Stock Story -
Pet food company Freshpet (NASDAQ:FRPT) beat analysts' expectations in Q4 FY2023, with revenue up 29.9% year on year to $215.4 million. The company expects the full year's revenue to be around $950 million, in line with analysts' estimates. It made a GAAP profit of $0.31 per share, down from its profit of $0.32 per share in the same quarter last year.
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Freshpet (FRPT) Q4 FY2023 Highlights:
- Revenue: $215.4 million vs analyst estimates of $204.6 million (5.3% beat)
- EPS: $0.31 vs analyst estimates of $0.04 ($0.27 beat)
- Management's revenue guidance for the upcoming financial year 2024 is $950 million at the midpoint, in line with analyst expectations and implying 23.9% growth (vs 28.7% in FY2023)
- Free Cash Flow was -$163 million compared to -$19.94 million in the previous quarter
- Gross Margin (GAAP): 34.6%, up from 27.6% in the same quarter last year
- Market Capitalization: $4.44 billion
Contrasting itself with the typical processed pet foods found throughout the industry, Freshpet (NASDAQ:FRPT) is a pet food company whose product portfolio includes natural meals and treats for dogs and cats.
Packaged FoodAs America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods, prepared meals, or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options.
Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences.The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.
Sales GrowthFreshpet is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefitting from better brand awareness and economies of scale. On the other hand, one advantage is that its growth rates can be higher because it's growing off a small base.
As you can see below, the company's annualized revenue growth rate of 34% over the last three years was incredible for a consumer staples business.
This quarter, Freshpet reported remarkable year-on-year revenue growth of 29.9%, and its $215.4 million in revenue topped Wall Street estimates by 5.3%. Looking ahead, Wall Street expects sales to grow 23.3% over the next 12 months, a deceleration from this quarter.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Freshpet burned through $163 million of cash in Q4, representing a negative 75.7% free cash flow margin. The company reduced its cash burn by 212% year on year.
Over the last two years, Freshpet's demanding reinvestments to stay relevant with consumers have drained company resources. Its free cash flow margin has been among the worst in the consumer staples sector, averaging negative 41%. However, its margin has averaged year-on-year increases of 8.7 percentage points over the last 12 months, showing the company is at least improving.
Key Takeaways from Freshpet's Q4 Results
We were impressed by how significantly Freshpet blew past analysts' EPS expectations this quarter. We were also excited its revenue outperformed Wall Street's estimates as it saw momentum in the pet food sector.
Management's EBITDA guidance of $105 million for the full year 2024 came in ahead of expectations, and it noted the company reached an inflection point this quarter in terms of profitability. Overall, we think this was a really good quarter that should please shareholders. The stock is up 5.5% after reporting and currently trades at $97 per share.
