Foodservice packaging provider Karat Packaging (NASDAQ:KRT) met Wall Street’s revenue expectations in the third quarter of fiscal 2025, with sales up 10.4% year over year to $124.5 million. The company expects next quarter revenue to be around $113.8 million, 1.7% above analyst estimates. Its non-GAAP profit of $0.37 per share was 5.1% below analysts’ consensus estimates.
Is now the time to buy KRT? Find out in our full research report (free for active Edge members).
-
Revenue: $124.5 million vs. analyst estimates of $124.1 million (10.4% year-over-year growth, in line)
-
Adjusted EPS: $0.37 vs. analyst expectations of $0.39 (down 5.1%)
-
Adjusted EBITDA: $13.05 million vs. analyst estimates of $13.01 million (10.5% margin, in-line)
-
Revenue guidance for the fourth quarter of 2025 is $113.8 million at the midpoint, above analyst estimates of $111.9 million.
-
Operating margin: 6.6%, compared to 10% in the same quarter last year
-
Market capitalization: $452 million
Karat Packaging’s third quarter sparked a negative market reaction as non-GAAP earnings fell short of Wall Street expectations even though revenue was in line. Management attributed the quarter’s results to strong volume growth and a favorable product mix, particularly in Texas and California, but acknowledged that higher import duties and tariffs significantly pressured margins. CEO Alan Yu highlighted the company’s ability to maintain gross margin levels by increasing domestic sourcing and maintaining operational flexibility, but admitted that ongoing supply chain and cost challenges were weighing on operational performance.
Looking ahead, Karat Packaging’s updated guidance is based on the anticipated acceleration of its new paper bag business, customer account expansion and ongoing pricing initiatives. Management pointed to regulation-driven demand for paper instead of plastic and the addition of additional chain accounts as important revenue drivers. CEO Alan Yu stated: “We are actively integrating several significant new customer accounts and focusing on increasing online marketing, which will strengthen our pipeline into 2026, building a solid foundation for what we expect to be another record year in sales.”
Management attributed the third quarter growth to strong volume expansion in core markets and the successful launch of new product categories, but noted rising import costs as a major headwind.
-
Product Mix and Volume Gains: Karat achieved double-digit revenue growth, with notable strength in Texas and California, driven by higher volumes and a shift toward more profitable product lines.
-
Increase in national supply: To combat higher import costs, Karat increased domestic sourcing from 15% to 20% of total supply, while reducing dependence on Taiwanese imports. This measure aims to mitigate tariff exposure and supply chain disruptions.
-
Launch of paper bag business: Karat secured a two-year contract with a major national chain to supply paper bags, a new product category for the company. Initial shipments began in the third quarter and management expects the segment to contribute up to $100 million in annual sales within a few years, supported by regulatory changes away from plastic.
-
Pressure on margins due to tariffs: Significantly higher import duties and tariffs led to a decline in gross and operating margins. Management cited ongoing efforts to negotiate better prices with suppliers and optimize manufacturing locations to offset these headwinds.
-
First share buyback program: The company announced a $15 million share buyback initiative, which complements its regular dividend, as an additional tool for shareholder returns. Management emphasized that this would not compromise ongoing investments or capital allocation flexibility.