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Karat Packaging Inc. (KRT)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered net sales of $101.6M (+6.3% YoY), gross margin of 39.2% (+350 bps YoY), adjusted EBITDA of $11.3M (+31% YoY), and diluted EPS of $0.28; sequentially, revenue declined vs Q3 ($112.8M) but gross margin improved to 39.2% from 38.6% .
  • Guidance: Q1 2025 net sales +6–8% YoY, GM 37–39%, adj. EBITDA margin 9–11%; FY 2025 net sales +9–11% YoY, GM 36–38%, adj. EBITDA margin “low to mid double-digits” .
  • Management highlighted supply chain diversification (China ≈20% of imports; Taiwan >50% of sourcing in 2024), price increases in March/April, and lower freight costs; expects tariffs to have minimal long-term margin impact .
  • Dividend raised to $0.45 (from $0.40) and a 187,000 sq ft Chino distribution center was leased to support growth ahead of summer peak—key stock reaction catalysts around confidence in demand, margin durability, and capital returns .

What Went Well and What Went Wrong

What Went Well

  • Gross margin expanded to 39.2% (+350 bps YoY), benefiting from lower product costs as a % of sales and favorable vendor pricing/FX/product mix; adjusted EBITDA rose to $11.3M and margin to 11.1% .
  • Distributor channel strength: Q4 distributor sales rose to $56.9M (+13.8% YoY commentary) as bans on styrofoam drive mix shift to plastic containers and paper bags; management forecasts sharp increases in certain categories (e.g., paper bags) .
  • Eco-friendly products sales increased ~11% YoY and represented ~35% of total sales; “we expect demand for eco-friendly product lines will continue to accelerate” (Alan Yu) .

What Went Wrong

  • Pricing was a headwind (-$5.4M YoY) and online sales decreased 6.1% YoY due to prior-year out-of-period fee adjustments; operating expenses rose 10.4% YoY driven by G&A (labor, rent, leased warehouses, stock-based comp) .
  • Higher freight/duty costs pressured Q4 gross margin despite vendor pricing tailwinds; COGS included a $0.6M import duty charge on paper shopping bags .
  • Sequential profitability down: adjusted EBITDA fell from $14.7M in Q3 to $11.3M in Q4 as revenue normalized and shipping costs were elevated in Q4 (with management switching carriers post-quarter to lower costs) .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenue ($USD Millions)$95.6 $112.8 $101.6
Gross Profit ($USD Millions)$34.1 $43.5 $39.8
Gross Margin %35.7% 38.6% 39.2%
Net Income ($USD Millions)$4.2 $9.3 $5.9
Net Income Margin %4.4% 8.2% 5.8%
Diluted EPS ($)$0.19 $0.45 $0.28
Adjusted EBITDA ($USD Millions)$8.6 $14.7 $11.3
Adjusted EBITDA Margin %9.0% 13.0% 11.1%
Free Cash Flow ($USD Millions)$9.37 —$7.49

Segment/channel breakdown (net sales):

Category ($USD Millions)Q4 2023Q3 2024Q4 2024
National & Regional Chains$21.05 $23.31 $21.41
Distributors$50.04 $63.07 $56.94
Online$17.85 $18.95 $16.76
Retail$6.64 $7.44 $6.55
Total$95.58 $112.77 $101.65

Select KPIs and balance sheet/cash:

KPIQ4 2023Q3 2024Q4 2024
Operating Cash Flow ($USD Millions)——$8.25
Free Cash Flow ($USD Millions)$9.37 —$7.49
Cash & Equivalents ($USD Millions)$23.08 $38.90 $31.58
Short-term Investments ($USD Millions)$26.34 $21.53 $28.34
Inventories ($USD Millions)$71.53 $70.92 $70.72
Total Stockholders’ Equity ($USD Millions)$162.69 $163.60 $162.20

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Gross Margin %Q4 202439–40% (given in Q3) Actual 39.2% In-line (met range)
Net Sales GrowthQ4 2024Mid to high single-digit YoY Actual +6.3% YoY In-line (low end)
Net Sales GrowthQ1 2025—+6–8% YoY New
Gross Margin %Q1 2025—37–39% New
Adj. EBITDA Margin %Q1 2025—9–11% New
Net Sales GrowthFY 2025—+9–11% YoY New
Gross Margin %FY 2025—36–38% New
Adj. EBITDA Margin %FY 2025—Low to mid double-digits New
Dividend per ShareQ1 2025$0.40 (Nov 2024) $0.45 (Feb 2025) Raised

Earnings Call Themes & Trends

TopicQ2 2024 (Previous -2)Q3 2024 (Previous -1)Q4 2024 (Current)Trend
Pricing vs VolumeNet sales +3.5% with ~6.4% lower prices; volume/mix and online fees supported growth Volume +9.9%; pricing unfavorable $5.7M YoY Volume +13.9%; pricing unfavorable $5.4M YoY; price increases implemented Mar/Apr 2025 Volume-led growth; pricing headwind easing with announced hikes
Supply Chain DiversificationStronger USD vs TWD; increased imports as % mix; vendor pricing favorable Increased imports aiding margins amid higher freight/duty China reliance ~20%; Taiwan >50%; aiming ~10% China by June 2025 Diversification accelerating; tariff risk mitigation
Tariffs/MacroOcean freight spiked in mid-May; later moderated Continued freight/duty cost pressure Tariffs seen as tailwind; freight down ~20% in March; trucking rates down ~35% Freight easing; tariff stance constructive
Regional TrendsWarehouse footprint expansion; online 17.4% of sales Momentum across channels; supermarket trials begin Midwest/Texas strong; California stabilizing, modest growth in Dec Broadening geographically; CA turning
Online ChannelHigh margin; investment in marketing Online expansion; category growth Online sales down 6.1% YoY due to prior-year fee adjustment; switching carriers to cut shipping costs Optimize costs while sustaining growth
Warehouse/LogisticsChino lease extension raised rent; ROU asset impairment City of Industry sublease; rental income New 187k sq ft Chino DC; add 15–20 trucks/trailers Capacity and fleet expansion
Supermarket ChannelPipeline building with national/regional chains Initiated shipments to major grocery chains Supermarket growth included in 2025 guidance; +500 paper SKUs Emerging growth vector

Management Commentary

  • “We have reduced our reliance on China for imported goods to approximately 20%. In 2024, we imported over 50% of our global purchases from Taiwan… we expect the recent imposed tariffs to have minimum long-term impact on margin.” — Alan Yu, CEO .
  • “We are evaluating product pricing holistically and have implemented pricing increases in certain categories to be effective in March and April.” — Alan Yu, CEO .
  • “Net sales for the 2024 fourth quarter were $101.6 million, up 6.3%… our volume grew 13.9% year-over-year… gross margin expanded by 350 basis points to 39.2%.” — Jian Guo, CFO .
  • “We signed a new lease on a 187,000 square foot distribution center… provides much-needed capacities… add approximately 500 new SKU of paper products ahead of the peak summer season.” — Alan Yu, CEO .
  • “We are also reevaluating our operating processes and investing in automation and AI support to enhance productivity.” — Alan Yu, CEO .

Q&A Highlights

  • Growth cadence: PMs should expect sequential acceleration in 2025, driven by California stabilization, Midwest/Texas strength, mix shifts away from styrofoam, and pipeline conversions mid-year .
  • Margin trajectory: Adj. EBITDA margin guided 9–11% in Q1, “low to mid double-digits” for FY25; management expects OpEx savings from carrier changes, lower trucking and lease rates to support margin expansion through the year .
  • Volume vs price: 2025 growth led by double-digit volume; management does not foresee negative pricing—price increases already announced, with additional hikes possible if tariffs broaden .
  • Tariff dynamics: Potential Canada/Mexico tariffs viewed as tailwind due to competitors’ cost pressures; KRT’s diversified sourcing mitigates tariff impact except for globally tariffed aluminum .
  • Freight assumptions: Ocean freight down ~20% starting March; truckload shipping down ~35%; management sees operating expense declining into Q2 vs Q4/Q1 .

Estimates Context

  • Wall Street consensus (S&P Global) EPS and revenue estimates for KRT were unavailable for this session, so we cannot assess beat/miss versus Street. Anchor for future comparisons should be S&P Global consensus when accessible. Values retrieved from S&P Global were unavailable due to system limits.

Key Takeaways for Investors

  • Mix and margin resilience: Gross margin expanded to 39.2% despite freight/duty pressures; diversification (Taiwan sourcing, reduced China dependence) and vendor pricing/FX tailwinds underpin margin durability into 2025 .
  • Pricing inflection: After ~2 years of pricing headwinds, KRT implemented price increases in March/April; combined with tariff-driven industry cost pressures, this should support revenue/margin in H2 2025 .
  • Tariff tailwinds and share gains: Anticipated tariffs on Canada/Mexico could pressure competitors, enabling KRT to capture share, particularly in paper products and eco-friendly lines .
  • Distribution capacity and logistics leverage: New 187k sq ft DC and planned fleet additions (15–20 trucks/trailers) improve service levels and lower landed costs—supporting growth and OpEx efficiency .
  • Channel mix: Distributor strength continues; online moderated due to prior-year adjustments but cost actions (carrier switch) should aid profitability; supermarket channel emerging as a growth vector .
  • Cash returns with balance sheet strength: Dividend increased to $0.45; liquidity of cash and short-term investments supports both shareholder returns and growth investments .
  • Near-term trading setup: Q1 guide suggests solid YoY growth with gross margin 37–39% and adj. EBITDA margin 9–11%; watch for freight/trucking trends, tariff developments, and pricing execution as catalysts for estimate revisions and stock moves .