Shares of Karat Packaging, Inc. KRT have lost 8.5% since the company reported lower-than-expected second-quarter 2024 revenues and earnings per share (EPS) on Aug 8, 2024. The quarterly adjusted EPS of 49 cents missed the Zacks Consensus Estimate of 60 cents and declined 29% year over year. The downfall was due to unfavorable year-over-year pricing comparison, higher freight costs and an increase in operating expenses in the quarter.

Including one-time items, EPS was 45 cents compared with the year-ago quarter’s 53 cents.

Total revenues increased 3.5% year over year to $112.6 million. The top line missed the Zacks Consensus Estimate of $114 million. The increase primarily reflected higher volumes, a change in product mix and the inclusion of online sales platform fees. This was partially offset by an unfavorable year-over-year pricing comparison.

Karat Packaging Inc. Price, Consensus and EPS Surprise

 

Karat Packaging Inc. price-consensus-eps-surprise-chart | Karat Packaging Inc. Quote

Operational Update

The cost of sales increased 3.5% year over year to $69 million. Gross profit rose 3.7% year over year to $43 million. The gross margin was 38.5%, flat with the year-ago quarter.

The second-quarter gross margin included a net favorable impact of 90 basis points from the inclusion of online platform fees in net sales and production expenses in the cost of goods sold.  This was offset by higher ocean freight costs during the quarter.

Operating expenses were $32.3 million compared with $28.5 million in the year-ago quarter. Expenses were higher in the quarter attributed to the inclusion of online sales platform fees, an increase in rent and warehouse expenses, online marketing expenses as well as higher stock compensation expenses. These were partially offset by the inclusion of production expense in cost of goods sold and a decrease in impairment expense and loss on disposal of machinery.

Adjusted EBITDA declined 26% year over year to $15.7 million. The adjusted EBITDA margin was 13.9% compared with 19.4% in the second quarter of 2023.

Cash Position

Karat Packaging reported cash and cash equivalents of $19.3 million as of Jun 30, 2024, down from $23 million as of Dec 31, 2023. The company generated $20 million of cash flow from operations in the first half of 2024 compared with $31 million in the prior-year comparable period.

Guidance For Q3 & 2024

KRT anticipates the year-over-year growth in sales to be in the mid to high-single-digit range for the third quarter. The gross margin is projected between 38% and 39%. The company reported a gross margin of 36.9% in the third quarter of 2023.