Freshpet has reported its financial results for the second quarter ending June 30, 2024.
In Q2 2024, Freshpet net sales increased by 28.3% to $235.3 million. Net loss decreased to $1.7 million from $17.0 million. Gross margin improved to 39.9% from 32.3%. Adjusted Gross Margin rose to 45.9% from 39.8%. Adjusted EBITDA grew to $35.1 million from $9.0 million.
For the first six months of 2024, net income for Freshpet was $16.9 million, a reversal from net loss of $41.7 million in the first six months of 2023. This improvement was attributed to higher sales, improved gross margin, reduced logistics costs and gains in equity investment.
"Freshpet is delivering disciplined growth," said Billy Cyr, Freshpet’s CEO. “That has enabled us to significantly improve profitability while continuing to deliver category-leading net sales growth. The momentum we have today gives us even greater confidence in our ability to achieve our 2027 targets, a number of which we have already exceeded.
"We are raising our net sales and adjusted EBITDA guidance for the year to reflect our outperformance in the first half, as well as our conviction in our ability to execute in the second half of the year," Cry continued. "If we continue to deliver the kind of disciplined growth we have achieved so far this year, we believe we will create meaningful shareholder value in a way that serves pets, people and the planet."
Cyr said during the earnings call that over the past two years the company has learned to carefully manage its growth to about 25%, which enables it to drive operating improvements and manage cash more effectively.
"That is our definition of disciplined growth," he said. "And if we do that well, consumers will win, customers will win, and our shareholders will win. Our second quarter results demonstrate the strong progress we are making toward delivering that disciplined growth. We delivered our 24th consecutive quarter of net sales growth over 25% and did it within our existing capacity limits, so we maintained exceptional customer service and strong fill rates."
Solid year in retail
From a retail perspective, Cyr said Freshpet is having a solid year of retail availability growth. Store count growth is in line with its long-term rates.
"Some of our larger customers are engaging with us on potential plans to add second and third fridges in high-velocity stores," he said. "That is where we expect to see the bulk of our growth. Specifically, we placed 790 fridges in the second quarter including new stores, upgrades, and second/third fridges, bringing us to a total of 35,602 fridges at retail or more than 1.8 million cubic feet of retail space."
As of June 30, 2024, Freshpet could be found in 27,497 stores, 22% of which now have multiple fridges in the U.S. Fill rates continue to be strong, said Cyr. Freshpet is becoming increasingly mainstream, but still has a long runway for growth, he added.
"According to Nielsen omnichannel data, which includes e-commerce and direct-to-consumer, as of June 29, 2024, total U.S. pet food is a $53 billion category," he explained. "We only have a 3% market share within the $36 billion dog food segment, which is the majority of our business today. Within the fresh frozen subcategory in measured channels, Freshpet has a 96% market share."
Fresh continues to outperform the broader pet food category and many retailers believe it is the future of pet food, said Cyr. "As a result, Freshpet is now in 66% ACV in Nielsen xAOC, and we continue to add distribution breadth and depth with second and third fridges," he said. "Our household penetration gains also demonstrate that we are well on our way to making Freshpet more mainstream. Household penetration at the end of the second quarter was 12.8 million households, up 25% year over year, and on track to meet our target of 20 million households by 2027."
Continue to execute expansion plans
Cyr said to support its growth, Freshpet will continue to expand its capacity. The company’s Bethlehem Kitchen has six operating lines, the Kitchen South has three lines, and the Ennis Kitchen has three lines with a fourth expected to begin production by the end of the third quarter this year. Looking forward, Freshpet predicts the Bethlehem Kitchen will have seven lines, the Kitchen South will have five, and the Ennis Kitchen will have 10, representing a total of 22 production lines.
"We are intensely focused on, one, maximizing the throughput of our existing lines; two, maximizing the capacity of our three existing sites; and three, developing and implementing new technologies that generate more throughput per line," said Cyr. "While we've come a long way since our first facility in Quakertown, Pennsylvania, the manufacturing systems to make Freshpet food are still not where we'd like them to be."
Cyr said Freshpet will continue to invest heavily in both technology and talent to make its production more stable, reliable and efficient.
"We've made tremendous progress, but still believe the opportunities for improvement are sizable," he said.
According to Petfood Industry's Top Pet Food Companies, Freshpet is a U.S.-based manufacturer of fresh, refrigerated dog treats and food for dogs and cats. The company says all of its meat is 100%farm-raised. In 2022, the company's sales grew by 39.9%, and the company is investing in increased manufacturing capacity for further growth.
