Karat Packaging (KRT) Q2 2024 earnings summary

Executive summary

• Net sales for Q2 2024 grew 3.5% year-over-year to $112.6 million, with sales volume up 3.2% and online sales now 17.4% of total sales.

• Gross margin held steady at 38.5% despite higher ocean freight costs, with online and eco-friendly product growth outpacing overall company growth.

• Net income for Q2 2024 was $9.2 million (8.2% margin), down from $10.7 million (9.8% margin) last year; adjusted EBITDA fell to $15.7 million (13.9% margin) from $21.1 million (19.4% margin).

• Operating expenses increased due to online platform fees, higher rent, and increased marketing and stock compensation.

• Board declared a $0.35 regular and $0.15 special dividend, both payable August 30, 2024.

Financial highlights

• Q2 2024 net sales: $112.6M (up 3.5% YoY); gross profit: $43.4M (up 3.7% YoY); gross margin: 38.5% (flat YoY).

• Q2 2024 net income: $9.2M (8.2% margin), down from $10.7M (9.8% margin) YoY.

• Adjusted EBITDA: $15.7M (13.9% margin), down from $21.1M (19.4% margin) YoY.

• Adjusted diluted EPS: $0.49, down from $0.69 YoY.

• Working capital at June 30, 2024: $114.2M; liquidity: $55.5M cash and equivalents, $32.7M in short-term investments.

Outlook and guidance

• Q3 2024 net sales expected to grow mid- to high-single digits year-over-year; gross margin guidance is 38%-39%.

• Full-year 2024 net sales projected to grow mid-single digits, down from prior 8%-15% guidance; gross margin goal of 38%-40%.

• Double-digit growth anticipated for Q4 2024, with a strong outlook for 2025 driven by new chain accounts and online sales.

• Eco-friendly products comprised 32.3% of Q2 2024 sales, with growth in this segment outpacing overall company growth.

• Long-term Adjusted EBITDA margin target remains in the mid-teens.