As popular as pets are, pet stocks are in the toilet and can’t seem to get out. The landscape (no pun intended) of broken stocks is littered like an online e-commerce retailer Chewy Inc. (NYSE: CHWY) down 56%, PetMed Express Inc. (NASDAQ: PETS) decreased by 71.7%, and Petco Health and Wellness Inc. (NASDAQ: WOOF) down 75% last year. However, one name of the consumer staples sector stands out: Freshpet Inc. (NASDAQ: FRPT). Freshpet shares have traded up 24% year-to-date (YTD). Their business is going gangbuster, and the stock reflects it.
Quality Pet Food
Freshpet is a manufacturer of quality refrigerated pet food. Their products are minimally processed and formulated with the highest quality real meats, vegetables, grains and fruits. Plus, they are kept in the refrigerator to maintain freshness. The meats are farm-raised and steam-cooked to preserve nutrients. They sell under various brands, including VITAL, Nature’s Fresh, Homestyle Creations, Spring & Sprout and Deli Fresh. Note that their food is refrigerated, not frozen. They can be found in the refrigerated section of pet stores, assuming they have them.
Freshpet is riding the growing demand for fresh, high quality, premium pet food. Their distribution network includes availability in major grocery chains, warehouse clubs and online. Their products can be found at Target Co. (NYSE: TGT), Kroger Co. (NYSE: KR)Petco, Safeway, ShopRite and Amazon.com Inc (NASDAQ: AMZN).
Crushing Q4 2023 Estimates
Freshpet reported Q4 2023 EPS of 31 cents, more than tripling consensus analyst estimates of 8 cents and beating by 23 cents. Net income was $15.3 million compared to a net loss of $2.9 million last year. Adjusted EBITDA was $31.3 million compared to $18.8 million last year. Revenues rose 29.9% YoY to $215.4 million versus the $204.93 consensus estimate. Freshpet exceeded the company’s guidance for the sixth consecutive year. The company closed the year with $296.9 million in cash and cash equivalents.
Full Year 2023 Financial Highlights
For 2023, net sales grew 28.8% YoY to $766.9 million. Net loss was $33.6 million compared to $59.5 million in the prior quarter. Adjusted EBITDA was $66.6 million compared to $20.1 million last year. Gross profit was $250.9 million or 32.7% as a percentage of net sales compared to $186 million or 31.2% of net sales for the prior year. The increase in gross profit was driven by improved leverage on plant costs, reduced quality costs, and lower input costs partially offset by depreciation expense.
Increasing Guidance
The company raised full-year 2024 revenue guidance to at least $950 million compared to $948.17 million consensus estimates. Earnings should grow at least 24% YoY. Adjusted EBITDA is expected to be between $100 million and $110 million, and Capex is expected to be $210 million.
CEO Insights
Freshpet CEO Billy Cyr said he believes the company has reached an inflection point in its journey to becoming a large and profitable business in the emerging fresh pet food segment. The Feed the Growth strategy implemented in 2017 was driven by the belief that fresh pet food is a scale-driven business that needs to leverage its first-mover advantage. The company received a significant increase in its retail presence in its retail partner stores. The number of new refrigerator installations rose to a record 5,251 for a total of 34,274 retail refrigerators or more than 1.7 million cubic feet of retail space. Freshpet foods are found in 26,777 stores, more than 22% of which have multiple refrigerators in the United States.
Long Runway for Growth
Cyr noted that digital sales are up 58% YoY on their way to generating over $100 million in net orders by 2024. The overall pet food category is a $52 billion industry, of which $36 billion is dog food . Freshpet has a 3% piece of that, leaving a long runway for growth. Household penetration increased by 19% YoY to 11.55 million in 2023. The fastest growing household penetration is among Gen-Z consumers. Cyr concluded, “In summary, we’ve had a very good year, and we believe we’re on the cusp of profitability with greater scale and efficiency due to increased business intensity and concentration and disciplined capital management.”
Freshpet analyst ratings and price targets is on MarketBeat. Freshpet peers and competitor stocks can be found at MarketBeat stock screener.
Daily Bull Flag
The daily candlestick chart on FRPT depicts a bull flag pattern. The flagpole base formed the $84.02 swing low and bounced off the price profit gap at $103.22. The rally peak at $114.31 on February 29, 2024, started with a flag pullback consisting of lower highs and lower lows in a parallel range. A bull flag breakout is triggered when the FRPT breaks above the $110.49 resistance while the daily relative strength index (RSI) rises back up. Pullback support levels are at $103.22, $100.24, $96.79 and $93.13.
Source MarketBeat
