Freshpet, Inc. (FRPT) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals positive factors such as reaccelerated growth through digital channels, cost efficiency via new technology, and a focus on consumer needs. Despite cautious guidance due to uncertainties, optimistic trends in household penetration and market share are highlighted. The Q&A session supports these positives with insights into strategic initiatives and consumer sentiment improvements. The company's strategic plan also shows potential for positive free cash flow and margin expansion. These elements contribute to a positive sentiment, although not strong enough for a 'Strong positive' rating.
Key Financial Performance
Net Sales Growth Net sales growth dropped from 27% in fiscal year '24 to 13% in fiscal year '25. The decline was attributed to a dramatic change in consumer sentiment and macroeconomic headwinds. However, the company still exceeded its $1 billion net sales target.
Digital Sales Growth Digital sales grew nearly 40% year-over-year in 2025, now accounting for 14% of the total business. This growth was driven by the expansion of the e-commerce business.
Adjusted Gross Margin Adjusted gross margin for fiscal year 2025 was 46.7%, up 20 basis points year-over-year. The improvement was due to reduced quality costs, partially offset by higher input costs.
Adjusted EBITDA Adjusted EBITDA for fiscal year 2025 was $195.7 million, up 21% or approximately $34 million year-over-year. This increase was driven by higher sales and gross profit, partially offset by higher adjusted SG&A expenses.
Household Penetration Household penetration reached 15.2 million households in 2025, up 10% year-over-year. This growth was attributed to effective marketing strategies and increased distribution.
MVP Households MVP (Most Valuable Purchasers) households grew to 2.4 million, up 11% year-over-year, with an average buy rate of $506. Ultra buyers, a subset of MVPs, grew to nearly 500,000 households, spending over $1,100 annually on Freshpet.
Retail Expansion The company expanded to 30,235 stores in 2025, with 24% of these stores having multiple fridges. This was the best year for new store growth in over a decade, driven by club expansion.
Fridge Network The fridge network grew to 39,347 fridges, providing nearly 2.1 million cubic feet of retail space. This expansion supported increased visibility and availability of products.
Net Income Net income for fiscal year 2025 was $139.1 million, up from $46.9 million in the prior year. The increase was primarily due to a deferred income tax benefit of $68.4 million, higher sales, and improved gross profit.
Capital Expenditures Capital expenditures for 2025 were $148.2 million, supporting manufacturing and distribution expansions.
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Operating Highlights
New Messaging and Media Plans: Freshpet introduced new messaging and media plans that are showing early signs of generating household penetration growth.
E-commerce Growth: Digital sales grew nearly 40% last year, now accounting for 14% of total business.
Fridge Islands Testing: Testing fridge islands in a major retailer to improve retail visibility and availability.
Affordable Innovation: Introduced multipacks and bundles of rolls and bags, and a complete nutrition line at an attractive entry price point.
Breakthrough Manufacturing Technology: Installed and started the biggest breakthrough in manufacturing technology in Freshpet's history, producing exceptional products with significant quality, throughput, and yield benefits.
Market Share Growth: Freshpet's growth was more than 10 points better than the category, and it increased its market share to 4% in the U.S. dog food and treats segment.
Expansion in Club and Rural Lifestyle Retail: Expanded distribution in a large club customer and confirmed expansion to 250 rural lifestyle retail stores.
Household Penetration: Household penetration grew to 15.2 million households, up 10% year-over-year.
Generational Transition: Millennials and Gen Z are the fastest-growing consumer groups, with MVPs making up 71% of net sales.
Operational Efficiencies: Achieved positive free cash flow and improved adjusted gross margin to 46.7% for the year.
Fridge Expansion: Added new fridges, reaching 39,347 fridges across 30,235 stores, with 24% of stores having multiple fridges.
Capital Efficiency: Focused on optimizing existing lines, sites, and implementing new technologies to drive capital efficiency.
Omnichannel Strategy: Developing an omnichannel business leveraging fridge networks, digital marketing, and strong brand equity.
Competitive Moat: Investing in manufacturing technologies to extend competitive advantages and deliver high-quality products at lower costs.
Leadership Additions: Welcomed new CFO and SVP of Supply Chain to strengthen leadership.
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Risk or Challenges
Consumer Sentiment and Market Growth: The pet food category experienced a dramatic slowdown in growth in 2025, with Freshpet's net sales growth rate dropping from 27% in 2024 to 13% in 2025. This shift in consumer sentiment and macroeconomic headwinds could continue to impact sales growth.
Competitive Pressures: Freshpet faced an onslaught of new competitive entries in the market. While the company claims minimal impact, heightened competition remains a risk to market share and profitability.
Macroeconomic Conditions: Ongoing macroeconomic headwinds, including economic uncertainties, could continue to affect consumer spending and category growth, posing risks to Freshpet's financial performance.
Operational and Manufacturing Challenges: The company is implementing new manufacturing technologies, which, while promising, require time to demonstrate consistent efficiency gains. Any delays or inefficiencies in this rollout could impact production and costs.
Capital Expenditures and Cash Flow: Freshpet plans significant capital expenditures in 2026, with potential increases for manufacturing technology and fridge island expansions. These investments could strain cash flow if not managed effectively.
Media and Marketing Effectiveness: The company is rebalancing its media mix and increasing digital spending. If these efforts fail to drive the expected household penetration and sales growth, it could impact overall performance.
Supply Chain and Distribution: Freshpet is expanding its distribution network, including rural lifestyle retailers and new fridge configurations. Any disruptions or inefficiencies in these expansions could hinder growth.
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Guidance & Outlook
Net Sales Growth for 2026: Expected to be between 7% and 10% compared to 2025, with the midpoint of this range in line with the growth delivered in Q4 2025. Growth is expected to exceed the U.S. dog food category growth and grow market share.
Adjusted EBITDA for 2026: Expected to be between $205 million to $215 million, an increase of 5% to 10% year-over-year. Adjusted EBITDA growth is expected to outpace sales growth beyond 2026.
Capital Expenditures for 2026: Projected to be approximately $150 million, excluding any significant incremental investments in fridge islands or manufacturing technology expansion. Potential increase of $20 million to $50 million if additional investments are made.
Free Cash Flow for 2026: Expected to be positive at the current planned level of capital expenditures.
Fiscal Year 2027 Targets: Net sales growth well in excess of the U.S. dog food category growth, potentially in the high single digits or low double digits. Adjusted gross margin target of at least 48%. Adjusted EBITDA margin target updated to a range of 20% to 22%.
Manufacturing Technology and Capacity Expansion: New production technology is expected to deliver significant quality, throughput, and yield benefits. The first retrofit of an existing bag line with a lite version of this technology is planned for Q2 2026. Potential for minimal downtime and modest CapEx for retrofitting existing lines.
Omnichannel Strategy and E-commerce Growth: E-commerce as a percent of sales was 14% in 2025 and is expected to be an important growth driver moving forward. Expansion of fridge islands and new fridge configurations is being tested to enhance visibility and shopability.
Marketing and Consumer Engagement: Rebalancing media mix to be more diversified and digital-forward in 2026. New campaigns and trusted voices are expected to deepen connections with core audiences and drive household penetration growth.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What are the factors contributing to the implied uptick in EBITDA margins by 2027?
A:The factors include delivering more on gross margin, net sales, and G&A structure. Specific drivers are SG&A growth from compensation items, omnichannel capabilities build-out, and media investments. Adjusted gross margin guidance is updated to be greater than 48%, driven by volume, OEE, and new technology.
Q:What are the learnings from owning Ollie and how are they being applied to the custom meals and DTC business?
A:The company learned the importance of building an omnichannel business to leverage brand equity and manufacturing footprint. The custom meals business and broad retail network position the company to meet consumer needs across various channels. Investments are being made in organizational capabilities, digital-forward media, and sales team enhancements to support omnichannel growth.
Q:What are the key drivers for consumption growth in 2026?
A:Key drivers include effective advertising, omnichannel growth, distribution expansion (e.g., club channels, new stores, island units), and affordability initiatives. The company has sharpened entry-level price points and expects growth from innovation and price elasticity work.
Q:What are the indications of category and company trends improving in Q4?
A:Early indications show improvement in household penetration, MVPs, and category trends. However, management remains cautious due to storm impacts and other uncertainties. A conservative guide for the year is provided, with potential upside if trends continue.
Q:What has been learned from the fridge island expansion efforts?
A:Fridge islands provide 2.5x capacity versus single fridges, allowing broader assortment and better stock for omnichannel services like Click and Collect. They also serve as a significant beacon for brand awareness. The company is still in the test phase and plans to expand thoughtfully.
Q:What is the status of affordability initiatives and their impact on volume and sales growth?
A:Affordability initiatives, including entry-level price point adjustments and price elasticity modeling, have been implemented. No significant further shifts are planned. Volume growth is expected to align with or exceed sales growth due to these initiatives.
Q:What are the drivers of gross margin expansion in 2026 and beyond?
A:Drivers include higher volume from the same workforce, OEE improvements, yield enhancements, and potential new technology adoption. The new technology could have a meaningful impact by 2027 if accelerated.
Q:What is the cost and impact of new technology rollout on CapEx and production?
A:Converting existing lines to new technology costs single-digit millions per line. Installing new full-scale lines is more expensive but offers higher throughput and competitive cost per production dollar. Accelerated rollout could increase CapEx by $20-50 million and impact production by 2027.
Q:What is the focus of the marketing plan regarding MVP consumers?
A:The marketing plan focuses on super-serving MVP consumers through omnichannel availability, digital-forward media, and value packs. Club and online channels are emphasized for their convenience and retention benefits.
Q:What is the impact of multi-packs on consumer behavior and sales?
A:Multi-packs target households seeking convenience and reduce the need for frequent shopping trips. They are incremental to sales and have a low discount level, ensuring minimal pricing impact.
Q:What is the outlook for consumer trends and their impact on the business?
A:Consumer sentiment is improving, supported by factors like larger tax refunds and resilient behavior. Management is cautiously optimistic about the positive impact on the pet food category and Freshpet.
Q:What is the competitive landscape in the fresh pet food category?
A:Increased competition validates the company's investments in quality, brand strength, and manufacturing capabilities. The company is focusing on omnichannel growth and new technologies to maintain a competitive edge.
Q:What are the 2027 EBITDA margin targets and the role of new technology in achieving them?
A:The target is 20% EBITDA margin with mid-teen to 20%+ growth. New technology is not essential but could provide an additional lever for achieving the target.
Q:What is the expected sales growth for 2026 and its alignment with consumption growth?
A:Sales growth is expected to be 7-10%, closely aligned with consumption growth. The difference is minimal, primarily due to the DTC business.
Q:What is the expected cadence of EBITDA delivery in 2026?
A:EBITDA margins are expected to be below guidance in Q1 due to higher media spend and build throughout the year as sales grow and media spend softens.
Q:What is the outlook for raw material costs in 2026?
A:Chicken prices are locked in at levels similar to last year, while beef costs remain high. The company is addressing beef costs through pricing and formulation adjustments.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the exact impact of new technology on 2027 EBITDA margins, the precise cost of new full-scale technology lines, and the exact timeline for achieving certain operational efficiencies. Additionally, responses to questions about competitive dynamics and consumer behavior trends were somewhat general and lacked detailed data or examples.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Ana Lopez
CFO
DTC dog
Freshpet Full
Freshpet food
Lopez SVP
Millennials Gen
OConnor Chief
SVP Supply
Supply Chain
agility
breakthrough technology
buyer
category Freshpet
consumer pet
decade store
digit margin
distribution club
effort
equity
figure
fridge island
investment year
margin variety
market Freshpet
marketing
medium mix
messaging medium
omnichannel presence
sale rate
share market
space
technology product
traction
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FRPT Transcript
Freshpet, Inc. (FRPT) Q4 2025 Earnings Call Transcript
Positive2-23
The earnings call reveals positive factors such as reaccelerated growth through digital channels, cost efficiency via new technology, and a focus on consumer needs. Despite cautious guidance due to uncertainties, optimistic trends in household penetration and market share are highlighted. The Q&A session supports these positives with insights into strategic initiatives and consumer sentiment improvements. The company's strategic plan also shows potential for positive free cash flow and margin expansion. These elements contribute to a positive sentiment, although not strong enough for a 'Strong positive' rating.
Freshpet, Inc. (FRPT) Presents at Morgan Stanley Global Consumer & Retail Conference 2025 Transcript
Neutral12-2
Freshpet, Inc. (FRPT) Q3 2025 Earnings Call Transcript
Unknown11-3
The earnings call presented a mixed outlook. While there are positive developments like the implementation of new production technologies and digital sales growth, the reduced sales guidance, unclear timelines for technology benefits, and cautious market outlook balance these positives. The Q&A revealed management's reluctance to commit to specifics, which may cause investor uncertainty. Overall, the sentiment is neutral as potential growth is countered by strategic caution and market challenges.
Freshpet, Inc. (FRPT) Presents At Barclays 18th Annual Global Consumer Staples Conference 2025 Transcript
Neutral9-4
FRPT Slides
FRPT Report
Frequently Asked Questions
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