Acme United Corporation 2026 Q3 Earnings Call

Welcome to the third quarter 2026 earnings conference call for Acme United Corporation. I'm Walter C. Johnsen, Chairman and CEO. With me is Paul Driscoll, our Chief Financial Officer, who will first read a safe harbor statement.

Paul? Forward-looking statements in this conference call, including without limitation, statements related to the company's plans, strategy, objectives, expectations, intentions, and adequacy of capital and other resources are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Investors are cautioned that such forward-looking statements involve risks and uncertainties, including, among others, those arising as a result of a challenging global macroeconomic environment characterized by continued high inflation, high interest rates, and the imposition of new tariffs or changes in existing tariff rates. In addition, we have experienced supply chain disruptions, and we may experience these disruptions in the future. We are also subject to additional risks and uncertainties as described in our periodic filings with the Securities and Exchange Commission and in our current earnings release.

Thank you, Paul. Acme United had an excellent third quarter of 2026. Net sales were $58 million compared to $49.1 million in the third quarter of 2025, an increase of 18%. Net income was $3.4 million compared to $1.9 million in 2025, an increase of 80%. Earnings per share were $0.80 compared to $0.46, an increase of 74%. We received a tariff refund of $6 million, of which $4 million was brought into income, offset by reserves for closure of our small DMT facility and variable compensation. The net impact was $1.2 million in pre-tax income and approximately $1 million in after-tax income. Excluding the $1 million net income. Excluding the $1 million, net income was $2.4 million compared to $1.9 million, an increase of 24%, and earnings per share were $0.55 compared to $0.46, an increase of 20%.

Our net sales in the U.S. increased 20%, with strong sales in both the First Aid and Westcott cutting tool segments. Our back-to-school sales were excellent, reflecting new promotional activity and strong sell-through in the mass market channel. The My Medic acquisition performed as planned, with net sales of $4 million in the quarter. The operating cash flow contribution was positive. The fourth quarter is expected to be seasonally strong in both sales and earnings. Our new business efforts in retail and industrial distribution are beginning to generate additional sales, and we are building the momentum for 2027. The company introduced the latest SmartCompliance First Aid kit in September at the National Safety Council Congress & Expo. This product includes integrated RFID technology and generates automatic replenishment orders for refills. Customer feedback has been encouraging, and we plan to begin shipping in January 2027.

At the beginning of 2026, we reviewed our sites, their potential for expansion, and where to allocate capital. We concluded that our DMT plant in Marlborough, Massachusetts, did not have sufficient scale or capacity to be a long-term asset. Most of our production of DMT Sharpeners had been outsourced to China in previous years, and production at the Marlborough site was not cost-effective. We will close the plant during the fourth quarter and have reserved $1 million. Savings are expected to be over $1 million annually, beginning in January 2027. The Spill Magic plant in Mount Pleasant, Tennessee, that we opened in March 2026, is now fully operational. It provides increased capacity that has resulted in growth of approximately 34% this year. We also installed highly automated production and filling equipment.

It took about six months to complete the installation, and we now have a very efficient plant that we believe is poised for future growth. Our international businesses performed well in the third quarter. In Europe, net sales increased 7% in local currency with strong earnings. Sales in Canada grew 12% in local currency. We are projecting a solid fourth quarter of 2026. As we look into 2027, we have already booked new business in First Aid and are seeing continued strength in our cutting tool business. There have been increases in shipping costs, freight expenses, and inflation, which we are offsetting with improved efficiency from automation and new equipment. We have had strong cash generation in 2026, and our liquidity is excellent. We continue to review new acquisition opportunities. I will now turn the call to Paul.

Acme United's net sales for the third quarter were $58 million compared to $49.1 million in 2025, an increase of 18%. Excluding My Medic, sales increased 10%. Sales for the nine months ended September 30, 2026, were $173 million, compared to $149 million in the same period in 2025, an increase of 16%. Excluding My Medic, sales increased 8%. Net sales in the U.S. segment increased 20% in the quarter. Excluding My Medic, sales increased 10%. Sales increased 17% for the nine months ended September 30. Excluding My Medic, sales increased 7%. The increases for both periods were driven by higher sales across all product lines. Net sales in local currency in Europe increased 7% in the third quarter and 15% for the nine months of 2026. The increases for both periods were partly due to the new line of cutting and sharpening tools. Also, Westcott and First Aid had solid performances.

Net sales in local currency for Canada increased 12% in the quarter and 8% for the year-to-date, mainly due to higher sales of First Aid products. We received $6 million in IEEPA tariff refunds and in the third quarter of 2026 recognized $4 million of the refund as a reduction of cost of goods sold. The remaining $2 million was recorded as an accrued liability on the balance sheet. In the third quarter, we also recorded $1 million of variable compensation expense related to the refund included in SG&A. Additionally, in the third quarter of 2026, cost of goods sold included $1.8 million of costs accrued related to closing our DMT sharpening facility. Net income for the three nine months ended September 30th also benefited from approximately $400,000 of tax benefits resulting from stock option exercise.

The gross margin was 45.3% in the third quarter of 2026, compared to 39.1% in 2025. The gross margins for the third quarter included the benefit of approximately 690 basis points from the tariff refund, partially offset by approximately 310 basis points related to the DMT closure cost. The gross margin was 42.6% for the first nine months of 2026, compared to 39.8% in 2025. Gross margin for the first nine months of 2026 included a benefit of approximately 230 basis points from the tariff refund, partially offset by approximately 105 basis points related to the DMT closure cost. Excluding the impact from tariff refunds and the DMT closure, the gross margin as a percentage of sales increase for both periods was mostly due to the favorable mix from higher margin direct-to-consumer My Medic products.

SG&A expenses for the third quarter of 2026 were $21.8 million, or 37.6% of sales, compared with $16.2 million, or 32% of sales, for the same period of 2025. SG&A for the first nine months of 2026 were $60.7 million, or 35% of sales, compared with $47.5 million, or 32% of sales, in 2025. The higher SG&A was primarily due to the addition of the My Medic business. The higher percentage of sales was due to the higher amount of advertising needed for the direct-to-consumer My Medic business. The third quarter also included $1 million of variable compensation related to the tariff refund. Net income for the third quarter of 2026 was $3.4 million, or $0.80 per diluted share, compared to net income of $1.9 million, or $0.46 per diluted share in 2025, an increase of 80% in net income and 74% in our earnings per share.

Net income for the first nine months of 2026 was $9.5 million, or $2.29 per diluted share, compared to $8.3 million, or $2.03 per diluted share in the comparable period last year, increases of 14% and 13%. Now to the balance sheet. Net debt increased from $23.1 million at September 30, 2025, to $29.7 million of September 30, 2026. During the 12-month period ended September 30th, we paid $14.5 million for the acquisition of the assets of My Medic, distributed approximately $2.4 million in dividends, and purchased a cutting and sharpening line of products in Germany for $1.6 million. Additionally, we generated approximately $13 million in free cash flow, including $14 million in tariff refunds.

Thank you, Paul. I will now open the call to questions.