Acme United Corporation (ACU) Earnings Call Transcript & Summary

Thank you.

Good day and welcome to the ACME United second quarter 2026 financial results conference call. At this time, I'd like to turn the call over to your host, Walter Johnson, Chairman and CEO. Please go ahead, sir.

Good morning. Welcome to the second quarter 2026 earnings conference call for Acme United Corporation. I'm Walter C. Johnson, Chairman and CEO. With me is Paul Driscoll, our Chief Financial Officer, who will first read a Safe Harbor statement. Paul? Thank you.

Forward-looking statements in this conference call, including without limitation statements related to the company's plans, strategies, 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. 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 made progress during the second quarter of 2026. Our net sales increased from $54 million to $63 million, an increase of 16%. IT INCREASED FROM $4.8 MILLION TO $5.1 MILLION. and earnings per share increased 5% to $1.22. As you may remember, we acquired MyMedic in January, 2026. This addition to the Acme United family sells high quality first aid kits designed to save lives. It extends the reach of our product line from simple retail kits to advanced ones with chest seals, tourniquets, and tools to clear airways. MyMedic today sells mostly directly to consumers and is seasonal. It has high gross margins and also high advertising and marketing costs. costs. Net sales in 2025 were $19 million. My medic sales in the second quarter were approximately $4.3 million with break-even operations, as expected. We are working to increase the core direct-to-consumer business as as well as expand the product offering to retail. At the same time, we are addressing the product costs to our strong Asian sourcing team, consolidating freight with other Acme United shipments to reduce costs, and eliminating duplicate corporate functions. The intention is to have strong profits from MyMedic during all quarters with particular strength in the fourth quarter. This will take time, but we are realizing savings already. Our core businesses performed well in the second quarter. In the United States, net sales of first aid and medical products increased 10%, with growth in particular at mass market retailers. Other strong contributors in the quarter were the safety made promotional first aid business, MedNap antiseptic wipes, and Spill Magic cleanup products. Also in the United States, the Westcott cutting tools business increased 8% during the second quarter. As you may remember, our retail business last year was hurt by tariffs and cost uncertainty, and many of our customers canceled their seasonal promotions. This has recovered, and we are seeing a resumption of growth. Our Canadian business increased 3% driven by industrial retail and online sales of our first aid business. In Europe, net sales increased 19% with strong growth of our Westcott cutting tools. Gross margins in the quarter increased for the overall business from 41% to 42%, 42.6%, due to high margins at MyMedic. Without MyMedic, gross margins in the United States declined approximately 100 basis points due to the costs of high-tech products. tariffs that were capitalized in our inventory and are now being sold. This is an improvement from the first quarter, and we anticipate continued gross margin expansion as these products are sold in the coming quarters. When the war with Iran began, we placed orders for approximately $10 million of extra inventory to buffer potential product shortages and cost increases. We continue to maintain this extra level of stock and are positioned to address issues should they arise. As we look to the coming quarters, we see continued growth of the first aid and medical business. resumption of promotional retail activity with our Westcott cutting tools, improving profitability at MiMedic, and strengthening of our gross margins as high tariff products are replaced by lower cost ones.

now turn the call to Paul. ACME's net sales for the second quarter were $62.7 million compared to $54 million in 2025, an increase of 16%. Excluding MyMedX, sales increased 8%. Sales for the six months ended June 30, 2026, were $150. million compared to $100 million in the same period in 2025, an increase of 15%. Excluding mimetics, sales increased 7%. Net sales in the US segment increased 17% and a quarter. Excluding mimetics, sales increased 8%. Sales increased 15% for the six months ended June 30th. Excluding MiMedx, sales increased 6%. The increases for both periods were driven by higher sales across all product lines. Net sales in Europe for both the second quarter and six months of 2026 increased 19% in local currency compared to 2025, partly due to the new line of cutting and sharpening tools. The base business also had a good performance with a sales increase of 12%. Net sales in currency for Canada increased 3% in the quarter and 6% for the year to date, mainly due to higher sales of first aid products. gross margin was 42.6% in the second quarter of 2026 compared to 41% in 2025. The gross margin was 41.3% for the first six months of 2026, compared to 40.1% in 2025. 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 second quarter of 2026 were $19.9 million or 32% of sales compared with $15.8 million or 29% of sales for the same period of 2025. SG&A expenses for the first six months of 2026 were $1.5 $38.9 million or 34% of sales compared with $31.3 million or 31% of sales in 2025. The higher SG&A was primarily due to the addition of the MyMedic business. The higher percentage of sales was due to the higher amount of advertising. needed for the direct-to-consumer MiMedic business. Net income for the second quarter of 2026 was $5.1 million, or $1.22 per diluted share, compared to a net income of $4.8 million, or $1.16 per diluted share for the same period of time. of 2025, an increase of 6% in net income and 5% in earnings per share. Net income for the first six months and the June 30th, 2026, was $6 million, or $1.46 per diluted share compared to $6.4 million, or $1.57 per diluted share in the compo period last year. Decreases of 6% and 7%. The decline in year-to-date net income was mostly due to the impact of higher tariffs in the first quarter. The higher tariff spending commenced in June of 2025. However, the costs were capitalized into inventory, and we started to realize the full impact to earnings as the high-cost performance products were sold in the first quarter of 2026. The impact was lower in the second quarter, and we expect the impact to lessen over the next two quarters as the tariff rate declined in November 2025 and again in February 2026. Now to the balance sheet. Net debt increased from $22.8 million at June 30th, 2025 to $27.3 million at June 30th, 2020. During the 12-month period ended June 30, 2026, we paid $14 million for the acquisition of the assets of MyMedic, 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 $15 million in free cash flow.

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

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from Timothy Cole with Capital Management Corporation. is live. Congratulations on another strong quarter.

Thanks, Tim. You've built a long-term track record of sales and earnings growth, and the current trajectory looks great. You have many other promising growth initiatives other than what you mentioned today, such as magic capacity expansion and increased throughput at MedNAP. and long-term plant certification to expand sales to large new customers like government and hospital systems. Do you think those long-term initiatives? Yes.

Those are long-term initiatives. As people may remember, we bought a plant about a year ago. in Tennessee for $6 million. It was a 12 acre site and 78,000 square feet. Um, just for spill magic growth. And we were constrained in the site that we were in, which we were leasing. We've moved into that facility. And, Paul, what are year-to-date... sales growth at Spill Magic? It's like 40%, 35%? Yes, it's practically like 30%, right? Yes. Yes, so it's really screaming. And the best part of that is we're putting in automation into that space facility that's unlike any of its competitors. And because it's a permanent facility, We can do the proper installation for a long-term growth plan. So there's one example. Another, which is... possible, um, is the, um, um, the MedNap business in, in Florida, which makes alcohol prep pads and BZK wipes. And, um, we're, uh, we've been investing a great deal in that facility. Um, and working to upgrade our regulatory compliance to possibly be able to address the US hospital market. I would say that's at this stage, a challenge, but the certification work is progressing well and we should be done with it by year end. My medic business in general has grown about a third this year. So that's very exciting. We've also been working for a long time on generation after generation of our smart compliance software, which does automatic replenishment in our first aid kits. or industrial first aid kits. And that next generation, which automatically scans the contents of a first aid box, and then generates replenishment orders through the Internet. is now in final stages and is about to be going out to early next year. early distributors. So it could be a big growth segment, we'll see. And of course, we're looking at acquisitions and we've got work to be doing at MyMedic, a lot of work. and the operating leverage that we hope should start to become apparent in the fourth quarter and then into the first. One of the big areas is the retail distribution, which MiMedic really didn't have, and we are very strong in that. We're making presentations now to large mass market retailers and industrial distributors. I think that's... quite promising. So we'll see how that works in the coming quarters. But we're excited about the place we're at now, and we're expecting some pretty good performance going forward. So thank you. Healthcare tends to, sure. Healthcare tends to grow a little bit faster than cutting tools. Uh, Do you have an idea of what percentage of the base healthcare is now or should be at year end? it's about health care is about 70% of the revenues right now but I have I have to tell you the Westcott business is coming back solidly. Last year was hard because the promotions were all canceled due to uncertainty from tariffs and pricing and retailers just couldn't bring in new items. they didn't know the cost of the existing ones. But this year is very different. And we've got a full book of promotional activity. from back to school and then into the fourth quarter, first quarter. So, Westcott has legs again, and we're really pleased with that.

Congratulations. Thank you.

Thank you. Walter, Paul, good afternoon and congratulations on the next quarter. The results were very impressive. So I have two questions on the gross margin. First, gross margin reached a record level this quarter. Could you help us understand the cage or others behind the improvement? Specifically, how much of this expansion was it to be used to the biometric acquisition? My second question is on tariffs. You mentioned that tariffs created some headwinds on margins. Should we expect the additional gross margin expansion as those have been increased? Thank you.

Sure. Well, thank you very much. Actually, both questions are quite intertwined. And what you're referring to is our gross margin improvement. And part of that has come, of course, because my MediCast has bigger gross margins than our regular business, but they spend it on, and it shows up in SG&A, they spend it in advertising. And so when you dig underneath, as I pointed out in my portion of this call, in the United States, margins this quarter were reduced by about 100 basis points due to tariffs. And Paul, what was the number in the.

quarter about 2% that ballpark it was a you know it's probably 150 basis points some most of the increase in margin gross margin as percentage of sales is due to the mix of my medic yes.

Yes, by far it is. And as we're looking forward, the impact of tariffs because... because they've been reduced and that inventory is being sold, we're getting expansion. And so if we reduce the... our normal gross margin by one percent you can picture that as we go through the rest of the year we will recover that 1%. And relative to... You know other costs there are certainly other costs the freight has increased And you can imagine with both bunker fuel for bringing product across the ocean as well as on online freight delivery here in the United States and in Europe, the cost of fuel to run the trucks is up. So there are other costs and the dollar has weakened against the Chinese currency in the past year and so for the items that we import from China that's a headwind but the net of it all is where we've got that pretty much thought through both in the pricing of our products and as we pointed out It's about $10 million of inventory that is either here or is on the way that's been purchased shortly, like within days of the start of the Iran war. So it's got locked in. Excellent pricing. Thank you. This is very helpful. Thank you.

Our next question is from Jim Marone with Singular Research. Your line is now live.

Yes, good afternoon, gentlemen. I'd like to say good quarter as well, given the backdrop of a tougher time. you know, environment. And with regards to a tougher environment, I'm trying to get a sense, are you hearing anything about the consumer appetite? Maybe with regards to the MyMedic, you know, is, you know, the consumer appetite still going to be just as strong as it was in the past quarters? Or are you going to start to find that the consumers, either on the industrial or on the retail end, a little bit more discerning? You know, we're hearing from even the grocers, you know, that the basket is getting smaller. I guess as a result of rising fuel costs and other inflationary items that consumers are a little more discretionary in their spending. And so, you know, how does that relate to both MyMedic?.

they look um... you know consumers only have a certain amount to spend and maybe they get a a wage increase each year but after taxes that's a small amount and Clearly, for example, in the Northeast where you have to heat your homes, That's an increase in fuel cost is expensive. And of course for cars it's expensive. There have been price increases, so you would think that the consumer would be more cautious. With regard to MyMedic, so far those sales are right on plan, and we're not seeing weakness. and as demonstrated by the growth of both Westcott and our first aid business, our customer base is buying. So... In the overall, you have to be aware that the individual consumer is being pressed, but we're not seeing it yet. I think we would have seen some, especially, for example, in Europe, Europe just had a record quarter, both in sales and in earnings. And the Europeans are facing every bit of the inflation that the U.S. is, plus their cost of oil has gone even higher. And yet our businesses will.

bust there. Right. And so are they looking at that as more as an essential item rather than a discretionary item? Or do you have a competitive advantage over your competitors that they're choosing your product over the others? Like, what is the driver behind that? Oh.

Yes, well, ClearDriver is why people buy our products. First, in the Westcott area, we were the pioneer in coatings that – titanium coatings, non-stick coatings that deliver, honestly, the best performance in the class, and they have for many years, and it's all utility patents. So when you buy a Westcott item, you're getting... and it's a titanium item, for example, it's the best there is. And because we're the largest in the world, yes. We have world-class pricing. And so you've got innovation in the Westcott area, and you've got cost. In first aid... we've got a strong marketing team building around addressing injuries and saving lives. And that marketing team is coming out with products that frankly are totally differentiate from the, uh, the, the competitors, many of whom are selling things in old white boxes or in, in, uh, metal cases. Um, We've also got a strong sourcing team for components in Asia. and it's multi-office, multi-country. Our competitors don't have that, and that's why we win at places like Walmart and at Grainger and at Fastenal and whatnot. So there we've also got, I think, probably know the lowest costs in the world. Right.