SECAUCUS, NJ. — Freshpet reported it is focusing on four key areas of operational improvements throughout 2023: bolstering capacity, making logistics more efficient, quality improvements, and keeping its pricing in line with commodity costs. On May 8, the company reported its first-quarter earnings for the three-month period ended March 31 and shared its full-year guidance.
“We are off to a very strong start to 2023 behind our recently launched Fresh Future plan,” said Billy Cyr, chief executive officer at Freshpet. “That plan promised renewed focus on improving profitability while continuing to drive strong growth. And our first quarter results demonstrate meaningful progress against those goals — particularly in our focus areas of quality and logistics. With our strengthened organization and the Ennis Kitchen on-line, we believe we can continue to improve on that performance and deliver the significant value creation that one would expect from a high-growth brand like Freshpet."
The fresh pet food company reported first-quarter net sales of $167.5 million, up 26.7% from $132.2 million in the first quarter of 2022, and net loss of roughly $24.8 million, an increase of 38.4% from $17.9 million in net loss reported in the first quarter of 2022. Freshpet attributed net sales gains to pricing and velocity.
“Our net pricing was up 14% versus a year ago in the quarter,” said Todd Cunfer, chief financial officer at Freshpet, in the company’s first-quarter earnings call.. “That will drop to 8% in Q2 as we lap the large price increase we took in February of 2022.”
Adjusted EBITDA was reported at $3 million, up from an adjusted EBITDA of negative $300,000 in the first quarter of 2022.
“As we discussed on our last call, first quarter adjusted EBITDA was expected to be weighed down by the heavy start-up costs in Ennis and the start-up of our Dallas DC [distribution center],” Cyr shared during the earnings call. “I'm very happy to say that both of those initiatives were completed successfully and on budget. But perhaps more importantly, our performance on quality and logistics were much better than we had planned as strong performance on quality yielded improved gross margin and enabled higher fill rates that reduced logistics costs.”
Gross profit for the company was 30.3% of net sales at $50.8 million, compared to 33.9% of net sales at $44.8 million year-over-year. The company noted capacity expansions, increased share-based compensation and unabsorbed facility costs from its Ennis, Texas, startup contributed to gross profit declines as a percentage of net sales in the first quarter. This was partially offset by lower input and quality costs as a percentage of net sales, Freshpet reported.
“The Ennis Kitchen is off to a good start due in large part to the training and preparation to the incredible team that is supporting its build-out and commercialization,” Cyr said. “We are now shipping product off both the bag line and roll line and are capable of producing a wide range of SKUs on those lines.”
Cyr noted the company is still getting up to speed on its bag line in Ennis but expects significant cost savings once the line is completed. The company shared 12 of its bagged SKUs have been qualified for production at Ennis and began shipping product in mid-April. Freshpet expects its chicken processing operations to begin in the second quarter.
“Further, our assessment of the quality of the product produced in Ennis is that it is every bit as good as the product we produce in Bethlehem, and we are doing it with fewer people due to the significant automation that we have integrated into the facilities design,” he added.
The company also shared higher selling, general and administrative (SG&A) expenses in the first quarter totaling $72.3 million, compared to $60.6 million year-ago. Freshpet attributed its first-quarter net loss to this increased SG&A expenses, as well as its $4.4 million media spend and unabsorbed plant startup costs in Ennis.
“Quality costs came in at 5.3% of net sales, down from 6.1% in the year ago quarter, and logistics costs came in at 9.3% of sales, down from 9.9% in the year-ago despite the start-up costs associated with the Dallas DC,” Cyr said. “These are both key operational areas that our team has been focused on, and we are very encouraged by this progress.”
Freshpet announced it is approaching its goal of being in 10 million households, with penetration reaching 9.64 million households in the first quarter of 2023, up 7% year-over-year. Buying rate was also up 28% in the first quarter to $95.60. The company noted its number of “ultra/super heavy/heavy buyers” — classified as having purchased at least $40 of product over the previous 10-week period — was up 18% to 3.34 million in the first quarter.
So far in 2023, Freshpet has added more than 350 stores to its retail network, and will continue to add its branded refrigerators to new and existing retail locations.
“We are well on track towards our goal of having 1.7 million cubic feet of space at retail by the end of this year,” Cyr said.
Cyr also shared the company is currently updating its packaging “for the first time in several years,” and that premarket testing with consumers has shown an “extremely favorable response” to the new graphics.
The company reaffirmed its full-year guidance, expecting net sales of approximately $750 million, which would reflect an estimated 26% increase over 2022 revenue, and adjusted EBITDA of at least $50 million. Freshpet projects capital expenditures to roughly total $240 million in 2023.
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