59.5 million in the year-ago quarter. Adjusted EBITDA was $66.6 million compared to $20.1 million a year ago. Gross profit was $250.9 million or 32.7% as a percentage of net sales compared to $186 million or 31.2% of net sales in the prior year. The increase in gross profit was driven by improved leverage on plant expenses, reduced quality costs and reduced manufacturing costs partially offset by depreciation expenses.

Increase driving

The company raised its full-year 2024 revenue forecast to at least $950 million from consensus estimates of $948.17 million. Revenue is expected to grow at least 24% YoY. Adjusted EBITDA is expected to be between $100 million and $110 million, while capital expenditures are expected to be approximately $210 million.

CEO Insights

Freshpet CEO Billy Cyr said he believes the company has reached an inflection point on its path to becoming a major and profitable company in the emerging fresh pet food segment. The Feed the Growth strategy implemented in 2017 was driven by the belief that fresh pet food was a large-scale business that needed to leverage first-mover advantage. The company achieved a significant increase in its retail presence at its retail partners’ stores. The number of new refrigerator placements rose to a record 5,251 for a total of 34,274 retail refrigerators or more than 1.7 million cubic feet of retail space. Freshpet foods can be found in 26,777 stores, more than 22% of which have multiple refrigerators in the United States.

Long runway for growth

Cyr noted that digital sales increased 58% year-over-year as it seeks to generate more than $100 million in net orders in 2024. The total pet food category represents a $52 billion industry, by of which $36 billion is dog food. Freshpet holds a 3% stake, leaving a long growth path. Household penetration increased 19% year over year to 11.55 million in 2023. The fastest growing home penetration is among Gen-Z consumers. Cyr concluded: “In summary, we have had a very good year and believe we are on the verge of profitability with greater scale and efficiency thanks to increased business intensity and focus and disciplined capital management.”

Freshpet analyst ratings and price targets I’m on MarketBeat. Freshpet colleagues and competitor actions can be found with MarketBeat Stock Screener.

Bull daily banner

The daily candlestick chart on FRPT illustrates a bullish flag pattern. The base of the flag formed the swing low of $84.02 and rose on the gain price gap to $103.22. The rally peak at $114.31 on February 29, 2024 began the flag pullback composed of lower highs and lower lows in a parallel range. The bullish flag breakout is triggered when FRPT clears the $110.49 resistance as the daily relative strength index (RSI) bounces higher. The pullback support levels are at $103.22, $100.24, $96.79, and $93.13.

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