Freshpet's CEO has characterised 2023 as an “inflection point” after turning to a profit in the fourth quarter, albeit the US business posted a loss for the full year.
The Nasdaq-listed fresh pet-food maker reported a profit of $15.3m in the three months to 31 December, compared to a loss of $2.9m in the final quarter of 2022. For the 12 months, Freshpet remained in the red to the tune of $33.6m, although narrowing from a $59.5m loss a year earlier.
Net sales and adjusted EBITDA rose across both periods.
“Our strong 2023 results demonstrate that Freshpet has reached an inflection point: the significant investments we have made to create scale and extend our first-mover advantage have begun to generate improved profitability and significant operating cash flow," CEO Billy Cyr said in the results commentary.
Addressing analysts yesterday (26 February), Cyr added that the business is “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 set through to 2027. Sales were up 28.8% at $766.9m and rose 29.9% in the fourth quarter to $215.4m.
Adjusted EBITDA for the full year more than tripled to $66.6m, while the final quarter print climbed to $31.3m, from $18.8m.
“We have found we execute very well at around the 25% growth-rate level, meaning engineering, staffing, organisational capability, design, construct, and start facilities, the ability to hire and train people,” Cyr told analysts.
“And if we were to push ahead and grow at an even faster rate, we think we might get ourselves [in] a little bit of an executional trouble. 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, when the company may have to assess options for an additional site.
He said that the company is aiming to “maximise the throughput on our existing footprint”.
For 2024, Freshpet has forecast net sales of at least $950m, an increase of 24% from 2023. It expects to spend around $210m on capital expenditure.
The chief executive stated that Freshpet will be “disciplined” with its capital expenditure in the new financial year.
“Our assessment based on what we know today is that the infrastructure that we've got within the normal technologies we have planned can allow us to meet our growth goals all the way out until almost 2029 at this point, if we maintain our growth at, call it, the 25% rate.”
By 2027, the cat- and dog-food maker hopes to achieve $1.8bn in net sales, based on the 25% growth target, and an adjusted EBITDA margin of 18%.
The margin climbed to 8.7% in 2023 from 3.4% a year earlier but reached 14.5% in the final quarter, up from 11.3% in the corresponding period.
The pet-food company increased its media spend in the fourth quarter by $10.4m compared to the year before as it saw gross margins “do really well” in the period. This comprised 6.3% of net sales in the quarter.
Chief operating officer Scott Morris said: “But it's unusual that we spend that much in Q4, that this is a year where we actually had capacity, so we ended up spending a little bit more on Q4 than we have historically. That gave us good momentum into Q1. We're seeing that come through both in consumer penetration and also in overall top-line growth, especially in units and pounds.”
Jon Andersen, an analyst at William Blair, wrote in a research note: “Overall, it was a strong finish to a foundational year, one in which the company lent additional credence to the Fresh Future plan. With the plan seeming more achievable with each quarter, the shares continue to offer good value, in our opinion.”
Freshpet is focused on the fresh and natural ingredients segment of pet food, sold into grocery retail in North America and Europe, the mass, club and natural-store channels, and also online.
