Key Highlights

  • Third quarter net sales rose 10% to USD 317.8 million, topping the USD 312.0 million estimate.
  • Adjusted gross Margin reached 50.0%, up 400 basis points and the best level in over seven years.
  • Adjusted EBITDA grew about 18% to USD 64.5 million, lifting its margin to 20.3% from 18.9%.
  • Guidance raised to 12% to 13% net sales growth and USD 215 million to USD 220 million adjusted EBITDA.

Freshpet (NASDAQ:FRPT) reported third quarter net sales of USD 317.8 million, up 10% from a year earlier and ahead of the USD 312.0 million estimate. Growth was entirely volume-driven. Net Income was USD 27.9 million, compared with USD 101.7 million a year ago, when a USD 77.9 million deferred income tax benefit from releasing most of a valuation allowance lifted the result.

Margins and Cost Pressures

Adjusted gross margin of 50.0% compares with 46.0% in the prior-year quarter and 47.7% in the first half, driven by Leverage on plant expenses, lower quality costs and lower input costs as a share of revenue. Management said new bag technology gave only a limited lift. Adjusted selling, general and administrative expense rose to 29.6% of net sales from 27.1%, as logistics costs climbed to 7.1% of net sales from 5.5% on higher fuel costs and trucking capacity pressure. Media spending eased to 10.8% of net sales from 11.2%.

Adjusted EBITDA reached USD 64.5 million against USD 54.6 million. Operating Cash Flow was USD 60.8 million, compared with USD 66.8 million, and Capital spending of USD 22.9 million left free cash flow at USD 37.8 million, up from USD 31.6 million. Cash stood at USD 345.9 million, and the company had repurchased 1.8 million shares for USD 102.3 million under its USD 150 million authorization.

Demand Drivers

Chief executive Billy Cyr pointed to broad-based growth. Households in the most valuable pet parent group, which account for 72% of sales, number about 2.6 million out of a 10 million household target market, and penetration among them rose 8%. Store count grew 5% to more than 31,000, total distribution points rose 14%, and 25% of stores now carry more than one fridge. E-commerce sales grew 35% and now represent 16.9% of the business. Homestyle Creations passed USD 100 million in annual retail sales.

Net sales growth trailed consumption growth. Management cited the timing of orders around July 4, a large club customer expansion and one major customer growing sales faster than inventory, which together held back reported growth by several points.

Raised 2026 Guidance and 2027 Targets

Freshpet now guides to net sales growth of 12% to 13%, up from 10% to 12%, and adjusted EBITDA of USD 215 million to USD 220 million, up from USD 210 million to USD 220 million. Adjusted gross margin is projected to improve about 150 basis points at the midpoint, versus 100 to 150 previously. Capital expenditures are guided to USD 125 million to USD 150 million, down from about USD 150 million, as operating gains unlocked over USD 100 million of capacity.

The guidance includes USD 10 million to USD 12 million of added logistics costs versus original plans and a fourth quarter step down in adjusted gross margin from planned downtime and extra staffing on the Homestyle Creations line. For 2027, the company targets adjusted gross margin of at least 49% and plans selective price increases. It said adjusted EBITDA margin would land in the lower half of its target range if Inflation does not ease significantly.

Data Points to Watch

Third quarter adjusted gross margin of 50.0% compares with the 2027 target of at least 49%, while logistics costs of 7.1% of net sales compare with 5.5% a year earlier. Net sales growth of 10% in the quarter compares with 12% to 13% guided for the full year. Cash of USD 345.9 million compares with the USD 47.7 million left on the share repurchase authorization.