SECAUCUS, Penn. — Freshpet, Inc. reported $65.3 million in revenue in the third quarter of its fiscal 2019, putting the company on track to achieve full-year guidance of more than $244 million in sales by the end of the fiscal year.
“In the third quarter, we delivered a particularly strong top line growth of 28%, and this was on top of 27% growth in the year-ago quarter,” said Billy Cyr, CEO and director of Freshpet.
It increased its full-year guidance from $240 million to $244 million after a successful second quarter.
“This was our eighth consecutive quarter of growth in excess of 20%, and seven of those quarters have had growth in excess of 25%,” Cyr added.
Growth was reportedly driven by household penetration (up 21%), sales velocity and Freshpet’s core dog food category, which includes its refrigerated dog rolls, roasted meals and its fresh-from-the-kitchen diets. Freshpet’s buying rate also increased by 4% over the third quarter.
Household penetration for the company’s core dog segment alone was up 31%, according to Cyr, although the buying rate for the segment was flat compared to a year ago.
“As expected, the rapid influx of new buyers limited the core dog buying rate growth… As those new users mature, we expect to see continued increases in the buying rate,” Cyr explained.
The company continues to invest in marketing and expanding its retail presence. The company added fridges to 365 new stores across the US in the third quarter, bringing Freshpet’s total store count to 20,799.
It also added second fridges to 31 retail locations. Now, the company has two or more of its branded fridges in 778 stores across the US, Cyr reported.
“We front-loaded our advertising investment in each market and have seen consumption growth behind those investments that is consistent with the growth rates that we see behind media investments in the US, and the impact was sustained after the advertising went off the air,” he said.
In the third quarter, Freshpet invested $4.5 million in advertising that largely ran in the second half of the quarter, reported Freshpet CFO Richard Kassar.
“While our advertising investment in quarter three was less than the investment we made in each of the first two quarters, we clearly benefitted from both the expanded franchise we built earlier this year and from the investment we made in this quarter,’ Kassar added.
Advertising in international markets also indicated a strong foundation for sales and distribution growth in those markets in the upcoming year, the company reported.
E-commerce continues to grow for Freshpet, with channels including Instacart, Shipt, Amazon Prime Now and FreshDirect up 93% compared to a year ago. The company’s e-commerce sales now account for 2.5% of its total business, Cyr said, with more than 85% of those sales going through its in-store fridge network.
Adjusted EBITDA was up $5.3 million to $12 million in the third quarter. At this point, the company’s EBITDA growth is projected to exceed its net sales growth, Cyr said.
Cyr also reported that Freshpet’s adjusted gross margin was up 10 basis points to 49.8% in the third quarter after resolving manufacturing issues in August that “bled into the first part of the third quarter,” he said.
The company plans to add to its workforce in the fourth quarter to man its fourth and final 24/7 production line. It has also begun to hire employees that will work in its Kitchens 2.0 in Bethlehem, which is currently under construction and on track to begin operations in the third quarter of 2020.
“We strive to make it very difficult for a competitor to match our level of mastery of fresh pet food manufacturing. To that end, we announced the hiring of two new top technical talents in August,” Cyr said.Lynn Bingham joined the company as vice president of process development and strategic quality, and Willie Everett joined as general manager of Freshpet’s Midwest facility.
“We are already seeing the benefits of their efforts,” Cyr added.
Cyr said Freshpet is in the process of acquiring land for its next facility in the Midwest “that will create geographic diversity in our supply and distribution system.” Everett will lead the start-up of that facility, which is expected to be sometime in 2022.
The company expects to announce the location of Freshpet’s Midwest facility in the first quarter of its fiscal year 2020.
“In summary, 2019 is going to be another strong year for Freshpet and will position us well to deliver our long-term goals and tremendous potential,” Cyr concluded.
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