XPEL (NASDAQ:XPEL) reported higher third-quarter revenue and earnings as gross margin improved, but the company forecast a slowdown in fourth-quarter sales growth amid weakness in U.S. dealerships and the aftermarket.
Revenue rose 9.9% to $137.8 million in the third quarter of 2026, while net income attributable to stockholders increased 26.3% to $16.3 million, or $0.59 per share. Adjusted earnings were $0.62 per share, including an adjustment for manufacturing startup costs.
For the fourth quarter, XPEL expects revenue of $125 million to $127 million. The forecast assumes low-single-digit U.S. growth, continued dealership softness, a slowdown in the U.S. aftermarket and no improvement in the Middle East, President and CEO Ryan Pape said.
Dealership Uncertainty Weighs on Outlook
U.S. revenue increased 7% to $76.7 million in the third quarter. The company’s largest U.S. business, the aftermarket installer channel, grew a little more than 9%, while dealership revenue was roughly flat, Pape said.
Pape attributed dealership uncertainty in part to Federal Trade Commission scrutiny of dealer pricing and add-on practices, along with California’s CARS Act, which took effect October 1. He said dealers have been adjusting their sales processes, including how they disclose and offer accessories.
The impact has lasted longer than the company hoped and has also affected some aftermarket customers that serve dealerships, Pape said. He expects the dealership trend to be “incrementally worse” in the fourth quarter, with uncertainty affecting existing revenue and delaying new programs.
Still, Pape said XPEL’s products can be sold in compliance with the rules and that the company expects a more stable environment in 2027 as dealers complete their adjustments. He also noted that U.S. aftermarket growth slowed toward the end of the third quarter and into the fourth, partly reflecting consumer weakness.
XPEL did not provide formal 2027 guidance. Pape said the company sees ways to achieve low-double-digit revenue growth and expects the original equipment manufacturer, or OEM, business to be particularly strong next year.
Regional Performance and OEM Opportunities
Canada revenue grew 17.9% to $15.3 million, with gains across independent, dealership and distribution channels. China revenue rose 52% to $15.4 million, although Pape noted that the comparison benefited from XPEL’s acquisition of its distributor there in September 2025.
The fourth quarter will be the first to compare direct China operations against a full quarter of direct operations a year earlier. Pape said domestic car sales in China were down more than 20% year over year during the third quarter.
Revenue in the European Union, United Kingdom and Africa region declined about 2% to $16.2 million. The India and Middle East region declined 16.6%, as geopolitical and economic conditions weighed on the Middle East. India was a bright spot, Pape said, and XPEL expects a recently awarded OEM contract there to contribute to growth in 2027. He did not identify the customer or provide a contract value.
The company also acquired VISCO, a small U.S. OEM graphics business, during the quarter. Pape said the deal was not financially material but adds graphics capabilities and relationships with automakers that were not already XPEL customers.
Margins and Manufacturing Investments
Gross margin expanded to 44.6% from 41.8% a year earlier, marking its third consecutive quarterly increase. Pape attributed the improvement to factors including the China distributor acquisition and efforts to reduce product costs. Pricing increases had an impact of 1% or less across the business, he said.
Paint protection film revenue increased 15.7% to $73.5 million, while window film revenue rose 11.8% to $30.9 million, Chief Financial Officer Barry Wood said. Installation revenue increased 4.5%.
Startup costs for XPEL’s Texas manufacturing facility were approximately $0.03 per share in the third quarter and are expected to be $0.03 to $0.04 per share in the fourth quarter. Pape said the project remains on schedule to begin coming online around the middle of 2027. The company also plans to use its acquired China manufacturing facility to produce additional products for markets outside China and the United States in the first half of next year.
Wood said XPEL ended the quarter with $45.7 million in cash and $44.4 million outstanding on its term loan. The company repurchased approximately $3 million of shares during the quarter and expects fourth-quarter capital expenditures of $8 million to $10 million, mostly for the Texas expansion.
About XPEL (NASDAQ:XPEL)
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