SECAUCUS, NJ. — Freshpet ended the fourth quarter of 2023 with revenue of $15.3 million, rebounding from a loss of $2.9 million to close 2022. While the fresh pet food company reported an overall net loss for the full year of 2023 , it continues to grow net sales and adjusted EBIDTA and expects to maintain this upward trend in 2024.
On Feb. 26, the company reported its fourth quarter and full-year net sales for the three and 12-month periods ended December 31, 2023.
“Our strong results in 2023 show that Freshpet has reached an inflection point,” said Billy Cyr, chief executive officer of Freshpet. “The significant investments we made to create scale and expand our first mover advantage have begun to generate improved profitability and significant operating cash flow. That’s the promise of the Fresh Future plan we announced last year, and it is working.”
Source: Freshpet
The company reported a 29.9% increase in net sales in the fourth quarter to $215.4 million, largely attributable to increased volume, which was up 25%. Adjusted EBITDA was $31.3 million, up from $18.8 million in the fourth quarter of 2022. Pricing increased 5% in the fourth quarter.
Fourth-quarter total revenue reached $74.6 million, making up 34.6% of net sales, up from $45.7 million or 27.6% of net sales in the fourth quarter of 2022. Freshpet attributes these gains to “improved which leveraged plant costs and reduced quality costs. ”
The company also lowered selling, general and administrative (SG&A) expenses in its fourth quarter as a percentage of net sales year over year, thanks in part to reduced logistics costs and ERP implementation. However, SG&A expenses increased in the quarter to $59.7 million compared to the previous $47.8 million, impacted by increased media expenses of $10.4 million.
The shift from net loss to net income in the fourth quarter was attributed to broad channel net sales growth, reduced logistics costs and gross margin improvements.
“We saw 15% growth in pet specialty, 30% in xAOC, and more than 100% growth in unmeasured channels,” commented Todd Cunfer, chief financial officer at Freshpet. “… Nielsen-measured dollar growth was 27% year-over-year, again, with broad consumption growth across all channels, with 18% growth in pet specialty, 29% in xAOC, and about 85% growth in unmetered channels.”
For the full year of 2023, Freshpet reported net sales of $766.9 million, up 28.8% from 2022, and a net loss of $33.6 million, which improved from a net loss of $59.5 million in 2022. According at the company, 2023 marks the company’s sixth consecutive year of net sales growth exceeding 25%. Adjusted EBITDA for the full year came in at $66.6 million, up from $20.1 million year-over-year.
Total revenue for 2023 was $250.9 million, representing 32.7% of net sales, up from $186.0 million or 31.2% of net sales in 2022. Freshpet attributes these gains to “improved leverage on expenses at the plant, reduced quality costs, and reduced input cost as a percentage of sales primarily due to an increase in net sales price.”
Source: Freshpet
SG&A expenses also decreased as a percentage of net sales but increased in value from 2022 to 2023. The company reported $281.3 million in SG&A expenses, or 36.7% of net sales, in 2023 compared to $238.0 million or 40.0% of net sales in 2022 Reduced logistics and ERP implementation costs were also cited for the decrease in SG&A as a percentage of net sales for the full year, partially offset by increased media costs of $23.1 million .
In 2023, logistics costs decreased by 320 basis points, quality costs decreased by 130 basis points, and commodity cost management costs decreased by 110 basis points.
“These financial results demonstrate real momentum, the potential of our plans, and the capability of our team,” Cyr said on the company’s fourth-quarter and full-year earnings call on Feb. 26.
The fresh pet food company continues to invest in its retail real estate by installing its branded refrigerators in new stores and adding second and third refrigerators to existing stores. Freshpet’s store count increased by nearly 1,500 in 2023, now at approximately 26,777 locations. While the majority (78%) of stores have only one Freshpet refrigerator, 22% now have a second or third refrigerator, according to the company.
Freshpet also performs online as e-commerce continues to capture pet care dollars. According to Cyr, the company has increased digital sales by 58% year-over-year, and expects online net sales to exceed $100 million by 2024.
“The majority of our digital orders today are pickup or click and collect, using our existing retail fridge network,” he said. “According to NielsenIQ, pickup is the fastest growing segment of online e-commerce in dog and cat food.”
Freshpet reports household penetration growth of 19% by 2023 to over 11.56 million households as part of its mission to convert more and more pet owners to its fresh diets. The company is also focusing on its “overweight and heavy” consumers, who currently account for about 4.25 million customers or 37% of Freshpet’s consumers but will account for 89% of the company’s total sales by 2023.
The company also shared part of its strategy to increase its purchase rate, which includes converting people who buy Freshpet diets as meal toppers to customers who feed Freshpet as a main meal. According to the company, the purchase rate increased by 6% from $90.61 in 2022 to $95.86 in 2023.
“We’re making the Freshpet brand more mainstream and getting people to use it as a staple food, and that’s creating an intensity and concentration of business that we believe will allow us to be more profitable,” Cyr said. . “… We know that 40% of Freshpet consumers use the product as the main part of their pet’s diet, and there is a huge opportunity to significantly increase this percentage.”
As it enters 2024, Freshpet expects net sales of at least $950 million in 2024, representing a 24% increase from 2023. Adjusted EBITDA is expected to be between $100 million and $110 million.
“We believe the future of pet food is fresh and Freshpet is well positioned to drive growth and deliver the profitability expected from our leadership position,” said Billy Cyr.
“In 2024, we intend to continue making strong margin improvements and demonstrate continued capital discipline, while maintaining the net sales growth for which Freshpet is known—further driving profitability and creating significant shareholder value ,” Cyr said. “We believe the future of pet food is fresh and Freshpet is well positioned to drive growth and deliver the profitability expected from our leadership position.”
Freshpet expects to spend approximately $210 million in capital expenditures in 2024. Phase II construction at the company’s Ennis, Texas, facility is nearing completion in the summer of 2024, giving the company space to -accommodate at least five production lines. on the site. The plant currently operates three lines that produce approximately 25% of all products for the company, with December and January representing record production months at the plant.
“We will have some start-up costs on the third line at Ennis in Q1, and additional start-up costs on the fourth line at Ennis in Q4,” Cunfer said. “At this point, we have about 70% of our commodity costs locked in for the year and currently expect moderate deflation in 2024.”
Ongoing capital investments will focus on maximizing capacity, improving efficiency and continuing refrigeration.
“We continue to advance our capacity expansion plans to drive greater capital efficiency,” Cyr said. “We are very focused on, first, maximizing the output of our existing lines by investing in an operational excellence program designed to increase throughput. We are making good progress with that program in Bethlehem, and we just started the plan in Ennis.
“Second, maximizing the capacity of our three existing sites so we can avoid the high cost of incremental infrastructure and overhead,” he added. “This means finding ways to get more lines to each of the three sites. We’ve already announced plans to add a seventh line to Bethlehem. We believe we’ve found a way to get an additional line or two to Kitchens South, and also looking at ways to get more lines to Ennis.
“Third, the development of new technologies that generate more throughput per line and per square foot of space,” he added. “We’ve been working on this for a long time and making good progress, but we’re not ready to share any details right now.”
Freshpet is also looking ahead to its long-term strategy through 2027, where it expects to be in 20 million households, bank $1.8 million in net sales, and grow its adjusted EBITDA margin to around 18%.
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