SECAUCUS, NJ and CHICAGO — Freshpet, Inc. continues to make incremental improvements to its adjusted EBITDA and profitability, as well as household penetration, capacity and retail availability, to fuel double-digit net sales growth in the third quarter ended Sept. 30.

“Fiscal year 2023 is shaping up to be the kind of year we had hoped it would — delivering strong top-line and bottom-line growth that puts us ahead of the pace needed to deliver our 2027 goals,” said Billy Cyr, chief executive officer of Freshpet. “As a result of our strong third quarter performance, we are raising our 2023 guidance today. Our strengthened organization is delivering improved margins from better operational performance in logistics, input costs and quality while maintaining strong volume-based revenue growth. This performance underpins our confidence in delivering our long-term Fresh Future goals.”

The company reported a net loss of $7.2 million in the third quarter, improved from a year-ago loss of $18.4 million. Net sales totaled $200.6 million, up 32.6% from the previous year, and adjusted EBITDA was $23.2 million, up from $3.5 million in the third quarter of 2022.

Gross profit for the three-month period was $66.3 million, up from $44.5 million year-ago and accounting for 33% of net sales over the quarter. According to Freshpet, the increase in gross profit as a percentage of net sales is attributable to “decreased unabsorbed plant cost as we grow into the Ennis (Texas) facility.”

In its third-quarter earnings presentation, Freshpet noted its latest kitchen in Ennis is now manufacturing 25% of the company’s entire production. The facility is currently operating a bag line and a chub roll line, both of which are running 24/7. It recently brought chicken processing capabilities online and has begun commissioning for a second bagging line.

Freshpet also shared Phase Two of construction in Ennis is “on track or slightly ahead of schedule,” with the company expecting a second roll line to be operational by the end of the third quarter in fiscal 2024.

“We’ve successfully added incremental staffing at all three production sites over the past 90 days, and that is delivering the necessary capacity to support our current rate of growth and is positioning us well to meet the demand we anticipate in Q1 of 2024,” Cyr said in the company’s third-quarter earnings call on Nov. 6.

For the first nine months of fiscal 2023, Freshpet reported a net loss of $48.9 million, down from $56.6 million in the first nine months of 2022, and net sales growth of 28.4% to $551.5 million. Adjusted EBITDA for the first nine months of the year comes to $35.2 million, compared to $1.3 million over the same period last year.

The company clocked nine-month gross profit at $176.3 million, up from $140.3 million year-ago and accounting for 32% of net sales over the period. Higher pricing and volume gains fueled net sales growth in the third quarter and the first nine months of the year.

“The price/mix was positively impacted by the 2 price increases we took in February and last September, totaling 7.5%,” said Todd Cunfer, chief financial officer at Freshpet.

The fresh pet food company continues to optimize its input, logistics and quality costs. Costs in all three categories were down marginally in the third quarter of 2023 compared to the third quarter of 2022.  

“For perspective, despite shipping 23% more pounds of product in Q3 of this year than in Q3 last year, the total number of miles of freight we paid for was down by 28%,” Cyr said. “This was due to higher fill rates, larger order size after our June implementation of bracket pricing and the ramp-up of our second DC [distribution center].”

Household penetration and buying rate keep growing for Freshpet, with household penetration up 13% to more than 10.78 million households so far in 2023, and buying rate up 15% to $97.21. According to the company, these numbers indicate the brand is “becoming mainstream,” with growth apparent across income levels and age groups.

The company also shared its number of “Ultra/Super Heavy/Heavy Buyers,” classified as consumers who have purchased at least $40 of Freshpet product over the most recent 10-week period, are increasing as more consumers feed Freshpet as their pets’ main meal. This category of buyers has reached just under 3.97 million consumers, up 25% from 2022, and their buying rate was reported at $234.77, up from $221.26 in 2022. According to Freshpet, these heavy users currently account for 88% of the company’s volume and represent its fastest-growing subset of consumers.

Freshpet’s in-store fridge count has continued on the uphill in 2023. The company has added its branded refrigerators to 1,104 new stores so far this year, aside from the 2,423 fridges the company has added to existing stores as their second or third fridge. These additions bring the company’s count of stores with second or third fridges to 5,803, up from 3,762 in 2022, and its total fridge count to 26,385. According to Freshpet, 20% of all its store partners now have more than one branded fridge.

“We are on a pace that is well ahead of our initial commitment to place 5,000 fridges this year and already have the 1.7 million cubic feet at retail that we projected for the year,” Cyr said. “This is a testament to retailers’ belief in Freshpet as a scalable and innovative category leader and that we represent a significant growth opportunity for them.”

Retail availability continues to improve for the fresh pet food company, and recent innovations — including its Large Dog Big Bites and Complete Nutrition Chicken Recipe — are expected to bring the brand to a wider audience.

In the online marketplace, Freshpet is seeing solid growth through delivery, curbside pickup and direct-to-consumer channels. E-commerce sales were up 62% in the third quarter compared to the same period in 2022, and now account for 9.5% of the company’s total volume.

“While we are off to a great start, we are also mindful that we still have a lot of work to do to achieve our 2027 goal, particularly our margin goals,” Cyr noted. “Our adjusted gross margin is still 500 basis points below our long-term goal, our adjusted EBITDA margin is also well below where it needs to be. We need to stay focused on improving our operational performance while simultaneously adding capacity to keep up with the strong growth we expect to deliver.”

In addition to its third-quarter earnings, Freshpet recently announced it has selected Empower Media, a women-owned media firm, to its lineup of agency partners.

“Empower Media offers a unique set of capabilities with their business building strategies, sustainability expertise, influencer networks and marketing science capabilities that will support us as we continue to grow,” said Scott Morris, co-founder and president of Freshpet.

Freshpet has increased its media spending so far in 2023, having spent $5.1 million in the third quarter (9.5% of net sales) and $12.7 million in the first nine months of fiscal 2023. Increased media spend was a partial contributor to the company’s net loss, which was offset by higher net sales, over both periods.

“It’s an honor to collaborate with a trailblazer like Freshpet,” added Ashlee Clarke, chief executive officer of Empower Media. “Their innovative approach to making the highest-quality fresh products keeps pets healthy and brings joy to pet lovers across the nation.”

A promising third-quarter performance has led the company to raise its full-year guidance for fiscal 2023. Freshpet now expects net sales of around $755 million for the full year, up from previous expectations of roughly $750 million. Net sales of $755 million would represent an approximate 27% increase from 2022 revenue. The company also raised its guidance for adjusted EBITDA, now expected to reach roughly $62 million. Capital expenditure expectations for the year remain unchanged at around $240 million.

“We have real momentum as we enter the fourth quarter and look forward to finishing the year on a high note as we work toward fulfilling our mission to change the way people nourish their pets forever,” Cyr concluded.

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