Karat Packaging’s first quarter was met with a positive market reaction, as management attributed results to strong sales volume growth and effective sourcing strategies. CEO Alan Yu highlighted that sales volume increased nearly 11%, driven by the company’s ability to shift supply chains away from China in response to new tariffs. Notably, Yu stated, “Our ability to quickly scale up existing domestic manufacturing operations without significant incremental capex is allowing us to respond promptly and effectively to the evolving market dynamic.” Online sales also contributed to the quarter, posting a nearly 20% increase, while geographic growth was strongest in Texas and the Midwest.
Is now the time to buy KRT? Find out in our full research report (it’s free).
Karat Packaging (KRT) Q1 CY2025 Highlights:
- Revenue: $103.6 million vs analyst estimates of $102.1 million (8.4% year-on-year growth, 1.5% beat)
- Adjusted EPS: $0.33 vs analyst estimates of $0.29 (15.8% beat)
- Adjusted EBITDA: $11.91 million vs analyst estimates of $10.51 million (11.5% margin, 13.3% beat)
- Revenue Guidance for Q2 CY2025 is $123.9 million at the midpoint, above analyst estimates of $121 million
- Operating Margin: 7.5%, down from 10.5% in the same quarter last year
- Market Capitalization: $585.4 million
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions Karat Packaging’s Q1 Earnings Call
- Jake Bartlett (Truist Securities) asked about progress in reducing China sourcing. CEO Alan Yu explained the company aims for less than 1% of imports from China by August, with most new sourcing from Southeast Asia and some from the Middle East.
- Jake Bartlett (Truist Securities) questioned how much tariff costs would be passed to customers versus absorbed. Yu said price increases are being rolled out but not all costs are passed through, as the company remains competitively priced. CFO Jian Guo added that internal efficiencies will help absorb some of the impact.
- Jake Bartlett (Truist Securities) asked about the potential impact of reciprocal tariffs. Yu replied that it is difficult to plan for reciprocal actions due to the unpredictability of trade policies and that guidance does not assume specific outcomes.
- Ryan Meyers (Lake Street) inquired about gross margins for the year. Guo clarified that gross margin should be flat next quarter, with some compression expected in the second half due to possible additional duties and tariffs.
- Ryan Meyers (Lake Street) sought clarity on the ramp-up of domestic manufacturing. Yu responded that increased demand and supply shortages are leading to increased U.S. production, with overtime and extra capacity now being deployed.
Catalysts in Upcoming Quarters
In coming quarters, our analysts will monitor (1) the effectiveness of sourcing diversification and whether imports from China are reduced as planned, (2) the ability to maintain gross margins despite ongoing tariff and freight cost pressures, and (3) the scaling of domestic manufacturing and the Chino distribution center’s impact on service levels. Progress in winning large chain accounts and continued online channel growth will also be key areas to watch.
Karat Packaging currently trades at $29.16, up from $27.34 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).
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