Karat Packaging Inc.

What they do

Karat Packaging distributes disposable foodservice products including containers, bags, boxes, cups, lids, cutlery, straws, and janitorial supplies in plastic, paper, and compostable forms. It sources from nearly 150 vendors and performs select U.S. manufacturing, which dropped to about 9% of net sales in 2025 from 11% in 2024. Customers include national chains such as Chipotle, Panda Express, and In-N-Out Burger, plus regional distributors and online buyers. The company also offers custom printing, product development, and logistics services.

Revenue drivers

• Product distribution — Most revenue comes from distributing products sourced from a global vendor network, complemented by U.S. manufacturing; distribution supports broad product selection and short lead times.
• Online/e-commerce sales — Online business grew 23.6% year-over-year in Q2 2026 and is a stated driver of the record sales quarter.
• Paper bag business — In 2025 the company won a paper bag contract with a large national chain account with forecast annualized revenue of approximately $17.0 million.
• Customized solutions — New product design, custom printing, specialty food and beverage distribution, and logistics services supplement core product sales.

Recent performance

For Q2 2026, net sales rose 9.9% to a record $136.3 million from $124.0 million a year earlier, driven by $13.1 million in volume and mix. IEEPA tariff refunds reduced cost of goods sold by $25.8 million, lifting gross profit to $77.2 million and gross margin to 56.6%, versus 39.6% in the prior-year quarter. Net income was $29.6 million, or 21.8% of sales, including $20.2 million from the refunds, and Adjusted EBITDA was $41.6 million. Full-year 2025 revenue was $467.7 million with net income of $31.5 million and operating cash flow of $33.8 million.

Strategy

The company is executing a more asset-light model started in 2023, increasing imports and scaling back domestic manufacturing while retaining U.S. manufacturing infrastructure. It is diversifying its global vendor network to reduce tariff impact and is prioritizing paper bags and online growth as significant drivers. It is finalizing a lease for a 47,000-square-foot distribution center in Orlando, Florida, expected to be operational in Q3 2026 to serve the Southeast and e-commerce. Management also cites cost and operational efficiency efforts to support sustainable profitability.

Risks

• Tariff and trade policy exposure — Escalating global trade tensions and tariffs could raise product costs or cause volatility, as illustrated by the prior IEEPA tariff costs and the $25.8 million refund recorded in Q2 2026.
• Supply chain and freight dependency — The company relies on imports through ports and a nearly 150-vendor network, exposing it to supply disruptions, container rate increases, and shipping delays.
• Regulatory and consumer preference shifts — Bans or restrictions on single-use plastic products could reduce demand or require costly product changes, as happened with plastic straw bans.
• Customer concentration in chain accounts — Significant revenue comes from large national and regional chain customers, including a new paper bag contract expected to contribute roughly $17.0 million annualized, creating dependence on those accounts.

Outlook

For Q3 2026, management expects net sales to increase by low double-digits from the prior-year quarter, with gross margin of 35% to 37% and Adjusted EBITDA margin of 9% to 11%, including insignificant IEEPA tariff refunds. For full-year 2026, management expects net sales to increase by low double-digits, gross margin in the low 40 percents, and Adjusted EBITDA margin of approximately mid-teens, including refunds recorded in the first half. The new Orlando distribution center is expected to be operational in Q3 2026.