HelloFresh shares down as RTE growth slows despite profit gains

Investing.com -- Shares of HelloFresh (ETR:HFGG ) dropped over 5% on Tuesday after the company reported a slowdown in growth within its ready-to-eat meal segment, a trend that has persisted throughout 2024. 

Despite HelloFresh's revenue and adjusted EBITDA (aEBITDA) meeting expectations for the third quarter, its high-growth RTE products continued to decelerate.

“Although these results include few additional surprises vs the 25 October update, we expect consensus to continue to update models on this release to reflect the new guidance (with slightly raised AEBITDA range),” said analysts at Bernstein in a note. 

This decline in RTE’s momentum comes despite the company’s strategic pullback on marketing expenses for its core meal kits, which HelloFresh attributed to efforts in increasing profitability.

HelloFresh’s pre-release on October 25 set the stage for these results, outlining that a more “disciplined” approach to marketing spend would yield an anticipated €30 million aEBITDA beat against earlier forecasts. 

Analysts at UBS said that although the company’s Q3 revenue of €1.828 billion was in line with consensus estimates, it flagged mixed dynamics between product categories. 

The company reported RTE revenue growth of +38.7%, a substantial figure but one that marks a continued slowdown from the 54% year-over-year growth posted in Q1 and 46.7% in Q2. 

This softening of RTE growth underscores the challenges facing HelloFresh as it tries to bolster revenues against declining demand in its flagship meal kit offerings, which saw a 9.6% decrease in revenue, continuing a downward trend from earlier in the year.

While HelloFresh improved profitability in its meal kit business, due to a reduction in marketing expenses that has been beneficial to margins, its RTE segment—historically a major revenue driver—also saw its own profit margins contract. 

The company's aEBITDA margin for RTE came in at 1.3%, a decrease from last year as marketing costs in this segment increased to support customer acquisition efforts.

HelloFresh has revised its revenue outlook for 2024, lowering expectations from a 2-8% growth range to a more modest 1-1.7%. 

This reduction, the company says, reflects a conscious strategy shift toward profitability, even if it comes at the expense of growth. 

As per UBS analysts, HelloFresh’s focus on marketing efficiency and margin improvements over growth signals that it aims to better balance profitability with customer retention as it heads into the fourth quarter. 

CEO Dominik Richter commented on plans to further “expand free cash flow and profitability” by refining both the marketing approach and production strategies.

Source: Investing.com