Earnings

Karat Packaging Profitability Falls as Import Costs Rise

The Tip Desk · November 11, 2026 · 3 min read

Third-quarter net sales were $134.7 million, up 8.2%, as adjusted EBITDA slipped to $8.9 million and the company guided fourth-quarter sales up 9 to 11%.

Karat Packaging Inc. (KRT), a specialty distributor and manufacturer of disposable foodservice products, reported third-quarter net sales of $134.7 million, up 8.2% from $124.5 million a year earlier, as year-over-year growth slowed from 9.9% in the second quarter and 12.9% in the first.

Profitability compressed. Gross profit was $45.1 million, and gross margin fell to 33.5% from 34.5% in the year-ago quarter. Adjusted EBITDA declined to $8.9 million, or a 6.6% margin, from $13.1 million, or 10.5%, a year earlier. Net income was $4.7 million, or a 3.5% margin, compared with $7.6 million, or 6.1%. Diluted earnings attributable to Karat Packaging were $0.22 a share, versus $0.36 a share.

Chief Executive Officer Alan Yu said increased import and domestic shipping costs and elevated resin prices pressured margin and contributed to results below the company’s expectations. He said the company remained encouraged by sales performance, especially e-commerce.

The sales increase was primarily driven by $10.7 million in volume growth and product mix and a $0.4 million favorable year-over-year pricing comparison, partially offset by a $0.8 million decrease in shipping and logistics revenue. Cost of goods sold rose 9.8% to $89.6 million. The company said the increase was primarily driven by a $7.2 million rise in product costs from higher sales volume and resin prices, coupled with higher import costs. Ocean freight costs rose $2.4 million, mainly reflecting an 11.7% increase in containers imported and a 17.0% increase in the average container rate. Duty and tariff costs decreased $1.1 million. Product costs rose to 50.6% of net sales from 48.9%.

Online sales grew nearly 38% to $26.9 million, accelerating from 23.6% growth in the second quarter. Chains and distributors sales were $103.3 million. Retail sales declined to $4.6 million from $5.6 million a year earlier.

Operating expenses increased 17.2% to $40.3 million. The company said the increase was primarily driven by $2.8 million in higher shipping and transportation costs, including $2.2 million of higher online shipping costs from online sales growth and elevated shipping costs, $0.9 million higher online platform fees, and $0.7 million higher online marketing expenses. Other increases included $0.9 million in salaries and benefits, $0.4 million in warehouse expense, and $0.4 million in stock-based compensation.

In October, the company said it began shipping select products to four chain accounts secured in the second quarter. It said it won additional business with those customers across multiple product lines in the third quarter, with shipments expected in early 2027, and gained four additional chain accounts in the third quarter, with shipments expected in the first half of 2027. Yu said the company is realigning its global supply chain toward markets with more favorable trade conditions and freight costs, including Indonesia, Malaysia and South America, and is implementing price increases on select items in November and in January 2027. He said a new Florida distribution center is expected to open in November 2026.

For the 2026 fourth quarter, Karat Packaging expects net sales to increase 9 to 11% from the prior-year quarter, gross margin of 33 to 35%, and adjusted EBITDA margin in the high-single digits. For full-year 2026, it expects net sales to increase 9 to 11% from the prior year, gross margin of 39 to 41% including IEEPA tariff refunds recorded in the first half of 2026, and adjusted EBITDA margin of approximately mid-teens, including those refunds.

On November 3, 2026, the board approved a regular quarterly dividend of $0.47 a share, payable on or about November 27, 2026. The company did not repurchase common stock in the third quarter. About $10.0 million remained available under its share-repurchase program as of September 30, 2026.

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