Is Fido finicky? Pet food gets hit by supply-chain disruptions

Supply-chain problems aren’t sparing pets. Finicky felines and picky pups may find a different food…

Supply-chain problems aren’t sparing pets. Finicky felines and picky pups may find a different food in their dinner bowl these days due to the disruptions.

Freshpet Inc.
FRPT,
-3.20%,
which makes pet food from natural ingredients, issued a revenue warning on Friday, after supply-chain problems hurt the business.

“Supply-chain issues continue to cause new challenges for our business, this time with parts supplies for key packaging components,” said Freshpet Chief Executive Billy Cyr in a statement.

“While we’ve since solved this issue, it nonetheless caused a temporary decrease in production, which in turn is resulting in the revision to our full year expectations that we are updating today.”

The company now expects full-year 2021 sales of $425 million and $430 million. The FactSet consensus is for $437.9 million. The news sent Freshpet stock tumbling nearly 5% on Friday.

The news comes days after Chewy Inc.
CHWY,
+2.55%
reported its own pet food problems.

See: Costco boosts inflation estimate for 3rd-straight quarter, says some inventory ‘won’t make it before Christmas’

“Shortages of wet dog food persisted, while out-of-stock levels in areas like third-party and proprietary branded hardgoods also increased,” said Mario Marte, chief financial officer at Chewy, on the third-quarter earnings call on Dec. 9, according to a FactSet transcript. 

“As a result of these, the negative impact of supply shortages in Q3 net sales was approximately $15 million more than our internal expectations.”

Chewy reported sales of $2.212 billion, up from $1.782 billion last year and in line with the FactSet consensus.

Analysts took note of the affect on Chewy’s prospects.

“Chewy is being pressured by the effects of supply chain delays and costs, labor cost and supply issues, as well as a challenging customer acquisition environment,” wrote Wedbush analysts in a note.

“Some of these pressures are transitory, but others could persist, weighing on the revenue and EBITDA growth outlook.”

Wedbush rates Chewy stock neutral with a $55 price target, lowered from $70.

Other research groups also cut their price targets. UBS slashed its price target to $46 from $71 and maintained its sell stock rating. JPMorgan moved its price target to $68 from $95 but held on to its overweight stock rating.

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“[M]argins are being impacted by inflationary pressures, supply chain constraints,
and labor and Chewy now expects 2021 EBITDA to be flat year-over-year vs. +80-100 basis points year-over-year previously,” wrote Raymond James.

Chewy also said in its shareholder letter that these factors will “weigh on near-term
profitability.”

Raymond James rates Chewy stock market perform.

For the fourth-quarter, Chewy is guiding for sales of $2.40 billion to $2.44 billion. The FactSet consensus is for $2.42 billion.

For the year, Chewy’s outlook is for sales of $8.90 billion to $8.94 billion. The FactSet consensus is for $8.92 billion.

Freshpet stock has fallen 36.1% for the year. Chewy is down 39.6%. And the benchmark S&P 500 index
SPX,
-1.03%
has gained 23.8% in 2021.