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Why Freshpet Stock Was Tumbling Today

By Jeremy Bowman – Nov 9, 2021 at 3:44PM

Key Points

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Shares of the fresh-pet-food stock dipped on a disappointing earnings report.

What happened

Shares of Freshpet (FRPT 2.08%) were in the doghouse today after the fresh-pet-food maker missed the mark in its third-quarter earnings report. Supply-chain challenges and labor shortages weighed on the company's performance, and Freshpet slashed its guidance for the full year.

As of 2:48 p.m. EST, the stock was down 15.6%.

A beagle dog looking upward

Image source: Getty Images.

So what

Despite the challenges, Freshpet still delivered strong top-line growth; it just wasn't enough for this high-priced stock to please Wall Street.

Revenue rose 27.8% to $107.6 million, which was short of the analyst consensus at $115.5 million. Wage increases, higher ingredient costs, and investment all weighed on gross margin, which fell from 43.5% to 38.6%. As a result, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) slipped from $17 million to $14.6 million. On a GAAP basis, the company reported a loss of $0.05 per share, compared to estimates at $0.07 per-share profit.

CEO Billy Cyr said: "Despite unprecedented supply chain challenges, Freshpet's long-term growth model remains intact. Like everyone else, we are facing extraordinary labor and material shortages, and accelerating inflation that have modestly delayed the start-up of new capacity and increased our costs more rapidly than we anticipated -- causing short-term challenges that we are addressing."

Now what

For the full-year, the company trimmed its guidance to 40% revenue growth to around $445 million from previous expectations of at least $445 million. It now expects a 7% increase in adjusted EBITDA to $50 million, below an earlier forecast of around $61 million as ongoing supply-chain issues are expected to impact the company.

Investors should be aware that these are short-term challenges weighing on the business' performance rather than structural deficiencies. It's not usual to see high-priced stocks get chopped like this when they miss estimates, but Freshpet is still growing fast and the growth plan is sound.

Cyr added, "The long-term trends driving Freshpet's growth remain strong, and -- thanks to our aggressive capacity expansion initiatives and the investments we made in maintenance, training and automation in Q3 -- we have never been better positioned to fulfill our mission of 'changing the way people nourish their pets forever' than we are today." 

The broader tailwinds in the pet industry still favor the stock. 

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Freshpet. The Motley Fool has a disclosure policy.

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