0002046386-26-000026
SEC filingMedline's Q1 FY26 net sales grew 10.7% to $7.35B, but gross margin fell 250 bps to 25.0% due to tariffs and new customer mix, dragging net income down 25.8%.
For the three months ended March 28, 2026, Medline reported net sales of $7,352 million, up 10.7% from $6,644 million in the prior-year period, driven primarily by volume growth with pricing having an immaterial impact. Organic growth was led by the U.S. business, which increased 10.7% to $6,857 million, reflecting strong Prime Vendor sales growth of 15.3% to $4,913 million. International sales grew 10.0% to $495 million, aided by favorable foreign exchange.
Gross profit edged up only 0.9% to $1,841 million, as cost of goods sold rose 14.3% due to higher import costs from tariffs. Gross margin contracted 250 basis points to 25.0%, with the decline primarily attributable to tariffs and the dilutive effect of new Prime Vendor customers that typically carry lower initial margins. Operating income fell 26.1% to $422 million, driven by a 14.8% increase in SG&A expenses, which included $18 million of IPO-related bonus charges and higher compensation and distribution costs. Net income decreased 25.8% to $239 million, while Adjusted EBITDA declined 10.6% to $776 million, reflecting the same margin pressures.
Medline Brand: Segment net sales grew 6.2% to $3,465 million, supported by a 10.5% increase in Prime Vendor sales of Medline Brand products. Surgical Solutions rose 7.4% on volume growth in operating room and kitting products; Front Line Care increased 6.0% driven by exam gloves and personal care; Laboratory and Diagnostics remained flat due to a milder respiratory season. However, Segment Adjusted EBITDA fell 7.8% to $765 million, and margin contracted 330 basis points to 22.1%, primarily from tariff-related cost pressures and higher operating expenses.
Supply Chain Solutions: Segment net sales surged 15.0% to $3,887 million, reflecting 17.8% growth in Prime Vendor sales from new customer implementations and expansion with existing accounts. Segment Adjusted EBITDA inched up only 2.7% to $187 million, as margin declined 60 basis points to 4.8% due to the lower-margin profile of new customer signings and higher operating costs.
Medline faces ongoing headwinds from tariffs, which had a $120 million net impact on income before taxes in the quarter. Management is actively pursuing mitigation strategies including production relocation, supplier diversification, and selective price increases, but the full-year impact remains uncertain due to evolving tariff policies. Capital expenditures for fiscal 2026 are planned at approximately $500 million, focused on manufacturing and distribution automation. The company maintains adequate liquidity with $2.2 billion cash and $946 million available under its revolver. No specific revenue or earnings guidance was provided, but the trajectory suggests continued volume growth tempered by margin compression from tariffs and new customer mix.
Cash and equivalents stood at $2,236M as of March 28, 2026, up from $1,939M at year-end 2025, primarily driven by operating cash flows of $412M. Total debt remained unchanged at $12,755M, with $12,495M classified as long-term. The company has $946M available under its $1,000M revolving credit facility (net of $54M in letters of credit).
Unconditional purchase obligations total $805M as of March 28, 2026, with $128M due within one year, $331M in years 1–3, and $346M beyond. Payments in Q1 2026 were $42M. The company is also a party to various legal contingencies, none of which are expected to materially affect financial condition.
No share repurchases or dividends were declared or paid in Q1 2026. Debt remained flat with no new issuances or repayments. Capital expenditures were $96M, or 1.3% of net sales, primarily for property and equipment.
Medline Brand segment generated $3,465M in net sales (+6.2% YoY), with three product lines: Front Line Care ($1,618M), Surgical Solutions ($1,554M), and Laboratory & Diagnostics ($293M). Supply Chain Solutions posted $3,887M (+15.0% YoY). Segment Adjusted EBITDA was $765M and $187M, respectively. Geographically, U.S. acute care contributed $5,125M, non-acute care $1,732M, and international $495M.
Operating cash flow (CFO) of $412M well exceeded net income of $239M, indicating strong cash conversion. The primary driver was non-cash charges (depreciation $254M, stock comp $23M) totaling $288M. However, working capital consumed $161M, notably trade receivables increased $146M and inventories rose $42M, partially offset by $72M growth in accrued expenses. Capex of $96M was stable (98% of prior year), resulting in capex/CFO of 23%. No free cash flow is reported. Capital returns consisted of $10M distributions to noncontrolling interests; no share repurchases or common dividends. Financing activities included $3M offering costs for the secondary offering. The prior year's $9M Class B unit repurchases were not repeated. Overall, cash generation remains solid despite the CFO decline, driven by working capital timing.