Karat Packaging Q1 2026 Earnings Report

Karat Packaging EPS Results

• Actual EPS: $0.34
• Consensus EPS: $0.32
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

Karat Packaging Revenue Results

• Actual Revenue: $116.95 million
• Expected Revenue: $112.98 million
• Beat/Miss: Beat by +$3.96 million
• YoY Revenue Growth: N/A

Karat Packaging Announcement Details

• Quarter: Q1 2026
• Date: 5/7/2026
• Time: After Market Closes
• Conference Call Date: Thursday, May 7, 2026
• Conference Call Time: 5:00PM ET

Karat Packaging (NASDAQ:KRT) is a foodservice packaging company that designs, manufactures, distributes, and sells disposable products for restaurants, foodservice operators, grocery stores, and other businesses. Its product portfolio includes cups and lids, food containers, plates, bowls, cutlery, straws, bags, napkins, gloves, and related supplies.

The company offers products made from materials including plastic, paper, and other alternative materials through brands such as Karat and Karat Earth. Its offerings are intended for applications ranging from takeout and delivery to beverage service and food preparation, with an emphasis on practical and environmentally oriented packaging solutions.

Founded in 2000, Karat Packaging is headquartered in California and serves customers primarily across the United States through its distribution network. The company was established by Alan Yu, who has served as its chief executive officer and has played a central role in its development.

Karat Packaging Q1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Net sales rose 12.9% YoY to $116.9M in Q1, with March up ~19%-20% and online sales accelerating (Q1 online $19.5M; company targets $100M+ online this year); company guides Q2 sales growth of +8–10% and full‑year low double‑digit growth.
• Neutral Sentiment: Gross margin was 35.5% (down from 39.3% a year ago) as COGS increased 20% driven by higher import costs and inventory adjustments; management expects full‑year gross margin of 34–36% and is implementing mid‑May price increases to help stabilize margins.
• Positive Sentiment: Company highlighted sourcing diversification and inventory strength (domestic purchases 18%, Malaysia/Vietnam 17%, new South American supplier) which management says reduces geographic risk, improves availability, and supports market‑share gains amid resin supply challenges.
• Positive Sentiment: Solid cash flow and shareholder returns — Q1 operating cash flow was $7.2M, free cash flow $6.3M, liquidity of ~$36.4M plus $5.7M in short‑term investments, and the board approved a quarterly dividend of $0.45 per share.
• Negative Sentiment: Tariff and commodity risk remains: import duties rose to $10.5M from $3.4M YoY, materially pressuring COGS and margins, and further oil/resin price volatility could force additional price increases or compress margins further.

Presentation

[Operator]

Thank you for standing by. My name is Perla, and I will be your conference operator today. At this time, I would like to Welcome everyone to the Karat Packaging First Quarter 2026 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, please press star 1 again. Thank you. I would now like to hand the conference over to Roger Pondel. Please go ahead.

[Roger Pondel, CEO at PondelWilkinson]

Thank you operator. Good afternoon, everyone, and welcome to Karat Packaging's 2026 first quarter conference call. I'm Roger Pondel with PondelWilkinson, Karat Packaging's investor relations firm. It will be my pleasure momentarily to introduce the company's Chief Executive Officer, Alan Yu, and its Chief Financial Officer, Jian Guo. Before I turn the call over to Alan, I want to remind our listeners that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

[Roger Pondel, CEO at PondelWilkinson]

Such forward-looking statements are subject to numerous conditions, many of which are beyond the company's control, including those set forth in the Risk Factors section of the company's most recent Form 10-K, as filed with the Securities and Exchange Commission, and copies of which are available on the SEC's website at www.sec.gov, along with other company filings made with the SEC from time to time. Actual results could differ materially from these forward-looking statements, and Karat Packaging undertakes no obligation to update any forward-looking statements except as required by law. Please also note that during today's call, we'll be discussing adjusted EBITDA, adjusted EBITDA margin, adjusted diluted earnings per share, and free cash flow, all of which are non-GAAP financial measures as defined by SEC Regulation G.

[Roger Pondel, CEO at PondelWilkinson]

A reconciliation of the most directly comparable GAAP measures to the non-GAAP financial measures is included in today's press release, which is now posted on the company's website. With that, I will turn the call over to CEO, Alan Yu. Alan?

[Alan Yu, CEO at Karat Packaging]

Thank you Roger. Good afternoon everyone. We began 2026 with a robust first quarter. Year-over-year sales increased almost 13%, with momentum building throughout the quarter. Our performance during the quarter accelerated significantly, starting with modest weather-impacted growth in January to growth exceeding 20% in March, which included some pull-forward of orders. The acceleration reflected improving demand, strong execution across the organization, and continued gain in the market share. Notably, our online sales, which are typically at a higher contribution margin, returned to robust growth this quarter after we pivoted to grow and fulfill our own online sales on our company storefront and third-party platforms. Compared to the prior year quarter, online sales increased almost 10% to $19.5 million in the first quarter of 2026 from $17.8 million in the prior year quarter.

[Alan Yu, CEO at Karat Packaging]

With momentum building steadily throughout the first quarter, achieving 19% year-over-year growth in March 2026. Gross margin remained resilient at 35.5% despite the continued impact of higher tariffs. This performance demonstrate the effectiveness of our diversified sourcing strategy and was further supported by a favorable product mix and pricing. As we look ahead, we are closely managing a dynamic cost environment. Given the sharp increase in oil prices and the resulting impact on product costs, we are implementing price increases on select plastic items beginning in the middle of this month. While certain source product costs are rising, we expect tariff saving under current trade policy to begin reducing cost of goods sold this month. These savings should partially offset inflationary pressure, and together with our pricing action, we expect to support gross margin stability.

[Alan Yu, CEO at Karat Packaging]

Importantly, we are well-positioned to continue gaining market share amid ongoing resin supply challenges. Our strong inventory position and disciplined supply chain execution give us confidence in our ability to consistently serve customers and meet demand. Turning to innovation and sustainability, our paper bag product category continues to expand steadily, driving a year-over-year increase in eco-friendly product sales of 16.9% in the first quarter. We also successfully closed another national chain account for paper bag during this quarter, further strengthening our leadership position and reinforcing our long-term strategy in sustainable packaging solutions. Our sourcing diversification initiative continues to deliver tangible benefits. We have proactively rebalanced import volumes across geographies in response to evolving tariff structures, strengthening our cost competitiveness and consistent product availability.

[Alan Yu, CEO at Karat Packaging]

In this quarter, we increased domestic purchase to 18% compared to 14% in the prior year quarter, an increased sourcing from Malaysia and Vietnam to an aggregate of 17% from 12% in the prior year quarter. At the same time, we reduced purchase from Taiwan in the current quarter to 46% compared to 54% in the prior year quarter. Reduced sourcing from China to 11% compared to 18% in the prior year quarter. Additionally, we expanded our sourcing footprint by adding a new supplier in South America, which further reduces geographic risk and enhance supply chain flexibility. We remain focused on providing responsive customer service and disciplined execution, which are a hallmark of Karat Packaging while advancing Karat's operational efficiencies.

[Alan Yu, CEO at Karat Packaging]

These efforts are reflected in better operating cost leverage, which decreased to 28.3% in the first quarter of 2026 from 31.8% in the prior year quarter. In summary, we deliver a strong start to the year, maintain margin resilience in a challenging environment, and continue to invest in growth areas that align with our customer demand and long-term industry trend. I will now turn the call over to Jian Guo, our Chief Financial Officer, to discuss the company financial result in greater detail. Jian?

[Jian Guo, CFO at Karat Packaging]

Thank you Alan. I'll begin with a summary of our Q1 performance, followed by an update on our guidance. Net sales for the 2026 first quarter increased to $116.9 million, up 12.9% from $103.6 million in the prior year quarter. The increase primarily reflected $12.1 million in volume and mix, and a $2.0 million favorable impact from pricing. Sales to channel accounts and distributors, our biggest sales channel, were up by 15.1% in the 2026 first quarter. Online sales, as Alan discussed earlier, rose almost 10% over the prior year quarter. Sales to the retail channel declined 12% from the 2025 first quarter.

[Jian Guo, CFO at Karat Packaging]

Cost of goods sold for the 2026 first quarter increased 20% to $75.4 million from $62.9 million in the prior year quarter. The increase was driven primarily by sales growth and higher import costs of $7.3 million, primarily as a result of higher import duty and tariffs, which increased from $3.4 million for the three months ended March 31, 2025 to $10.5 million for the three months ended March 31, 2026. Gross profit for the 2026 first quarter increased to $41.5 million from $40.8 million in the prior year quarter. Gross margin for the 2026 first quarter was 35.5% compared with 39.3% a year ago.

[Jian Guo, CFO at Karat Packaging]

The year-over-year decline in gross margin reflects the expected impact from higher import costs, which increased to 13.8% of net sales from 8.6% in the prior year quarter, as well as elevated inventory adjustments as a percentage of net sales. These impacts were partially offset by lower product costs as a percentage of net sales. Operating expenses in the 2026 first quarter increased to $33.1 million from $32.9 million last year. The increase was primarily driven by higher rent expense of $0.6 million associated with the opening of the company's new Chino distribution center in March 2025, along with a $0.6 million increase in salaries and benefits.

[Jian Guo, CFO at Karat Packaging]

These increases were partially offset by a $0.7 million reduction in online platform fees resulting from a shift away from third-party fulfillment of online orders, as well as a $0.4 million decrease in shipping and transportation costs due to lower online shipping rates. Operating income in the 2026 first quarter increased 8.2% to $8.5 million from $7.8 million in the prior year quarter. Total other income net decreased to $0.9 million for the 2026 first quarter from $1.1 million in the prior year quarter. Net income for the 2026 first quarter increased 4.8% to $7.1 million from $6.8 million for the prior year quarter.

[Jian Guo, CFO at Karat Packaging]

Net income margin was 6.1% in the 2026 first quarter, compared with 6.6% last year. Net income attributable to Karat for the 2026 first quarter increased 5.2% to $6.7 million or $0.34 per diluted share from $6.4 million or $0.32 per diluted share in the prior year quarter. Adjusted EBITDA for the 2026 first quarter rose to $12.5 million from $11.9 million for the prior year quarter. Adjusted EBITDA margin was 10.7% compared with 11.5% for the 2025 first quarter. Adjusted diluted earnings per common share increased to $0.34 for the 2026 first quarter from $0.33 per share in the comparable prior year period.

[Jian Guo, CFO at Karat Packaging]

We executed strong working capital management during the first quarter, generating operating cash flow of $7.2 million and free cash flow of $6.3 million, despite continued heavy duty and tariff payments, as discussed earlier. We paid out a regular quarterly dividend of $0.45 per share to shareholders on February 27, 2026. As of March 31, 2026, we had $90.7 million in working capital and $36.4 million in financial liquidity with another $5.7 million in short-term investments. On May 5, 2026, our board of directors approved a regular quarterly dividend of $0.45 per share, payable May 28, 2026, to shareholders of record as of May 21, 2026.

[Jian Guo, CFO at Karat Packaging]

Looking ahead to the 2026 second quarter, we expect net sales to increase by approximately 8%-10% from the prior year quarter. As Alan noted earlier, some timing shift of orders in March contributed to a softer start in April. Since then, we have replenished inventory, and we're confident in our ability to achieve our sales target. We expect gross margin for the 2026 second quarter to be within 35%-37% and adjusted EBITDA margin to be within 11%-13%, excluding potential tariff refund impact under the current trade policy. For the full year 2026, we expect net sales to grow in a low double-digit range over the prior year.

[Jian Guo, CFO at Karat Packaging]

We expect gross margin for the full year 2026 to be within 34%-36% and adjusted EBITDA margin to be within 11%-13%, excluding potential tariff refund impact under the current trade policy. As Alan mentioned earlier, we are seeing accelerated growth in our pipeline, reflecting our strong market positioning and initiative to continue gaining market share in a dynamic trade and supply chain environment. We expect to continue to drive top line growth, sustain our gross margin, and continue to deliver strong profitability with enhanced operational efficiency and disciplined cost management. Alan and I will now be happy to answer your questions and now turn the call back to the operator.

[Operator]

Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, please press star one again. With that, your first question comes from the line of George Staphos with Bank of America. Please go ahead.

[Kyle Benvenuto, Equity Research Associate at Bank of America]

Hi, this is Kyle Benvenuto on for George. Thank you for taking my question. You noted the sharp increase in oil prices is pressuring costs across sourced products and plastics. Within both your 2Q and 2026 margin guidance ranges, what oil price assumptions are embedded, and at what point would the mid-May plastic price increases no longer be sufficient to protect the 34% margin floor for the year?

[Alan Yu, CEO at Karat Packaging]

Here's what we see on the oil prices. Yes, you're correct. Oil prices has gone up and raw material has gone up so sharply. The issue is we were able to negotiate with our vendor to support our less increase versus the full increase impact of the oil prices. Majority of our partner vendors overseas have absorbed majority of the increases. That's and also that's where we're seeing that we're giving minimum increase in the May 15 to June area. That's how I see it. Is it gonna be escalating? Is this tension gonna escalate more? Right now we see that the resin price has stabilized in Asia. It has come down a little bit also.

[Alan Yu, CEO at Karat Packaging]

We do not see at this point that the raw material price will go up even higher from this point.

[Kyle Benvenuto, Equity Research Associate at Bank of America]

Thank you, Alan. One more question for you, and I'll turn it over. Your guidance points to 8%-10% sales growth for 2Q. How much of this is driven by the expansion of new national accounts versus organic volume growth from your existing customer base? Thank you.

[Alan Yu, CEO at Karat Packaging]

We're seeing a sharp increase in our online sale portion of our business. For example, last month, April, we topped our record over double-digit in terms of online sales. We do foresee that this quarter we will have a record sales online as well. Last year, we did about $72 million-$73 million online revenue, and this year we are on track for $100+ million on online revenues. Majority of the growth, actually a big chunk of the growth is from online sales revenue. From our national chain accounts, yes, we do see some of the national chain pipeline converting to revenues. That is also a segment that we do see a growth in the national chain account.

[Alan Yu, CEO at Karat Packaging]

Especially it's summer season, most of these chains are gonna increase their order for their drink cups and carriers as well as the deli part of our food segment of our business is we was expecting an increase in that segment as well. These are all organic growth, by the way.

[Kyle Benvenuto, Equity Research Associate at Bank of America]

Thank you. Congrats on the quarter.

[Alan Yu, CEO at Karat Packaging]

Thank you.

[Operator]

The next question comes from the line of Ryan Meyers with Lake Street Capital Markets. Please go ahead.

[Ryan Meyers, Senior Research Analyst at Lake Street Capital Markets]

Hey, guys. Thanks for taking my questions. First one for me. I just wanna make sure I understand this dynamic correctly. Alan, you had called out the 20% growth that you saw in the month of March, and then obviously the second quarter guidance is only 8%-10% revenue growth. It sounds like you guys saw some pull forward in order demand that drove the strength in March, and then things kinda stabilized a little bit in the second quarter. That's where that, you know, delta is between that 20% and that 8%-10% growth is. It's not necessarily the business is slowing.

[Alan Yu, CEO at Karat Packaging]

No, it's not. Also, we wanna be conservative in terms of our growth numbers. We do expect our full year guidance to be in range with what we have guided earlier this year. Second quarter, we're seeing some softening in April because of the pull forwarding from March. In this month so far, we're seeing a very positive revenue growth in terms of May. We wanna be conservative, you know, cautious in terms of making sure that we meet the guidance, yeah, or exceed the guidance.

[Ryan Meyers, Senior Research Analyst at Lake Street Capital Markets]

Yep, fair enough. Nope, that makes sense. Then just thinking in terms of pricing, you know, you called out in the prepared remarks and talked a little bit about that, but, you know, how much price do you feel like needs to be taken for you guys to preserve your gross margins? Then thinking about that industry-wide, you know, what does your price increases look like compared to competitors? Are you still feeling like you're, you know, priced below where the market is, and that's allowing for some of those share gains?

[Alan Yu, CEO at Karat Packaging]

Yes. We're hearing that our price announcement was 5%-15%, depends on category-wise. Our peer group are seeing, seem to have a price increase of 8%-12%. We are in the lower range of the price increase amongst our peer group, because we understand that this is a difficult environment, that foodservice is having a challenging year and all the beef prices going up. We do wanna be support our partners in this, in this turn. Basically we're actually announcing a lower price increase. Because of some help with the tariff, that in the past 6 or 9 months we were paying 20% tariff, now we're down to 10% tariff.

[Alan Yu, CEO at Karat Packaging]

There may be changes in July and August, but at least for now, we're seeing a 10% tariff reduction. It's helping our gross margin a lot. That's where we see that. We do see a stronger gross margin for this quarter versus the prior quarters. That's why we're seeing that, our net sales should be, we should be on track with our net sales.

[Ryan Meyers, Senior Research Analyst at Lake Street Capital Markets]

Okay. Got it. Thank you for taking my questions.

[Alan Yu, CEO at Karat Packaging]

Thank you, Ryan.

[Operator]

The next question comes from the line at Ryan Merkel with William Blair. Please go ahead.

[Ben Schmid, Equity Research Associate at William Blair]

Hey, good afternoon. Thanks for the questions. This is Ben Schmid on for Ryan. First question here, just to put a finer point on March and April. Is there any way to size the pull-forward impact in March? It sounds like April might have been down, so just a finer point there would be great.

[Alan Yu, CEO at Karat Packaging]

I would think that about $2 million were pulled forward from April to March.

[Ben Schmid, Equity Research Associate at William Blair]

Okay. Got it. Thank you. Last one for me. I know you guys mentioned a win this quarter, but any other updates on the pipeline of potential wins you guys discussed last quarter?

[Alan Yu, CEO at Karat Packaging]

We are working with a very large chains, actually a few large chains that might be converting in this quarter or at least next quarter. This quarter we are converting some of the existing customers, adding additional SKU to the existing customers, such as the eco-friendly product line and paper bag. That's what we're seeing right now.

[Ben Schmid, Equity Research Associate at William Blair]

All right. Got it. That's all for me. Thanks, guys.

[Alan Yu, CEO at Karat Packaging]

Thank you.

[Operator]

We have no further questions at this time. I would like to turn it back to Alan Yu for closing remarks.

[Alan Yu, CEO at Karat Packaging]

Thank you everybody for joining our conference call, first quarter Karat Packaging earnings. We look forward to seeing you next time. Thank you very much. Have a wonderful day. Bye-bye.

[Operator]

Thank you. Ladies and gentlemen, this now concludes today's conference call. You may now disconnect.

Participants

Executives

• Alan Yu, CEO
• Jian Guo, CFO

Analysts

• Ben Schmid, Equity Research Associate at William Blair
• Kyle Benvenuto, Equity Research Associate at Bank of America
• Roger Pondel, CEO at PondelWilkinson
• Ryan Meyers, Senior Research Analyst at Lake Street Capital Markets