Acme United's first quarter of 2026 was a difficult earnings quarter even as revenue grew strongly. Net sales rose 14% to $52.3 million — about 8 points from the newly acquired My Medic and 6% organic — but net income fell roughly 40% to about $1.0 million and diluted EPS dropped to $0.24 from $0.41. The decline was driven by tariffs: because inventory turns only about twice a year, product manufactured at peak tariff rates was sold during the quarter, cutting core (ex-My Medic) gross margins by about 200 basis points, while My Medic operated at break-even and lifted SG&A to 36% of sales through heavy direct-to-consumer advertising. Reported gross margin still improved to 39.7% from 39.0% on My Medic's favorable mix. International was a bright spot — Europe up 19% in local currency and Canada up double digits — and Spill Magic grew more than 30% as the Company completed its move into the new Mt. Pleasant, Tennessee plant. Net debt rose to $38.6 million after $14.6 million for My Medic, the German acquisition and the Tennessee facility. Management expects the tariff margin drag to ease over the next three quarters as tariff rates declined in November 2025 and February 2026, guided SG&A toward roughly 33% of sales and capex to $6-7 million for 2026, and pointed to My Medic integration, automation, the nearly complete Med-Nap FDA upgrade and a ~$10 million geopolitical inventory hedge (war in Iran) as key priorities, with Westcott set to recover against easy comparisons.
Good morning. Welcome to the first quarter 2026 earnings conference call for Acme United Corporation. I'm Walter C. Johnsen, Chairman and CEO. With me is Paul G. 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 in the past, 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 a difficult first quarter of 2026. While our net sales increased 14% to $52.3 million, our net income was $985,000 compared to $1.6 million last year, and earnings per share were $0.24 compared to $0.41 last year. As you may remember, we purchased MyMedic for $18.6 million during the first quarter of 2026. The company sells directly to consumers and is cyclical, with most of the profits generated in the fourth quarter of the year. It also generates high gross margins, which it spends on advertising, promotions, new product development, and customer support. Our sales increase of 14% in the first quarter of 2026 includes approximately 8% from MyMedic, which was at break-even in P&L. Revenues excluding MyMedic increased 6%. The company's gross margins in the first quarter of 2026 were 39.7% compared to 39% last year.
When the impact of the high gross margins at MyMedic are removed, the core gross margins declined due to higher costs and tariffs. We turn our inventory about twice per year, so the costs reflected in the first quarter were from products made and purchased when the tariffs were at their peak. We expect to run through these items during the second quarter with a return to normal levels in the third quarter. Shortly after the war in Iran began, we started purchasing higher than normal quantities of raw materials and finished goods inventory. So far, we have purchased approximately $10 million of incremental inventory. While we hope for a quick end to the war, we are planning and acting to be prepared for increasing costs and shortages. Operationally, we're working to increase the revenues of MyMedic by expanding its retail distribution and building a strong core of non-seasonal business.
Our teams are integrating product lines, leveraging our purchasing strengths, and reducing duplicate expenses with the goal of generating significant profits throughout the year. The project is well underway. We're completing the move into our new Spill Magic facility in Mount Pleasant, Tennessee. Production has begun there, even as additional equipment is being installed. Orders for the business are strong, and we are experiencing record growth. In Europe, sales increased 19% in local currency to EUR 4 million. Our growth there includes the acquisition last November of Schmiedeglut, a small direct-to-consumer company, which is exceeding expectations. Our first aid business in Europe had record performance, and we continue to expand its product line and sales team. The Westcott cutting tool business overcame market headwinds and increased 10% in Europe. In Canada, First Aid Central had a strong quarter, and the cutting segment also grew.
Overall, our Canadian business increased 16% compared to the first quarter of 2025. I will now turn the call to Paul.
Acme's net sales for the first quarter of 2026 were $52.3 million, compared to $46 million in 2025, a 14% increase. Excluding MyMedic, sales increased 6%. Net sales in the U.S. segment increased 12% in the quarter, driven by higher sales of first aid and medical products, including MyMedic products. Net sales in Europe for the first quarter of 2026 increased 19% in local currency compared to the first quarter of 2025, due mainly to the new line of cutting and sharpening tools. The base business had a good performance with a sales increase of 12%. Net sales in Canada for the first quarter of 2026 increased 11% in local currency due to higher sales of first aid products. The gross margin was 39.7% in the first quarter of 2026 versus 39% in the first quarter of 2025.
The favorable mix from higher margin direct-to-consumer MyMedic products was mostly offset by the impact of increased tariffs. SG&A expenses for the first quarter of 2026 were $19 million, or 36% of net sales, compared with $15.5 million or 34% of net sales for the same period of 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 MyMedic business. Net income for the first quarter of 2026 was $1 million or $0.24 per diluted share compared to net income of $1.7 million or $0.41 per diluted share for the same period of 2025, a decrease of 40% in net income. The decline in net income was primarily due to the higher tariff and Med-Nap costs we experienced in the first quarter of this year.
The higher tariff spending commenced in July 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. We expect the tariff impact to gradually lessen over the next three quarters as the tariff rate declined in November 2025 and again in February 2026. Additionally, the incremental cost to enhance the quality assurance protocols at the Med-Nap facility will not repeat in the second quarter of 2026. Now to the balance sheet. Net debt increased from $27.2 million at March 31, 2025, to $38.6 million at March 31, 2026. During the 12-month period ended March 31, 2026, we paid $14.6 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 $14.2 million in free cash flow before the purchase of a new $6 million manufacturing and distribution facility in Tennessee in July 2025 to expand our Spill Magic business.
Thank you, Paul. I will now open the call to questions.