Freshpet (Freshpet (FRPT)) served up a tasty earnings beat on Wednesday, but investors decided to send the stock to the doghouse anyway.

The pet food company reported first-quarter earnings per share of 91 cents, crushing the analyst consensus of 15 cents. Net sales rose 13.1% year over year to $297.6 million, topping the $291.8 million estimate. Net income swung to $48.5 million from a loss of $12.7 million a year earlier, helped by a $62 million gain from selling a non-controlling equity investment.

So why the 9.94% drop in shares to $54.19? The market's nose for trouble sniffed out a decline in adjusted EBITDA margin, which fell to 12.7% from 13.5% in the prior-year quarter. Adjusted EBITDA itself actually increased to $37.9 million from $35.5 million, but the margin compression spooked investors.

Growth and Margins

Sales growth was driven by volume gains of 14.6%, partially offset by an unfavorable price and mix impact of 1.5%. Gross profit rose to $120.7 million from $103.8 million, and gross margin expanded to 40.5% from 39.4%. Adjusted gross margin improved to 46.9% from 45.7%, thanks to lower input costs and better plant leverage.

Operating income turned positive at $4.3 million, compared with an operating loss of $11.5 million a year ago. SG&A expenses crept up to $116.3 million, but as a percentage of sales, they improved to 39.1% from 43.8%. Adjusted SG&A increased to $101.7 million, partly due to higher media spending.

Cash Flow and Balance Sheet

Operating cash flow surged to $40.3 million from $4.8 million, and free cash flow flipped to positive $12.7 million from negative $21.7 million. Capital expenditures totaled $27.6 million. Freshpet ended the quarter with $381.4 million in cash and $397.9 million in debt.

Outlook

CEO Billy Cyr said, "We are encouraged by our strong start to 2026, delivering first quarter sales growth in excess of our 2026 guidance and reinforcing our confidence in Freshpet's long-term growth opportunity."

Freshpet raised its full-year 2026 sales growth guidance to 8% to 11% from 7% to 10%, implying revenue of about $1.19 billion to $1.223 billion, versus estimates of $1.203 billion. The company maintained its adjusted EBITDA outlook of $205 million to $215 million and continued to expect positive free cash flow with roughly $150 million in capital expenditures.

Conference Call Highlights

On the earnings call, management noted that demand remains resilient, but they're keeping an eye on macroeconomic volatility, inflation, tariffs, fuel, and ingredient costs. Digital orders grew 43% and now represent 16.1% of sales, with most fulfilled through Freshpet's fridge network. Products are available in 30,435 stores, and Tractor Supply is expected to expand Freshpet to about 700 stores by year-end.

New advertising is lowering customer acquisition costs, and new manufacturing technology could improve quality, throughput, and yield. So while the market may be growling today, Freshpet's long-term story still has plenty of meat on the bone.