Foodservice packaging supplier Karat Packaging (NASDAQ: KRT) reported Q2 CY2026 results exceeding the market’s revenue expectations, with sales up 9.9% year on year to $136.3 million. Its non-GAAP profit of $1.48 per share was significantly above analysts’ consensus estimates.

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“We delivered record quarterly net sales of $136.3 million, driven by solid customer demand and accelerated momentum in our online business growth,” 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 performance is an indicator of 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 9.3% compounded annual growth rate. Its growth beat the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Karat Packaging’s annualized revenue growth of 9.8% over the last two years aligns with its five-year trend, suggesting its demand was predictably strong.

This quarter, Karat Packaging reported year-on-year revenue growth of 9.9%, and its $136.3 million of revenue exceeded Wall Street’s estimates by 0.6%.

Looking ahead, sell-side analysts expect revenue to grow 9.6% over the next 12 months, similar to its two-year rate. This projection is admirable and suggests the market is baking in success for its products and services.

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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 managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 10%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Karat Packaging’s operating margin rose by 5.6 percentage points over the last five years, as its sales growth gave it immense operating leverage. Its expansion shows it’s one of the better Specialty Equipment Distributors companies as most peers saw their margins plummet.

This quarter, Karat Packaging generated an operating margin profit margin of 27.6%, up 14.5 percentage points year on year. The increase was driven by stronger leverage on its cost of sales (not higher efficiency with its operating expenses), as indicated by its larger rise in gross margin.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Karat Packaging’s EPS grew at 32.9% compounded annual growth rate over the last five years, higher than its 9.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into Karat Packaging’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Karat Packaging’s operating margin expanded by 5.6 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Karat Packaging, its two-year annual EPS growth of 25.7% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q2, Karat Packaging reported adjusted EPS of $1.48, up from $0.57 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

Key Takeaways from Karat Packaging’s Q2 Results

It was good to see Karat Packaging beat analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 2.1% to $43.32 immediately after reporting.

Karat Packaging had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here (it’s free).