Northern Technologies International Q3 Earnings Call Highlights

Key Points

• NTIC posted record quarterly sales of $24.2 million, up 12.6% year over year, driven by strong demand for ZERUST corrosion prevention products and Natur-Tec bioplastics. ZERUST oil and gas revenue jumped 72.3%, while Natur-Tec sales rose 5%.
• Profitability was pressured by higher raw material costs tied to Middle East shipping disruptions, which cut gross margin to 33.6% from 38.4% a year earlier. The company swung to a net loss of $263,000 as polyethylene prices spiked and costs rose faster than sales.
• Management expects improvement in Q4 as lower input costs begin to flow through inventory and pricing actions take hold. NTIC also highlighted record oil and gas sales, growing Natur-Tec opportunities, and a planned sale of its Beachwood facility as it looks to strengthen margins and reduce debt.

Northern Technologies International NASDAQ: NTIC reported record consolidated sales for its fiscal 2026 third quarter, but higher raw material costs tied to Middle East shipping disruptions pressured margins and pushed the company to a quarterly loss, executives said on the company’s earnings call.

Chief Executive Officer Patrick Lynch said consolidated net sales rose 12.6% year over year to $24.2 million for the quarter ended May 31, 2026, driven by demand for the company’s ZERUST corrosion prevention products and Natur-Tec bioplastics. Sales growth included a 72.3% increase in ZERUST oil and gas revenue, a 10.3% increase in ZERUST industrial sales and a 5% increase in Natur-Tec sales.

“Strong global demand and increasing adoptions of our ZERUST corrosion prevention and Natur-Tec bioplastic solutions drove quarterly consolidated sales to new record highs,” Lynch said.

However, Lynch said disruptions to shipping through the Strait of Hormuz, stemming from heightened conflict in the Middle East, contributed to a “significant increase” in raw material costs. He said the impact reduced gross margin by about 477 basis points from a year earlier and lowered gross profit by approximately $1 million compared with margin levels before the increase in U.S.-Iran hostilities.

Margins Weighed Down by Raw Material Costs

Chief Financial Officer Matt Wolsfeld said gross profit as a percentage of net sales was 33.6% in the third quarter, down from 38.4% in the prior-year period. He attributed the decline primarily to raw material cost inflation caused by the Middle East conflict and shipping disruption.

NTIC reported a net loss of $263,000, or $0.03 per share, compared with net income of $122,000, or $0.01 per diluted share, in the same quarter last year. On a non-GAAP basis, the company posted an adjusted net loss of $158,000, or $0.02 per diluted share, compared with adjusted net income of $228,000, or $0.02 per diluted share, a year earlier.

Operating expenses increased 5.3% to $10.2 million, reflecting higher selling, general and administrative expenses, as well as research and development expenses. As a percentage of sales, operating expenses improved to 42% from 44.9% in the prior-year quarter.

Wolsfeld said polyethylene prices rose more than 30% during the quarter because of the conflict-related disruption, but later returned to August 2025 levels. He said NTIC has seen those lower costs begin to flow through inventory and has passed some cost increases on to customers.

“We expect gross margin to improve sequentially for the fourth quarter of fiscal 2026,” Wolsfeld said.

ZERUST Oil and Gas Posts Record Quarter

ZERUST oil and gas sales reached $2.2 million, a third-quarter record and up 72.3% from the prior-year period. Lynch said the performance reflected investments in the company’s global sales infrastructure and wider adoption of its vapor corrosion inhibitor, or VCI, solutions in oil and gas markets.

The quarter marked the fourth consecutive period in which ZERUST oil and gas sales exceeded $2 million. On a trailing 12-month basis, Lynch said the segment surpassed $10 million in sales for the first time in company history.

NTIC cited higher oil and gas sales in the Middle East, North America, India and China from both new and existing customers. Lynch said the company’s pipeline includes opportunities to protect above-ground oil storage tanks, pipeline casings and offshore oil rigs from corrosion.

In response to an analyst question, Wolsfeld said oil and gas gross margins are generally higher than the company average, though NTIC does not manage the business as a separate standalone division. He also said some third-quarter oil and gas projects were delayed by shipping issues and invoiced in June, which gives management more confidence in fourth-quarter results.

Wolsfeld also discussed a multi-year contract in Brazil tied to offshore floating production storage and offloading units, or FPSOs. He said the contract, valued at more than $14 million over several years, is scaling up and has contributed to an approximately 70% increase in Brazil oil and gas revenue over the first nine months of fiscal 2026 compared with the prior-year period.

Natur-Tec Sales Reach Quarterly Record

Natur-Tec bioplastics sales rose 5% year over year to $6.1 million, also a quarterly record. Lynch highlighted opportunities in North America and India that the company believes could support growth in coming quarters.

In North America, Natur-Tec was selected for the International Fresh Produce Association’s Packaging Innovation Program, where NTIC is working on compostable barrier laminate solutions for food packaging. In India, the company announced a collaboration with Bayer to develop biodegradable and compostable seedling cups for nursery applications.

Lynch said the seedling cup effort is expected to begin with pilot trials in vegetable and fruit nurseries and could expand if validation is successful. During the question-and-answer session, he said the application could be implemented globally, though the current Bayer collaboration is specific to India. He said commercial sales could begin “in a year.”

Wolsfeld said Natur-Tec revenue increased about 5% in both the quarter and first nine months, while volume growth was likely closer to 10% to 12% based on case quantities. He said pricing concessions in more commodity-oriented products, such as bag liners and cutlery, have weighed on margins. He added that food packaging opportunities are expected to take longer to develop because of product chemistry and customer equipment requirements, but described them as “sizable, healthier margin opportunities.”

Joint Ventures, China and Balance Sheet

Sales from NTIC’s joint ventures, which are not consolidated in its financial statements, increased 15.1% year over year to $26.7 million. Joint venture operating income rose 12.2%, primarily due to higher sales.

Lynch said the company continues to monitor European markets, particularly Germany, for signs of stabilization following years of weaker demand. Wolsfeld said revenue trends in Germany appear to be improving, though he noted energy prices and country-level economic issues remain factors.

At NTIC China, third-quarter net sales declined by less than 1% to $4.5 million. Lynch said most China sales are for domestic Chinese consumption, limiting exposure to U.S. tariffs. On a trailing 12-month basis, NTIC China sales rose 12.8% to $17.8 million.

As of May 31, NTIC had working capital of $20 million, including $7.3 million in cash and cash equivalents, compared with $20.4 million in working capital and $7.3 million in cash at Aug. 31, 2025. Debt totaled $14.8 million, including $11.8 million borrowed under its revolving line of credit.

The company also said it plans to sell its Beachwood, Ohio, facility, historically used for its ZERUST segment. Wolsfeld said NTIC received a non-binding letter of intent to purchase the property for $1.15 million in cash, with the sale expected to close during fiscal 2027. He said the company is consolidating related operations in Minnesota.

Management Expects Stronger Fourth Quarter

Management said it expects stronger sales and improved profitability in the fourth quarter, supported by pricing actions, procurement initiatives and expense discipline. Wolsfeld said fourth-quarter revenue is expected to be higher than third-quarter revenue while expenses remain relatively flat.

“We’re now at a point where we have capped off the investments,” Wolsfeld said. “We’re holding things as flat as possible, and we’re seeing the revenue, where we expect the increased revenue to drive the gross margin dollars to the bottom line.”

NTIC said it remains focused on expanding higher-margin ZERUST oil and gas opportunities, growing Natur-Tec applications globally, reducing debt through operating cash flow and improving working capital efficiency.

About Northern Technologies International NASDAQ: NTIC

Northern Technologies International Corporation NASDAQ: NTIC is a Minnesota‐based specialty chemical company that develops, manufactures and markets environmentally responsible corrosion prevention and metal surface treatment products. The company's solutions include volatile corrosion inhibitor (VCI) films, emitters, powders and liquids designed to protect ferrous and non‐ferrous metals in industrial, aerospace, defense, electronics and automotive applications. In addition, NTIC offers packaging materials, engineered coatings and specialty pretreatment chemicals that meet stringent environmental regulations while extending equipment life and reducing maintenance costs.

NTIC serves a diversified global customer base, including metal fabricators, automotive suppliers, electronics manufacturers and oil and gas producers.

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