What happened

Shares of Freshpet (FRPT 0.09%) were climbing higher today after the maker of fresh pet food products posted strong results in its fourth-quarter earnings report and offered better-than-expected guidance for 2022 in spite of supply chain challenges.

As of 1:16 p.m. ET, the stock was up 14.8%.

A dog and cat lying next to each other.

Image source: Getty Images.

So what

Freshpet said revenue in the quarter grew 37.1% to $115.9 million, which matched estimates. Management credited "velocity, distribution gains, and innovation," for the strong growth, meaning it's bringing on new retail partners and speeding up shipments.  

Adjusted gross margin fell sharply from 45.8% to 41.7% due to higher wages, cost inflation, and investments in increased capacity.  

Selling, general, and administrative costs also increased by 46% due to higher transportation costs and ad spending. As a result, its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) slipped from $12.9 million to $9.7 million. On the bottom line, it reported a loss per share of $0.21 under generally accepted accounting principles (GAAP), down from a per-share loss of $0.08 in the quarter a year ago, and worse than the consensus at a loss per share of $0.16.

Touting the recent investments the company has made, CEO Billy Cyr said:

We finally have the capacity needed to support Freshpet's significant top-line growth potential -- while also improving the reliability of our operations. Over the past two years, we have invested in significant new capacity and the talent to support it. We plan to use that capacity wisely -- budgeting conservatively to ensure the reliability of our operations in an uncertain environment but also planning aggressively to maximize our growth potential.

Now what

What seemed to spark the gains in the stock today was Freshpet's guidance. The company actually expects revenue growth to accelerate from 33.5% to at least 35% growth this year, and is calling for at least $575 million in revenue. That was ahead of Wall Street estimates at $562.4 million. It also sees adjusted EBITDA of greater than $55 million, implying a 28% increase or better from 2022.

Freshpet has been a reliable growth stock in the recession-proof pet products industry as its model of selling fresh, refrigerated food distinguishes it from competitors. With the stock down 40% from its peak nearly a year ago, the upside potential is much clearer here.