Operator
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 am Walter C. Johnson, 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, 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. Acne United made progress during the second quarter of 2026. Our net sales increased from $54 million to $63 million, an increase of 16%. Net income 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. 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 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 SpillMagic 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 tariff 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 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 continued 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 MyMedic, and strengthening of our gross margins as high-tariff products are replaced by lower-cost ones. I will 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 Mimetic, sales increased 8%. Sales for the six months ended June 30, 2026 for $115 million compared to $100 million in the same period in 2025, an increase of 15%. Excluding Mimetic, sales increased 7%. Net sales in the U.S. segment increased 17% in the quarter. Excluding Mimetic, sales increased 8%. Sales increased 15% for the six months end of June 30th. Excluding Mimetic, 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 local currency for Canada increased 3% in the quarter and 6% for the year-to-date, mainly due to higher sales of first aid products. The 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 mimetic 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 $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 mimetic business. The higher percentage of sales was due to the higher amount of advertising needed for the direct-to-consumer mimetic 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 2025, an increase of 6% in net income and 5% in earnings per share. Net income for the first six months in 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 comparable 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 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 30, 2025 to $27.3 million at June 30, 2026. During a 12-month period end of 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.
Operator
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. You may 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 Kahl with Capital Management Corporation. Your line 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 SpillMagic 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?
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 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% yeah it's actually like 30% so it's really screaming and the best part of that is we're putting in automation into that 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 is the MedNap business in Florida, which makes alcohol prep pads and BZK wipes. And we've been investing a great deal in that facility. and working to upgrade our regulatory compliance to possibly be able to address the U.S. 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, and the mimetic 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, our 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 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 MyMedic 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, Tim.
Sure, health care tends to grow a little bit faster than cutting tools. Do you have an idea of what percentage of the base health care is now or should be at year-end?
Health care is about 70% of the revenues right now. But I have to tell you, the Westcott business is coming back solidly. They're really – 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 when 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, you know, from back to school and into the fourth quarter. first quarter. So Westcott has legs again, and we're really pleased with that.
Operator
Our next question comes from Yorgi Veschenko with Freedom Capital Markets. Your line is live.
Thank you. Welcome to the poll. Good afternoon and congratulations on the next quarter. The results were very impressive. Thank you. So I have two questions on gross margin. First, gross margin with the record level this quarter, could you help us understand the key drivers behind the improvement, specifically how much of this expansion was attributable to that my medical acquisition? And my second question is on tariffs. You mentioned that tariffs created some heavy-ins on margins during the quarter, 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 medic 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 first quarter? About 2%? Is that ballpark?
It was probably like 150 basis points. Most of the increase in gross margin percentage of sales is due to the mix of mimetic.
Yeah, by far it is. And as we're looking forward, the impact of tariffs, because they've been reduced and that inventory is being sold, we're getting expansion. And so if we reduce our normal gross margin by 1%, you can picture that as we go through the rest of the year, we will recover that 1%. And relative to other costs, there are certainly other costs. Freight has increased, and you can imagine with both bunker fuel for bringing product across the ocean as well as 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 we've got that pretty much thought through, both in the pricing of our products, and as we pointed out, there'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.
Operator
Our next question is from Jim Marone with Singular Research. Your line is now live.
Yeah, good afternoon, gentlemen. Good quarter as well. I like to say good quarter as well, given the backdrop of a tougher, 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 mimetic, you know, Is 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? We're hearing from even the grocers 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? Are they looking at...
Jim, that's a very good question. You know, consumers only have a certain amount to spend, and maybe they get 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. And 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. And 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 business is robust there.
Right. And so are they looking at that 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, yeah, well, there's clear drivers why people buy our products. First, in the Westcott area, we were the pioneer in coatings, titanium coatings, nonstick 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, yeah, 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 dolding around addressing injuries and saving lives. And that marketing team is coming out with products that, frankly, totally differentiate from the competitors, many of whom are selling things in old white boxes or in metal cases. 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. So there we've also got, I think, I probably know, the lowest costs in the world.
Thank you. I appreciate that answer. And you also touched upon it, and I'm going to bring it up again, just with regards to the cutting tools. It's, you know, the retailers have already come out with back-to-school. There's already been headlines with regards to parents being a little bit more discretionary on back-to-school budgets. Are you getting any, are you hearing anything with regards to that end as far as back-to-school sales?
Well, we just, through June, where we, you know, by the time June happens, the second quarter, we've shipped a chunk of the back to school because the retailers are then taking delivery, setting it into the planograms where they're putting them up online. Through June, it's a record for us, just a flat-out record. We've got a good backlog in the third quarter, which would be the rest of back to school. So for us, I'm not seeing that. But again, perhaps they're trading down on some of the items within the basket of what they buy to buy less expensive items. I know that, for example, our dollar store sales have been doing very, very well. But we're also very strong at Walmart, and that's doing well. But again, that's delivering value. We seem to be running a little bit counter to what you would think.
Yeah, I appreciate that, Walter. Thank you for that visibility. And just one last question with regards to the Canada segment. That just seems to be the one that's really struggling the most with just the 1% increase in revenue and single digits with regards to the bottom line. So is that a result just of a struggling Canadian economy, or is it tariff-related? And what do you see going forward with this renegotiation of KUSMA? What's the driver behind the Canadian segment? Is it the economy? Is it tariffs? What's going on with that one?
Well, there's two parts. There's the First Aid Central business, which is doing very, very well. That's our First Aid business. We've just moved into another new facility. That's the third move in four years because we keep growing. And this is a fabulous new facility outside of Montreal. So the first aid side is strong. The West Cut side is weaker. And there it seems to be hit more by the economy and also it's sort of sluggish in Canada. So, you know, it's growth, but it's not much. Actually, in the third quarter, they seem to have done a little bit better. But, you know, it's a small part of the overall company, and we're certainly cheering for our Canadian colleagues. The impact of tariffs in Canada versus the United States probably impacts their shopping selections in total, but relative to our products, we ship in Canada with Canadian items, and so there's no tariff impact.
Great. Thank you for that answer, Walter. Thank you.
Operator
As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for questions. Our next question comes from Richard Dernley with Longport Partners. Your line is now live.
My medic business being a direct-to-consumer business, I'm surprised that emergency response and trauma and so on, But it's do emergency responding, you know, does the local fire department order direct or I'm surprised it's a DTC business. Well, that's where it started and it's built a half million social media followers, which is a very big number. and we've got videos coming out at least twice a week new videos with either training or education on how to use things or new product introductions or success stories and so you've got a following of people that are using the products you know long term there are parts of the country and I'm not saying this is my medics but in general where there are less hospitals there are less clinics there are less doctors and this direct to consumer is a way to train and it's a way to deliver products directly to a consumer because maybe it's in a rural area right we we do sell some mimetic items to fire departments and police departments and you know ambulances but that will probably be a a much bigger chunk as our sales force starts to do that. That's the Acme United sales force. Right. They're not currently buying it. This is mostly direct-to-consumer today. And the exciting thing is we know we can get it placed elsewhere because they've done the hard work, which is just world-class products. And that's the challenge. That's what we're working on. And is their seasonality strong in the fourth quarter because the people have a budget and spend it or lose it? No, no, these are individuals. They're doing it for gifts. You've got Amazon Black Friday. You've got just holiday sales. you know, the hunting, it's all being rolled into that fourth quarter.
There's a bit of an impact of the FSA spending at the end of the year, to your point, but mostly it's just holiday spending.
So is the seasonality such that the fourth quarter is 25%, 30% larger than the other quarters? Oh, Dick, I haven't given any.
It's probably like 35% of the sales of the fourth quarter of the year, I mean.
Of the year, right. Okay, great.
Thank you, Dick. our next question comes from jake patterson with talanta investment group your line is now live hey guys uh just a quick one um i know you said westcott was up eight percent during the quarter i was curious if you had any data that could really break out pricing versus actual volume it doesn't have the impression that you guys had close to a double digit price increase So if you're only a great percent, I would imply units down a little bit, but just given kind of what last year looked like versus this year, it hadn't seemed like that would make sense.
Most of it was volume. Most of it was volume.
So, I mean, if you passed price last year, I guess is that, I mean, should have been flowing through your numbers, like first quarter being down 2%. I was just curious. That's pretty much all volume in there.
Yeah, it's volume. You know, the price increases can't be applied directly to each product evenly. And, for example, in the back-to-school items, they may be more price sensitive and maybe there's not much of a price increase on those and others that are more specialty get bigger price increases. So this second quarter was really huge volume. But again, you can picture the retailers are putting new promotions in place.
You know, you're moving more.
And that's the really exciting thing that we didn't have at all last year.
Yeah, no, that's definitely good to hear. Yep, that's it for me. I appreciate it.
Operator
We have reached the end of the question and answer session. I'd now like to turn the call back over to management for any closing remarks.
Operator
If there are no further questions, this call is complete. and I'd like to thank you for joining us goodbye this concludes today's conference you may disconnect your lines at this time and we thank you for your participation
