• Net Sales: $101.6 million, up 6.3% from $95.6 million in the prior year quarter.
• Sales Volume Growth: 13.9% year-over-year.
• Gross Margin: 39.2%, up from 35.7% in the prior year quarter.
• Operating Income: Increased 57.8% to $7.3 million from $4.6 million in the prior year quarter.
• Net Income: Increased 40.3% to $5.9 million from $4.2 million in the prior year quarter.
• Net Income Margin: 5.8%, compared with 4.4% in the prior year quarter.
• Adjusted EBITDA: $11.3 million, up from $8.6 million in the prior year quarter.
• Adjusted EBITDA Margin: 11.1% of net sales, compared with 9.0% in the prior year quarter.
• Adjusted Diluted EPS: $0.29, up from $0.24 in the prior year quarter.
• Operating Cash Flow: $8.3 million in the fourth quarter.
• Free Cash Flow: $7.5 million in the fourth quarter.
• Working Capital: $114.6 million as of December 31, 2024.
• Financial Liquidity: $67.8 million with an additional $28.3 million in short-term investments.
• Quarterly Dividend: Increased to $0.45 per share.

• Warning! GuruFocus has detected 3 Warning Signs with CPSH.

Release Date: March 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Karat Packaging Inc (NASDAQ:KRT) reported a 14% increase in sales volume and a 6.3% increase in net sales for the fourth quarter of 2024.
• The company achieved a gross margin of 39.2% in the fourth quarter, up from 35.7% in the prior year period.
• Karat Packaging Inc (NASDAQ:KRT) has reduced its reliance on China for imports to approximately 20%, shifting sourcing to countries with more favorable trade conditions like Taiwan.
• Sales of eco-friendly products increased by 11% year-over-year, representing 34.5% of total sales, driven by new legislation requiring recyclable or compostable products.
• The company signed a new lease for a 187,000 square foot distribution center in California, nearly doubling its distribution capacity to support anticipated growth.

Negative Points

• Pricing was unfavorable by $5.4 million year-over-year, impacting overall revenue growth.
• Online sales decreased by 6.1% or $1.1 million, reflecting the impact of prior year adjustments.
• Operating expenses increased by 10.4% to $32.5 million, driven by higher labor costs, rent expenses, and stock-based compensation.
• The company faces uncertainties related to tariffs, which could impact future margins and operational costs.
• General and administrative expenses rose due to workforce expansion and additional leased warehouses, impacting overall profitability.

Q & A Highlights

Q: Can you explain the expected acceleration in growth for 2025, given the first quarter revenue growth guidance? A: Alan Yu, CEO: We are seeing stabilization and modest growth in the California market, which had been declining. Our largest market, Texas, is experiencing significant growth, particularly in the Midwest, where there's a shift from styrofoam to other materials. If tariffs on Mexico and Canada are implemented, we anticipate increased demand for our products. We are preparing by expanding our inventory and distribution capabilities.

Q: How should we interpret the adjusted EBITDA margin guidance for 2025, which suggests improvement throughout the year? A: Alan Yu, CEO: We are implementing cost-saving measures, such as finding more affordable shipping options and benefiting from reduced lease rates. These efforts, along with operational efficiencies, are expected to improve our margins as the year progresses.

Q: What are the main drivers of revenue growth in 2025, and how do volume and pricing contribute? A: Alan Yu, CEO: We anticipate double-digit volume growth, driven by increased demand for our products as customers switch from plastic to paper. While we have announced price increases due to tariffs, we aim to keep them minimal to support our customers.

Q: How will tariffs on Canada and Mexico impact your business, and why is it considered a tailwind? A: Alan Yu, CEO: Tariffs on Canada and Mexico will likely lead to increased costs for competitors importing from these regions. We have diversified our sourcing away from China, minimizing the impact of tariffs on our operations. This positions us advantageously as competitors face higher costs.

Q: What are your expectations for operating expenses in 2025, and how do you plan to manage them? A: Jian Guo, CFO: We are focusing on operational efficiencies, including savings in shipping and labor costs. We also plan to optimize our online sales investments to maintain growth while reducing expenses. These measures are expected to help manage operating expenses effectively.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.