FEMSA Sells Refrigeration and Foodservice Division to Mill Point

Freshpet, Inc. FRPT reported solid third-quarter fiscal 2024 results, wherein both the top and the bottom lines beat the Zacks Consensus Estimate and increased year over year.

The company reached a key milestone, marking its 25th consecutive quarter of more than 25% year-on-year net sales growth, with strong operational performance. This momentum is expected to continue in the upcoming quarters. Notably, this is the third consecutive quarter where its adjusted gross margin exceeded the 2027 target. This robust performance positions the company well to achieve its 2027 target of $1.8 billion in net sales and expand household penetration to 20 million.

FRPT’s Quarterly Performance: Key Metrics and Insights

Freshpet reported earnings per share (EPS) of 24 cents, a significant improvement from a loss of 15 cents in the same quarter last year. The metric came above the Zacks Consensus Estimate of 14 cents per share, representing a surprise of 71.4%. This year-over-year upside was driven by increased sales, improved gross margins and lower logistics costs relative to net sales, partially offset by higher selling, general and administrative (SG&A) expenses.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Freshpet, Inc. Price, Consensus and EPS Surprise

Freshpet, Inc. price-consensus-eps-surprise-chart | Freshpet, Inc. Quote

The company reported consolidated net sales of $253.4 million, which beat the Zacks Consensus Estimate of $248 million. The metric increased 26.3% from $200.6 million posted in the year-ago period. This year-over-year growth was driven by a 26.1% gain in sales volume.

Sales from the company’s Grocery, Mass, International and Digital channel increased 24.5% year over year to $208.9 million, representing 82% of total sales. The Pet Specialty and Club’s sales rose 35.4% year over year to $44.5 million, accounting for 18% of total sales.

Freshpet’s adjusted gross profit increased 46% year over year to $117.7 million. The adjusted gross margin expanded 630 basis points (bps) to 46.5% compared with 40.2% in the third quarter of fiscal 2023. This increase can be attributed to improvements in input costs, yield, throughput and quality expenses. Specifically, input costs as a percentage of net sales improved 450 bps compared with the previous year due to enhanced yields and lower commodity prices.

Adjusted SG&A expenses rose 29.2% year over year to $74.2 million in the quarter. As a percentage of net sales, adjusted SG&A expenses increased 70 bps year over year to 29.3%. 

The adjusted EBITDA came in at $43.5 million compared with $23.2 million in the year-ago period. This improvement was driven by a higher gross margin and reduced logistics costs, partially offset by increased investments in media and higher incentive compensation expenses.

FRPT’s Financial Health Snapshot

Freshpet exited the quarter with cash and cash equivalents of $274.6 million, total debt outstanding of $394.6 million, net of $7.9 million in unamortized debt issuance costs and total shareholders’ equity of $1,021.4 million. In the nine months ended Sept. 30, 2024, net cash provided by operating activities was $103.9 million.

What to Expect From FRPT in 2024

Freshpet has updated its net sales and adjusted EBITDA forecasts for 2024, reflecting its ongoing strong performance. The company is committed to benefiting pets, people and the planet while remaining optimistic about its ability to finish the year on a high note. FRPT aims to generate significant value for the company’s shareholders as it progresses.

For 2024, management anticipates net sales of approximately $975 million, indicating a 27% increase from 2023. This revised forecast is an upgrade from the previous guidance of $965 million, driven by significant enhancements in operating efficiency and the successful launch of the new roll line in Ennis.

The company raised its expectation for adjusted EBITDA to approximately $155 million, up from the previous guidance of $140 million. 

However, management expects 2024 capital expenditures to be approximately $180 million, a reduction from the previous guidance of $200 million. This adjustment is intended to support the installation of capacity to meet demand in 2025. The reduction in expenditures is due to the timing of various expansion projects, resulting in some costs being postponed until 2025.

This Zacks Rank #2 (Buy) stock has rallied 18.5% in the past three months compared with the industry’s growth of 0.5%.

Other Top-Ranked Stocks

Here, we have highlighted three other top-ranked stocks, McCormick & Company, Incorporated MKC, United Natural Foods, Inc. UNFI and Vital Farms, Inc. VITL, currently carrying a Zacks Rank #2 each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

McCormick manufactures, markets and distributes spices, seasoning mixes, condiments, and other flavorful products to the food industry. MKC has a trailing four-quarter earnings surprise of 13.8%, on average. 

The Zacks Consensus Estimate for McCormick’s current fiscal-year sales and earnings indicates growth of 1% and 8.2%, respectively, from the year-ago reported numbers.

United Natural Foods together with its subsidiaries, distributes natural, organic, specialty, produce and conventional grocery and non-food products.

The Zacks Consensus Estimate for UNFI’s current financial-year earnings implies significant growth from the year-ago period’s reported figure. UNFI has a trailing four-quarter earnings surprise of 199.3%, on average. 

Vital Farms, a food company, provides pasture-raised products that offer shell eggs, butter, hard-boiled eggs and liquid whole eggs. VITL has a trailing four-quarter earnings surprise of 82.5%, on average.

The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings implies growth of around 27% and 88.1%, respectively, from the year-ago reported numbers.

Zacks Investment Research

Have you been paying attention to shares of Freshpet (FRPT)? Shares have been on the move with the stock up 9.9% over the past month. The stock hit a new 52-week high of $154.67 in the previous session. Freshpet has gained 73.6% since the start of the year compared to the 3.6% move for the Zacks Consumer Staples sector and the -0.9% return for the Zacks Food - Miscellaneous industry.

What's Driving the Outperformance?

The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on November 4, 2024, Freshpet reported EPS of $0.24 versus consensus estimate of $0.14 while it beat the consensus revenue estimate by 2.34%.

For the current fiscal year, Freshpet is expected to post earnings of $0.73 per share on $967.33 million in revenues. This represents a 204.29% change in EPS on a 26.14% change in revenues. For the next fiscal year, the company is expected to earn $1.34 per share on $1.2 billion in revenues. This represents a year-over-year change of 83.48% and 24.48%, respectively.

Valuation Metrics

Freshpet may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.

On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. Investors should consider the style scores a valuable tool that can help you to pick the most appropriate Zacks Rank stocks based on their individual investment style.

Freshpet has a Value Score of F. The stock's Growth and Momentum Scores are A and A, respectively, giving the company a VGM Score of B.

In terms of its value breakdown, the stock currently trades at 205.4X current fiscal year EPS estimates, which is a premium to the peer industry average of 17.8X. On a trailing cash flow basis, the stock currently trades at 250.8X versus its peer group's average of 10.9X. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, Freshpet currently has a Zacks Rank of #2 (Buy) thanks to rising earnings estimates.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Freshpet passes the test. Thus, it seems as though Freshpet shares could have potential in the weeks and months to come.

How Does FRPT Stack Up to the Competition?

Shares of FRPT have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? One industry peer that looks good is United Natural Foods, Inc. (UNFI). UNFI has a Zacks Rank of # 2 (Buy) and a Value Score of A, a Growth Score of A, and a Momentum Score of F.

Earnings were strong last quarter. United Natural Foods, Inc. beat our consensus estimate by 112.50%, and for the current fiscal year, UNFI is expected to post earnings of $0.64 per share on revenue of $30.69 billion.

Shares of United Natural Foods, Inc. have gained 2% over the past month, and currently trade at a forward P/E of 30.96X and a P/CF of 3.57X.

The Food - Miscellaneous industry may rank in the bottom 55% of all the industries we have in our universe, but there still looks like there are some nice tailwinds for FRPT and UNFI, even beyond their own solid fundamental situation.

Zacks Investment Research

Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.

The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.

The ability to identify stocks that are likely to top quarterly earnings expectations can be profitable, but it's no simple task. Here at Zacks, our Earnings ESP filter helps make things easier.

The Zacks Earnings ESP, Explained

The Zacks Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more information.

The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.

When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% annual returns on average, according to our 10 year backtest.

Stocks with a ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), or the top 15% and top 5% of stocks, respectively, should outperform the market; Strong Buy stocks should outperform more than any other rank.

Should You Consider RH?

Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. RH (RH) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $2.71 a share, just 30 days from its upcoming earnings release on December 5, 2024.

By taking the percentage difference between the $2.71 Most Accurate Estimate and the $2.68 Zacks Consensus Estimate, RH has an Earnings ESP of +1.31%. Investors should also know that RH is one of a large group of stocks with positive ESPs. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.

RH is part of a big group of Consumer Staples stocks that boast a positive ESP, and investors may want to take a look at Freshpet (FRPT) as well.

Freshpet, which is readying to report earnings on February 24, 2025, sits at a Zacks Rank #2 (Buy) right now. It's Most Accurate Estimate is currently $0.47 a share, and FRPT is 111 days out from its next earnings report.

For Freshpet, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.42 is +11.36%.

Because both stocks hold a positive Earnings ESP, RH and FRPT could potentially post earnings beats in their next reports.

Find Stocks to Buy or Sell Before They're Reported

Use the Zacks Earnings ESP Filter to turn up stocks with the highest probability of positively, or negatively, surprising to buy or sell before they're reported for profitable earnings season trading. Check it out here >>

Zacks Investment Research

Medifast, Inc. MED reported third-quarter 2024 results, with the bottom and top lines surpassing the Zacks Consensus Estimate. However, both metrics declined year over year. Results were hurt by challenging customer acquisition, thanks to increased competition from GLP-1 medications and shifting consumer spending behaviors.

Medifast’s adjusted earnings were 35 cents per share in the third quarter, down from $2.12 in the year-ago quarter. Nevertheless, the metric surpassed the Zacks Consensus Estimate pegged at a loss of 15 cents per share.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Net revenues of $140.2 million declined 40.6% year over year due to fewer active-earning OPTAVIA Coaches and reduced coach productivity. The average revenue per active-earning OPTAVIA Coach was $4,672, down from $5,008 million due to softness in customer acquisition. The total number of active-earning OPTAVIA Coaches fell 36.3% to 30,000 from 47,100 in the year-ago quarter. Nevertheless, the top line surpassed the Zacks Consensus Estimate of $135.5 million.

MEDIFAST INC Price, Consensus and EPS Surprise

MEDIFAST INC price-consensus-eps-surprise-chart | MEDIFAST INC Quote

A Closer Look at MED’s Q3 Results

Medifast’s gross profit was $105.7 million, down 40.4% year over year. The downside can be attributed to reduced revenues. The gross profit margin was 75.4%, an expansion from 75.2% reported in the year-ago quarter’s level.

Selling, general, and administrative (SG&A) expenses decreased by 31.8% to $103.6 million due to lower OPTAVIA coach compensation resulting from a reduction in active-earning coaches and decreased volumes. In addition, there was a decline in costs associated with coach-related events, including the annual convention. We expected the metric to decrease 38.2% to $93.8 million in the third quarter.

As a percentage of revenues, SG&A expenses increased 950 basis points (bps) to 73.9%, which was driven by around 590 bps related to company-led customer acquisition efforts and 340 bps linked to reduced leverage on fixed costs due to declining sales volumes.

The adjusted income from operations declined 85.3% to $3.8 million, while the adjusted operating margin decreased 810 bps year over year to 2.7%.

MED’s Financial Health Snapshot

The Zacks Rank #3 (Hold) company concluded the quarter with cash, cash equivalents and investments of $115.3 million, no debt (as of Sept. 30, 2024) and total shareholders’ equity of $207.3 million.

As of Sept. 30, 2024, the company held a $225 million credit facility. Due to its strong cash position, expected to remain stable through the credit facility's expiration, the company terminated the credit agreement, effective Oct. 30, 2024. This decision was part of the Fuel for the Future initiative.

What to Expect From Medifast in Q4?

Medifast expects fourth-quarter revenues to range between $100 million and $120 million. This reflects a continued decline in active-earning OPTAVIA Coaches, driven by near-term challenges in customer acquisition due to the growing adoption of GLP-1 medications in the market. Management forecasts a loss per share for the quarter in the range of 10 to 65 cents.

The company’s guidance includes an expected $7 million in spending for company-led marketing during the quarter. However, it does not account for any gains or losses resulting from fluctuations in the market price of MED’s LifeMD common stock holdings, as these are difficult to estimate.

MED’s shares have lost 7.2% in the past three months against the industry’s 0.5% growth.

Some Better-Ranked Staple Bets

We have highlighted three better-ranked stocks from the Consumer Staples sector, namely Freshpet FRPT, Vital Farms VITL and United Natural Foods UNFI.

Freshpet, a pet food company, presently carries a Zacks Rank #2 (Buy). FRPT has a trailing four-quarter earnings surprise of 132.9%, on average. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings suggests growth of 26.1% and 204.3%, respectively, from the year-ago period’s reported figure.

Vital Farms, which offers a range of ethically produced food, currently carries a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 82.5%, on average.

The Zacks Consensus Estimate for Vital Farms’ current fiscal year’s sales and earnings suggests growth of 27% and 88.1%, respectively, from the year-ago reported numbers.

United Natural Foods distributes natural, organic, specialty produce and conventional grocery and non-food products. UNFI currently has a Zacks Rank #2.

The Zacks Consensus Estimate for UNFI’s current financial-year earnings suggests significant growth from the year-ago period’s reported figure. United Natural Foods has a trailing four-quarter earnings surprise of 199.3%, on average.

Zacks Investment Research

Diageo DEO has seen its stock price plummet 8% in a month compared with the industry’s 7.8% decline and against the S&P 500’s 0.8% growth. This downturn reflects both challenging macroeconomic conditions and company-specific obstacles. Investors are currently divided on whether the stock is set for further decline or is on the verge of a recovery.

At the current price of $124.21, the stock is hovering near its 52-week low of $119.48. Investors are left wondering, should they hold on in hopes of a turnaround or is it time to sell and move on? Let's delve deeper.

DEO stock has fallen below critical technical thresholds, including its 50 and 200-day moving averages. These moving averages serve as important indicators for assessing market trends and momentum. The breach of this threshold heightens investor concerns about the stock’s short-term outlook and signals the potential for further downside if these levels are not reclaimed.

Challenges in the Beverage Industry Affect Diageo

Fiscal 2024 has proved challenging for both the beverage industry and Diageo. DEO has been witnessing difficulties in the Latin America and Caribbean (LAC) regions, which negatively impacted the company’s financial results. In Mexico, Diageo's second-largest market in the LAC, intense competition and consumer downtrading have created ongoing difficulties, especially in the tequila and Scotch segments.

The cautious consumer environment and adjustments in retailer inventories from the previous year have led to a decline in organic net sales in Diageo’s North America (NAM) segment. Group organic volume also fell 3.5%, due to destocking in the LAC, challenges in Africa's beer sector and issues in NAM.

Diageo has been also facing significant inflationary pressures due to rising costs for commodities such as agave, increased energy expenses and ongoing supply-chain disruptions. While the company has implemented productivity savings, supply efficiencies and pricing adjustments to mitigate some of these challenges, it has been grappling with substantial cost increases in materials like glass, paper, metal and transportation.

Unlocking DEO’s Valuation

Diageo’s forward 12-month price-to-earnings ratio stands at 17.9X, significantly higher than the industry’s ratio of 16.41X. This indicates that investors may be paying a high price relative to the company's expected earnings growth. DEO has a Value Score of C.

Diageo's Estimate Trend

Diageo is currently in a tough spot. The Zacks Consensus Estimate for EPS has seen downward revisions. In the past 60 days, the consensus estimate for the current and the next-fiscal year has decreased 1.3% to $6.88 and 1.8% to $7.06 per share, respectively.

Can DEO’s Strategy Uplift Performance?

Despite these challenges, Diageo is committed to investing in its impressive portfolio of brands and the company’s diverse global footprint to maintain its leadership in the total beverage alcohol sector, which continues to offer significant growth potential. The company is also well-prepared with operational excellence strategies to ensure that when the consumer environment recovers, DEO can swiftly capitalize on opportunities alongside its strong brands.

Diageo noted that it is on track to deliver on the company’s medium-term guidance for fiscal 2023-2025, wherein it targets organic sales growth of 5-7% and organic operating profit growth broadly in line with net sales growth.

DEO’s Financial Health Snapshot

Diageo delivered strong operating cash flow and free cash flow in fiscal 2024. The company generated net cash from operating activities of $4.1 billion, reflecting a year-over-year increase of $469 million. Diageo's free cash flow rose to $2.6 billion, up $374 million from the previous year, largely due to effective working capital management and the positive impact of lapping one-off cash tax payments in the prior year. However, these gains were partly offset by lower operating profit and increased interest expenses.

In a show of confidence in the company’s financial health, Diageo raised its full-year dividend by 5% to 103.48 cents per share. This move underscored the company’s strong liquidity position and commitment to returning value to its shareholders.

What Should Be Your Approach on DEO?

Diageo's recent stock performance, challenges like shifting consumer sentiment and elevated inventory levels have raised concerns among investors. Despite these challenges, the company appears well-positioned for long-term growth as DEO is committed to investing in its impressive portfolio of brands. This will strengthen its market position.

Potential investors may consider waiting for a more favorable entry point, while current shareholders might find it wise to hold onto their DEO shares, given the stock's long-term outlook. Diageo carries a Zacks Rank #3 (Hold), indicating a balanced view of its performance.

Stocks to Consider

Here, we have highlighted three better-ranked stocks, namely Vital Farms, Inc. VITL, Freshpet, Inc. FRPT and Nomad Foods Limited NOMD.

Vital Farms, a food company that provides pasture-raised products in the United States, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

VITL has a trailing four-quarter earnings surprise of nearly 82.5%, on average. The Zacks Consensus Estimate for Vital Farms’ current-fiscal year’s sales and earnings indicates growth of 27% and 88.1%, respectively, from the year-ago reported numbers.

Freshpet, together with its subsidiaries, manufactures, distributes and markets natural fresh meals and treats for dogs and cats. It currently flaunts a Zacks Rank #1. FRPT delivered an earnings surprise of 133% in the last reported quarter.

The Zacks Consensus Estimate for Freshpet’s current-fiscal year’s sales and earnings implies growth of 26.1% and 204.3%, respectively, from the year-ago reported number.

Nomad Foods, together with its subsidiaries, manufactures, markets and distributes a range of frozen food products and currently carries a Zacks Rank #2 (Buy). NOMD has a trailing four-quarter earnings surprise of 3.1%, on average.

The Zacks Consensus Estimate for Nomad Foods’ current-financial year’s sales and earnings indicates a rise of 4.3% and 12.6%, respectively, from the year-earlier reported figures.

Zacks Investment Research