SECAUCUS, NJ. — On May 6, Freshpet reported strong results for the first quarter ended March 31, increasing net sales, net income, gross margin and adjusted EBITDA. According to Chief Executive Officer Billy Cyr, the company is sure it can consistently maintain this level of profitability. 

Net sales for the quarter clocked in at $223.8 million, an increase of 33.6% compared to the first quarter of 2023. The company attributed this increase to volume gains of about 30.6%. Gross profit was $88.2 million (39.4% of net sales) compared to $50.8 million (30.3% of net sales) in the prior year. Freshpet attributed this increase to improved plant expenses, reduced quality costs and lower input costs. Adjusted gross profit significantly improved, clocking in at $101.5 million (45.3% of net sales) in the first quarter of 2024, compared to $64.4 million (38.5% of net sales) in the prior year. 

Net income was $18.6 million, compared to a net loss of $24.8 million in the prior year. The company attributed this turnaround to higher sales, improved gross margin, reduced logistics costs, and gain on equity investment, partially offset by increased selling, general and administrative (SG&A) expenses and media spend. Adjusted EBITDA was $30.6 million, a whopping 920% increase from the prior year of $3 million.

“Our strong first quarter results provide solid evidence that we can deliver our long-term financial goals — and we are now determined to prove that we can achieve this level of performance consistently over time,” Cyr said.  “The strength of the Freshpet business model and consumer proposition continue to drive the robust net sales growth investors have come to expect from us, and our intense focus on operational improvements is delivering the margin expansion we knew we could achieve with additional scale. 

“While we are very bullish on our prospects for continued profit improvement, our focus now is on delivering consistently strong performance,” he added. “If we continue to do well, we will create significant shareholder value while fulfilling our mission to nourish pets, people and the planet.”

For the first quarter of 2024, the company increased its SG&A expenses to $79.7 million compared to $72.3 million in the prior year. As a percentage of net sales, SG&A expenses decreased to 35.6% compared to 43.1% in the prior year, which the company attributed to reduced logistics costs. 

“These results did not happen by accident,” Cyr said. “They were the result of a disciplined focus on the key drivers of profit improvement and the changes we have made as an organization. And we are determined to continue those disciplined efforts until these results become a long-term trend.

“Further, these results demonstrate that with increased scale comes increased profitability, which was the basis of our Fresh Future plan that we announced in early 2023,” he continued. “It was then that we pivoted to a more balanced approach to growth and profitability versus our previous, single-minded focus on growth alone. We were able to deliver these results because of the strength of the Freshpet business model and consumer proposition, and strong improvement in the key fundamentals that drive our business.”

Freshpet also reported improvements in its input, logistics and quality costs. Input costs dropped 390 basis points to 31.2% of net sales in the first quarter compared to the prior year, logistics costs dropped 290 basis points to 6.4% of net sales, and quality costs dropped 240 basis points to 2.8% of net sales. The company attributed these improvements to its focus on increasing capacity, improving logistics and quality and enhancing commodity cost management. 

“We are now delivering significant year-on-year improvements in our quality, input and logistics costs — the costs that we have been intensely focusing on — and that has resulted in a step change in our adjusted gross margin and adjusted EBITDA margin,” Cyr said. “Our operational achievements stem from our efforts to build strong organizational capability at all levels — beginning with our Freshpet Academy that has strengthened our production workforce and also including some of the senior leaders we have hired in the past year and a half.”

Freshpet has continued to hone its capacity over the past couple of years, with the latest expansion project being its Ennis, Texas facility. The Ennis plant currently has three lines running — one roll and two bag lines — allowing it to produce about 25% of Freshpet’s total production volume. As part of the expansion, a second roll line is being implemented. According to Cyr, the line is ahead of schedule and startup is expected  by the end of the third quarter, which will help alleviate changeover complexity and improve Freshpet’s SKU assortment.

“We are adding capacity on-budget and on-time, and at a pace that enables us to keep up with our high growth rate without carrying too much excess capacity,” he said. “This enables us to deliver strong fill rates to our customers while simultaneously improving our margins and is the result of the rigor and discipline that we have put in place around our growth planning.”

As shared by Cyr, the company has successfully absorbed the “most significant” pricing it has ever faced and returned to a more than 20% household penetration rate. Freshpet’s household penetration rose to 12.4 million households at the end of the first quarter, compared to 9.9 million households during the same period last year.

“Our high-profit pet-owning households, or HIPPOH’s for short, are growing even faster — up 34% versus the prior year period,” Cyr detailed. “We remain on track to meet our target of 20 million households by 2027.”

To achieve this, Freshpet plans to leverage its advertising to educate consumers on the benefits of feeding fresh, evidenced by the company’s partnership with singer Meghan Trainor. The company will focus on transitioning its current customers from using Freshpet as a topper to main meals for their pets. According to Cyr, nearly half (48%) of Freshpet buyers use its products as the main meal component when feeding their pets, which the company hopes to expand to increase buy rate. For the first quarter, buy rate increased 5% to $96.84 compared to the prior year. 

“We’re making the Freshpet brand more mainstream and getting people to use it as a main meal component, and this creates intensity and concentration of the business that we believe will allow us to be more profitable,” Cyr said.

Freshpet also plans to increase its number of SKUs available through its retail partners with the addition of second and third fridges. In examining its retail footprint, the company ended the quarter with a presence in 27,097 retail stores, 23% of which have multiple Freshpet fridges, and placed a total of 617 new fridges in retail stores, ramping up its total fridge count to 34,812. 

In addition to its strong performance, Freshpet also updated its full-year outlook for 2024. Net sales are expected at $950 million, an increase of 24% from 2023. Adjusted EBITDA is expected at $120 million, up from the prior range of $100 million to $110 million. Capex is expected at $210 million. 

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