Key Highlights

  • Net sales rose 8.2 percent to $134.7 million in the third quarter of 2026.
  • Gross Margin was 33.5 percent, compared with 34.5 percent a year earlier.
  • Net income was $4.7 million, down from $7.6 million.
  • Full-year 2026 net sales are expected to rise 9 to 11 percent.

Karat Packaging Inc. (NASDAQ:KRT), a specialty distributor and manufacturer of environmentally friendly disposable foodservice products, reported results for the third quarter ended September 30, 2026. Net sales reached $134.7 million, up 8.2 percent from $124.5 million a year earlier. Net Income declined to $4.7 million from $7.6 million, and adjusted EBITDA fell to $8.9 million from $13.1 million.

Sales Growth and Gross Profit

Gross profit increased 5.2 percent to $45.1 million from $42.9 million. Because Gross Profit grew more slowly than net sales, gross margin contracted to 33.5 percent from 34.5 percent. The release points to the pipeline for its products and to the company's topline growth, although it does not provide a segment-level breakdown of the sales increase.

The fourth quarter net sales expectation of 9 to 11 percent growth is slightly above the 8.2 percent recorded in the third quarter, which indicates management anticipates a modest acceleration in sales growth during the final quarter of the year.

The sales growth is positive, but the margin trend shows that the company's cost of products rose faster than its Revenue in the period. Management's commentary on the pipeline suggests that additional Demand is developing, which could affect margins as volumes increase.

Profitability and Margin Measures

Net income margin fell to 3.5 percent from 6.1 percent. Adjusted EBITDA margin declined to 6.6 percent from 10.5 percent, a sharper reduction than the gross margin change. The gap indicates that operating expenses grew at a higher rate than gross profit, so the decline in profit measures was larger than the decline at the gross profit line.

The differences between the margin measures highlight how cost structure changes influence the company's bottom line.

Net income fell from $7.6 million to $4.7 million, a decline of about 38 percent, while gross profit rose 5.2 percent. That contrast indicates that operating expenses below the gross profit line grew materially, absorbing the gross profit gain and more.

Full-Year Expectations

For the fourth quarter, the company expects net sales to rise 9 to 11 percent from the prior-year quarter, with gross margin between 33 and 35 percent and an adjusted EBITDA margin in the high-single digits. For the full year, net sales are expected to increase 9 to 11 percent, and gross margin is projected between 39 and 41 percent, including IEEPA Tariff refunds recorded in the first half of 2026.

The full-year gross margin range includes one-time tariff refunds, which means the underlying margin could differ from the headline projection.

Management's full-year net sales expectation of 9 to 11 percent growth is nearly identical to its fourth quarter expectation, which suggests a consistent growth rate across the remaining quarter and the year as a whole.

Final Takeaways

Karat Packaging grew net sales and gross profit in the third quarter, yet profitability declined on margin compression and higher operating costs. The full-year sales outlook points to continued growth, while the margin ranges depend partly on tariff refunds. The fourth quarter results will indicate whether the margin pressure seen in the third quarter eases as volumes build.