Freshpet revenue up in 2021, but S&P beats stock

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Continuing five consecutive years of accelerating growth, refrigerated pet food company Freshpet’s revenue grew 33.5% in 2021, according to analysts with Investment bank Cascadia Capital. Despite this growth, Freshpet’s stock performed below the S&P500 between April 2021 and 2022. Freshpet is a U.S.-based manufacturer of fresh, refrigerated dog treats and food for dogs and cats. Brands include Freshpet Select, Fresh Treats, Nature’s Fresh, Vital, Dog Joy, Deli Fresh, Homestyle Creations and Dog Nation.

A 6% increase in household penetration drove much of Freshpet’s growth in 2021, as the company expanded to reach 4.2 million households in 2021, according to Cascadia’s analysts. Likewise, an 18% increase in buying rate helped the company. Out-of-stock problems dragged on this growth though. Online sales now represent 7.4% of total company revenue. Nevertheless, Freshpet’s gross margin declined due to wage increases at plants, network capacity investments and ingredient cost inflation.

Cascadia Capital follows its own index of publicly traded pet industry stocks, including NestléJ.M SmuckerChewy and FreshPet. Smucker and Purina’s stocks finished nearly on par with the S&P500 in 2021, while Chewy and FreshPet finished lower. Cascadia’s analysts examined the drivers of this growth in “Pet Industry Overview Spring 2022.” 

Freshpet growth in 2021

Freshpet grew in a range of retail channels.

  • Stores +4% (23,631 locations), 
  • Mass +25%, 
  • Grocery +23%, 
  • Major pet specialty +39%, 
  • E-commerce +73% 
    • 59% click-and-collect, 
    • 27% last mile delivery, 
    • 14% fresh online

Supporting this growth, Freshpet has increased production capacity. The company added equipment capacity to support an additional US$160 million in production and staffed capacity increased to support US$170 million in production.

Freshpet fresh pet food sales hit US$425 mil in 2021

In a press release, Freshpet presented data on how its fresh pet food net sales increased 33.5% to US$425.5 million for the full year ended December 31, 2021, compared to US$318.8 million in 2020. 

“We finally have the capacity needed to support Freshpet’s significant topline growth potential – while also improving the reliability of our operations,” Billy Cyr, Freshpet chief executive officer, said in a press release. “Over the past two years, we have invested in significant new capacity and the talent to support it. We plan to use that capacity wisely — budgeting conservatively to ensure the reliability of our operations in an uncertain environment but also planning aggressively to maximize our growth potential. We believe our plan for 2022 delivers the right balance – keeping us on track to achieve our 2025 goals and enable us to change the way people nourish their pets forever.”

Net pet food sales for 2021 were driven by velocity, distribution gains and innovation. Gross profit was US$162.1 million, or 38.1% as a percentage of net sales in 2021, compared to US$132.9 million, or 41.7% as a percentage of net sales, in the prior year. Adjusted gross profit was US$189.5 million, or 44.5% as a percentage of net sales, compared to US$154.1 million, or 48.3% as a percentage of net sales, in the prior year period. The decrease in gross profit as a percentage of net sales and Adjusted gross profit as a percentage of net sales was primarily due to increased cost at Freshpet Kitchens as a result of the company’s wage increase plan, investments as it grows into capacity, inflation of ingredient cost and increased depreciation and non-cash share-based compensation, slightly offset by lower plant start-up cost and lower COVID-19 related costs.

Freshpet expenses and losses in 2021

Selling, general and administrative (SG&A) expenses were US$186.8 million for the full year ended December 31, 2021, compared to US$134.9 million in 2020. As a percentage of net sales, SG&A increased to 43.9% in 2021, compared to 42.3% in the prior year period. The increase in SG&A expenses was a result of increased logistics costs, including freight costs, non-cash share-based compensation, increased media expense, increased depreciation expense and higher incremental operating costs and selling expense. Adjusted SG&A for the full year 2021 was US$146.5 million, or 34.4% as a percentage of net sales, compared to US$107.2 million, or 33.6% as a percentage of net sales, in the prior year. The increase in Adjusted SG&A is a result of increasing freight costs and media expense, offset by leverage on higher net sales. 

Net loss was US$29.7 million for the full year ended December 31, 2021, compared to a net loss of US$3.2 million for the prior year period. The increase in net loss was due to increased SG&A partially offset by higher net sales and increased gross profit. 

For full year 2022, the company forecast net sales of more than US$575 million, an increase of approximately 35% from 2021.

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