Freshpet’s CEO describes 2023 as an “inflection point” after turning a profit in the fourth quarter, even though the US business posted a loss for the full year.
Nasdaq-listed pet-food maker Freshpet reported revenue of $15.3m in the three months to 31 December, compared with a loss of $2.9m in the final quarter of 2022. Over the 12 months, Freshpet remained at red to the tune of $33.6m, although narrowing from last year’s $59.5m loss.
Net sales and adjusted EBITDA increased in both periods.
“Our strong results in 2023 show that Freshpet has reached an inflection point: the large investments we made to create scale and extend our first-mover advantage have begun to generate improved profitability and significant operating cash flow,” said CEO Billy Cyr in the results commentary.
Addressing analysts yesterday (February 26), Cyr added that the business was “on the cusp of profitability with greater scale and efficiency due to increased business intensity and concentration and disciplined capital management”.
New Jersey-based Freshpet exceeded its 25% annual sales growth target through 2027. Sales rose 28.8% to $766.9m and rose 29.9% in the fourth quarter to $215.4m.
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Adjusted EBITDA for the full year more than tripled to $66.6m, while the last quarter print climbed to $31.3m, up from $18.8m.
“We’ve found that we execute well at about a 25% growth-rate level, meaning engineering, staffing, organizational capability, design, construction, and start-up of facilities, the ability to hire and train people,” Cyr told analysts.
“And if we continue and grow at a faster rate, we think we can catch up to ourselves [in] few implementation problems. And so, we prefer to stay at that rate.
Cyr explained that Freshpet’s production capacity should be sufficient until about 2029 if the business stays around that growth rate, at which point the company may need to assess options for an additional site.
He said the company aims to “maximize throughput in our existing footprint”.
For 2024, Freshpet is forecasting net sales of at least $950m, an increase of 24% from 2023. It expects to spend about $210m in capital expenditure.
The chief executive said Freshpet would be “disciplined” in capital expenditure in the new financial year.
“Our assessment based on what we know now is that the infrastructure that we have within the normal technologies that we have planned can allow us to reach our growth goals until about 2029 at this point , if we can maintain our growth at , call it, the 25% rate.”
By 2027, the cat and dog food maker expects to achieve $1.8bn in net sales, based on a 25% growth target, and an adjusted EBITDA margin of 18%.
The margin climbed to 8.7% in 2023 from 3.4% last year but reached 14.5% in the last quarter, up from 11.3% in the corresponding period.
The pet-food company increased its media spending in the fourth quarter by $10.4m compared to a year earlier as it saw gross margins “excellently improve” during the period. This constituted 6.3% of net sales in the quarter.
Chief operating officer Scott Morris said: “But it’s unusual for us to spend that much in Q4, that it’s a year where we’ve really had capacity, so we spent a little bit more in Q4 than usual. that gives us good momentum in Q1. We see that coming from consumer penetration and also overall top-line growth, particularly in units and pounds.”
Jon Andersen, an analyst at William Blair, wrote in a research note: “Overall, this was a strong end to a foundational year, with the company giving further confidence to the Fresh Future plan. Because plan seems more achievable each quarter, the shares continue to offer good value, in our opinion.
Freshpet focuses on the fresh and natural ingredient pet food segment, sold in grocery retail in North America and Europe, the mass, club and natural-store channels, and also online.
