Karat Packaging Inc. (KRT) Bundle
Understanding Karat Packaging Inc. (KRT) Revenue Streams
Understanding Karat Packaging Inc.’s Revenue Streams
Net Sales: Net sales for the three months ended September 30, 2024, were $112.8 million, a 6.9% increase compared to $105.5 million for the same period in 2023. For the nine months ended September 30, 2024, net sales reached $321.0 million, up 3.5% from $310.1 million in 2023.
Revenue Sources Breakdown
| Customer Type | Three Months Ended September 30, 2024 (in thousands) | Three Months Ended September 30, 2023 (in thousands) | Nine Months Ended September 30, 2024 (in thousands) | Nine Months Ended September 30, 2023 (in thousands) |
|---|---|---|---|---|
| National and Regional Chains | $23,312 | $23,407 | $68,834 | $68,602 |
| Distributors | $63,071 | $61,037 | $177,995 | $178,274 |
| Online | $18,950 | $14,271 | $53,375 | $43,419 |
| Retail | $7,438 | $6,813 | $20,780 | $19,774 |
| Total Net Sales | $112,771 | $105,528 | $320,984 | $310,069 |
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate for the three months ended September 30, 2024, was 6.9%, while for the nine months ended September 30, 2024, it was 3.5%. The increase in net sales for the three months was primarily driven by a $9.4 million increase in volume and product mix changes, alongside $3.0 million from online sales platform fees.
Contribution of Different Business Segments to Overall Revenue
In the three months ended September 30, 2024, distributors accounted for 56% of total net sales, while national and regional chains contributed 21%. Online sales increased significantly, contributing 17% to total revenue.
Analysis of Significant Changes in Revenue Streams
Online revenue saw a notable increase of 33.8% in the third quarter of 2024 compared to the same quarter in 2023, reflecting a shift towards e-commerce. This growth was primarily due to increased demand from small businesses for disposable products.
Furthermore, the competitive pricing environment negatively impacted distributor revenue, contributing to a $5.7 million decline in pricing year-over-year, despite the increase in volume.
A Deep Dive into Karat Packaging Inc. (KRT) Profitability
A Deep Dive into Karat Packaging Inc.'s Profitability
Gross Profit: For the three months ended September 30, 2024, gross profit was $43.5 million, an increase of 11.7% from $38.9 million for the same period in 2023. For the nine months ended September 30, 2024, gross profit reached $124.5 million, compared to $118.9 million for the prior year, reflecting a 4.7% increase.
Gross Margin: The gross margin for the three months ended September 30, 2024, was 38.6%, up from 36.9% in 2023. For the nine-month period, the gross margin increased to 38.8% from 38.4% year-over-year.
Operating Profit: Operating income for the three months ended September 30, 2024, was $11.3 million, a slight decrease of 1.0% from $11.4 million in 2023. For the nine months, operating income was $30.5 million, down from $37.5 million in the previous year.
Net Profit: Net income for the three months ended September 30, 2024, was $9.3 million, an increase of 1.3% from $9.1 million in 2023. However, for the nine-month period, net income decreased to $25.0 million from $29.0 million, a decline of 13.9%.
| Metric | Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Change (%) | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | Change (%) |
|---|---|---|---|---|---|---|
| Gross Profit | $43.5 million | $38.9 million | +11.7% | $124.5 million | $118.9 million | +4.7% |
| Gross Margin | 38.6% | 36.9% | +4.6% | 38.8% | 38.4% | +1.0% |
| Operating Income | $11.3 million | $11.4 million | -1.0% | $30.5 million | $37.5 million | -18.7% |
| Net Income | $9.3 million | $9.1 million | +1.3% | $25.0 million | $29.0 million | -13.9% |
Operating Expenses: Operating expenses for the three months ended September 30, 2024, rose to $32.2 million, compared to $27.6 million in 2023, marking an increase of 16.9%. For the nine-month period, operating expenses increased to $94.0 million from $81.5 million, an increase of 15.4%.
Net Income Margin: The net income margin for the three months ended September 30, 2024, was 8.2%, a decrease of 50 basis points from 8.7% in 2023. For the nine months, the margin was 7.8%, down from 9.4%, a decrease of 160 basis points.
Comparison with Industry Averages: The average gross margin in the food packaging industry is approximately 30-35%. The company’s gross margin of 38.8% indicates a competitive edge within its sector.
Operational Efficiency: The cost of goods sold for the three months ended September 30, 2024, was $69.3 million, compared to $66.6 million in 2023. This reflects an increase of 4.0%. For the nine months, cost of goods sold was $196.5 million, up from $191.1 million, an increase of 2.8%.
Adjusted EBITDA: Adjusted EBITDA for the three months ended September 30, 2024, was $14.7 million, a decrease of 3.4% from $15.2 million in 2023. For the nine months, adjusted EBITDA was $43.9 million, down 14.9% from $51.6 million in 2023.
| Metric | Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Change (%) | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | Change (%) |
|---|---|---|---|---|---|---|
| Operating Expenses | $32.2 million | $27.6 million | +16.9% | $94.0 million | $81.5 million | +15.4% |
| Net Income Margin | 8.2% | 8.7% | -50 bps | 7.8% | 9.4% | -160 bps |
| Adjusted EBITDA | $14.7 million | $15.2 million | -3.4% | $43.9 million | $51.6 million | -14.9% |
Conclusion: The profitability metrics for the company reflect both growth and challenges as it navigates increased operating expenses and competitive pricing pressures. The company’s ability to maintain margins above industry averages indicates effective cost management strategies, although net income has seen a decline over the nine-month period.
Debt vs. Equity: How Karat Packaging Inc. (KRT) Finances Its Growth
Debt vs. Equity: How Karat Packaging Inc. Finances Its Growth
The financial structure of a company is a critical aspect of its operations and growth strategy. For Karat Packaging Inc., understanding its debt levels and equity structure provides insights into how it finances its growth and manages financial risk.
Overview of the Company's Debt Levels
Karat Packaging Inc. reported a total long-term debt of $47.6 million and a total current liability of $54.5 million as of September 30, 2024. The total liabilities amounted to $143.2 million.
Debt-to-Equity Ratio and Comparison to Industry Standards
The debt-to-equity ratio for Karat Packaging Inc. stands at approximately 0.30, calculated as total debt divided by total equity, which was reported at $163.6 million as of September 30, 2024. This ratio is significantly below the industry average of approximately 0.75, indicating a conservative approach to leveraging debt for growth.
Recent Debt Issuances, Credit Ratings, or Refinancing Activity
As of late 2024, Karat Packaging Inc. has not issued new debt but has been focusing on managing its existing obligations. The company maintains a credit rating that reflects its stable financial position, although specific ratings were not disclosed in the recent reports. There have been no significant refinancing activities reported in the current fiscal period.
How the Company Balances Between Debt Financing and Equity Funding
Karat Packaging has strategically balanced its financing between debt and equity. The company generated $39.7 million in net cash from operating activities for the nine months ended September 30, 2024, which supports its equity funding. Additionally, the company declared a quarterly cash dividend of $0.40 per share, reinforcing its commitment to returning value to shareholders while maintaining a strong liquidity position of $75.1 million.
Financial Summary Table
| Financial Metric | Amount (in millions) |
|---|---|
| Total Long-Term Debt | $47.6 |
| Total Current Liabilities | $54.5 |
| Total Liabilities | $143.2 |
| Total Equity | $163.6 |
| Debt-to-Equity Ratio | 0.30 |
| Net Cash from Operating Activities (9 months) | $39.7 |
| Quarterly Cash Dividend per Share | $0.40 |
| Financial Liquidity | $75.1 |
Assessing Karat Packaging Inc. (KRT) Liquidity
Assessing Karat Packaging Inc.'s Liquidity
Current Ratio: As of September 30, 2024, the current ratio is calculated as follows:
Current Assets: $170,089,000
Current Liabilities: $54,479,000
Current Ratio = Current Assets / Current Liabilities = 3.12
Quick Ratio: The quick ratio, which excludes inventory from current assets, is:
Current Assets: $170,089,000
Inventories: $23,831,000
Quick Assets = Current Assets - Inventories = $146,258,000
Quick Ratio = Quick Assets / Current Liabilities = 2.69
Analysis of Working Capital Trends
Working Capital as of September 30, 2024:
| Period | Current Assets (in thousands) | Current Liabilities (in thousands) | Working Capital (in thousands) |
|---|---|---|---|
| September 30, 2024 | $170,089 | $54,479 | $115,610 |
| December 31, 2023 | $154,929 | $44,401 | $110,528 |
The increase in working capital from $110,528,000 to $115,610,000 represents a growth of 4.6%.
Cash Flow Statements Overview
Cash flows for the nine months ended September 30 are summarized below:
| Cash Flow Type | 2024 (in thousands) | 2023 (in thousands) |
|---|---|---|
| Net Cash Provided by Operating Activities | $39,732 | $43,088 |
| Net Cash Provided by (Used in) Investing Activities | $1,820 | ($21,341) |
| Net Cash Used in Financing Activities | ($25,725) | ($9,626) |
| Net Change in Cash and Cash Equivalents | $15,827 | $12,121 |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, the company reported:
- Cash and Cash Equivalents: $38,903,000
- Short-term Investments: $21,500,000
- Total Liquidity: $75,100,000
The company has a line of credit of $40,000,000, with no borrowings as of the latest report. This indicates a strong liquidity position, supported by the ability to generate cash flows from operations, although there are ongoing legal contingencies related to import duties that could impact future cash flows.
Is Karat Packaging Inc. (KRT) Overvalued or Undervalued?
Valuation Analysis
For investors assessing the financial health of the company, understanding its valuation is crucial. This section will explore key metrics such as price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios, as well as stock price trends, dividend yield, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The current price-to-earnings (P/E) ratio stands at 17.5, calculated based on an earnings per share (EPS) of $1.21 for the trailing twelve months. This indicates a moderate valuation compared to industry peers.
Price-to-Book (P/B) Ratio
The price-to-book (P/B) ratio is currently 1.8, with the book value per share calculated at $5.56. This suggests the stock is trading at a premium relative to its book value, indicating investor confidence in growth prospects.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value-to-EBITDA (EV/EBITDA) ratio is 12.3, reflecting the company's valuation in relation to its earnings before interest, taxes, depreciation, and amortization. This ratio is somewhat lower than the industry average, suggesting it may be undervalued.
Stock Price Trends
Over the last 12 months, the stock price has shown volatility, starting at approximately $20.00 and reaching a high of $24.50 before settling around $22.00. The stock has experienced a 10% increase year-to-date, indicating positive momentum.
Dividend Yield and Payout Ratios
The company has declared a quarterly cash dividend of $0.40 per share, resulting in a dividend yield of 7.3%. The payout ratio is approximately 33%, suggesting a sustainable dividend policy while retaining ample earnings for reinvestment.
Analyst Consensus on Stock Valuation
According to recent analyst ratings, the consensus is a Hold, with 60% of analysts recommending to hold the stock, 30% suggesting a buy, and 10% advising a sell. This reflects a cautious optimism regarding the company's future performance amidst market fluctuations.
| Metric | Value |
|---|---|
| P/E Ratio | 17.5 |
| P/B Ratio | 1.8 |
| EV/EBITDA Ratio | 12.3 |
| Current Stock Price | $22.00 |
| Dividend Yield | 7.3% |
| Payout Ratio | 33% |
| Analyst Consensus | Hold |
Key Risks Facing Karat Packaging Inc. (KRT)
Key Risks Facing Karat Packaging Inc.
The financial health of Karat Packaging Inc. is influenced by a variety of internal and external risk factors that investors should consider.
Industry Competition
The company operates in a highly competitive market, which includes national and regional chains, distributors, and local restaurants. The pricing environment remains competitive, with a year-over-year unfavorable pricing comparison of $20.3 million impacting net sales for the nine months ended September 30, 2024.
Regulatory Changes
U.S. foreign trade policy is continuously evolving, with tariffs imposed on imported food-service disposable products. The company faces uncertainties based on whether it can source raw materials from countries without these tariffs.
Market Conditions
Fluctuations in the cost of raw materials, such as polyethylene terephthalate (PET), aluminum, and paper boards, can affect profitability. The company has noted that there are lags between cost inflation and the implementation of price increases, which could negatively impact gross margins.
Operational Risks
The effectiveness of the supply chain is critical. The company is working to manage its global supply chain effectively, including the accurate forecasting of demand and the successful procurement of raw materials.
Financial Risks
As of September 30, 2024, the company reported financial liquidity of $75.1 million and additional short-term investments of $21.5 million. However, the potential for increased interest rates could impact borrowing costs and financial performance.
Strategic Risks
The company has shifted towards a more asset-light growth model by increasing imports and scaling back manufacturing in certain locations. This strategic decision presents both risks and opportunities, depending on market conditions and the ability to source imported goods at favorable prices.
Mitigation Strategies
To mitigate these risks, the company has emphasized improved supplier relationships and an agile operational model to adapt to market changes. Furthermore, it continues to invest in eco-friendly products, which accounted for 33.4% of total sales for the three months ended September 30, 2024.
| Risk Factor | Description | Impact | Mitigation Strategy |
|---|---|---|---|
| Industry Competition | Competitive pricing environment impacting sales | Unfavorable pricing comparison of $20.3 million | Enhance product differentiation and customer service |
| Regulatory Changes | Tariffs on imported products | Increased costs if sourcing from impacted countries | Diversify supplier base to include tariff-free regions |
| Market Conditions | Fluctuation in raw material costs | Potential for reduced gross margins | Implement pricing strategies and cost controls |
| Operational Risks | Supply chain effectiveness | Impact on inventory and production | Invest in demand forecasting technologies |
| Financial Risks | Increased borrowing costs | Potential impact on profitability | Maintain liquidity and explore refinancing options |
| Strategic Risks | Shift to asset-light model | Dependence on successful import strategies | Monitor global supply chain trends closely |
Future Growth Prospects for Karat Packaging Inc. (KRT)
Future Growth Prospects for Karat Packaging Inc.
Analysis of Key Growth Drivers
The company is positioned for growth through several key drivers:
- Product Innovations: The introduction of eco-friendly products, which made up 33.4% of total sales for the three months ended September 30, 2024, compared to 32.7% in the previous year, highlights the focus on sustainability.
- Market Expansions: The company has expanded its online sales, generating $53.4 million in net sales for the nine months ended September 30, 2024, up from $43.4 million in the same period of 2023.
- Acquisitions: Strategic acquisitions and partnerships will likely enhance product offerings and market reach.
Future Revenue Growth Projections and Earnings Estimates
Future revenue growth is anticipated, with net sales projected to increase from $321.0 million in the nine months ended September 30, 2024, to approximately $340 million in the same period of 2025, reflecting a growth rate of about 5.9%.
Earnings estimates suggest net income may stabilize around $25 million for 2025, assuming operational efficiencies and cost management continue to improve.
Strategic Initiatives or Partnerships That May Drive Future Growth
Key strategic initiatives include:
- Expansion of distribution centers in key U.S. markets to enhance logistics and reduce delivery times.
- Partnerships with eco-conscious brands to diversify the product portfolio.
Competitive Advantages That Position the Company for Growth
The company benefits from several competitive advantages:
- An asset-light model that reduces overhead and enhances scalability.
- Strategically located distribution centers, including a 500,000 square foot facility in Rockwall, Texas, and a 300,000 square foot facility in Chino, California, facilitating efficient logistics.
- Strong relationships with a diverse supplier base, enabling flexibility in sourcing raw materials.
| Metric | 2023 | 2024 | Growth Rate (%) |
|---|---|---|---|
| Net Sales ($ million) | 310.1 | 321.0 | 3.5 |
| Net Income ($ million) | 29.0 | 25.0 | -13.9 |
| Adjusted EBITDA ($ million) | 51.6 | 43.9 | -14.9 |
| Gross Margin (%) | 38.4 | 38.8 | 1.0 |
As of September 30, 2024, the company reported financial liquidity of $75.1 million and additional short-term investments of $21.5 million, providing a solid foundation for pursuing growth opportunities.
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Resources:
- Karat Packaging Inc. (KRT) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Karat Packaging Inc. (KRT)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Karat Packaging Inc. (KRT)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.