Freshpet’s revenue rises in 2021, but S&P beats the stock
Continuing five consecutive years of accelerated growth, the refrigerated pet food company Freshpet’s revenue grew 33.5% in 2021, investment banking analysts say Capital Cascadia. Despite this growth, Freshpet shares underperformed the S&P500 between April 2021 and 2022. Freshpet is an American manufacturer of fresh and refrigerated dog treats and dog and cat food. 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 grew to reach 4.2 million households in 2021, according to data. Cascadia analysts. Likewise, an 18% increase in purchase rate helped the company. Out-of-stock issues, however, have held back this growth. Online sales now account for 7.4% of the company’s total revenue. Nonetheless, Freshpet’s gross margin declined due to wage increases at factories, investments in network capacity and inflation in ingredient costs.
Cascadia Capital tracks its own index of publicly traded pet industry stocks, including Nestle, J. M. Smucker, Soft and FreshPet. Shares of Smucker and Purina finished nearly level with the S&P500 in 2021, while Chewy and FreshPet finished lower. Cascadia analysts examined the drivers of this growth in “Pet Industry Overview Spring 2022.”
Growth of Freshpet in 2021
Freshpet has expanded into a range of retail channels.
- Stores +4% (23,631 locations),
- Mass +25%,
- Grocery +23%,
- Major pet specialty +39%,
- Ecommerce +73%
- 59% click-and-collect,
- 27% last mile delivery,
- 14% fresh produce online
To support this growth, Freshpet has increased its production capacity. The company added equipment capacity to support additional production of US$160 million and increased personnel capacity to support production of US$170 million.
Freshpet Fresh Pet Food Sales Reached US$425 Million in 2021
In a press release, Freshpet presented data on how its net sales of fresh pet food increased 33.5% to US$425.5 million for the full fiscal year ended 31 December 2021, compared to US$318.8 million in 2020.
“We finally have the capacity to support Freshpet’s significant revenue growth potential – while improving the reliability of our operations,” Freshpet CEO Billy Cyr said in a press release. “Over the past two years, we have invested in significant new capability and the talent to support it. We plan to use this capability wisely, budgeting prudently to ensure the reliability of our operations in an uncertain environment, but also planning aggressively to maximize our growth potential.We believe our 2022 plan strikes the right balance – keeping us on track to meet our 2025 goals and enabling us to forever change the way people feed their pets.”
Pet food net sales for 2021 were driven by velocity, distribution gains and innovation. Gross margin 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, l ‘last 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, at period of the previous year. The decrease in gross margin as a percentage of net sales and adjusted gross margin as a percentage of net sales is primarily due to increased costs at Freshpet Kitchens due to the company’s salary increase plan, capital as capacity grows, ingredient inflation and increases in depreciation and non-cash stock-based compensation, slightly offset by lower plant start-up costs and lower costs related to COVID-19.
Freshpet expenses and losses in 2021
Selling, general and administrative (SG&A) expenses were US$186.8 million for the year ended December 31, 2021, compared to US$134.9 million in 2020. As a percentage of net sales, SG&A fees increased to 43.9% in 2021 from 42.3% in the prior year period. The increase in SG&A expense resulted from increased logistics costs, including freight costs, non-cash stock-based compensation, increased media-related expenses, increased amortization expense, and increase in operating costs and additional selling expenses. Adjusted general and administrative expenses for the full year 2021 were 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, the previous year. The increase in adjusted general and administrative expenses is the result of the increase in transport costs and media expenses, offset by the leverage effect on the increase in 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 is due to the increase in general and administrative expenses, partially offset by an increase in net sales and an increase in gross profit.
For the full year 2022, the company expects net sales of more than US$575 million, an increase of approximately 35% from 2021.