Freshpet (NASDAQ:FRPT) Delivers Strong Q4 Numbers, Stock Rises
Pet food company Freshpet (NASDAQ: ) beat analysts’ expectations in Q4 FY2023, with revenue up 29.9% year over year to $215.4 million. The company expects full-year revenue to be around $950 million, in line with analysts’ estimates. It produced GAAP earnings of $0.31 per share, down from its profit of $0.32 per share in the same quarter last year.
Is it time to buy a Freshpet? Find out by reading the original StockStory article.
Freshpet (FRPT) Q4 FY2023 Highlights:
- Income: $215.4 million vs. analyst estimates of $204.6 million (5.3% beat)
- EPS: $0.31 vs analyst estimates of $0.04 ($0.27 beat)
- Management of income guide for the upcoming finance year 2024 was $950 million at the midpoint, in line with analyst expectations and indicating 23.9% growth (compared to 28.7% in FY2023).
- Free Cash Flow was -$163 million compared to -$19.94 million in the previous quarter
- Gross Margin (GAAP): 34.6%, higher from 27.6% in the same quarter last year
- Market Capitalization: $4.44 billion
“Our strong results in 2023 show that Freshpet has reached an inflection point: The significant investments we made to create scale and extend 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’s working,” commented Billy Cyr, Chief Executive Officer of Freshpet.
Differentiating itself from the typical processed pet foods found throughout the industry, Freshpet (NASDAQ:FRPT) is a pet food company whose product portfolio includes natural foods and foods for in dogs and cats.
Packaged Food As America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution that offered convenience to the evolving American family, whether it was canned goods, prepared meals, or snacks. Today, Americans are looking for brands that are high quality, reliable, and reasonably priced. Furthermore, there is a growing emphasis on health-conscious food choices and sustainable food.
Packaged food stocks are considered stable investments. People will always need to eat, so these companies can enjoy consistent demand as long as they stay ahead of changing consumer preferences. The industry ranges from multinational corporations to smaller specialist companies and is subject to food safety and labeling regulations.
Sales GrowthFreshpet is a small consumer staples company, which sometimes poses disadvantages compared to larger competitors that benefit from better brand awareness and economies of scale. On the other hand, an advantage is that its growth rates can be higher because it is growing on a small base.
As you can see below, the company’s annual revenue growth rate of 34% over the past three years is incredible for a consumer business.
This quarter, Freshpet reported impressive year-over-year revenue growth of 29.9%, and its $215.4 million revenue topped Wall Street estimates by 5.3%. Looking ahead, Wall Street expects sales to grow 23.3% over the next 12 months, a deceleration from this quarter.
Cash Is KingAlthough earnings are undoubtedly important for assessing company performance, we believe cash is king because you can’t use accounting earnings to pay the bills.
Freshpet burned through $163 million of cash in Q4, representing a negative 75.7% free cash flow margin. The company reduced its cash burn by 212% year on year.
Over the past two years, Freshpet’s required reinvestment to stay relevant to consumers has drained the company’s resources. Its free cash flow margin is among the worst in the consumer staples sector, averaging a negative 41%. However, its margin has averaged a year-over-year increase of 8.7 percentage points over the past 12 months, showing that the company is no less improving.
Key Takeaways from Freshpet’s Q4 Results
We were impressed with how dramatically Freshpet beat analysts’ EPS expectations this quarter. We’re also excited that its revenue beat Wall Street estimates as it saw momentum in the pet food sector.
Management’s EBITDA guidance of $105 million for the full year 2024 was ahead of expectations, and it noted that the company reached an inflection point this quarter in terms of profitability. Overall, we think it was a really good quarter that should please shareholders. The stock rose 5.5% after the report and is currently trading at $97 per share.
