Double-digit Q1 growth for Karat Packaging (NASDAQ: KRT) despite tariff hit
Filing Impact
Filing Sentiment
Form Type
8-K
Rhea-AI Filing Summary
Karat Packaging Inc. reported strong growth for the first quarter of 2026, with net sales rising 12.9% to $116.9 million from $103.6 million a year earlier. Higher volume and favorable product mix drove most of the increase, alongside modest pricing benefits.
Gross profit edged up to $41.5 million, but gross margin declined to 35.5% from 39.3% as import duties and tariffs climbed to 13.8% of net sales. Net income rose 4.8% to $7.1 million, or $0.34 per diluted share, and Adjusted EBITDA improved to $12.5 million with a 10.7% margin.
The company guided for continued expansion, targeting second-quarter 2026 net sales growth of 8–10% and Adjusted EBITDA margin of 11–13%, and expects full-year 2026 net sales to grow at a low double-digit rate while maintaining mid-30% gross margins, all guidance excluding potential tariff refund impacts.
Positive
- Robust revenue growth with solid earnings: Q1 2026 net sales rose 12.9% to $116.9 million, while net income increased 4.8% to $7.1 million and Adjusted EBITDA improved to $12.5 million, supporting ongoing dividend payments and growth guidance.
Negative
- None.
Insights
Double-digit sales growth continues, though tariffs are pressuring margins.
Karat Packaging delivered Q1 2026 net sales of $116.9M, up 12.9% year over year, with net income of $7.1M and Adjusted EBITDA of $12.5M. This shows healthy top-line momentum and stable profitability.
However, gross margin slipped to 35.5% from 39.3% as import duties and tariffs jumped from $3.4M to $10.5M. Management plans selective price increases and expects tariff-related savings to help offset higher resin and import costs.
Guidance calls for Q2 2026 net sales growth of 8–10% and full-year 2026 net sales growth in the low double digits, with Adjusted EBITDA margin targeted at 11–13%. Execution on pricing, tariff refunds, and sourcing will be key to sustaining margins under current trade policy.
8-K Event Classification
2 items: 2.02, 9.01
2 items
Item 2.02
Results of Operations and Financial Condition
Financial
Disclosure of earnings results, typically an earnings press release or preliminary financials.
Item 9.01
Financial Statements and Exhibits
Exhibits
Financial statements, pro forma financial information, and exhibit attachments filed with this report.
Key Figures
Net sales: $116.9M
Gross margin: 35.5%
Net income: $7.1M
+5 more
8 metrics
Net sales
$116.9M
Q1 2026, up 12.9% from $103.6M in Q1 2025
Gross margin
35.5%
Q1 2026 vs 39.3% in Q1 2025, impacted by tariffs
Net income
$7.1M
Q1 2026, up 4.8% from $6.8M prior-year quarter
Adjusted EBITDA
$12.5M
Q1 2026 vs $11.9M in Q1 2025, margin 10.7%
Dividend per share
$0.45
Regular quarterly dividend approved for payment on or about May 28, 2026
Cash from operations
$7.2M
Net cash provided by operating activities in Q1 2026
Import duties and tariffs
$10.5M
Three months ended March 31, 2026, up from $3.4M in 2025
Full-year 2026 sales outlook
Low double-digit growth
Company guidance for 2026 net sales vs prior year
Key Terms
Adjusted EBITDA, Adjusted EBITDA margin, Adjusted diluted earnings per common share, Free Cash Flow, +2 more
6 terms
Adjusted EBITDA financial
"Adjusted EBITDA of $12.5 million versus $11.9 million in the prior-year quarter."
Adjusted EBITDA is a way companies measure how much money they make from their core operations, like running a business, by removing certain costs or income that aren’t part of regular business activities. It helps investors see how well a company is doing without distractions from unusual expenses or gains, making it easier to compare companies or track performance over time.
Adjusted EBITDA margin financial
"Adjusted EBITDA margin of 10.7 percent versus 11.5 percent in the prior-year quarter."
Adjusted EBITDA margin shows how much profit a company makes from its core operations, expressed as a percentage of its total revenue, after removing certain one-time or unusual expenses and income. It helps investors understand the company's true earning ability from regular business activities, making it easier to compare performance over time or with other companies. Think of it as measuring the efficiency of a business in turning sales into profits, excluding irregular adjustments.
Free Cash Flow financial
"Free Cash Flow is calculated as cash from operating activities less cash used in purchases of property and equipment"
Free cash flow is the amount of money a company has left over after paying all its expenses and investing in its business, like buying equipment or updating facilities. It shows how much cash is available to reward shareholders, pay down debt, or save for future growth. This helps investors understand if a company is financially healthy and able to grow.
non-GAAP financial measures financial
"Karat Packaging utilizes certain financial measures and key performance indicators that are not defined by, or calculated in accordance with, GAAP"
Non-GAAP financial measures are numbers companies use to show their financial performance that exclude certain expenses or income. They help investors see how the company might perform without one-time costs or other unusual items, giving a different perspective from official reports. However, since they can be adjusted, they don’t always tell the full story and should be looked at alongside standard financial figures.
forward-looking statements regulatory
"Statements made in this release that are not statements of historical or current facts are “forward-looking statements”"
Forward-looking statements are predictions or plans that companies share about what they expect to happen in the future, like estimating sales or profits. They matter because they help investors understand a company's outlook, but since they are based on guesses and assumptions, they can sometimes be wrong.
Earnings Snapshot
Net sales: $116.9M · Guidance included
Q1 2026
Net sales
$116.9M
+12.9% YoY
Gross margin
35.5%
down from 39.3% YoY
Net income
$7.1M
+4.8% YoY
Adjusted EBITDA
$12.5M
vs $11.9M YoY
Guidance
Q2 2026 net sales growth 8–10%, gross margin 35–37%, Adjusted EBITDA margin 11–13%; full-year 2026 net sales low double-digit growth, gross margin 34–36%, Adjusted EBITDA margin 11–13%, all excluding potential tariff refund impact.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 7, 2026
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation | (Commission File Number | (IRS Employer Identification No.) | ||||||
(Address of principal executive offices) (Zip Code)
(626 ) 965-8882
Registrant’s telephone number, including area code:
N/A
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |||||
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12) | |||||
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |||||
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c)) | |||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b -2 of this chapter).
Emerging growth company ☒
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o
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Item 2.02 Results of Operations and Financial Condition.
On May 7, 2026, Karat Packaging Inc. (the "Company") issued a press release reporting its financial results for the quarter ended March 31, 2026. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
The information furnished pursuant to this Item 2.02, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities under that section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
| Exhibit Number | Description | |||||||
| 99.1 | Press release, dated May 7, 2026 | |||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
DATE: May 7, 2026 | KARAT PACKAGING INC. | |||||||
| By: | /s/ Jian Guo | |||||||
Jian Guo | ||||||||
Chief Financial Officer | ||||||||
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Karat Packaging Reports First Quarter 2026 Financial Results
— Strong Top-Line Growth and Solid Profitability —
CHINO, Calif., May 7, 2026 – Karat Packaging Inc. (Nasdaq: KRT) ("Karat Packaging" or the "Company"), a specialty distributor and manufacturer of environmentally friendly, disposable foodservice products and related items, today announced financial results for its first quarter ended March 31, 2026.
First Quarter 2026 Highlights
•Net sales of $116.9 million, up 12.9 percent, from $103.6 million in the prior-year quarter.
•Gross profit of $41.5 million, up 1.9 percent, from $40.8 million in the prior-year quarter.
•Gross margin of 35.5 percent, reflecting an expected decrease from 39.3 percent in the prior-year quarter due to elevated tariffs.
•Net income of $7.1 million, up 4.8 percent, from $6.8 million in the prior-year quarter.
•Net income margin of 6.1 percent versus 6.6 percent in the prior-year quarter.
•Adjusted EBITDA of $12.5 million versus $11.9 million in the prior-year quarter.
•Adjusted EBITDA margin of 10.7 percent versus 11.5 percent in the prior-year quarter.
Guidance
•Net sales for the 2026 second quarter expected to increase by 8 to 10 percent from the prior-year quarter.
•Gross margin for the 2026 second quarter expected to be within 35 to 37 percent, excluding potential tariff refund impact under the current trade policy.
•Adjusted EBITDA margin for the 2026 second quarter expected to be within 11 to 13 percent, excluding potential tariff refund impact under the current trade policy.
•Net sales for full-year 2026 expected to increase by low double-digits from the prior year.
•Gross margin for full-year 2026 expected to be within 34 to 36%, excluding potential tariff refund impact under the current trade policy.
•Adjusted EBITDA margin for full-year 2026 expected to be within 11 to 13 percent, excluding potential tariff refund impact under the current trade policy.
“We started 2026 with a robust quarter, with year‑over‑year sales increasing almost 13 percent as momentum built throughout the quarter, accelerating from weather-impacted modest progress in January to growth exceeding 20 percent in March,” said Alan Yu, Chief Executive Officer. “Gross margin remained resilient at 35.5 percent despite the continued impact of higher tariffs, demonstrating the effectiveness of our diversified sourcing strategy and benefiting from favorable product mix and pricing.
“Given the sharp increase in oil prices and its impact on our product costs, we will implement price increases on select plastic items beginning in mid‑May. While certain sourced product costs are rising, we expect tariff savings under current trade policy to start reducing our cost of goods sold in May 2026,
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partially offsetting these pressures, and we expect price increases to support gross margin stability. Importantly, we believe we are well positioned to continue gaining market share amid ongoing resin supply challenges, supported by our strong inventory position and disciplined supply chain execution.
“Our new paper bag product category continues to expand steadily, driving a year-over-year increase in eco‑friendly product sales of 16.9 percent in the first quarter. We have also successfully closed another national chain account to supply paper bags, further strengthening our leadership in sustainable packaging solutions,” Yu added.
First Quarter 2026 Financial Results
Net sales for the 2026 first quarter increased 12.9 percent to $116.9 million, from $103.6 million in the prior-year quarter. The increase was primarily driven by $12.1 million in volume growth and product mix, as well as a $2.0 million favorable year-over-year pricing comparison, partially offset by a decrease of $0.8 million in shipping and logistics revenue.
Cost of goods sold for the 2026 first quarter increased 20.0 percent to $75.4 million, from $62.9 million in the prior-year quarter. The increase was primarily driven by higher sales, as well as an increase of $7.3 million in import costs, consisting of import duty and tariffs and ocean freight. Specifically, import duty and tariffs costs 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 was 35.5 percent in the 2026 first quarter, compared with 39.3 percent in the prior-year quarter. Gross margin was negatively impacted by higher import costs, which increased to 13.8 percent of net sales, compared with 8.6 percent in the prior-year quarter, as well as higher 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 for the 2026 first quarter increased to $33.1 million, from $32.9 million in the prior-year quarter. The increase was primarily driven by higher rent expense of $0.6 million related to the opening of the Company’s new Chino distribution center in March 2025 and a $0.6 million increase in salaries and benefits, partially offset by a $0.7 million decrease in online platform fees due to a shift away from third-party fulfillment of online orders, as well as a $0.4 million reduction in shipping and transportation costs resulting from lower online shipping rates.
Net income for the 2026 first quarter increased 4.8 percent to $7.1 million, from $6.8 million in the prior-year quarter. Net income margin was 6.1 percent in the 2026 first quarter, compared with 6.6 percent in the prior-year quarter.
Net income attributable to Karat Packaging for the 2026 first quarter was $6.7 million, or $0.34 per diluted share, compared with $6.4 million in the prior-year quarter, or $0.32 per diluted share.
Adjusted EBITDA, a non-GAAP measure defined below, was $12.5 million for the 2026 first quarter, compared with $11.9 million for the prior-year quarter. Adjusted EBITDA margin, a non-GAAP measure defined below, was 10.7 percent of net sales for the 2026 first quarter, compared with 11.5 percent for the prior-year quarter.
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Adjusted diluted earnings per common share, a non-GAAP measure defined below, was $0.34 per share for the 2026 first quarter, compared with $0.33 per share for the same quarter last year.
Dividend
On May 5, 2026, Karat Packaging’s Board of Directors approved a regular quarterly dividend of $0.45 per share on the Company’s common stock, payable on or about May 28, 2026, to stockholders of record as of May 21, 2026.
Investor Conference Call
The Company will host an investor conference call today, May 7, 2026, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time) to discuss its 2026 first quarter results.
Phone: (800) 715-9871 (domestic); (646) 307-1963 (international)
Conference ID: Karat Packaging Inc.
Webcast: Accessible at https://irkarat.com/events-presentations/; archive available for approximately one year
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.
Caution Concerning Forward-Looking Statements
Statements 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 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 the date of this release, except as required by law.
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Investor Relations and Media Contacts:
PondelWilkinson Inc.
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Judy Lin or Roger Pondel
310-279-5980
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KARAT PACKAGING INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except share and per share data)
| Three Months Ended March 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| Net sales | $ | 116,947 | $ | 103,624 | |||||||
| Cost of goods sold | 75,421 | 62,862 | |||||||||
| Gross profit | 41,526 | 40,762 | |||||||||
| Operating expenses | |||||||||||
| Selling expenses | 12,936 | 14,411 | |||||||||
General and administrative expenses (including $641 and $677 associated with variable interest entity for the three months ended March 31, 2026 and 2025, respectively) | 20,126 | 18,548 | |||||||||
| Gain, net, on disposal of property | — | (17) | |||||||||
| Total operating expenses | 33,062 | 32,942 | |||||||||
| Operating income | 8,464 | 7,820 | |||||||||
| Other income (expenses) | |||||||||||
Rental income (including $357 and $446 associated with variable interest entity for the three months ended March 31, 2026 and 2025, respectively) | 698 | 776 | |||||||||
Other income, net (including $76 and $0 associated with variable interest entity for the three months ended March 31, 2026 and 2025, respectively) | 91 | 44 | |||||||||
| Gain on foreign currency transactions | 252 | 239 | |||||||||
Interest income (including $3 and $226 associated with variable interest entity for the three months ended March 31, 2026 and 2025, respectively) | 286 | 566 | |||||||||
Interest expense (including ($380) and ($500) associated with variable interest entity for the three months ended March 31, 2026 and 2025, respectively) | (409) | (509) | |||||||||
| Total other income, net | 918 | 1,116 | |||||||||
| Income before provision for income taxes | 9,382 | 8,936 | |||||||||
| Provision for income taxes | 2,241 | 2,121 | |||||||||
| Net income | 7,141 | 6,815 | |||||||||
| Net income attributable to noncontrolling interest | 400 | 406 | |||||||||
| Net income attributable to Karat Packaging Inc. | $ | 6,741 | $ | 6,409 | |||||||
| Basic and diluted earnings per share: | |||||||||||
| Basic | $ | 0.34 | $ | 0.32 | |||||||
| Diluted | $ | 0.34 | $ | 0.32 | |||||||
| Weighted average common shares outstanding, basic | 19,963,224 | 20,036,505 | |||||||||
| Weighted average common shares outstanding, diluted | 20,073,479 | 20,198,654 | |||||||||
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KARAT PACKAGING INC. AND SUBSIDIARIES
NET SALES BY CATEGORY (UNAUDITED)
(In thousands)
| Three Months Ended March 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| Chains and distributors * | $ | 92,879 | $ | 80,670 | |||||||
| Online | 19,525 | 17,791 | |||||||||
| Retail * | 4,543 | 5,163 | |||||||||
| $ | 116,947 | $ | 103,624 | ||||||||
* The Company reclassified one customer from the retail to the chains and distributors channel, and recast the corresponding net sales amounts of $1,071,000 for the three months ended March 31, 2025 to conform to the current period presentation. The recast had no effect on previously reported consolidated net sales for the three months ended March 31, 2025.
KARAT PACKAGING INC. AND SUBSIDIARIES
SELECTED BALANCE SHEET AND CASH FLOW INFORMATION
(In thousands)
| Selected Balance Sheet Information: | March 31, 2026 | December 31, 2025 | |||||||||
| (Unaudited) | |||||||||||
| Cash and cash equivalents | $ | 28,680 | $ | 37,880 | |||||||
| Short-term investments | $ | 5,744 | $ | — | |||||||
| Accounts receivable, net of allowance for bad debt | $ | 42,270 | $ | 36,402 | |||||||
| Inventories | $ | 80,009 | $ | 81,682 | |||||||
| Total assets | $ | 282,682 | $ | 287,686 | |||||||
| Accounts payable | $ | 24,282 | $ | 26,323 | |||||||
| Total current liabilities | $ | 70,351 | $ | 70,220 | |||||||
| Total liabilities | $ | 127,509 | $ | 130,816 | |||||||
| Total stockholders’ equity | $ | 155,173 | $ | 156,870 | |||||||
Selected Cash Flow Information: | Three Months Ended March 31, | ||||||||||
| 2026 | 2025 | ||||||||||
| (Unaudited) | (Unaudited) | ||||||||||
| Net cash provided by operating activities | $ | 7,191 | $ | 7,726 | |||||||
| Net cash (used in) provided by investing activities | $ | (6,884) | $ | 3,533 | |||||||
| Dividends paid to shareholders | $ | (8,983) | $ | (9,017) | |||||||
| Net cash used in financing activities | $ | (9,507) | $ | (10,370) | |||||||
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KARAT PACKAGING INC. AND SUBSIDIARIES
RECONCILIATION 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, | ||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| Amounts | % of Net Sales | Amounts | % of Net Sales | ||||||||||||||||||||
| Net income: | $ | 7,141 | 6.1 | % | $ | 6,815 | 6.6 | % | |||||||||||||||
| Add (deduct): | |||||||||||||||||||||||
| Interest income | (286) | (0.2) | (566) | (0.5) | |||||||||||||||||||
| Interest expense | 409 | 0.3 | 509 | 0.5 | |||||||||||||||||||
| Provision for income taxes | 2,241 | 1.9 | 2,121 | 2.0 | |||||||||||||||||||
| Depreciation and amortization | 2,741 | 2.4 | 2,688 | 2.6 | |||||||||||||||||||
| Stock-based compensation expense | 242 | 0.2 | 346 | 0.3 | |||||||||||||||||||
| Adjusted EBITDA | $ | 12,488 | 10.7 | % | $ | 11,913 | 11.5 | % | |||||||||||||||
Reconciliation of Adjusted EBITDA by Entity: | Three Months Ended March 31, 2026 | ||||||||||||||||||||||
| Karat Packaging | Global Wells | Eliminations | Consolidated | ||||||||||||||||||||
| Net income (loss) | $ | 6,741 | $ | 471 | $ | (71) | $ | 7,141 | |||||||||||||||
| Add (deduct): | |||||||||||||||||||||||
| Interest income | (284) | (2) | — | (286) | |||||||||||||||||||
| Interest expense | 29 | 380 | — | 409 | |||||||||||||||||||
| Provision for income taxes | 2,241 | — | — | 2,241 | |||||||||||||||||||
| Depreciation and amortization | 2,438 | 303 | — | 2,741 | |||||||||||||||||||
| Stock-based compensation expense | 242 | — | — | 242 | |||||||||||||||||||
| Adjusted EBITDA | $ | 11,407 | $ | 1,152 | $ | (71) | $ | 12,488 | |||||||||||||||
Reconciliation of Adjusted EBITDA by Entity: | Three Months Ended March 31, 2025 | ||||||||||||||||||||||
| Karat Packaging | Global Wells | Eliminations | Consolidated | ||||||||||||||||||||
| Net 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 | |||||||||||||||
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Reconciliation of Adjusted Diluted Earnings Per Common Share: | Three Months Ended March 31, | ||||||||||
| 2026 | 2025 | ||||||||||
| Diluted earnings per common share: | $ | 0.34 | $ | 0.32 | |||||||
| Add (deduct): | |||||||||||
| Stock-based compensation expense | 0.01 | 0.01 | |||||||||
| Tax impact | (0.01) | — | |||||||||
Adjusted diluted earnings per common share | $ | 0.34 | $ | 0.33 | |||||||
| Reconciliation of Free Cash Flow: | Three Months Ended March 31, | ||||||||||
| 2026 | 2025 | ||||||||||
| Cash from operating activities | $ | 7,191 | $ | 7,726 | |||||||
| Deduct: | |||||||||||
| Purchase of property and equipment | (565) | (107) | |||||||||
| Deposits paid for property and equipment | (333) | (989) | |||||||||
| Free Cash Flow | $ | 6,293 | $ | 6,630 | |||||||
Use of Non-GAAP Financial Measures
Karat Packaging 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, and (v) stock-based compensation expense.
•Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net sales.
•Adjusted diluted earnings per common share is calculated as diluted earnings per common share, plus the per share impact of stock-based compensation and adjusted for the related tax effects of these adjustments.
•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.
We believe the above-mentioned non-GAAP measures, which are used by management to assess the core performance of Karat Packaging, provide useful information and additional clarity of our operating results to our investors in their own evaluation of the core performance of Karat Packaging 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 2026 second quarter and 2026 full year adjusted EBITDA margin, a reconciliation of these non-GAAP measures to the corresponding GAAP measures is not available without
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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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FAQ
How did Karat Packaging (KRT) perform in Q1 2026?
Karat Packaging posted strong Q1 2026 results, with net sales up 12.9% to $116.9 million and net income up 4.8% to $7.1 million. Adjusted EBITDA grew to $12.5 million, reflecting solid profitability despite tariff-driven cost pressures.
What happened to Karat Packaging’s margins in Q1 2026?
Gross margin declined to 35.5% in Q1 2026 from 39.3% a year earlier, mainly due to higher import duties and tariffs rising to 13.8% of net sales. Net income margin dipped slightly to 6.1% from 6.6%, though earnings still increased.
What guidance did Karat Packaging (KRT) give for Q2 2026?
For Q2 2026, Karat Packaging expects net sales to grow 8–10% year over year, with gross margin between 35–37% and Adjusted EBITDA margin of 11–13%. These targets exclude any potential tariff refund impact under current trade policy.
What is Karat Packaging’s outlook for full-year 2026?
For full-year 2026, Karat Packaging expects net sales to increase by low double digits versus 2025. It projects gross margin of 34–36% and Adjusted EBITDA margin of 11–13%, both excluding potential tariff refund effects under existing trade policy.
Did Karat Packaging declare a dividend with these Q1 2026 results?
Yes. On May 5, 2026, Karat Packaging’s board approved a regular quarterly dividend of $0.45 per share, payable on or about May 28, 2026, to stockholders of record as of May 21, 2026, reflecting continued cash returns to shareholders.
How are tariffs affecting Karat Packaging’s costs and margins?
Import duty and tariffs rose from $3.4 million in Q1 2025 to $10.5 million in Q1 2026, reaching 13.8% of net sales. This significantly compressed gross margin, although management expects tariff savings and selective price increases to help stabilize profitability.