Foodservice packaging supplier Karat Packaging (NASDAQ:KRT) reported Q1 CY2025 results topping the market’s revenue expectations , with sales up 8.4% year on year to $103.6 million. Guidance for next quarter’s revenue was better than expected at $123.9 million at the midpoint, 1.7% above analysts’ estimates. Its non-GAAP profit of $0.30 per share was 5.3% above analysts’ consensus estimates.
Revenue: $103.6 million vs analyst estimates of $102.3 million (8.4% year-on-year growth, 1.3% beat)
Adjusted EPS: $0.30 vs analyst estimates of $0.29 (5.3% 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 $121.8 million
Operating Margin: 7.5%, in line with the same quarter last year
Free Cash Flow Margin: 6.4%, similar to the same quarter last year
Market Capitalization: $538.2 million
“We delivered another strong quarter, with sales volume up 10.9 percent and net sales up 8.4 percent and we believe we are well-positioned to navigate the supply chain challenges and the uncertain trade environment,” said Alan Yu, Chief Executive Officer.
Company Overview
Founded as Lollicup, Karat Packaging (NASDAQ: KRT) distributes and manufactures environmentally-friendly disposable foodservice packaging solutions.
Sales Growth
A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Karat Packaging grew its sales at an excellent 12.4% compounded annual growth rate. Its growth beat the average industrials company and shows its offerings resonate with customers, a helpful starting point for our analysis.
Karat Packaging Quarterly Revenue
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Karat Packaging’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 2.1% over the last two years was well below its five-year trend.
Karat Packaging Year-On-Year Revenue Growth
This quarter, Karat Packaging reported year-on-year revenue growth of 8.4%, and its $103.6 million of revenue exceeded Wall Street’s estimates by 1.3%. Company management is currently guiding for a 10% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 9.3% over the next 12 months, an improvement versus the last two years. This projection is noteworthy and implies its newer products and services will fuel better top-line performance.
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Operating Margin
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Karat Packaging has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 8.4%, higher than the broader industrials sector.
Looking at the trend in its profitability, Karat Packaging’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.
In Q1, Karat Packaging generated an operating profit margin of 7.5%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.
Earnings Per Share
We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
Karat Packaging Trailing 12-Month EPS (Non-GAAP)
Karat Packaging’s EPS grew at an unimpressive 4.1% compounded annual growth rate over the last two years. This performance was better than its 12.4% annualized revenue growth but doesn’t tell us much about its efficiency because its operating margin didn’t expand during this time.
In Q1, Karat Packaging reported EPS at $0.30, down from $0.40 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 5.3%. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.
Key Takeaways from Karat Packaging’s Q1 Results
We were impressed by how significantly Karat Packaging blew past analysts’ EPS and EBITDA expectations this quarter. We were also happy this quarter's revenue and net quarter's revenue guidance topped Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock remained flat at $27.34 immediately following the results.
