Acme United Corp (ACU) 2025 Q3 法說會逐字稿

Good day, and welcome to the Acme United Corporation third-quarter 2025 financial results conference call. At this time, I'd like to turn the call over to Walter Johnsen, Chairman and CEO. Please go ahead, sir.

Good morning. Welcome to the third-quarter 2025 earnings conference call for Acme United Corporation. I am Walter C. Johnsen, Chairman and CEO. With me is Paul Driscoll, our Chief Financial Officer, who will first read the Safe Harbor statement.

Paul?

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 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 net revenues of $49 million in the third quarter of 2025 compared to $48 million in 2024. Our net income was $1.9 million compared to $2.2 million last year. Earnings per share were $0.46 compared to $0.54 in 2024. Our sales in the third quarter increased 2%.

Sales of first aid products, which represent about two-thirds of our corporate revenues, increased 9%. We had strong e-commerce sales, consistent demand from our industrial customer base, and solid recurring revenues of refills of components for our first aid kits.

However, our sales of our Westcott cutting tools continued to be reduced by the cancellation of back-to-school and retail promotions due to the confusion and uncertainty when large tariffs were announced earlier this year.

As you can imagine, buyers at that time were entirely focused on reducing the impact of the tariff costs and seeking alternative sourcing locations rather than new business. We are seeing stability in the market today with an increase in promotional activity, which we expect in the coming quarters.

Our gross margins have also started to stabilize at about 38% to 39%. We increased selling prices modestly to offset tariffs and successfully negotiated cost reductions with our suppliers. We have been shifting production locations to reduce tariffs and increasing our production in the United States. This takes time and is a tremendous amount of effort, but we are making progress. Our operating income grew consistently with revenues during the quarter.

As you may remember, we purchased a 78,000 square foot manufacturing facility on 12 acres with room for expansion in July for $6.1 million. The new plant will produce our Spill Magic cleanup products for bodily fluids, blood, and spills and comes online in the first quarter of 2026.

We have been investing in our Med-Nap facility in Brooksville, Florida to increase production of alcohol prep pads, BZK wipes, triple antibiotic packets, and lens wipes. Sales of these domestically produced items are increasing.

Concurrently, we have also been expensing the cost of tightening our GMP controls and improving FDA compliance training in preparation for possibly entering the United States hospital and military markets in a larger way. As we look into the coming quarters, we see consistent growth in our first aid business, and a gradual improvement in Westcott sales.

We continue to strengthen our balance sheet and to increase -- and to generate and review acquisition opportunities.

I will now turn the call to Paul.

Acme's net sales for the third quarter were $49.1 million compared to $48.2 million in 2024, an increase of 2%. Sales for the nine months ended September 30, 2025, were $149 million compared to $148.5 million in the same period in 2024.

Net sales in the US segment increased 1% in the third quarter. Sales of first aid and medical products were strong; however, sales of school and office products were lower, mainly due to the cancellation of customer orders as a result of tariff uncertainty. US sales declined 1% for the nine months ended September 30.

Net sales in Europe increased 6% in local currency for the quarter, mainly due to higher sales of school and office products into the e-commerce channel. Sales for nine months decreased 2%. Net sales in local currency for Canada increased 7% in the quarter and 16% for the year-to-date, mainly due to higher sales of first aid products.

The gross margin was 39.1% in the third quarter of 2025 compared to 38.5% in 2024. The gross margin was 39.8% for the first nine months of 2025 compared to 39.4% in 2024. SG&A expenses for the third quarter of 2025 were $16.2 million or 33% of sales compared with $15.6 million or 33% of sales for the same period of 2024.

SG&A expenses for the first nine months of 2025 were $47 million or 32% of sales compared with $47 million or 31% of sales in 2024. Operating profit in the third quarter of 2025 increased 3% compared to the third quarter in 2024.

Net income for the third quarter of 2025 was $1.9 million or 46% -- or $0.46 per diluted share compared to a net income of $2.2 million or $0.54 per diluted share for the same period of 2024, a decrease of 14% in net income and 15% in earnings per share.

Despite the increase in operating profit, net income in the quarter declined due to higher tax expense. In the third quarter of 2024, we recorded a large tax benefit related to the exercising of stock options. This resulted in an effective tax rate of 8% in last year's third quarter compared to 22% this year. Net income for the first nine months of September 30, 2025 and 2024, was $8.3 million or $2.03 per diluted share.

The company's bank debt less cash on September 30, 2025, was $23 million compared to $27 million on September 30, 2024. During the 12-month period, we paid $2.3 million in dividends and generated $11 million in free cash flow before the $6 million purchase of our new facility in Tennessee.

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

(Operator Instructions) Jim Marrone, Singular Research.

Yeah. Great. Thank you, gentlemen. It sounds like you had a pretty decent quarter. Again, the same story, just managing your inventory to address these challenges and headwinds. I'm just trying to get a better sense of like just your underlying business.

Like when you say that the sales of school and office products were lower due to the cancellation of customer orders as a result of tariff uncertainty, like are you suggesting like a company like, say, Walmart is canceling your cutting tool products because of the uncertainty of tariffs that their customers are feeling and so they have less disposable cash? Or I'm just trying to get a better sense of that.

That's a very insightful question, Jim. So let's be really clear. When customers like Walmart, Home Depot, you can name any one of the large retailers were faced with 145% tariffs last April, they panicked. They had empty shelves.

So based on all their general products and the higher cost on their side, they may not have the budget for additional spending. Is that what you're suggesting?

No, no. With the 145% tariffs, they stopped buying. It was cheaper not to bring something in and take in on the shelves.

I see. All right. On the price --

Yeah. So Jim, so what they did was they stopped buying anything that they could avoid buying. They canceled every promotion not just for Acme, for retailers across the country. And what they did was they scrambled. they modeled and modeled and modeled.

The tariff is going to be 54%. The tariff is going to be 82%. The tariff is going to be 30%. Nobody knew where it was because nobody knew. And because of that, those tenants were worrying about what am I going to put on the shelf in a promotion in November.

They were worried about what am I going to do in May. And that's what happened, not to Acme or cutting tools, it happened to every single retailer in the United States that had imported products. And most of --

So that was occurring in the spring is what you're suggesting. Now that's abated. Is that what you're suggesting?

Yeah. So when buyers are buying, they don't place an order in a week and expect it to be delivered. They're laying out a program that takes time to be setting the planograms and production to go in, be delivered and go on to the shelves. So typically, they're looking out six to nine months. And so when we're looking at second, third quarter, fourth quarter, there's hardly any promotions for a Westcott product.

That doesn't mean you don't have things on the shelf, the regularly planned items, the planograms. But the mix when you're doing Christmas promotions, the in and outs in a retailer, which is called merchandising, they stopped doing that.

Now it has stabilized. And when the tariffs went to 30% for China and stayed -- and then we were able to then recover and work on price increases and cost savings and things so that they had a product that could be sold at fair prices, which they do have from our products, then they have the base to start to look at the new promotions. And that is absolutely occurring now for looking out first quarter, second quarter.

And it feels like the momentum is pretty much normal, but it was certainly not normal when you had 145% tariffs and retail went dry. It just -- all they could do is focus on what do we do tomorrow.

Right. And so you also mitigated that impact through the effective inventory management, I remember. I think that, that still continues to today? Or has your inventory run down where you're not able to have that flexibility? Or what's the state of that?

So that's a good point. For those who may not know, when we had a new President elected last year who had campaigned on tariffs, we increased our inventory by a number of millions of dollars in preparation for some level of tariffs, not expecting the kind that we had.

During the last two quarters, we've been working that inventory down. In the meantime, we built up new inventory in preparation for something else that might happen, which we really don't think will happen, but we're prepared in case the current tariff issues continue to be out there with China and the United States.

Okay. Thanks for the clarification there, Walter. Thank you.

Sure. You're welcome.

Tim Call, The Capital Management Corporation.

Well, congratulations on steady margins in the face of tariffs. That's quite a feat.

Thank you, Tim.

I was wondering about the --

Tim, it actually is because you've got a whole series of things that you really needed to manage. Your costs, modest increases, just a changing environment. And to hold the margins or slightly increase them is an accomplishment, and we're happy with it.

And that's great. And I was wondering about other expense. It's $146 million versus last year, a gain of $17 million, and that's quite a swing. Was there anything recurring in there or unusual?

Paul, what was that?

You meant $146,000 compared to, sorry?

Yes.

No, those are just foreign exchange gains and losses. I mean it -- sometimes like, for example, you're bringing up products in Europe and you recorded at an exchange rate of $1.17 and then during the quarter, maybe the rate went down to $1.14. So it became more expensive when you actually paid for the goods.

It's just fluctuation in currencies, and that's really the euro and the Canadian dollar.

And then basic and diluted share count rose for the three months and the nine-month period, but you're financially strong with excess free cash flow and declining debt. Can any action be taken to slow down share creep?

Well, we've been buying in shares. And every time -- I mean, buying in shares every time someone wants to exercise. So that has reduced quite a bit of share creep. But we haven't been in the market buying actively in the market. We could.

We certainly are generating cash. But again, I'm careful about that because as we've gotten bigger, the acquisition sizes that we've looked at tend to have grown and they take more cash. So we could do that, Tim. But I think the -- when options are being exercised were there, the strike price is below the market, that's a no-brainer for the company. The other, I'm a little bit more cautious about.

And then is there any insight as to the trades level of inventory? Are you ever able to see whether it's above average or below average? Or because one would think it'll be extremely low in retailer warehouses?

Well, that's true. The Amazon, in particular, has scaled back the inventory that its holding in first aid. And I think about two weeks. And that generates cash for them. And it's probably a smart thing because our deliveries are excellent.

But they can't keep doing that. So on that end, for sure. On the store side, it's less clear to me because I don't always have the visibility. But we deal with Amazon, and they have cut back a couple of weeks. And that's done, I think.

You have a history of nice organic growth from cross-selling and capacity increasing, like you increased the capacity at Med-Naps, and now you're doing at Spill Magic. Is there -- with Spill Magic, was capacity constrained to the point where you could not fill orders or you didn't market to new customers or you excluded Spill Magic from some kits? And I was just trying to get a feel for when that operations fully running --

Yeah. There's a couple of things with that. When we bought Spill Magic, it was about $5 million in revenues, and it's about $15 million now. So the facilities that we had when we bought it are bursting. And the facility that we bought, I think, was a very, very good value. You never know unless you sell, which we're not going to do.

But the Nashville market has heated up immensely since -- for an existing manufacturing site since Trump has taken office and put in these tariffs because a lot of companies, including ourselves, who were looking at places to expand manufacturing went to places that were favorable to manufacturing, and the Nashville area is one of those.

So we bought Spill Magic for under $80 a square foot. And the market for that we saw was generally running somewhere between $90 and $110 a foot. So I think we bought it well. But the real beauty is it's a facility that we can move into, have the space to continue to grow, install the automation equipment, which once installed, you really don't want to move again and again and again with leases.

It will have a home and begin to move things like powder transfer equipment and ducting, which is expensive to install, but once it's in, reduces labor and increases productivity. That site, we think, is going to be just perfect for Spill Magic.

Because it's on 11 acres, there's room for a 60,000 square foot expansion, which I hope we can use some time. But the first part to your question, we bought a $5 million business that we grew to $15 million and obviously, we needed space. But the second is, now that we have it, we can really automate with putting good equipment in a permanent home.

And it's operational in the first quarter, would production of Spill Magic in general increase through the year next year? Or how fast can you get it up to the level that you want to produce?

I haven't looked at the budget to really answer that factually. My gut reaction is it's been growing every year, and it probably will continue to. But I can't give you an estimate because I just did not prepare for it.

When you said the facility will open in the first quarter, will it be full production or like previous production will be up and running, well, completely?

So we will be fully running by the end of March. And there's a tenant in the facility right now who will be vacating sometime in December. And as soon as that's done, we'll be preparing the site for the move and doing the move and beginning and completing -- getting into full production during that first quarter. So it will be by the end of March, fully operational.

Thank you and congratulations again on the sales growth and keeping the margins where they are. I think when the other companies that are importing report, they won't be able to say they did the same thing. So great management through this process as always. It's amazing. Thank you.

Thank you, Tim.

Richard Dearnley, Longport Partners.

Good morning. To clarify on Tim's question, are you in the new Spill Magic facility? Are you using the same equipment, production equipment? Or is it new more productive equipment?

When we first move?

Yes.

Yeah. We'll be moving the exact equipment. There's some equipment that's in there right now because they were handling powders that we're going to be buying. And that equipment actually helps us a lot with the automation. But the next step, which is robotic placement of items into boxes, robotic filling of the bags, that will be new equipment and it will be happening during 2026.

I see. So when you start in March, to use rough numbers, the capacity of the plant would still be about $15 million? Or would it be $20 million or something like that?

The capacity should be more than $20 million.

That's at start-up, not through the year.

Yeah. No, I'm not saying that we were going to hit those kinds of numbers.

Yeah. okay. I'm just getting the big picture there --

Great. Let me explain a little bit more, Dick, because you've got a good point. In our current site, one of the things that we had a big issue with was storage of raw materials. We have no place for it. So here, we've got an 11-acre site. We've got plenty of room outside of the actual physical building to be storing in containers, the raw materials.

So by freeing that up, we're now able to have a full workspace within the current 78,000 square feet. It's also got, I think, the 24-foot ceilings is crane capability to be moving heavy objects. The ability to process faster is big when you have the space and you've got the physical facility. So yeah, the day we close, because the raw materials will be stored outside in closed containers, we could be looking at $25 million.

All right. Great. The back up your comment about online in first aid, the online and the refill business was strong. What is the refill business at the moment percent of first aid revenue in round numbers?

Paul, you're probably better at that than me.

I'm guessing here like 25%.

Yeah, that sounds right.

And the automated refill with the hang tags and so on, is -- where are you in the implementation of that across the base of retail customers?

All right. So we have one robotic machine in Rocky Mountain. It's operating. It's fast, it's accurate, it's terrific. We've got a second one that is about to be installed.

I believe it's delivered to Vancouver -- in Vancouver, Washington, the first aid only site there in November. So by year-end, we'll have two of those done. And those are for taking bulk things like alcohol prep pads and BZK wipes and putting them into boxes that then are used to go into the smart compliance refills. So it's a very core piece of basically an annuity. There's a third machine that's in Brooksville that we're setting up and should be functional by March.

And that will be used for lens wipes that go to customers like a Home Depot or maybe a Walmart in boxes of 50. So there's three machines right now that are -- two are -- one is operating, one is about to be installed, and one will be ready, we believe, by March.

Right. Now the new -- the introduction, I'm back to the automatic reorder in first aid when you take the eyewash thing out and it triggers the new system that automatically reorders it. The -- how rolled out is that? Or is that just getting started in your base?

We introduced a next generation in September of this year. And that next generation had a lot of interest. Two major industrial distributors in the United States currently are out there actively training their sales force with it. So we're pretty excited about it. You haven't seen it in the 9% growth in first aid in the third quarter.

And I don't want to overemphasize it right now until we start to see what can happen. If we're right with it, it will be a big deal, but let's just downplay that until it is.

So that -- if it's a big deal, you maybe begin to see that -- the beginnings of that first half of '26 would be a guess?

Yeah, that's what I would think, Dick. But again, let's leave that vector for when it's actually happening, and we can be excited about it. But our customers certainly seem to be excited about it.

Great. Okay. Thank you very much.

Thank you, Dick.

Thank you. There are no further questions at this time. I'd like to turn the call back over to Mr. Johnsen for closing remarks.

Well, thank you for joining us. If there are no further questions, this call is complete. And we look forward to speaking to you again after the fourth quarter. Goodbye.

Thank you. This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.