Freshpet Slows to 13% Growth as Category Struggles

Date of Call: Feb 23, 2026

Financials Results

• Revenue: Q4: $285.2M, up 8.6% YOY; Full Year: $1.102B, up 13% YOY
• EPS: Not explicitly provided. Q4 net income $33.8M vs $18.1M prior year; Full Year: $139.1M vs $46.9M prior year.
• Gross Margin: Q4 adjusted gross margin 48.4% vs 48.1% prior year; Full Year adjusted gross margin 46.7%, up 20 basis points YOY
• Operating Margin: Not explicitly provided. Adjusted EBITDA margin for Full Year 2025 was 17.8% vs 16.6% prior year.

Guidance:

• Net sales growth for 2026 expected between 7% and 10%.
• Adjusted EBITDA for 2026 expected between $205M and $215M (5% to 10% YOY growth).
• Capital expenditures projected at ~$150M, with potential $20M-$50M increase if accelerating fridge islands/technology rollout.
• Expect to be free cash flow positive in 2026 at current CapEx level.
• 2027 targets: net sales growth exceeding U.S. dog food category (high single digits/low double digits); adjusted gross margin ≥48%; adjusted EBITDA margin 20%-22%.

Business Commentary:

Revenue Growth and Market Position:

• Freshpet, Inc. reported net sales of $1.102 billion for fiscal year 2025, achieving a growth rate of 13% year-over-year.
• The growth rate dropped from 27% in fiscal year 2024 to 13% in 2025 due to a dramatic slowdown in consumer sentiment and category growth. Despite this, Freshpet's growth was more than 10 points better than the category average, indicating strong market performance amidst challenging conditions.

Digital and Omnichannel Expansion:

• Freshpet's e-commerce sales grew to 14% of total goal business, up from a previous lower percentage, with digital sales in Q4 reaching 14.6% of net sales.
• This growth was driven by a focus on increasing digital and streaming media as part of their media mix, which helped drive household penetration and trial among Millennials and Gen Z.

Manufacturing and Technological Advancements:

• Freshpet introduced a new production technology line, which began shipping products last month, showing early indications of significant quality, throughput, and yield benefits.
• The investment in this technology aims to enhance Freshpet's competitive advantages, improve product quality, and achieve better economic efficiency.

Media and Marketing Strategy:

• Media spending increased to 10% of Q4 net sales, up from 8.9% in the prior year period, with plans to rebalance the media mix to be more diversified and digital-forward.
• The shift in strategy is focused on building an omnichannel presence, super-serving MVPs (super heavy users), and increasing household penetration through targeted advertising and trusted voices in media.

Capital Efficiency and Future Outlook:

• Freshpet aims to enhance capital efficiency by optimizing existing lines and sites, and implementing new technologies, which could support up to $1.5 billion in sales within the current footprint.
• The company plans for capital expenditures of approximately $150 million in 2026, with potential increases if significant investments in fridge island expansion or manufacturing technology are made.

Sentiment Analysis:

Overall Tone: Positive

• Management emphasizes being 'very well positioned' for growth, having built a 'strong foundation,' and seeing 'early signs' of household penetration growth. They state 'we feel really good about the product proposition,' are 'increasingly confident' in their plan, and see 'a long runway for growth.'

Q&A:

• Question from Peter Benedict (Robert W. Baird & Co.): Could you help us size the incentive comp impact on '26 and the factors giving confidence in 20%+ EBITDA margins in '27?
  Response: Incentive comp is a one-time headwind in '26; margins are expected to normalize beyond '26. Multiple pathways to '27 target include gross margin improvement, sales growth, and SG&A efficiencies.

• Question from Brian Holland (D.A. Davidson & Co.): How do you rank order drivers for consumption growth in 2026?
  Response: Advertising remains the #1 driver. Key components include omnichannel/DTC growth, distribution expansion (club, new stores, fridge islands), and affordability initiatives at entry price point.

• Question from Stephen Robert Powers (Deutsche Bank AG): What have you learned from fridge island expansion and other tests?
  Response: Islands provide 2.5x capacity, better assortment, and improved in-stock for omnichannel. Still in early test phase; encouraging results but evaluating optimal configurations (e.g., open-air end caps).

• Question from Thomas Palmer (JPMorgan Chase & Co): What are the drivers of gross margin expansion and evolution to 48%+ target in 2027?
  Response: Key drivers are plant leverage/OEE improvements (getting more volume from same staffing), yield gains, and input cost management. New manufacturing technology is a potential future accelerant but not required to meet '27 targets.

• Question from Robert Moskow (TD Cowen): Is shifting consumers from topper to main meal still a major objective?
  Response: Yes, core focus remains on super-serving MVPs (71% of sales). Strategy includes digital-forward media, omnichannel expansion, and value packs/bulk offerings in club/online channels.

• Question from Michael Lavery (Piper Sandler & Co.): How do multi-packs interact with the portfolio and consumer?
  Response: Multi-packs are early-stage, targeted at different households seeking convenience; discount level is low, not a subsidy. They help with frequent shopping needs.

• Question from Rupesh Parikh (Oppenheimer & Co. Inc.): Any surprises from competitor entries?
  Response: Not surprising; validates the category growth. Competitors have not impacted Freshpet's business due to its competitive moat (quality, brand, scale, distribution).

• Question from Jon Andersen (William Blair & Company L.L.C.): Is the new production technology included in '27 EBITDA targets?
  Response: Technology impact in '27 would be modest unless accelerated investment is made. Targets are achievable through OEE improvements, yield gains, G&A efficiency, and net sales growth.

Contradiction Point 1

Gross Margin Drivers and Timeline

Contradiction on the primary driver for achieving the 48% gross margin target.

What are your thoughts on Thomas Palmer's role at JPMorgan Chase & Co.? - Thomas Palmer (JPMorgan Chase & Co.)

2025Q4: Key drivers are OEE improvements, quality cost management, input cost optimization, and volume from existing asset base... The new manufacturing technology is a potential future accelerant. - [William Cyr](CEO), [John O'Connor](CFO)

What are the key drivers of gross margin expansion in 2026 and the path to exceeding 48% in 2027? Is sales growth without headcount a continued driver? - Rupesh Parikh (Oppenheimer & Co. Inc.)

2025Q3: The main path to 48% is through better leverage on plant conversion costs. The ability to get more volume out of existing staffing... is a critical driver for building margin. - [Ivan Garcia](CFO), [William Cyr](CEO)

Contradiction Point 2

CapEx Allocation and Project Details

Contradiction on the scale and timing of capital expenditures related to new technology.

What is your take on JPMorgan Chase & Co.'s earnings? - Thomas Palmer (JPMorgan Chase & Co.)

2025Q4: The base CapEx includes the first line startup (mostly spent in 2025) and the first retrofit. If accelerating: 1) Retrofitting a bag line with 'lite' technology costs ~single millions. 2) Installing a full new technology line is more expensive... A larger portion of CapEx for a new line would come in 2027, with startup in late 2027/2028. - [William Cyr](CEO)

Is the base $150M budget exclusively for the fridge islands and new technology rollouts, considering the potential $20M-$50M higher CapEx? What is the cost per new line with the technology? - Thomas Palmer (JPMorgan Chase & Co.)

2025Q3: The $140M is for out-year capacity and wrapping up current technology projects. The company is willing and able to invest above this amount if leaning into new distribution... or accelerating technology adoption... - [Ivan Garcia](CFO)

Contradiction Point 3

SG&A Growth Drivers and 2026 Pathway

Contradictory explanations for SG&A growth drivers in 2026.

What is Peter Benedict's role at Robert W. Baird & Co. Incorporated? - Peter Benedict (Robert W. Baird & Co. Incorporated)

2025Q4: SG&A growth from 2025 to 2026 is split roughly into three parts: 1/3 from lower incentive comp (due to poor 2025 performance vs. target), 1/3 from omnichannel build-out, and 1/3 from media spend. - [John O'Connor](CFO)

What factors are driving the EBITDA margin increase in 2027, what is the impact of incentive compensation on 2026, and what other factors support confidence in exceeding 20% margins by 2027? - William Bates Chappell (Truist Securities)

2025Q2: The lower incentive compensation accrual this year compared to last year, due to the strong year in 2024. - [Todd E. Cunfer](CFO)

Contradiction Point 4

EBITDA Margin Target Pathway and Drivers

Contradiction on whether new technology is included in the primary path to the 2027 margin target.

What are your insights on the current market conditions? - Peter Benedict (Robert W. Baird & Co. Incorporated)

2025Q4: For 2027, margin potential depends on sales growth, gross margin gains, and OEE improvements. Incentive comp will return to more normal levels, and SG&A additions will not be at the same scale as 2026. - [John O'Connor](CFO)

What factors are driving the EBITDA margin increase to over 20% by 2027, how is the incentive compensation impact quantified for 2026, and what other elements support this margin target? - Peter Sloan Benedict (Baird)

2025Q2: Key drivers include: near 47% adjusted gross margin this year with potential upside from new technologies; significant G&A leverage from sales growth; modest logistics improvements; media expenses expected to grow with sales. - [Todd E. Cunfer](CFO)

Contradiction Point 5

Discounting and Affordability Strategy

Contradiction on the company's stance regarding the use of discounting to drive growth.

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2025Q4: The company stepped back in Q2 2025 to sharpen execution... Current portfolio actions are deemed sufficient for the macro environment. No significant mix shift is anticipated for 2026. - [Nicola Baty](COO)

Are there additional affordability initiatives planned, and will volume growth exceed sales growth in 2026 as a result? - Bill Chappell (Truist Securities)

2025Q1: The company has never done discounting or couponing and has no intention of starting. Instead, it will focus on: 1) **Affordability initiatives**—launching new entry-price-point bag products... offering multipacks for value... - [Scott Morris](President & Co-Founder) & [Todd Cunfer](CFO)