Acme United (ACU) Q3 2026 Earnings Call Transcript

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DATE

Tue, Oct. 27, 2026

CALL PARTICIPANTS

• Chairman and Chief Executive Officer - Walter Johnsen
• Chief Financial Officer - Paul Driscoll

TAKEAWAYS

• Net Sales -- $58.0 million, representing an 18% increase from $49.1 million.
• Net Income -- $3.4 million, increasing 80% from $1.9 million reported in the prior year.
• Diluted EPS -- $0.80, reflecting a 74% increase from $0.46.
• Adjusted Net Income -- $2.4 million, when excluding a $1 million net impact from tariff refunds and plant closure costs, an increase of 24%.
• Adjusted Diluted EPS -- $0.55, excluding one-time items, representing a 20% increase from $0.46.
• U.S. Segment Sales -- increased 20% in the quarter, driven by performance in First Aid and Westcott cutting tools.
• Organic U.S. Sales -- rose 10% when excluding the contribution from the My Medic acquisition.
• My Medic Sales -- $4 million for the quarter, following the acquisition of its assets in January 2026.
• European Sales -- increased 7% in local currency, supported by a new line of cutting and sharpening tools and ecommerce performance.
• Canadian Sales -- grew 12% in local currency, primarily due to higher demand for first aid products.
• Gross Margin -- 45.3% compared to 39.1%, including a 690 basis point benefit from tariff refunds offset by facility closure costs.
• Tariff Refund -- $6 million total received, with $4 million recognized in the quarter as a reduction in cost of goods sold.
• DMT Facility Closure Accrual -- $1.8 million in costs recorded in cost of goods sold, resulting in a 310 basis point reduction to gross margin.
• Selling, General, and Administrative Expenses -- $21.8 million, or 37.6% of sales, compared to $16.2 million, or 32% of sales.
• Net Debt -- $29.7 million as of Sept. 30, 2026, up from $23.1 million on Sept. 30, 2025.
• Free Cash Flow -- $13.8 million generated during the 12-month period ended Sept. 30, 2026.
• Inventory -- $69.0 million, an increase from $60.2 million in the prior year, to mitigate supply chain risks.
• Spill Magic Sales Growth -- 34% year to date, following the opening of a new production facility in Tennessee in March 2026.
• DMT Plant Annual Savings -- over $1 million expected starting in Jan. 2027 following the closure of the Marlborough, Massachusetts, site.
• Dividend Payments -- $2.4 million distributed during the 12-month period ended Sept. 30, 2026.
• Acquisition Spending -- $14.5 million paid for My Medic assets and $1.6 million for a cutting line in Germany over the past 12 months.
• Stock Option Tax Benefit -- approximately $400,000 recognized during the quarter.

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RISKS

• Johnsen stated, "The freight costs from China have tripled," noting that transportation and raw material costs are increasing.
• Johnsen warned that "the consumer is being stressed" by heating oil, gasoline, interest rates, and mortgages, which could impact disposable income.

SUMMARY

Acme United Corporation (NYSEMKT:ACU) reported record third-quarter sales and significant net income growth, driven by strong back-to-school performance and the integration of the My Medic acquisition. Management reported that the company received $6 million in tariff refunds, using a portion to offset costs related to closing an inefficient production facility in Massachusetts and shifting those operations to lower-cost locations. The company reported increased inventory levels to mitigate risks associated with international conflict and rising shipping costs. Management indicated that operational focus remains on automation and the consolidation of first aid market share as the company prepares for the launch of new technology-integrated products in early 2027.

• The company introduced a new SmartCompliance First Aid kit in September 2026 that uses integrated RFID technology to automate replenishment orders.
• Johnsen noted that the company is a "natural buyer" for competitors and is acting as a consolidator in the first aid industry, which now represents 70% of total business.
• Management reported that freight costs from China have tripled, prompting the company to rely on inventory built up as an "insurance policy" against shortages and price increases.
• The My Medic business, which sells directly to consumers, is expected to generate the majority of its profitability in the fourth quarter due to seasonal demand.
• Management stated that the Spill Magic plant in Tennessee is now fully operational with highly automated equipment, following a six-month installation process.
• The company expects to close its DMT plant in Marlborough during the fourth quarter of 2026, shifting production to offshore facilities to improve cost-effectiveness.

INDUSTRY GLOSSARY

• DTC: Direct-to-consumer, a retail model where a company sells products directly to end customers rather than through third-party retailers.
• IEEPA: International Emergency Economic Powers Act, the regulatory framework under which certain tariff refunds were processed.
• RFID: Radio-frequency identification, technology that uses electromagnetic fields to automatically identify and track tags attached to objects.
• SmartCompliance: A branded first aid system that includes tools for monitoring kit contents and managing replenishment.

Full Conference Call Transcript

Operator: Good day, and welcome to the Acme United Third Quarter 2026 Financial Results Conference Call. At this time, I would like to turn the call over to Walter Johnsen, Chairman and CEO. Please go ahead, sir.

Walter Johnsen: Good morning. 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?

Paul Driscoll: 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.

Walter Johnsen: 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 United States 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 Conference. 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.

Paul Driscoll: Acme'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 30th, 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 30th. 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 [inaudible] in tariff refunds.

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

Operator: Thank you. We'll now be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment please while we pull for questions. Thank you. Our first question is from Jim Marrone with Singular Research.

Jim Marrone: Good afternoon, gentlemen. Thank you for taking my call. I have multiple questions all kind of related with one another. I'll begin with just with regards to the tariff refund. If you could kind of just share some insight on how it goes about being calculated. I would greatly appreciate it with that. To go along with the tariff refund, I'm just trying to get a sense of your rationale for the decisions on closing the Marlborough plant and transferring that operation overseas. It seems like the U.S. segment has outperformed both Canada and Europe, and it kind of goes against the grain with what other companies are doing by reinvesting in the U.S. in light of the tariffs.

It just seems kind of against the grain of what other companies are doing. So I look forward to hearing your answers to that.

Walter Johnsen: Okay, Jim, those are good questions, and we appreciate them. The first is the tariff refund. How is it calculated? Well, the tariffs that we paid, because we were the importer of record, we went back to invoices and payments through customs. You total all those up, and you come up with a number, and then you submit it to IEEPA refunds, and then it happens. The difficulty in that, of course, is that you've got to get your books really ordered, and you've got to figure it out, and there's a lot of variables, but in simple terms, you count up the amount that you paid. The rationale for closing Marlborough, that was a very difficult decision.

It was the place where DMT started. It had modern equipment. But honestly, although there's a lot of push to buy American, and we support that, when the price of a product is just more expensive by a lot than in China to produce, sometimes the economics just drive you to do that. This was a small facility, and it had less than 20 people. And the bulk of the production had already been shifted to China because the customers were demanding, for example, our new electronic pencil sharpeners, electronic sharpeners for tools. And it was getting good reception in the market as Chinese-made.

Other items that required expensive tooling in the United States could be done more cost-effectively in China. So we produced it there. The net is, it was a small plant, and when you look at where you're going to put your resources, you put them where you have big value, not little. And so we closed it. Now, having said that, the rationale for production in the United States is a good one. As you may recall, we bought a plant in Mount Pleasant, Tennessee, to produce our Spill Magic production. There was a 12-acre facility, 78,000 sq ft, room to double, modern, air-conditioned. We bought it at a very good price of $6 million.

We invested about $1.5 million in equipment, brought that to be fully automated, and went live this quarter. And incidentally, the Spill Magic product line increased 34% year to date because we now had the capacity to make it, and we have the capacity to grow. So when you compare two plants, you see why one was struggling and made sense to use the best resources you can in China. The other is reinvest in the U.S. where you had real leverage, and that's what we did. I hope that was helpful.

Jim Marrone: Okay, that's very good insight.

Walter Johnsen: Good

Jim Marrone: very good insight, Walter. Thank you for that.

Walter Johnsen: Sure.

Jim Marrone: Speaking of growth, where is the focus going forward then? Is it going to continue to be organic growth, or will there be a little more focus on acquisitions like you have in the past? So where do you see your attention?

Walter Johnsen: Well, it's a combination. We've looked at a lot of deals this year, and we're continuing to evaluate them. You want them to be strategic, you want them to make a difference, and you want them to have a high likelihood of being successful. So being a little choosy and taking some time makes sense. In the meantime, we are building that balance sheet, and that means we're not highly levering our company. The organic growth has been good. We're looking forward to, as I mentioned in the call, a solid fourth quarter, and we're already booking business for 2027.

So it's really a combination of both, and I would expect sometime in the next 12 months, there'll probably be another deal because every year we wind up doing at least one. But we're being careful.

Jim Marrone: Okay, if you're looking at growth and whether it's a deal or organically, is it more on the First Aid side or on the cutting tools side? Where are you thinking your focus will be?

Walter Johnsen: Well, both segments are very important to us. If there's a good deal in the Westcott side, of course, we'll buy it. In the case of our German business, last year, we bought a direct-to-consumer business in the sharpening and cutting area. We'll continue to look at those for sure. The First Aid business lends itself to consolidation. We are the consolidator, and we're the natural buyer for many of our competitors and some of those that are a half step away. I would expect that there'll be other opportunities in that segment.

If you look long-term, I think the First Aid business has greater organic growth opportunities, and I think that given that it's 70% of our business, chances are it will continue to become increasingly important in the overall company.

Jim Marrone: Excellent insight. Thank you so much for that, Walter.

Walter Johnsen: Sure.

Operator: Our next question is from Georgy Vashchenko with Freedom Broker.

Georgy Vashchenko: Good afternoon, and thank you for taking my question. You know that the back-to-school season was strong in this quarter. Could you elaborate on performance on the Westcott brand, particularly compared with the strong growth you saw in the second quarter? Thank you.

Walter Johnsen: Yes. Well, the Westcott business, we have to be a little bit careful here because last year with the tariffs, the promotional business, that is, the products that would be normally added as extras to a shelf or a planogram. All those promotional business was pretty much delayed or stopped by our customers because of the uncertainty of pricing that happened in April 2025. So the comparisons this year have the full effect of promotional activity. The buyers were able to use all the tools that they have in their toolkit. The merchants were doing a really good job, and we had product that was selling through.

So we had a combination of easy comparisons, to be frank, but second, we really did a good job with our innovation, and it worked.

Georgy Vashchenko: Thank you.

Walter Johnsen: You're welcome.

Operator: Our next question is from Tim Call with Capital Management Corporation.

Tim Call: Congratulations on an excellent quarter.

Walter Johnsen: Thank you, Tim.

Tim Call: Looking at the accounts receivable up around 20% in the last 12 months, and inventories up around 15% over the last 12 months, despite being adjusted lower. Do you think you will be able to manage those lower? If they were cut by 10%, you could lower your variable rate debt by 37%. So there is a lot of potential there. I know you have added the inventory to take advantage of some smart buys, but how do you see those balances over the next 12 months absent acquisitions?

Walter Johnsen: Go on, Paul.

Paul Driscoll: The accounts receivable is a function of the sales increase. The sales increased 18%, and that's why the receivables are up, I think you said 20%.

Walter Johnsen: Okay. On the inventory, when the war with Iran started, as you may recall, we thought it was not going to be short-term. We thought that it might cause product shortages, that there might be shipping cost increases. We thought it might be wise to product now and hold it. We consciously increased our inventory by about $8 million-$10 million. It was all the items that you would have in the A and B top-selling products without any issues with obsolescence or would they sell. Of course, they would sell. These are the best items we had. In retrospect, we were smart because there have been shortages. There have been price increases. The freight costs from China have tripled.

There have been times when you simply can't get product, but we have it. It's been a very good insurance policy. On the other hand, as you point out, Tim, we're paying the marginal interest rate's about 6% for us. There's a cost to that. So far, it's been a good investment, and we have the ability to work it down. I'm optimistic that we'll find some clarity in both Iran and the Ukraine in the next year. I'm also optimistic that we'll be able to convert some of that inventory back into cash. We're being cautious right now because we could be wrong. It could get worse.

I personally think that we will bring it into cash during 2027, as I see it now.

Tim Call: Over the last five years, there have been a lot of disruptions with back-to-school seasons, and you're having a great one this year. Do you think that seasonality and those sales and promotions have come back to a normalized state that should continue long-term?

Walter Johnsen: The Westcott business is particularly sensitive to retail. If things stay as they are right now, which is a reasonable non-changing tariff environment, and I think the worst of that is over, then we would expect that we would have normal promotions next year as well. We are certainly having plenty of discussions right now about new business opportunities within the mass market. We are certainly getting our share of promotions for back to school for next year. I think it would be a pretty normal business. There is one caveat, and that is that although we have not seen it yet, or maybe we will not see it, the consumer is being stressed.

Heating oil, gasoline, so many products, interest rates, mortgages, all these things impact their disposable income, and there is a sensitivity to that. I think if that stays the same, then we are looking at a very good 2027 with the Westcott business as well as First Aid.

Tim Call: Great. Thank you for all your hard work. Good job.

Walter Johnsen: Thank you, Tim. Thank you for your support.

Operator: As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. Thank you. There are no further questions at this time. I'd like to hand the floor back over to Walter Johnsen for any closing remarks.

Walter Johnsen: Well, if there are no further questions, this call is complete. I would truly thank you for joining us. Have a good day. Goodbye.

Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you again for your participation.

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