Summary of Karat Packaging Q2 2026 Earnings Call

1Key Financial Results and Metrics

Net Sales: Achieved a record of $136.3 million, up 9.9% from $124.0 million in Q2 2025, driven by volume growth and product mix.

Gross Margin: Increased to 56.6%, benefiting from $25.8 million in IEEPA tariff refunds, compared to 39.6% in the prior year.

Operating Income: Rose 127.2% to $37.6 million from $16.6 million year-over-year.

Net Income: Increased 168.3% to $29.6 million ($1.46 per diluted share), up from $11.1 million ($0.54 per diluted share) in Q2 2025.

Adjusted EBITDA: Increased to $41.6 million, with an adjusted EBITDA margin of 30.5%.

Free Cash Flow: Generated $31.8 million, reflecting the impact of tariff refunds.

Dividends: Paid a quarterly dividend of $0.45 per share, with an increase to $0.47 per share approved for August 2026.

2Strategic Updates and Business Highlights

Customer Expansion: Added four new chain accounts, enhancing market reach and future revenue potential.

E-commerce Growth: Online sales increased by 23.6% year-over-year, with July showing even stronger growth at approximately 37%.

Eco-Friendly Products: Represented 33.8% of total sales, up from 31.8% in the previous year, indicating a growing consumer preference for sustainable products.

New Distribution Center: Finalizing a lease for a 47,000-square-foot facility in Orlando, expected to enhance service capabilities in the Southeast and improve fulfillment times.

3Forward Guidance and Outlook

Q3 2026 Guidance: Anticipates low double-digit net sales growth year-over-year, with gross margins expected between 35% to 37% and adjusted EBITDA margins between 9% to 11%.

Full Year 2026 Outlook: Expects low double-digit growth in net sales, with gross margins projected in the low 40% range and adjusted EBITDA margins in the mid-teens.

4Bad News, Challenges, or Points of Concern

Increased Operating Expenses: Operating expenses rose to $39.6 million, driven by higher shipping costs and increased salaries and benefits.

Shipping Costs: Continued focus on managing rising shipping costs, which increased significantly in Q2 due to external factors, including high fuel prices.

Dependence on Tariff Refunds: The significant impact of IEEPA tariff refunds on margins raises concerns about sustainability without such benefits in the future.

5Notable Q&A Insights

SG&A Costs: Management acknowledged surprises in SG&A costs, particularly related to shipping. They are implementing measures to manage these costs more effectively, including utilizing internal fleets for deliveries.

Online Sales Growth: The company is on track to meet its online revenue target of $100 million for the year, with strong growth trends observed in July.

Future Distribution Needs: While the new Orlando facility will enhance service, there are considerations for additional distribution centers, particularly in Colorado and North America, to address market demands. Overall, Karat Packaging demonstrated strong financial performance in Q2 2026, supported by strategic growth initiatives and a focus on operational efficiency, while also facing challenges related to rising costs and the sustainability of tariff benefits.