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Karat Packaging Reports 2025 First Quarter Financial Results

1. KRT reported Q1 2025 net sales of $103.6 million, up 8.4%. 2. Gross profit reached $40.8 million, maintaining a gross margin of 39.3%. 3. The company reduced reliance on China from 20% to 15% due to tariffs. 4. KRT expects continued sales growth and strategic sourcing improvement. 5. A regular quarterly dividend of $0.45 per share was approved.

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Why Bullish?

The strong sales growth, stable gross margin, and management's positive outlook indicate a favorable future. Companies with consistent revenue growth typically experience increased investor confidence, driving their stock prices up, evidenced by similar trends in companies facing tariff challenges.

How important is it?

The financial performance and future guidance of KRT demonstrated resilience in a challenging environment, attracting investor interest. The dividend indication further underscores the company's commitment to shareholder value.

Why Short Term?

KRT's immediate financial results and strategic adjustments should impact stock price in the short term. Historically, companies demonstrating revenue growth and proactive management during trade uncertainties have experienced quick positive market reactions.

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NDAQ:AMZNNDAQ:TSLANDAQ:WMT
— Strong revenue growth and well-positioned ahead of the global trade uncertainty — CHINO, Calif., May 08, 2025 (GLOBE NEWSWIRE) -- Karat Packaging Inc. (Nasdaq: KRT) (“Karat” or the “Company”), a specialty distributor and manufacturer of environmentally friendly, disposable foodservice products and related items, today announced financial results for its 2025 first quarter ended March 31, 2025. First Quarter 2025 Highlights Net sales of $103.6 million, up 8.4 percent, from $95.6 million in the prior-year quarter.Gross profit of $40.8 million, up 8.4 percent, from $37.6 million in prior-year quarter.Gross margin of 39.3 percent, consistent with the prior-year quarter.Net income of $6.8 million, up 5.2 percent, from $6.5 million in the prior-year quarter.Net income margin of 6.6 percent versus 6.8 percent in the prior-year quarter.Adjusted EBITDA of $11.9 million versus $13.5 million in the prior-year quarter.Adjusted EBITDA margin of 11.5 percent versus 14.2 percent in the prior-year quarter. Guidance Net sales for the 2025 second quarter expected to increase by high single-digit to low double-digits from the prior-year quarter.Gross margin for the 2025 second quarter expected to be in line with the first quarter.Adjusted EBITDA margin for the 2025 second quarter expected to be in the mid-teens.Reiterating the 2025 full year guidance on net sales, gross margin and adjusted EBITDA margin. “We delivered another strong quarter, with sales volume up 10.9 percent and net sales up 8.4 percent and we believe we are well-positioned to navigate the supply chain challenges and the uncertain trade environment,” said Alan Yu, Chief Executive Officer. “Our effective and nimble global strategic sourcing capabilities enabled us to act early, reducing reliance on China from approximately 20 percent at the end of 2024 to 15 percent in March 2025, as we secured inventory from alternative sources with significantly more favorable trade terms under the current tariff structure. Moreover, due to the recently imposed extreme tariff, we have temporarily suspended imports from most vendors in China starting mid-April.” “In addition to our diverse international supplier network, our ability to quickly ramp up our existing domestic manufacturing operations also enables us to respond rapidly to shifting market dynamics and meet customer needs. This agility ensures continuity and positions us to capture growth opportunities during periods of challenging external economic environments. As previously announced, we implemented price increases for certain products on April 1. Reflecting higher costs from the more recent global tariff developments, we expect to implement additional price increases in mid-May. “At the same time, we continue to focus on expanding our wallet and market share, particular in Texas and the mid-west region, as well as growing our online business, which experienced a nearly 20 percent sales increase during the first quarter. Karat has proven to be a reliable supplier to our customers during times of supply chain interruptions and general economic uncertainty, as we demonstrated during the Covid era,” Yu added. First Quarter 2025 Financial ResultsNet sales for the 2025 first quarter increased 8.4 percent to $103.6 million, from $95.6 million in the prior-year quarter. Net sales for the 2024 first quarter were understated by $0.7 million, which represented products shipped and recognized as revenue in 2023 but not delivered until 2024. Including this impact, the year-over-year increase in net sales was primarily driven by a $11.7 million volume growth and change in product mix, partially offset by a $3.9 million unfavorable year-over-year pricing comparison, as the Company continued to be competitive on the pricing front. Over the past couple of quarters, the Company has observed a shift in some order patterns from chain accounts, requesting order fulfillment through their distribution partners. This change has blurred the distinction between sales to chains and distributors. Accordingly, starting 2025, the Company has combined net sales to chain accounts and distributors into a single reporting category and has recast the comparative 2024 period, as presented in the net sales by category table below. Cost of goods sold for the 2025 first quarter increased 8.4 percent to $62.9 million, from $58.0 million in the prior-year quarter. Cost of goods sold for the 2024 first quarter was understated by $0.4 million related to products shipped and recognized as cost of goods sold in 2023 but not delivered until 2024, as discussed above. Including this impact, the year-over-year increase in cost of goods sold was primarily driven by higher product costs of $3.0 million resulting from increased sales volume partially offset by more favorable vendor pricing and product mix, and higher ocean freight and duty costs of $2.0 million, as a result of a 15.5 percent increase in import volume, as well as a 4.3 percent increase in freight container rates. Gross profit for the 2025 first quarter increased 8.4 percent to $40.8 million, from $37.6 million in the prior-year quarter. Gross profit for the 2024 first quarter was understated by $0.3 million related to products shipped and recognized as revenue and cost of goods sold in 2023 but not delivered until 2024, as discussed above. Gross margin was 39.3 percent in the 2025 first quarter, consistent with the prior-year quarter. Gross margin benefited from lower product costs as a percentage of net sales in the 2025 first quarter, compared with the prior-year quarter, primarily due to more favorable vendor pricing, increased imports as a percentage of total product mix, and foreign currency gain, partially offset by higher freight and duty costs as a percentage of net sales. Operating expenses for the 2025 first quarter increased 11.6 percent to $32.9 million, from $29.5 million in the prior-year quarter. The increase for the 2025 first quarter was primarily driven by an increase in shipping and transportation costs of $3.4 million due to higher sales volume and an increase in online packages as a percentage of total shipments, an increase in rent expense of $0.9 million primarily due to the opening of a new distribution center and warehouse lease extension in Chino, California, an increase in online marketing expense, and higher professional services expense. These increases were partially offset by a non-cash impairment of a right-of-use asset of $2.0 million during the prior-year quarter resulting from the sublease of a warehouse in City of Industry, California. Net income for the 2025 first quarter increased 5.2 percent to $6.8 million, from $6.5 million in the prior-year quarter. Net income margin was 6.6 percent in the 2025 first quarter, compared with 6.8 percent in the prior-year quarter. Net income attributable to Karat for the 2025 first quarter was $6.4 million, or $0.32 per diluted share, compared with $6.2 million in prior-year quarter, or $0.31 per diluted share. Adjusted EBITDA, a non-GAAP measure defined below, was $11.9 million for the 2025 first quarter, compared with $13.5 million for the prior-year quarter. Adjusted EBITDA margin, a non-GAAP measure defined below, was 11.5 percent of net sales for the 2025 first quarter, compared with 14.2 percent for the prior-year quarter. Adjusted diluted earnings per common share, a non-GAAP measure defined below, was $0.33 per share for the 2025 first quarter, compared with $0.40 per share for the same quarter last year. DividendOn May 6, 2025, Karat’s board of directors approved another regular quarterly dividend of $0.45 per share on the Company’s common stock, payable on or about May 23, 2025, to stockholders of record as of May 16, 2025. Investor Conference CallThe Company will host an investor conference call today, May 8, 2025, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time) to discuss its 2025 first quarter results. About Karat Packaging Inc.Karat Packaging Inc. is a specialty distributor and manufacturer of a wide range of disposable foodservice products and related items, primarily used by national and regional restaurants and in foodservice settings throughout the United States. Its products include food and take-out containers, bags, tableware, cups, lids, cutlery, straws, specialty beverage ingredients, equipment, gloves and other products. The company’s eco-friendly Karat Earth® line offers quality, sustainably focused products that are made from renewable resources. Karat Packaging also offers customized solutions, including new product development and design, printing, and logistics services. To learn more about Karat Packaging, please visit the company’s website at www.karatpackaging.com.    Caution Concerning Forward-Looking StatementsStatements made in this release that are not statements of historical or current facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. We caution readers that forward-looking statements are predictions based on our current expectations about future events. These forward-looking statements, including, but not limited to, achieving our financial guidance, are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Our actual results, performance, or achievements could differ materially from those expressed or implied by the forward-looking statements as a result of a number of factors, including the risks discussed under the heading “Risk Factors” discussed under the caption “Item 1A. Risk Factors” in Part I of our most recent Annual Report on Form 10-K and any updates discussed under the caption “Item 1A. Risk Factors” in Part II of our Quarterly Reports on Form 10-Q and in our other filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise that occur after that date, except as required by law. Investor Relations and Media Contacts:PondelWilkinson Inc.   Judy Lin or Roger Pondel           310-279-5980ir@karatpackaging.com   KARAT PACKAGING INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)(In thousands, except share and per share data)  Three Months Ended March 31,  2025   2024 Net sales$103,624  $95,613 Cost of goods sold 62,862   58,011 Gross profit 40,762   37,602 Operating expenses   Selling expenses 14,411   10,763 General and administrative expenses (including $677 and $556 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively) 18,548   16,769 Impairment expense and (gain) loss, net, on disposal of property and equipment (17)  1,994 Total operating expenses 32,942   29,526 Operating income 7,820   8,076 Other income (expenses)   Rental income (including $446 and $255 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively) 776   291 Other income, net 44   55 Gain on foreign currency transactions 239   122 Interest income (including $226 and $213 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively) 566   431 Interest expense (including $500 and $517 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively) (509)  (524)Total other income, net 1,116   375 Income before provision for income taxes 8,936   8,451 Provision for income taxes 2,121   1,975 Net income 6,815   6,476 Net income attributable to noncontrolling interest 406   310 Net income attributable to Karat Packaging Inc.$6,409  $6,166 Basic and diluted earnings per share:   Basic$0.32  $0.31 Diluted$0.32  $0.31 Weighted average common shares outstanding, basic 20,036,505   19,969,606 Weighted average common shares outstanding, diluted 20,198,654   20,075,485   KARAT PACKAGING INC. AND SUBSIDIARIESNET SALES BY CATEGORY (UNAUDITED) (In thousands)  Three Months Ended March 31,  2025   2024 Chains and distributors$79,599  $74,297 Online 17,791   14,879 Retail 6,234   6,437  $103,624  $95,613   KARAT PACKAGING INC. AND SUBSIDIARIESSELECTED BALANCE SHEET AND CASH FLOW INFORMATION(In thousands) Selected Balance Sheet Information:March 31, 2025 December 31, 2024 (Unaudited)  Cash and cash equivalents$32,473  $31,584 Short-term investments$23,800  $28,343 Accounts receivable, net of allowance for bad debt$32,401  $26,736 Inventories$79,906  $70,722 Total assets$312,216  $294,522 Accounts payable$24,518  $17,831 Total current liabilities$60,083  $46,447 Total liabilities$152,005  $132,323 Total stockholders’ equity$160,211  $162,199   Selected Cash Flow Information:Three Months Ended March 31,  2025   2024  (Unaudited) (Unaudited)Net cash provided by operating activities$7,726  $6,559 Net cash provided by (used in) investing activities$3,533  $(7,947)Dividends paid to shareholders$(9,017) $(5,992)Net cash used in financing activities$(10,370) $(8,544)  KARAT PACKAGING INC. AND SUBSIDIARIESRECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (UNAUDITED)(In thousands, except percentages and per share amounts) Reconciliation of Adjusted EBITDA and Adjusted EBITDA margin:Three Months Ended March 31,  2025   2024  Amounts% of Net Sales Amounts% of Net SalesNet income:$6,815 6.6% $6,476 6.8%Add (deduct):     Interest income (566)(0.5)  (431)(0.5)Interest expense 509 0.5   524 0.6 Provision for income taxes 2,121 2.0   1,975 2.1 Depreciation and amortization 2,688 2.6   2,629 2.7 Stock-based compensation expense 346 0.3   375 0.4 Operating right-of-use asset impairment — —   1,993 2.1 Adjusted EBITDA$11,913 11.5% $13,541 14.2% Reconciliation of Free Cash Flow:Three Months Ended March 31,  2025   2024 Cash from operating activities$7,726  $6,559 Deduct:   Purchase of property and equipment (107)  (163)Deposits paid for property and equipment (989)  (761)Free Cash Flow$6,630  $5,635  Reconciliation of Adjusted Diluted Earnings Per Common Share:Three Months Ended March 31,  2025   2024 Diluted earnings per common share:$0.32  $0.31 Add (deduct):   Stock-based compensation expense 0.01   0.02 Operating right-of-use asset impairment —   0.10 Tax impact —   (0.03)Adjusted diluted earnings per common shares$0.33  $0.40  Reconciliation of Adjusted EBITDA by Entity:Three Months Ended March 31, 2025 Karat PackagingGlobal WellsEliminationsConsolidatedNet income (loss)$6,409  $478  $(72) $6,815 Add (deduct):    Interest income (339)  (227)  —   (566)Interest expense 9   500   —   509 Provision for income taxes 2,121   —   —   2,121 Depreciation and amortization 2,385   303   —   2,688 Stock-based compensation expense 346   —   —   346 Adjusted EBITDA$10,931  $1,054  $(72) $11,913  Reconciliation of Adjusted EBITDA by Entity:Three Months Ended March 31, 2024 Karat PackagingGlobal WellsEliminationsConsolidatedNet income$5,850  $360  $266 $6,476 Add (deduct):    Interest income (218)  (213)  —  (431)Interest expense 7   517   —  524 Provision for income taxes 1,975   —   —  1,975 Depreciation and amortization 2,326   303   —  2,629 Stock-based compensation expense 375   —   —  375 Operating right-of-use asset impairment 1,993   —   —  1,993 Adjusted EBITDA$12,308  $967  $266 $13,541  Use of Non-GAAP Financial Measures Karat utilizes certain financial measures and key performance indicators that are not defined by, or calculated in accordance with, GAAP to assess our financial and operating performance. A non-GAAP financial measure is defined as a numerical measure of a company’s financial performance that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with GAAP in the statement of operations; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable GAAP measure so calculated and presented. The following non-GAAP measures are presented in this press release: Adjusted EBITDA is a financial measure calculated as net income excluding (i) interest income, (ii) interest expense, (iii) provision for income taxes, (iv) depreciation and amortization, (v) stock-based compensation expense, and (vi) operating right-of-use asset impairment.Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net sales.Free Cash Flow is calculated as cash from operating activities less cash used in (i) purchases of property and equipment, and (ii) deposits paid for property and equipment, offset by (iii) deposits refunded from cancelled machinery orders.Adjusted diluted earnings per common share is calculated as diluted earnings per common share, plus the per share impact of stock-based compensation, operating right-of-use asset impairment, and adjusted for the related tax effects of these adjustments. We believe the above-mentioned non-GAAP measures, which are used by management to assess the core performance of Karat, provide useful information and additional clarity of our operating results to our investors in their own evaluation of the core performance of Karat and facilitate a comparison of such performance from period to period. These are not measurements of financial performance or liquidity under GAAP and should not be considered in isolation or construed as substitutes for net income or other cash flow data prepared in accordance with GAAP for purposes of analyzing our financial performance or liquidity. These measures should be considered in addition to, and not as a substitute for, revenue, net income, earnings per share, cash flows or other measures of financial performance prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies, as other companies may calculate such financial results differently. With respect to our financial targets for the 2025 second quarter and 2025 full year adjusted EBITDA margin, a reconciliation of these non-GAAP measures to the corresponding GAAP measures is not available without unreasonable effort due to the variability and complexity of the reconciling items described above that we exclude from these non-GAAP target measures. The variability of these items may have a significant impact on our future GAAP financial results and, as a result, we are unable to prepare the forward-looking statements of income and cash flows prepared in accordance with GAAP, that would be required to produce such a reconciliation.

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