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1. Company Snapshot

1.a. Company Description

Karat Packaging Inc.manufactures and distributes single-use disposable products in plastic, paper, biopolymer-based, and other compostable forms used in various restaurant and foodservice settings.It provides food and take-out containers, bags, tableware, cups, lids, cutlery, straws, specialty beverage ingredients, equipment, gloves, and other products under the Karat Earth brand.


The company offers its products to domestic and regional distributors, restaurant chains, retail establishments, and online customers.It also provides new product development, design, printing, and logistics services.Karat Packaging Inc.


was founded in 2000 and is based in Chino, California.

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1.b. Last Insights on KRT

Karat Packaging's recent stock performance was negatively driven by the absence of any significant earnings beat or positive catalysts. The company's upcoming Q4 2024 earnings release on March 13, 2025, may provide some clarity on its financial performance. Notably, the board's decision to increase the quarterly dividend to $0.45 per share from $0.40 per share may have been a positive signal, but it is unlikely to offset the lack of recent positive news.

1.c. Company Highlights

2. Karat's Q3 Earnings: A Mixed Bag

Karat's Q3 earnings report presented a mixed picture, with the company achieving a record net sales of $124.5 million, up 10.4% year-over-year, driven by solid volume expansion, favorable product mix, and effective pricing initiatives. However, gross margin remained under pressure, coming in at 34.5% compared to 38.6% in the prior year quarter, due to significant higher import costs. Adjusted diluted earnings per common share was $0.37, slightly below estimates of $0.39.

Publication Date: Nov -29

📋 Highlights
  • Record Net Sales Growth:: Achieved $124.5M net sales (+10.4% YoY) driven by $9.4M volume increase and $3.5M favorable product mix.
  • Gross Margin Stability:: Maintained 34.5% gross margin despite higher import costs from tariffs and duties.
  • Sourcing Diversification:: Increased domestic sourcing to 20% (from 15%) and reduced Taiwan imports to 42% (from 58%).
  • Paper Bag Expansion:: Secured $100M+ annual revenue potential over 2-3 years from a major national chain account add-on.
  • Adjusted EBITDA Decline:: $13.1M adjusted EBITDA (-10% YoY) and $0.37 EPS (-21% YoY) due to duty payments and inventory costs.

Revenue Growth Drivers

The revenue growth was fueled by double-digit expansion across all major markets, particularly in Texas and California. The company's diversification strategy and flexible operating model enabled it to manage ongoing supply chain challenges effectively. Karat increased domestic sourcing to approximately 20% from about 15% in the second quarter, reducing its dependence on imports from Taiwan.

Margin Pressures and Guidance

Despite the revenue growth, gross margin remained under pressure due to higher import costs. For the 2025 fourth quarter, Karat expects net sales to increase by approximately 10% to 14% over the prior year quarter, with gross margin projected to be within 33% to 35%. The company's guidance is conservative, with management citing a desire to be prudent in their estimates despite seeing sales in the mid-teens.

Valuation and Dividend Yield

With a P/E Ratio of 86.85 and a Dividend Yield of 8.17%, Karat's stock appears to be priced for a certain level of growth. The company's EV/EBITDA ratio is 10.8, indicating a relatively reasonable valuation. The newly announced $15 million share repurchase program and the quarterly dividend of $0.45 per share payable November 28, 2025, demonstrate the company's commitment to enhancing shareholder return.

Outlook and Growth Prospects

Analysts estimate Karat's revenue growth to be around 11.1% next year. The company's expansion into the paper bag business is expected to contribute to growth, with initial shipments starting in Q3 and accelerating in Q4. Karat aims to scale this business to over $100 million in additional annual revenue over the next 2-3 years, providing a potential long-term growth catalyst.

3. NewsRoom

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Bailard Inc. Acquires 9,487 Shares of Karat Packaging Inc. $KRT

Nov -15

Source: defenseworld.net

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Karat Packaging Inc. (KRT) Q3 2025 Earnings Call Transcript

Nov -07

Source: seekingalpha.com

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Karat Packing (KRT) Q3 Earnings Miss Estimates

Nov -07

Source: zacks.com

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Karat Packaging Reports 2025 Third Quarter Financial Results

Nov -06

Source: globenewswire.com

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Karat Packaging Board Declares Quarterly Cash Dividend; Initiates First-Ever Share Repurchase Program

Nov -05

Source: globenewswire.com

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Karat Packaging: Small Cap Growth Opportunity

Oct -30

Source: seekingalpha.com

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Analysts Estimate Karat Packing (KRT) to Report a Decline in Earnings: What to Look Out for

Oct -30

Source: zacks.com

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5 Containers - Paper and Packaging Stocks to Watch in a Promising Industry

Oct -27

Source: zacks.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (7.92%)

6. Segments

Distributors

Expected Growth: 7.5%

Karat Packaging Inc.'s distributors segment growth of 7.5% is driven by increasing demand for sustainable and eco-friendly packaging solutions, expansion into new markets, and strategic partnerships with e-commerce companies. Additionally, the rise of online shopping and the need for efficient supply chain management are contributing to the segment's growth.

National and Regional Chains

Expected Growth: 8.5%

National and Regional Chains from Karat Packaging Inc. achieved 8.5% growth driven by increasing demand for sustainable packaging, expansion into new markets, and strategic partnerships. Additionally, the company's focus on innovative products, efficient supply chain management, and cost savings initiatives contributed to its growth.

Online

Expected Growth: 9.0%

Karat Packaging Inc.'s 9.0% online growth is driven by increasing e-commerce adoption, rising demand for sustainable packaging, and expanding product offerings. Additionally, strategic partnerships, investments in digital marketing, and efficient supply chain management contribute to the company's online segment growth.

Retail

Expected Growth: 7.0%

Karat Packaging Inc.'s 7.0% retail growth is driven by increasing demand for sustainable and eco-friendly packaging, expansion into new markets, and strategic partnerships with e-commerce companies. Additionally, the company's focus on innovative products, such as biodegradable packaging solutions, has contributed to its growth.

7. Detailed Products

Food Service Containers

Karat Packaging Inc. offers a wide range of food service containers made from sustainable materials, perfect for restaurants, cafes, and food establishments.

Bakery and Pastry Containers

Karat's bakery and pastry containers are designed for displaying and serving fresh baked goods, pastries, and desserts.

Cups and Lids

Karat Packaging Inc. offers a variety of cups and lids made from eco-friendly materials, suitable for hot and cold beverages.

Cutlery and Utensils

Karat's cutlery and utensils are made from sustainable materials, perfect for food service establishments and events.

Trays and Platters

Karat Packaging Inc. offers a range of trays and platters designed for serving and displaying food, perfect for catering services and events.

Custom Packaging Solutions

Karat Packaging Inc. provides custom packaging solutions tailored to meet the specific needs of businesses in the food service industry.

8. Karat Packaging Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

Karat Packaging Inc. faces moderate threat from substitutes due to the availability of alternative packaging materials and suppliers.

Bargaining Power Of Customers

Karat Packaging Inc. has a diverse customer base, which reduces the bargaining power of individual customers.

Bargaining Power Of Suppliers

Karat Packaging Inc. relies on a few large suppliers for raw materials, giving them moderate bargaining power.

Threat Of New Entrants

The packaging industry has high barriers to entry, making it difficult for new entrants to compete with Karat Packaging Inc.

Intensity Of Rivalry

The packaging industry is highly competitive, with many established players competing for market share, leading to a high intensity of rivalry.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 26.06%
Debt Cost 3.95%
Equity Weight 73.94%
Equity Cost 9.17%
WACC 7.81%
Leverage 35.24%

11. Quality Control: Karat Packaging Inc. passed 8 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
Karat Packaging

A-Score: 6.6/10

Value: 6.1

Growth: 7.9

Quality: 7.4

Yield: 9.0

Momentum: 3.0

Volatility: 6.0

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Weyco

A-Score: 6.5/10

Value: 7.4

Growth: 5.9

Quality: 7.1

Yield: 9.0

Momentum: 3.5

Volatility: 6.0

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Myers Industries

A-Score: 5.7/10

Value: 5.9

Growth: 4.6

Quality: 4.2

Yield: 6.0

Momentum: 8.0

Volatility: 5.3

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TriMas

A-Score: 4.6/10

Value: 3.1

Growth: 2.7

Quality: 5.6

Yield: 0.0

Momentum: 9.0

Volatility: 7.3

1-Year Total Return ->

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Pactiv Evergreen

A-Score: 4.4/10

Value: 5.6

Growth: 1.9

Quality: 1.6

Yield: 3.0

Momentum: 9.0

Volatility: 5.3

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Tupperware

A-Score: 4.0/10

Value: 9.5

Growth: 3.7

Quality: 5.8

Yield: 0.0

Momentum: 5.0

Volatility: 0.0

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

21.96$

Current Price

21.96$

Potential

-0.00%

Expected Cash-Flows