Foodservice packaging supplier Karat Packaging (NASDAQ: KRT) beat Wall Street’s revenue expectations in Q4 CY2025, with sales up 13.7% year on year to $115.6 million. On the other hand, next quarter’s revenue guidance of $113 million was less impressive, coming in 2.6% below analysts’ estimates. Its non-GAAP profit of $0.34 per share was 21.4% above analysts’ consensus estimates.

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“We finished 2025 with a strong fourth quarter, demonstrating the strength and resilience of our business model and our ability to continue to drive profitable growth against an uncertain macroeconomic backdrop. We again achieved double-digit volume growth and our pricing turned positive for the first time since the first quarter of 2023,” said Alan Yu, Chief Executive Officer.

Company Overview

Founded as Lollicup, Karat Packaging (NASDAQ: KRT) distributes and manufactures environmentally-friendly disposable foodservice packaging solutions.

Revenue Growth

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Karat Packaging grew its sales at a solid 9.6% compounded annual growth rate. Its growth beat the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Karat Packaging’s recent performance shows its demand has slowed as its annualized revenue growth of 7.4% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs.

This quarter, Karat Packaging reported year-on-year revenue growth of 13.7%, and its $115.6 million of revenue exceeded Wall Street’s estimates by 1.5%. Company management is currently guiding for a 9% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 11.5% over the next 12 months, an improvement versus the last two years. This projection is admirable and indicates its newer products and services will spur better top-line performance.

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Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Karat Packaging has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 8.7%, higher than the broader industrials sector.

Looking at the trend in its profitability, Karat Packaging’s operating margin rose by 2.3 percentage points over the last five years, as its sales growth gave it operating leverage. Its expansion was impressive, especially when considering most Specialty Equipment Distributors peers saw their margins plummet.

This quarter, Karat Packaging generated an operating margin profit margin of 7.3%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Karat Packaging’s full-year EPS grew at a remarkable 14.1% compounded annual growth rate over the last four years, better than the broader industrials sector.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

Sadly for Karat Packaging, its EPS declined by 7% annually over the last two years while its revenue grew by 7.4%. This tells us the company became less profitable on a per-share basis as it expanded.

In Q4, Karat Packaging reported adjusted EPS of $0.34, up from $0.29 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Karat Packaging’s full-year EPS of $1.61 to grow 3.1%.

Key Takeaways from Karat Packaging’s Q4 Results

We were impressed by how significantly Karat Packaging blew past analysts’ EBITDA expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its revenue guidance for next quarter missed. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 3.6% to $23.10 immediately after reporting.

Sure, Karat Packaging had a solid quarter, but if we look at the bigger picture, is this stock a buy? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here (it’s free).