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After spoiling investors with consistently impressive earnings reports last year, Freshpet (FRPT -20%) came up stale in Q4, missing earnings and sales estimates while projecting mild growth in FY25. The fresh pet food maker, often seen in retail locations with its branded refrigerator network, expects FY25 revenue growth of approximately +21-24% yr/yr, below the +25% rate it previously outlined it would average through FY27.

Management commented that due to its growth rate through FY24, it is not necessary for it to grow 25% over the next few years to deliver on its $1.8 bln sales target in FY27. Additionally, raising its FY27 revenue goal, thereby maintaining a +25% growth rate, would compromise the company's positive free cash flow prediction in FY26 since it would require deploying more existing technology before a potential breakthrough new technology that could enhance margins, quality, and capital efficiency.

While an understandable decision, it is not dousing today's heavy selling pressure. FRPT shares have now plunged by over 30% since the start of the month, erasing the past nine months of gains.

• FRPT was coming off a fantastic past three quarters, delivering outsized growth driven by healthy volume gains and margin expansion. FRPT does not engage in trade promotions or discounting, making its gains over the past few quarters entirely the result of increasing household penetration and buy-rate. In Q4, this hot streak came to an end. FRPT posted sales of $262.7 mln, a 22% improvement yr/yr, falling short of consensus.
• Volume growth still underpinned FRPT's top-line gains in Q4, supported by the company's advertising investment to generate new households. However, the investment did not spur as much new household penetration and conversion into meaningful sales. Management mentioned that these investments can take time but are seeing early signs of conversion beginning to materialize. FRPT believes it is ahead of the pace needed to meet its 20 mln household goal by 2027.
• Meanwhile, adjusted gross margins were still sound, spiking by 700 bps yr/yr to 48.1%, helped largely by the company's efforts to build inventory in October and November to take production lines down for upgrades at year's end. As a result, EPS expanded by 16% yr/yr to $0.36. However, this was still short of analyst estimates. Still, FRPT raised its FY27 margin targets, expecting 48% margins versus its previous prediction of 45%.
• From a retail perspective, FRPT boosted its store count by 1,300 during FY24, bringing its total to over 28,000 stores, 22% of which contain more than one fridge. FRPT expects the bulk of its growth over the long term to stem from the addition of second and third fridges in the highest volume stores rather than branching out to new stores.

FRPT stressed that long-term trends remain robust. The company's current U.S. pet food market share stands at under 4%, providing ample runway for further growth, especially given its leadership position in the fresh/frozen category. However, following such a remarkable run in 2024, as shares appreciated by around +70%, reaffirmed FY27 sales guidance was a letdown, taking the wind out of FRPT's sails.