UG Q3 Profit Falls Y/Y on Weak Cosmetics Sales, Stock Declines 10%

Core View - United-Guardian, Inc. has experienced a significant decline in both sales and net income for the third quarter of 2025, with net sales falling 26% year-over-year to $2.26 million and net income dropping to $268,441, reflecting a challenging market environment [2][4]. Financial Performance - For Q3 2025, net sales decreased by 26% to $2.26 million from $3.06 million in Q3 2024, while net income fell to $268,441 from $865,484, resulting in a 68% drop in earnings per share to 6 cents from 19 cents [2]. - For the first nine months of 2025, net sales declined 22% to $7.58 million from $9.71 million, and net income decreased to $1.46 million from $2.75 million, with earnings per share down about 47% to 32 cents from 60 cents [2]. Revenue Mix & Key Metrics - The decline in sales was primarily driven by weakness in the cosmetic ingredients business, while sales of pharmaceutical products and medical lubricants increased by 10% and 6%, respectively, over the first nine months of 2025 compared to the same period in 2024 [3]. Market Challenges - The softness in the cosmetic segment is attributed to reduced purchases by Ashland Specialty Ingredients (ASI), the company's largest marketing partner, which has faced tariff and geopolitical challenges in Asia, leading to a shift towards lower-priced local suppliers [4]. - ASI's efforts to manage excess inventory have resulted in decreased orders from United-Guardian, negatively impacting overall sales [4]. Operational Performance - Income from operations fell to $215,072 in Q3 2025 from $949,128 a year earlier, and for the nine months, it decreased to $1.52 million from $3.09 million in 2024 [5]. - Other income sources, including investment income and gains on marketable securities, also declined year-over-year, further dampening overall financial results [5]. Management Insights & Strategic Initiatives - Management remains optimistic about the underlying strength in pharmaceutical and medical businesses, with plans to regain market share through competitive pricing strategies [6]. - Key growth initiatives include focusing on Renacidin, with efforts to secure placement on additional drug formularies to significantly increase sales [7]. - The company has entered a strategic distribution arrangement to expand its sexual wellness and personal care portfolio, aiming to diversify revenue sources and broaden geographic reach [8]. Profitability Factors - Profitability was pressured by an increase in the cost of sales as a percentage of net sales, reflecting product-mix shifts and a challenging pricing environment, particularly in the cosmetic ingredients segment [9]. - Operating expenses rose due to higher professional fees and increased research and development spending, which, while supporting long-term growth, added to near-term earnings pressure [10][11]. Outlook - Although United-Guardian did not provide numerical guidance for the remainder of 2025, management expressed a cautiously optimistic outlook, relying on ASI's efforts to restore competitiveness and distribution expansions to stabilize cosmetic ingredient sales [13]. - The current earnings weakness is viewed as driven more by external demand and inventory dynamics rather than a decline in the company's product portfolio [14]. Shareholder Returns - The company has continued its practice of returning cash to shareholders through dividends, declaring and paying out cash dividends during the first nine months of 2025, including a 35 cents per share dividend earlier in the year [15].