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 of 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. We 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, 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 risk 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 2/3 of our corporate revenues, increased 9%.

With 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've 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've been investing in our Med-Nap facility in Brooksville, Florida to increase production of alcohol prep pads, BEK wipes, triple antibiotic packettes, and lens wipes. Sales of these domestically produced items are increasing.

Concurrently, we have also been expensing the costs 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 Westcotts 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 end September 30th, 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% of 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% and then income and 15% in earnings per share.

Despite the increase in operating profit and income in the cord decline 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. Then 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 twelve-month period, we paid $2.3 million in dividends and generated $11 million in free cash flow before the $6 million dollar 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, kind of 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 lowered due to the cancellation of customer orders as a result of tariff uncertainty. Like I Are you, kind of 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 is that what you're suggesting?

No, with a 145% tariffs, they stopped buying. It was cheaper not to bring something in price, the price and so we're. Yeah, so Jim, so what they did was they stopped buying anything that they could avoid buying. They canceled every promotion, not just for acting, 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 times 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.

(multiple speakers) spring is what you're suggesting.

And now that's kind of abated. Is that what you're suggesting?

Yeah, so the, it, when buyers are buying it, 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 set in the planograms and production to go in, be delivered, and go onto the shelves. So typically, they're looking out 6 to 9 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 merchandizing, 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 product that could be sold at fair prices, which they do have from our products. Then they had 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, they all they could do is focus on What do we do tomorrow? Right.

And so you also kind of mitigated that impact through effective inventory management. I remember and I take it 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 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 then Walter. Thank you.

Tim Call, Capital Management Corporation.

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

Thank you, Tim.

I was wondering about it.

Actually, 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 a, is an accomplishment, and we're happy with it.

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

You meant $146,000 compared to yeah, those are just foreign exchange gain, gains and losses. I mean, with the, sometimes like, for example, you, you're bringing up products in Europe, and you record it at an at an exchange rate of $117 and then during the quarter, maybe the rate went down to $114. So, it became more expensive when you actually paid for the goods that there's, it's just fluctuation in currencies, that's really the Euro and the Canadian dollar.

And then, basic and diluted share account rose for the three-month 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 we, I mean, buying in shares, every time someone wants to exercise, so that has reduced quite a bit of a 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 it, when options are being exercised where 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 you know it's above average or below average or you 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 oh yeah, 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 the 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 do with Amazon and they have cut back for 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 increase the capacity at Med-Nap and now you're doing it 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 operation is fully running.

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 it was a 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 We're 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.

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 The 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'll have a home and begin to move things like Powder transfer equipment, and ducting. It is expensive to install, but once it's in, reduces labor and increases productivity.

That That's site We think it's going to be just perfect for spill magic. Because it's on 11-acres, there's room for an ex a 60,000 square foot expansion. Which I hope we can use some time, but the first part of your question. We bought a $5 million dollar business that we grew to 15, 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 a, an estimate because I just did not prepared for it.

But when you said the facility will open in the first-quarter, will it be. Full production or like previous production of, will be up and running. Well.

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 the, 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 you 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 moved.

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'll be happening during 2026.

I see. So, when you start in March. If 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.

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

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

Yeah, but okay, I, I'm just getting that, the big picture there. Great.

Let me explain a little bit more, Dick, because you, you've got a good point. In our current site, one of the things that we had a big issue with the storage of raw materials. We had 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 material.

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 ft ceilings is, crane, capability to be moving heavy objects. The ability to Process faster. It's 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 enclosed containers, we could be looking at $25 million.

Right, Great. The, back up, you're coming 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.

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

I'm kind of guessing here like 25%.

Yeah, that sounds great.

And the automated, refill, with the hang tags and so on, is, where are you on the implementation of that across the base of refill 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 and only site there in November. So by year end, we'll have two of those done, and those are we taking bulk things like alcohol prep pads.

And BCK 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 setting up and should be functional by March, and that'll 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 one is operating, one's about to be installed, and one will be ready, we will leave by March.

Right now, the new, the introduction, I'm back to the automatic, reorder in first aid when you take, the eye wash thing out and it triggers the new system that automatically, reorders it. The, where Yeah, 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'll be a big deal, but let's just downplay that until it is.

Yeah, that, so that if it's a big deal, you will, you'll, you may begin to see that the beginnings of that in the 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. Johnson 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. We thank you for your participation.