Karat Packaging Stock Dips on Q2 Earnings & Revenue Miss

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 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.

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.

For 2024, sales growth is forecast to be in the mid-single digits from the previous year level. The targeted gross margin for the year is between 38% and 40%.

Price Performance

Shares of the company have gained 3.1% year to date compared with the industry's 9.3% growth.

Image Source: Zacks Investment Research

Zacks Rank

Karat Packaging currently carries a Zacks Rank #3 (Hold).

Performances of Other Packaging Stocks

Packaging Corporation of America PKG reported an adjusted EPS of $2.20 in the second quarter of 2024, which beat the Zacks Consensus Estimate of $2.12. The reported figure was higher than the company's guidance of $2.07. However, the bottom line decreased 5% year over year.

Sales in the second quarter grew 6.3% year over year to $2.08 billion. The top line beat the Zacks Consensus Estimate of $2.03 billion.

Sealed Air Corporation SEE reported second-quarter adjusted EPS of 83 cents, which surpassed the Zacks Consensus Estimate of 64 cents by a margin of 29.7%. The bottom line increased 4% year over year. 

Results benefited from the company's cost take-out to grow program and cost-control initiatives. Improvements in the Food segment's results helped offset the continued weakness in the Protective segment. This was partially offset by unfavorable price realization.

Total revenues were $1.35 billion, which beat the Zacks Consensus Estimate of $1.31 billion. The figure was down 2.6% from $1.38 billion in the second quarter of 2023.

Graphic Packaging GPK reported quarterly earnings of 60 cents per share, which beat the Zacks Consensus Estimate of 56 cents. The figure declined from earnings of 66 cents per share in the year-ago quarter.

GPK's revenues were $2.24 billion, which missed the consensus estimate of $2.29 billion. Revenues were down 6.5% from the year-ago quarter's $2.39 billion.

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