Freshpet Inc ((FRPT)) has held its Q2 earnings call. Read on for the main highlights of the call.
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Freshpet Inc. recently held its earnings call, revealing a mixed sentiment among its leadership. While the company reported strong operational improvements and cost efficiencies that bolstered positive EBITDA growth, it faced challenges in sales growth, particularly in the dog food category. This led to a cautious outlook, with the company lowering its sales guidance and removing long-term sales targets.
Strong Operational Improvements
Freshpet highlighted a significant improvement in its adjusted gross margin, which rose to 46.9% from 45.9% in the previous year. This improvement was driven by lower input costs and enhanced yields and throughput. Notably, the Ennis plant emerged as the most profitable facility ahead of schedule, contributing to these operational efficiencies.
CapEx Reduction
The company announced plans to reduce capital expenditures by at least $100 million in 2025 and 2026. This decision is attributed to improved operating efficiencies and the adoption of new technologies, which are expected to lower capital intensity and enhance cash flow.
Digital Sales Growth
Freshpet reported a robust 40% growth in digital orders during the second quarter, with digital sales now comprising 13% of total sales. This underscores the strong performance of the company’s e-commerce channel.
Expanded Distribution in Club Stores
The company expanded its test distribution in a leading club retailer to 125 stores, with plans for further expansion. This move is expected to contribute to Freshpet’s distribution growth.
Positive EBITDA Growth
Freshpet’s adjusted EBITDA saw a notable increase of approximately $9 million, or 26% year-over-year, reaching $44.4 million in the second quarter.
Lowered Sales Guidance
Due to macroeconomic challenges and consumer uncertainty, Freshpet lowered its net sales growth guidance for 2025 to a range of 13% to 16%, down from the previous 15% to 18%.
Removal of Long-Term Sales Target
The company decided to remove its $1.8 billion net sales target and related 20 million household target for fiscal year 2027, reflecting difficulties in sustaining previous growth projections.
Challenges in Dog Food Category
Freshpet faced significant headwinds in the dog food category due to economic uncertainty, which affected consumer willingness to trade up, impacting sales growth rates.
Forward-Looking Guidance
In its forward-looking guidance, Freshpet reported net sales of $264.7 million, marking a 12.5% year-over-year increase, primarily driven by volume growth. The company plans to lower capital expenditures for 2025 and 2026 by at least $100 million, with a revised 2025 CapEx projection of $175 million. Freshpet expects net sales growth of 13% to 16% for fiscal year 2025 and maintains its adjusted EBITDA guidance of $190 million to $210 million. Despite removing the $1.8 billion net sales target for 2027, the company remains confident in achieving a 48% adjusted gross margin and a 22% adjusted EBITDA margin by that year.
In conclusion, Freshpet’s earnings call painted a picture of operational success tempered by sales challenges. While the company has made significant strides in improving efficiencies and expanding its digital and distribution channels, it faces hurdles in sales growth, particularly in the dog food category. The cautious outlook is reflected in the lowered sales guidance and removal of long-term targets, yet the company remains optimistic about its future profitability and operational goals.