FreshPet (FRPT) is a name we wanted to put on your radar screens ahead of its earnings report next week. The company isset to report Q1 earnings on Monday, May 6 after the close. The stock has been quietly making new all-time highs.
FreshPet makes food and treats for dogs and cats using only natural ingredients and with no preservatives. FreshPet food stays refrigerated even at the retail store. These fridges have been installed at approximately 19,500 retail stores (Wal-Mart, Petco, PetSmart etc.) across North America.
2018 revenue came in at $193.2 mln, up 26.8% from 2017, and the company expects 2019 revenue of at least $240 mln. While still fairly small, that is some nice top line growth, especially for a pet food company. One of FreshPet's key goals in 2018 was to build production scale, which should boost margins. FRPT said it expects "2019 to be the year where we begin to leverage that scale." Beyond 2019, FreshPet plans to make "modest investments to further establish Freshpet in international markets."
FreshPet believes it has "significant growth potential that goes well beyond 2020." According to Freshpet CEO, Billy Cyr, "The most significant limitation to our future growth is our ability to add manufacturing capacity fast enough to keep pace with consumer demand."
It's always a good sign to see a company struggling to keep up with demand. That bodes well for continued growth in 2019-2020. FRPT has been catering to that demand with product innovations such as its Small Dog product which launched in 2018 and has been a big hit in the market.
A key milestone should hopefully be reached in 2019. Analysts expect FreshPet to finally be profitable on a full year basis for the first time in 2019. The company has reported profits in various quarters, including 4Q18, but that full year profitability goal has remained elusive. It seems that FRPT's increasing scale is going to allow it to spread its fixed costs over a wider sales base which will improve margins. This will hopefully be to the point that the company is profitable on a full year basis in 2019.
We think FreshPet is a name to watch in 2019 as it hopefully reports a full year profit for the first time. We have been following the stock for some time and we remember there being some real concerns that the company was going to fail as consumers would balk at paying a premium price for its fresh pet food. However, those concerns are fading, and FRPT is now seeking to boost production capacity to keep up with demand.