Karat Packaging Inc. Q4 FY2025 earnings call

Despite trade volatility, Carrot delivered profitable growth with 13.7% net sales increase in Q4 2025, driven by double-digit volume growth and positive pricing for first time since early 2023. Diversified sourcing efforts continued to show positive results with adjusted import volume across countries. Paperback business category is growing steadily, pursuing additional opportunities and strengthening the category by supplying generic and custom paperbacks to various accounts. Eco-friendly product sales increased as a percentage of total revenue. Focus on operating efficiency led to improvement in operating costs leveraged. CFO discussed detailed financial results including net sales, COGS, operating income, net income, adjusted EBITDA, etc.

In the fourth quarter of 2025, Carrot Packaging saw net sales increase by 13.7% to $115.6 million. The new paperback business category is gaining momentum, with eco-friendly product sales reaching 37.3% of total revenue in Q4 2025, up from 34.5% in the same quarter of 2024. Import mix in Q4 was 46% from Taiwan, 14% from China, 13% from the US, 11% from Vietnam, and 11% from Malaysia. Gross margin was 34% in Q4 despite higher tariff and duty costs. Operating costs leveraged to 26.7% in Q4 2025 from 32% in the prior year quarter.

Expect net sales to increase by approximately 8 - 10% in 2026 Q1 from prior year quarter. Full year 2026 net sales expected to grow in low double-digit range. Gross margin for 2026 Q1 expected to be within 34% - 36% and adjusted EBITDA margin within 9% - 11%. Continued improvements in growth margin and adjusted EBITDA margin anticipated under current global tariff import environment. Pipeline growth supported by expansion of paperback category and addition of key customer accounts.

Trade volatility which can impact business. Fluctuations in tariffs, foreign exchange rates, and energy costs which can affect margins. Weather conditions can impact sales as seen in 2026 Q1 with facility shutdowns due to inclement weather. Competitive environment where competitors may have negative or low single-digit growth.

Q: Ryan Merkle asked about 2026 outlook, specifically market assumptions and growth drivers.

A: Alan Yu mentioned competitive environment with competitors having negative/low single-digit growth, company foreseeing low double-digit growth due to market share gains in new categories like paperback, adding SKUs, etc.

Q: Ryan Myers asked about 2026 Q1 revenue slowdown and weather impact.

A: Jan Gao explained Texas and East Coast weather issues caused shutdowns in January and February, but seeing momentum pick up in March.

Q: Kyle Benvenuto asked about energy costs in margin outlook and online sales progress.

A: Alan Yu mentioned energy costs accounted for in margin outlook, and 2026 online sales expected double-digit growth with addition of platforms and driving bulk sales.

Q: Joshua Axel asked about eco-friendly business demand and California market.

A: Alan Yu said demand for eco-products never dropped, molded fiber, composable products growing; California market seeing slowdown but company having double-digit growth due to tariff containment causing other importers to go out of business