KRT · Karat Packaging

The thesis

Karat Packaging's third-quarter report broke the margin case: gross margin of 33.5% missed the guided 35–37%, and fourth-quarter guidance sits lower at 33–35%. The shares look more likely to trail the S&P 500 than lead it over the next three months. Ocean freight rates and the 1 January 2027 price increase decide whether margins recover, and the fourth-quarter report is the first test.

The 5 November 2026 release reported net sales of $134.7 million, up 8.2%, against guidance for low-double-digit growth. Adjusted earnings per diluted share (EPS) were $0.24, against $0.37 a year earlier. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were 6.6% of sales, against a guided 9–11%. Benzinga put consensus at $0.41 of EPS and $140.334 million of sales (company release).

The shares closed at $33.54 on 6 November 2026, the session after the report, against $51.44 the session before. They have since recovered to $36.75 on 11 November 2026, level with the 200-day average. The market has already removed most of the premium the shares carried into the report.

Bullish and bearish views on Karat Packaging Inc.

The bull case on Karat Packaging Inc. (KRT), in brief: price increases are already scheduled. The bear case: margin guidance moved down again.

Bull case

• Price increases are already scheduled. Management said on the 5 November 2026 call that it introduced surcharges in October and a broader increase in November, with a 3% to 13% increase set for 1 January 2027 (call transcript).
• New chain accounts are starting. The 5 November 2026 release says four new chain accounts began shipping in October and four more should ship in the first half of 2027. Chief Executive Alan Yu said on the call that chains typically reach full shipments about 90 days after the first delivery.
• Online sales grew quickly. Third-quarter online sales rose about 37.7% to $26.9 million, according to the 5 November release. Management also said on the call that fiber and paper product sales could double in 2027.
• Cash generation improved. Nine-month free cash flow was $47.2 million, against $14.7 million a year earlier, helped by $25.2 million of refunds received in cash, according to the release. The board declared a $0.47 quarterly dividend on 4 November 2026, the same rate as the prior payment.
• Management expects freight relief. Management said on the 5 November call that it expects ocean rates to ease in December, while noting it had not yet seen declines.
• A senior insider bought shares after the drop. Chief Financial Officer Jian Guo reported an open-market purchase of 162 shares at $37.06 on 9 November 2026, according to an SEC Form 4.

Bear case

• Margin guidance moved down again. The 33.5% third-quarter gross margin compares with 34.5% a year earlier. Product costs rose to 50.6% of sales from 48.9%, and ocean freight rose $2.4 million, according to the 5 November 2026 release.
• Freight costs far exceed plan. Management said on the 5 November call that actual rates ran about $4,500 to $6,000 per container, against about $3,500 expected. Its contracted rate was about $2,500.
• Supply shortages threaten fourth-quarter sales. Yu said on the call that Karat receives about 30% to 80% of the containers it needs. It began short-shipping customers late in the third quarter and expects more shortages in the fourth.
• Sales guidance sits below consensus. Benzinga reported on 5 November 2026 that guidance implies fourth-quarter sales of $126.023 million to $128.335 million, against a $131.410 million estimate. The full-year range of $509.840 million to $519.195 million compares with a $524.907 million estimate.
• Online growth carries heavy costs. Third-quarter operating expenses rose 17.2% to $40.3 million, according to the release. Online shipping added $2.2 million, platform fees $0.9 million and online marketing $0.7 million.
• Core channel growth was slow. Chains and distributors, at $103.3 million the largest channel, grew about 3.9% in the third quarter, according to the release. Yu said on the call that chain orders delayed for testing accounted for most of a $2.5 million revenue shortfall and should move into the fourth quarter.

Price setup

The shares closed at $36.75 on 11 November 2026. That is 34.4% below the 52-week intraday high of $56.06 set on 12 October 2026, and the 3-month change is −22.4%. The 52-week closing low is $21.06 on 20 November 2025.

The report fell after the close on 5 November 2026, when the shares closed at $51.44, down from $53.63 the day before. The next close, on 6 November 2026, was $33.54. Closes since have been $36.51 on 9 November 2026, $37.79 on 10 November 2026 and $36.75 on 11 November 2026.

The 50-day average of the adjusted closes is $50.86, well above the price, because most of that window predates the report. The 200-day average is $36.12, and the shares sit just above it. A close back above the 50-day average would require recovering nearly all of the post-report loss.

Insider activity is small. SEC Form 4 filings show Vice President Marvin Cheng sold 8,000 shares at $47.75 to $48.50 across 1–8 September 2026, and 4,500 shares at $47.33 on 20 August 2026, all before the report. Guo's purchase on 9 November 2026 was 162 shares at $37.06.

Catalysts ahead

• 19 November 2026: Record date for the $0.47 quarterly dividend, with payment around 27 November. The board kept the rate after a sharp fall in quarterly earnings, which shows management's stated confidence in cash flow once refunds have passed.
• ~30 November 2026 (est.): Florida distribution center opening, expected during November. The 47,000-square-foot Orlando facility is meant to serve the Southeast. Confirmation supports the distribution part of the case for sales growth.
• ~15 December 2026 (est.): Ocean freight rates, which management expects to ease in December. Freight was a main cause of the third-quarter margin miss. Lower container rates would support the 33–35% fourth-quarter gross margin guidance and any later recovery.
• 1 January 2027: Scheduled 3% to 13% price increase takes effect. It is management's main tool for restoring margins without relying on lower costs. Customer acceptance and retained volume decide whether it works.
• ~5 March 2027 (est.): Fourth-quarter 2026 results. The report tests the 33–35% gross margin and 9–11% sales growth guidance, and gives the first outlook that includes the January price increase.

What would change the view

A daily close above $40.79, a level the shares have not closed at since the 5 November 2026 report, which would show them recovering and leading the market. Fourth-quarter gross margin above the 35% top of guidance with sales growth of 9–11% would also show them leading.

What it trades with

Karat's results now turn on import and input costs more than on refunds. Management tied third-quarter pressure to ocean freight, resin prices and diesel surcharges on the 5 November 2026 call, and Yu linked higher resin costs to a conflict he said began in March. Container capacity and energy-linked inputs are therefore the outside prices that bear most directly on margins.

Trade policy is the second link. Management said on the call that Taiwan supplied 39.1% of sourcing, Indonesia, Malaysia and South America 19.4%, the US 16.7% and China 14.4%. Duty and tariff costs fell $1.1 million year over year in the third quarter, according to the release.