Freshpet, Inc. (FRPT)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 net sales grew 17.6% to $263.2M, driven by 14.9% volume and 2.7% mix; Adjusted EBITDA rose to $35.5M, but GAAP results swung to a $12.7M net loss as SG&A rose on higher media and one‑time charges .
• FY25 outlook was cut: net sales to $1.12–$1.15B (from $1.18–$1.21B), Adjusted EBITDA to $190–$210M (from ≥$210M), and capex to ~$225M (from ~$250M) as management “plans as if” Q1 consumer conditions persist .
• Operational execution remains strong: adjusted gross margin held at 45.7% (+40 bps YoY), logistics costs fell to 5.8% of sales, and input/quality/logistics costs improved 310 bps YoY; e‑commerce grew 43% .
• Street context: FRPT beat S&P Global revenue consensus ($263.2M vs $258.3M*) and S&P “Primary EPS” ($0.09 vs $0.07*), but GAAP diluted EPS was a loss of ($0.26) due to non‑recurring items; the guide‑down is the dominant near‑term narrative catalyst .
• Management reiterated confidence in long‑term targets and free cash flow positive in 2026; capacity expansions remain on time/budget with flexibility to slow spend if needed .

What Went Well and What Went Wrong

• What Went Well

  • Top-line and normalized profit resilience: Net sales +17.6% to $263.2M; Adjusted EBITDA up ~$5M to $35.5M; Adjusted gross margin 45.7% (+40 bps YoY) .
  • Structural cost progress: Logistics 5.8% of sales (vs 6.4% LY) and a combined 310 bps YoY improvement across input, logistics, and quality costs in Q1 .
  • Engagement of core users and digital channels: MVP households +21%, now 69% of LTM sales; e‑commerce up 43%; store count 28,521 with 23% multi‑fridge locations .

  Quote: “Freshpet remains a structurally advantaged business with a long runway for growth in a category with long-term tailwinds.” — CEO Billy Cyr .

• What Went Wrong

  • Profitability pressured by one‑offs and media: GAAP net loss ($12.7M) vs LY net income $18.6M, with higher media spend (+$7.7M) and non‑recurring charges ($16.9M) including distributor liquidation write‑off, legal accrual, and international termination .
  • Guide‑down on FY25: Net sales trimmed to $1.12–$1.15B; Adjusted EBITDA to $190–$210M; capex to ~$225M, reflecting a more cautious consumer backdrop and slower new household additions .
  • Pet specialty disruption: Distributor transition shaved ~1ppt from Q1 growth and caused AR write‑off; channel is stabilizing with a new partner (Pet Food Experts) .

Financial Results

Notes:

• Q1 GAAP gross margin reflects reversal of a 150 bps one‑time manufacturing benefit from Q4, as pre‑guided .
• Q1 Adjusted EBITDA margin was modestly below LY (13.5% vs 13.7%) on higher media and non‑recurring items, despite cost improvements .

Q1 2025 Actual vs S&P Global Consensus

Values retrieved from S&P Global.
Context: Company reported GAAP diluted EPS of ($0.26), with differences versus S&P “Primary EPS” reflecting one‑time items and definitional differences .

KPIs (Q1 2025)

• Household penetration: 14.1M (+13% YoY) .
• MVP households: 2.2M (+21% YoY); MVPs = 69% of LTM sales; MVP buy rate $498 .
• Overall buy rate: $110 (+6% YoY) .
• Store count: 28,521; multi‑fridge locations: 23%; ~1.9M cubic feet; avg ~20.8 SKUs .
• Logistics: 5.8% of sales (vs 6.4% LY); Input costs 29.3%; Quality 2.2% .
• Operating cash flow: $4.8M .

Guidance Changes

Management expects sequential net sales increases each quarter, modest adjusted gross margin expansion, media as a % of sales higher than 2024, year‑end cash ~$200M, and free cash flow positive in 2026 .

Earnings Call Themes & Trends

Management Commentary

• Strategic posture: “We are adapting our growth plans to the current economic challenges… while continuing to drive the operational improvements that are essential to our long‑term success.” — CEO Billy Cyr .
• On consumer dynamics: “We just aren't adding new consumers at the same rate… We do not expect the short‑term change… to change the long‑term desire for pets or premium pet food.” .
• Affordability tactics: Entry price point bag under Complete Nutrition, multipacks, value‑oriented channel expansion (club/mass), more targeted media toward higher‑income consumers .
• Capital flexibility: Capex trimmed to ~$225M; ability to pace staffing/lines; still expect FCF positive in 2026 .
• No discounting: “There won't be any coupon… any discounting,” focus remains on opening price points and value packs vs. trade promotions .

Q&A Highlights

• Guidance framework: Outlook assumes Q1 consumer conditions persist; management will adjust spend/capacity if macro deviates .
• Price/mix: Favorability in Q1 was mostly mix and some gross‑to‑net; no list price changes; expect less favorability vs tough compares .
• Media ROI/CAC: Increased, more targeted spend (creative refresh, MVP targeting, shift to e‑commerce/DTC); Q2 media around $40M; CAC and ROAS strong in targeted channels .
• Distribution/Inventory: Specialty out‑of‑stocks tied to distributor issue now largely corrected; shipping close to consumption; no broad destocking risk seen .
• Channels: Value channels (club/mass) outperforming; Sam’s Club test encouraging and could bias to high end of guide if it scales .
• Tariffs: ~5% of U.S. COGS from imported raw materials; minimal P&L impact expected; monitoring potential retaliatory effects on exports .

Estimates Context

• Q1 2025 vs S&P Global consensus: Revenue beat ($263.2M vs $258.3M*), S&P “Primary EPS” beat ($0.09 vs $0.07*). Company’s GAAP diluted EPS was ($0.26) due to higher media and non‑recurring charges (distributor write‑off, legal accrual, international changes) .
• Street modeling ahead: Consensus implies steady quarterly revenue progression and rising profitability through late 2025–2026*, aligning with management’s expectation of sequential net sales increases and back‑half weighted EBITDA .
  Values retrieved from S&P Global.

Key Takeaways for Investors

• Near‑term: Expect the guide‑down and consumer uncertainty to dominate the narrative; top‑line resilience and cost execution underpin support, but normalized vs GAAP earnings optics diverge .
• Core health: MVP cohort growth, e‑commerce acceleration, and multi‑fridge/store expansion support the medium‑term thesis .
• Margin/cash: Structural cost gains (input/quality/logistics) and capex flexibility keep the path to modest margin expansion in 2025 and FCF positive in 2026 intact .
• Execution watch‑items: Media productivity (creative/targeting), club channel scale (Sam’s), pet specialty stabilization under new distributor, and inventory flow at key retailers .
• Risk factors: Prolonged macro hesitation in pet adoption/trade‑up, competitive discounting in kibble, and potential tariff spillovers on exports .
• Upside levers: Faster club/mass expansion, successful entry price‑point products/multipacks, and deployment of new production technologies improving margins .
• Positioning: FRPT remains a category share gainer with an advantaged model; FY25 is a recalibration year with prudent investment and capacity pacing while protecting long‑term growth and profitability targets .

Appendix: Additional Reference Data

• Balance sheet (3/31/25): Cash $243.7M; convertible notes $395.7M (net); total assets $1.56B .
• Operating cash flow Q1: $4.8M (vs $5.4M LY), impacted by one‑time items and higher incentive comp .

Footnote: All consensus/estimate values marked with an asterisk (*) are values retrieved from S&P Global.