Freshpet (NASDAQ:FRPT) Beats Expectations in Strong Q1, Stock Soars

Max Juang /
2024/05/06 6:35 am EDT

Pet food company Freshpet (NASDAQ:FRPT) reported Q1 CY2024 results exceeding Wall Street analysts' expectations, with revenue up 33.6% year on year to $223.8 million. On the other hand, the company's full-year revenue guidance of $950 million at the midpoint came in slightly below analysts' estimates. It made a GAAP profit of $0.37 per share, improving from its loss of $0.52 per share in the same quarter last year.

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Freshpet (FRPT) Q1 CY2024 Highlights:

  • Revenue: $223.8 million vs analyst estimates of $216.1 million (3.6% beat)
  • EPS: $0.37 vs analyst estimates of -$0.19 ($0.56 beat)
  • The company reconfirmed its revenue guidance for the full year of $950 million at the midpoint
  • Gross Margin (GAAP): 39.4%, up from 30.3% in the same quarter last year
  • Free Cash Flow was -$41.07 million compared to -$40.48 million in the previous quarter
  • Sales Volumes were up 30.6% year on year
  • Market Capitalization: $5.29 billion

"Our strong first quarter results provide solid evidence that we can deliver our long-term financial goals– and we are now determined to prove that we can achieve this level of performance consistently over time,” commented Billy Cyr, Freshpet’s Chief Executive Officer.

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.

Perishable Food

The perishable food industry is diverse, encompassing large-scale producers and distributors to specialty and artisanal brands. These companies sell produce, dairy products, meats, and baked goods and have become integral to serving modern American consumers who prioritize freshness, quality, and nutritional value. Investing in perishable food stocks presents both opportunities and challenges. While the perishable nature of products can introduce risks related to supply chain management and shelf life, it also creates a constant demand driven by the necessity for fresh food. Companies that can efficiently manage inventory, distribution, and quality control are well-positioned to thrive in this competitive market. Navigating the perishable food industry requires adherence to strict food safety standards, regulations, and labeling requirements.

Sales Growth

Freshpet 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.

Freshpet Total Revenue

This quarter, Freshpet reported wonderful year-on-year revenue growth of 33.6%, and its $223.8 million in revenue exceeded Wall Street's estimates by 3.6%. Looking ahead, Wall Street expects sales to grow 21.9% over the next 12 months, a deceleration from this quarter.

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Cash Is King

If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.

Freshpet burned through $41.07 million of cash in Q1, representing a negative 18.3% free cash flow margin. The company increased its cash burn by 42.8% year on year.

Freshpet Free Cash Flow Margin

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 26.6%. However, its margin has averaged year-on-year increases of 24.2 percentage points over the last 12 months, showing the company is taking action to improve its situation.

Key Takeaways from Freshpet's Q1 Results

We were impressed that Freshpet beat analysts' revenue, operating margin, and EPS expectations this quarter. That the company reiterated its full year guidance shows that it is squarely on track. Overall, we think this was a really good quarter that should please shareholders. The stock is up 8.6% after reporting and currently trades at $119 per share.

Freshpet may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.