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Freshpet, Inc. (FRPT)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered strong volume-led growth and margin expansion: net sales $262.7M (+22.0% YoY), gross margin 42.5% (+790 bps YoY), Adjusted Gross Margin 48.1% (+700 bps YoY), and Adjusted EBITDA $52.6M (+$21.3M YoY) .
  • Management raised long-term margin targets for FY 2027 to 48% Adjusted Gross Margin (from 45%) and 22% Adjusted EBITDA margin (from 18%), while reaffirming $1.8B net sales target, signaling structurally higher profitability potential .
  • FY 2025 guidance initiated: net sales $1.18–$1.21B (+21–24%), Adjusted EBITDA ≥$210M, capex ~$250M; cadence expected to skew to H2 as household penetration reaccelerates post capacity additions; Q1 2025 gross margin to be impacted ~-150 bps from inventory normalization .
  • No Q&A this quarter due to CAGNY; prepared remarks emphasized sustainable scale benefits, disciplined growth, and confidence in becoming FCF positive in 2026 .

What Went Well and What Went Wrong

What Went Well

  • Significant margin improvement driven by lower input/quality costs and plant leverage; Q4 Adjusted Gross Margin reached 48.1% and Adjusted EBITDA margin 20.0% as scale efficiencies took hold .
  • Capacity expansion on budget/on time with >99% fill rates in Q4; added roll lines in September and December, with next bag line startup expected in Q1 2025, underpinning growth and service levels .
  • CEO framing of “breakout year,” positive net income for FY 2024, and confidence in FCF positivity by 2026: “We also delivered full-year positive net income for the first time… confidence we will be free cash flow positive in 2026” .

What Went Wrong

  • SG&A intensity increased in Q4 (35.1% of sales, +740 bps YoY) due to higher media, share-based comp, and variable comp; Adjusted SG&A was 28.0% vs 26.6% YoY, partially offsetting gross margin gains .
  • Q4 gross margin benefited from ~150 bps one-time manufacturing timing (inventory build for year-end line upgrades), with a planned ~150 bps headwind in Q1 2025 as inventories normalize .
  • Pet specialty channel underperformance necessitates route-to-market change and distributor transition, with potential nonrecurring exit effects under assessment .

Financial Results

Quarterly trend (oldest → newest)

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$235.3 $253.367 $262.708
Diluted EPS ($USD)-$0.03 $0.24 $0.36
Gross Margin % (GAAP)39.9% 40.4% 42.5%
Adjusted Gross Margin %45.9% 46.5% 48.1%
Adjusted EBITDA ($USD Millions)$35.131 $43.494 $52.633
Adjusted EBITDA Margin %14.9% 17.2% 20.0%

Q4 2024 comparison vs prior year, prior quarter, and estimates

MetricQ4 2023Q3 2024Q4 2024Consensus (S&P Global)
Revenue ($USD Millions)$215.420 $253.367 $262.708 N/A (consensus unavailable)
Diluted EPS ($USD)$0.31 $0.24 $0.36 N/A (consensus unavailable)
Gross Margin % (GAAP)34.6% 40.4% 42.5% N/A (consensus unavailable)
Adjusted Gross Margin %41.1% 46.5% 48.1% N/A (consensus unavailable)
Adjusted EBITDA ($USD Millions)$31.328 $43.494 $52.633 N/A (consensus unavailable)

Note: S&P Global consensus data was unavailable at time of request; no estimate comparisons could be made via S&P Global.

KPIs and operational metrics

KPIQ4 2024Notes
Household Penetration (L52W)13.5M households (+17% YoY) Added ~2M households YoY
Buy Rate (L52W)$104.89 (+6% YoY) Continued conversion to main meal
MVP households (Ultra/Super Heavy)2.1M; 69% of sales MVPs growing faster (+27% YoY)
Store count28,141; 22% with multiple fridges Depth expansion: second/third fridges
Fill rate>99% in Q4 Demonstrates supply reliability
Cost ratios (% of net sales)Input 28.4%, Logistics 6.2%, Quality 2.7% (Q4) 650 bps improvement vs Q4 2023
Operating Cash Flow$50.4M (Q4); $154.3M (FY) FY +$78.3M YoY

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net SalesFY 2025N/A$1.18B–$1.21B (+21–24% YoY) Initiated
Adjusted EBITDAFY 2025N/A≥$210M Initiated
Capital ExpendituresFY 2025N/A~$250M Initiated
Adjusted Gross MarginQ1 2025N/A~-150 bps vs normalized due to inventory timing New consideration
Net SalesFY 2027$1.8B $1.8B (unchanged) Maintained
Adjusted Gross MarginFY 202745% 48% Raised
Adjusted EBITDA MarginFY 202718% 22% Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024, Q3 2024)Current Period (Q4 2024)Trend
Supply chain/logisticsImprovement drove GAAP gross margin to 39.9% in Q2; logistics ratio down; raised FY 2024 guidance Continued scale benefit; Q4 input/logistics/quality costs at 28.4%/6.2%/2.7% of sales; >99% fill rates Improving
Capacity expansionOn-budget/on-time, adding lines; enabling growth Added roll lines in Sept/Dec; next bag line in Q1 2025; three kitchens can support up to $3B over time Expanding
Media investment/household penetrationVolume-led growth; net sales driven entirely by volume in Q2; household penetration expanding Backloaded media in 2024; expect growth rate slightly higher in H2 2025 as households ramp Reaccelerating H2 2025
Pet specialty channelUnderdeveloped share; not highlighted in Q2/Q3 guidanceChanging route-to-market and distributor; assessing nonrecurring exit effects Strategic pivot
Long-term profitability targetsFY 2024 raised guidance; strong margin/EBITDA gains Raised FY 2027 margin targets to 48% adj. gross and 22% adj. EBITDA Upward reset
Cash flowOperating cash flow improved in Q2/Q3 FY operating cash flow $154.3M; guidance to be FCF positive in 2026 Strengthening

Management Commentary

  • CEO: “Fiscal year 2024 was a breakout year… full-year positive net income for the first time… confidence we will be free cash flow positive in 2026 and able to self-fund our growth” .
  • CEO: “We are raising our long-term profit margin targets… adjusted gross margin 48% and adjusted EBITDA margin 22% by 2027” .
  • CFO: “Fourth quarter gross margin had a one-time manufacturing benefit of 150 bps… inventory will return to normal levels in Q1 2025, resulting in a ~150 bps negative impact” .
  • CFO: “We intend to change our distribution partner in pet specialty… assessing nonrecurring effects from exiting our previous relationship” .
  • CEO: Confident in TAM and category position: Freshpet at 3.4% share of $37B dog food; 96% share within gently cooked fresh/frozen branded dog food in measured channels .

Q&A Highlights

  • No Q&A was held due to CAGNY; the company delivered prepared remarks only .
  • Guidance clarifications provided in prepared remarks: FY 2025 net sales $1.18–$1.21B, Adjusted EBITDA ≥$210M, capex ~$250M, H2-weighted growth cadence, and Q1 gross margin headwind (~150 bps) due to inventory normalization .

Estimates Context

  • S&P Global consensus data for Q4 2024 was unavailable at time of request due to data access limitations; therefore, estimate comparisons cannot be provided via S&P Global.
  • Based on management’s FY 2025 outlook and raised FY 2027 margin targets, Street models may need to reflect higher long-term margin trajectories and H2-weighted 2025 sales cadence .

Key Takeaways for Investors

  • Volume-driven growth with accelerating scale benefits: Q4 net sales $262.7M (+22.0% YoY) and Adjusted EBITDA margin reached 20.0%, highlighting operating leverage as capacity and cost ratios improve .
  • Structural profitability reset: Long-term margin targets raised to 48% Adjusted Gross and 22% Adjusted EBITDA by 2027; this is a meaningful driver for valuation re-rating if execution continues .
  • Near-term cadence: Expect modest gross margin expansion in FY 2025 overall, H2-weighted sales growth, and a ~150 bps Q1 gross margin headwind from inventory normalization; trading setups may favor post-Q1 as the cadence strengthens .
  • Cash generation improving: FY operating cash flow $154.3M (+$78.3M YoY) with confidence in achieving FCF positive in 2026, reducing external financing needs .
  • Channel strategy pivot: Pet specialty route-to-market change and distributor transition aims to unlock underpenetrated segment; monitor any nonrecurring exit costs and subsequent share gains .
  • Capacity on track: New lines installed and additional bag line coming in Q1 2025; management believes current three kitchens can ultimately support up to $3B in sales, offering ample runway .
  • Marketing/household penetration: Backloaded media in 2024 to respect capacity; expect household penetration growth to reaccelerate in FY 2025, supporting volume .