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Freshpet, Inc. (FRPT)·Q3 2025 Earnings Summary

Executive Summary

  • Revenue rose 14.0% YoY to $288.8M, modestly above S&P Global consensus ($283.7M), driven by 12.9% volume and 1.1% price/mix; GAAP diluted EPS of $1.86 far exceeded consensus ($0.42) due to a non-recurring $77.9M deferred tax valuation allowance release . Consensus values from S&P Global: Revenue $283.7M*, EPS $0.419*.
  • Adjusted EBITDA increased 26% YoY to $54.6M with margin up 170 bps to 18.9% on lower SG&A ratio, offset by lower gross-margin leverage; inventory timing reduced reported Q3 gross margin by 130 bps, with management guiding a Q4 gross-margin “handle of 47%” .
  • FY25 guidance tightened/lowered: net sales growth ~13% (from 13–16%), Adjusted EBITDA $190–195M (from $190–210M), and capex ~$140M (from ~$175M); company achieved positive FCF in Q3 and now expects to be FCF positive for FY25, one year earlier than planned .
  • Near-term stock drivers: positive FCF inflection; breadth of club/mass distribution (fridge islands) and e-comm momentum; offset by narrowed sales outlook, competitive entries (e.g., Blue Buffalo) and macro drag; management underscores new bagging technology to narrow bag/roll margin gap over time .

What Went Well and What Went Wrong

  • What Went Well
    • Delivered category-leading growth: net sales +14.0% YoY to $288.8M; Adjusted EBITDA +$11M YoY to $54.6M, with Adjusted EBITDA margin up 170 bps to 18.9% .
    • Positive free cash flow in Q3; now expects full-year 2025 FCF positive; reduced FY25 capex to ~$140M as capital efficiency improves .
    • Strategic execution: rapid distribution expansion in club (125 → 590 stores) and initial “fridge island” tests in a large mass retailer; digital orders +45%; CEO: “we are quickly adjusting to the new economic reality…with strong financial and operational results” .
  • What Went Wrong
    • Gross margin leverage softer: reported GM fell 90 bps YoY to 39.5% on lower plant leverage; inventory timing in Q3 hurt GM by ~130 bps (to be recouped in Q4) .
    • Guidance trimmed: sales outlook set to low-end (~13%) and Adjusted EBITDA range narrowed ($190–195M); FY25 adjusted gross margin now expected “flat” YoY vs prior “modest expansion” .
    • Macro and competitive caution: consumer sentiment weak; Blue Buffalo’s fresh entry monitoring; Q4 implied top-line moderation versus Q3, reflecting pipelines and holiday inventory dynamics .

Financial Results

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$253.367 $263.249 $264.689 $288.848
Gross Margin % (GAAP)40.4% 39.4% 40.9% 39.5%
Adjusted Gross Margin %46.5% 45.7% 46.9% 46.0%
SG&A % of Net Sales (GAAP)35.7% 43.8% 34.1% 30.9%
Adjusted SG&A % of Net Sales29.3% 32.2% 30.1% 27.1%
Adjusted EBITDA ($USD Millions)$43.494 $35.534 $44.402 $54.610
Adjusted EBITDA Margin %17.2% 13.5% 16.8% 18.9%
Diluted EPS (GAAP, $)$0.24 $(0.26) $0.33 $1.86

Notes: Q3’25 GAAP EPS includes a $77.9M non-recurring deferred tax valuation allowance release .

KPIs and Operating Metrics

KPIQ2 2025Q3 2025
Household Penetration (MM)14.4 14.8
MVP Households (MM)2.2 2.3
E‑commerce Share of Sales13% 14%
Digital Orders Growth (YoY)~40% 45%
Store Count (US/Canada)29,141 29,745
Fridges Installed37,985 38,778
Logistics Cost % of Sales5.7% 5.5%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales Growth YoYFY 202513%–16% ~13% Lowered to low end
Adjusted EBITDA ($M)FY 2025$190–$210 $190–$195 Narrowed lower
Capital Expenditures ($M)FY 2025~$175 ~$140 Lowered
Adjusted Gross Margin YoYFY 2025Modest expansion expected Now “flat” for the year Lowered

Additional guidance color: Expect FY25 positive free cash flow; media as % of sales >2024 but Q4 will be lowest dollar and %; book tax expense to flow through P&L but no cash taxes expected until ~2028 (utilizing NOLs) .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2025, Q2 2025)Current Period (Q3 2025)Trend
New production technology (bag lines)First full-scale bag line to start in Q4’25; “lite” retrofit testing in 2026; potential to narrow bag vs roll margin gap First line installed and commissioning; saleable product expected in Q4; “lite” retrofit to begin Spring 2026 Execution moving from plan to commissioning
Distribution expansion (club/mass; fridge islands)Club test expanded to 125 stores; multiple retailers considering island fridges Club expansion to 590 stores; 16 “fridge island” tests in mass retailer; more coming Accelerating distribution breadth/visibility
Macro/consumerAdjusted 2025 top-line to reflect subdued category, weaker sentiment Still weak sentiment; balancing new ads/value SKUs; Q4 caution on retailer inventory Persistent headwind
Competition (Blue Buffalo, others)Anticipated new entries; saw category validation Early days; observed some discounting; watching for switching; no material impact yet Monitoring; limited impact so far
E‑commerce/DTCDigital orders +40%; ~13% mix; building capabilities Digital orders +45%; 14% mix; e‑comm/DTC to be more material in 2026 Strengthening channel
Capex disciplineLowered 2025/26 capex by ≥$100M; pushing Ennis Phase 3 FY25 capex cut to ~$140M; 2026 capex likely similar unless tech/placement accelerates Sustained capital efficiency
Gross margin driversYields, quality, Ennis leverage; modest expansion planned Inventory timing −130 bps in Q3; targeting 47% GM in Q4 Near-term timing noise; underlying improvements
Tariffs/regulatorySome tariff impact (steel, parts) included in capex Small tariff effects on EU-sourced vegetables; mitigation ongoing Stable manageable headwind
CFO transition—Interim CFO; active search; culture/discipline to persist Transition underway

Management Commentary

  • “We are quickly adjusting to the new economic reality and remain one of the best-performing pet food businesses… [and] achieved positive free cash flow in the third quarter and will…be free cash flow positive for the full year” — CEO Billy Cyr .
  • On technology: “The first new production scale line…is now fully installed and in the final stages of commissioning…We expect to produce saleable products…in Q4” .
  • On distribution: “We started testing new Fridge Islands in the first 16 stores of a large mass retailer…We were…in 125 [club] stores at the end of July, and are now in 590 stores as of the end of September” .
  • On margin cadence: “We…decreased our inventory. That was a hurt of 130 bps [to GM], which we should get back in Q4…we’re a 47% gross margin company” — Interim CFO Ivan Garcia .
  • On competition: “We haven’t seen much impact…Most of the things that have happened…to date have been relatively small…We have seen a little bit of price discounting [by Blue Buffalo] already” — CEO .

Q&A Highlights

  • Production technology timeline and economics: management will assess full-line vs “lite” retrofits by back half of 2026; focus on raising bag margins, with potential reinvestment in price where appropriate .
  • Competitive dynamics: early Blue Buffalo discounts observed; retailers increasing Freshpet support; monitoring panel data for switching; sustained velocity advantage noted .
  • Q4 cadence: implied moderation tied to pipeline shifts and holiday inventory; Q3 benefited ~1pt from Q2–Q3 shift and club pipeline; sequential patterns expected to normalize in 2026 .
  • Tax/NOLs: $77.9M valuation allowance release reflects sustained profitability; book tax expense going forward but no cash taxes likely until ~2028 .
  • Capex philosophy: ~$140M in 2025; willing to flex higher for compelling tech retrofits or sizable island fridge rollouts without jeopardizing positive FCF trajectory .

Estimates Context

MetricS&P Global ConsensusActualSurprise
Revenue ($M)$283.7*$288.8 +$5.1 (+1.8% vs cons.)
Primary EPS ($)$0.419*$1.86 +$1.44 (driven by $77.9M valuation allowance release)
EBITDA ($M)$53.0*$50.1 (EBITDA) −$2.9 (−5.4% vs cons.); Adjusted EBITDA $54.6

Notes: Consensus from S&P Global. EBITDA above reflects EBITDA (not Adjusted). Company-reported Adjusted EBITDA was $54.6M . S&P Global estimates marked with an asterisk (*) are values retrieved from S&P Global.

Key Takeaways for Investors

  • Positive FCF inflection arrived a year early; FY25 FCF-positive outlook plus capex cut to ~$140M improves cash generation and lowers capital intensity near term .
  • Top-line guide narrowed to ~13% growth; Q4 cadence cautious (inventory, pipelines), but club/mass expansions and e-comm strength provide 2026 re-acceleration levers .
  • Margin setup constructive: inventory timing should unwind in Q4 (target ~47% GM), with ongoing OEE/yield progress and bag-technology rollout to narrow bag/roll margin gap over time .
  • Competitive noise (new entrants) appears manageable so far; retailers expanding Freshpet visibility (fridge islands, more SKUs) — early velocity remains strong .
  • S&P Global comp: revenue beat; GAAP EPS outlier beat due to tax allowance release; EBITDA slightly below S&P’s EBITDA consensus but Adjusted EBITDA strong; expect estimate models to recalibrate to Adjusted EBITDA and normalize EPS for non-recurring tax .
  • Strategic focus: MVP-heavy franchise, value-oriented SKUs (entry bag, bundles) and increased digital targeting to drive HH penetration while maintaining media ROI discipline .
  • Medium-term: Management reaffirms path to 48% adjusted gross margin and ~20–22% Adjusted EBITDA margin by 2027 across growth scenarios, excluding potential upside from new technology .

Appendix: Additional Data Points

  • Q3 mix drivers: volume +12.9%, price/mix +1.1% .
  • Logistics costs stable: 5.5% of sales in Q3 vs 5.6% prior year .
  • Balance sheet: $274.6M cash; $396.8M debt (net of issuance costs) as of 9/30/25 .
  • Non-GAAP reconciliation definitions included in 8-K Exhibit 99.1 .