Food

Freshpet losses larger, but net sales rise 40.7% in Q3 2022

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Adapted from a press release:

Refrigerated pet food company Freshpet net sales increased 40.7% to US$151.3 million in the third quarter of 2022, up from US$107.6 million in same quarter last year. Refrigerated fresh pet food net sales for the third quarter of 2022 were driven by pricing, velocity, distribution gains and innovation.

According to Petfood Industry’s Top Companies Current Data, 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. 

Despite the net sales increase the company had a net loss of US$18.4 million in the period, compared to only US$2.1 million loss in the same period last year. Adjusted Earnings before interest, taxes, depreciation, and amortization (EBITDA) declined to US$3.5 million, compared to prior year of US$13.5 million. This decline can largely be explained by the inclusion of plant start-up and launch expenses, which were not in previous year’s financial assessments. Plant start-up and launch expenses, were US$9.6 million in the current year period, compared to US$1.2 million in the prior year period. Freshpet’s third quarter ended September 30, 2022.

“We delivered a strong, on-plan quarter,” Billy Cyr, Freshpet chief executive officer, said. “More importantly, we are executing on our plan to address the cost challenges and improve margins. While it is still early, we are attracting the high-quality talent we need, taking the necessary remedial actions, and putting in place the systems needed to further improve our performance. The benefits of those efforts should become increasingly apparent in the quarters ahead.”

Gross profit was US$44.5 million, or 29.4% as a percentage of net sales, for the third quarter of 2022, compared to US$41.5 million, or 38.6% as a percentage of net sales, in the prior year period. For the third quarter of 2022, Adjusted Gross Profit was US$52.2 million, or 34.5% as a percentage of net sales, compared to US$46.8 million, or 43.5% 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 were primarily due to increased plant start-up cost, inflation of ingredient cost and labor, and quality issues, partially offset by increased pricing.

Selling, general and administrative expenses were US$60.4 million for the third quarter of 2022 compared toUS$42.4 million in the prior year period. As a percentage of net sales, SG&A increased to 39.9% for the third quarter of 2022 compared to 39.4% in the prior year period. The increase in SG&A as a percentage of net sales was a result of increased media spend as a percentage of net sales of 290 basis points and increased logistics cost of 60 basis points, offset by increased selling, general and administrative expense leverage of 300 basis points due to higher net sales. Adjusted SG&A for the third quarter of 2022 was US$48.9 million, or 32.3% as a percentage of net sales, compared to US$33.3 million, or 31.0% as a percentage of net sales, in the prior year period. The increase in Adjusted SG&A as a percentage of net sales was mainly a result of increased media spend as a percentage of net sales of 290 basis points and increased logistics cost of 60 basis points, offset by adjusted selling, general and administrative expense leverage of 220 basis points.

Net loss was US$18.4 million for the third quarter of 2022 compared to net loss of US$2.1 million for the prior year period. The increase in net loss was due to increased SG&A, which includes increased media spend of US$7.2 million and increased plant start-up cost of US$7.4 million, partially offset by contribution profit from higher sales.

Freshpet performance in the first three quarters of 2022

Considering the first nine months of 2022, net sales increased 38.7% to US$429.5, compared to US$309.6 million for the first nine months of 2021. Net sales for the first nine months of 2022 were driven by pricing, velocity, distribution gains and innovation. Gross profit was US$140.3 million, or 32.7% as a percentage of net sales, for the first nine months of 2022, compared to US$120.9 million, or 39.1% as a percentage of net sales, in the prior year period. For the first nine months of 2022, Adjusted Gross Profit was US$159.3 million, or 37.1% as a percentage of net sales, compared to US$137.6 million, or 44.4% 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 plant start-up expense of US$18.1 million, inflation of ingredient cost and labor, and quality issues, partially offset by increased pricing. Adjusted Gross Profit is a non-GAAP financial measure defined under “Non-GAAP Measures” and is reconciled to gross profit in the financial tables that accompany this release.

Net loss was US$56.6 million for the first nine months of 2022 compared to net loss of US$20.4 million for the prior year period. The increase in net loss was due to increased SG&A, which includes increased media spend of US$27.2 million and increased plant start-up expense of US$14.4 million, partially offset by higher net sales and increased gross profit.

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