Brady Corporation Reports Fiscal 2017 Second Quarter Results and Increases its Fiscal 2017 EPS Guidance


  • Earnings per diluted Class A Nonvoting Common Share was $0.49 in the second quarter of fiscal 2017 compared to $0.30 in the same quarter of the prior year.  Results for the quarter include $0.09 per share of discrete tax benefits.
  • Organic revenue growth was 1.3 percent for the quarter ended January 31, 2017.
  • Net debt was $37.7 million at January 31, 2017 compared to $132.5 million at January 31, 2016; providing flexibility for future investments.
  • Earnings per diluted Class A Common Share guidance for the full year ending July 31, 2017 increased from a range of $1.55 to $1.70 to a range of $1.75 to $1.85.

MILWAUKEE, Feb. 23, 2017 (GLOBE NEWSWIRE) -- Brady Corporation (NYSE:BRC) (“Brady” or “Company”), a world leader in identification solutions, today reported its financial results for its fiscal 2017 second quarter ended January 31, 2017.

Quarter Ended January 31, 2017 Financial Results:
Net earnings for the quarter ended January 31, 2017, were $25.3 million compared to $15.3 million in the same quarter last year.

Earnings per diluted Class A Nonvoting Common Share were $0.49 for the quarter ended January 31, 2017, compared to $0.30 in the same quarter last year. 
During the quarter ended January 31, 2017, the Company’s effective tax rate was 13.1%, which was impacted by certain one-time tax benefits from a cash repatriation.  The one-time tax items benefited earnings per diluted Class A Nonvoting Common Share by approximately $0.09 during the quarter.  Our historical average effective tax rate is approximately 28%. 

Sales for the quarter ended January 31, 2017, decreased 0.2 percent to $268.0 million compared to $268.6 million in the same quarter last year.  Total organic sales increased 1.3 percent while the impact of foreign currency translation decreased sales by 1.5 percent.  By segment, organic sales increased 1.9 percent in Identification Solutions and decreased 0.2 percent in Workplace Safety.

Six-Month Period Ended January 31, 2017 Financial Results:
Net earnings for the six-month period ended January 31, 2017, were $47.9 million compared to $34.0 million in the same quarter last year.

Earnings per diluted Class A Nonvoting Common Share were $0.93 for the six-month period ended January 31, 2017, compared to $0.67 in the same period in fiscal 2016.

During the six-month period ended January 31, 2017, the Company’s effective tax rate was 20.4%, which was impacted by certain one-time tax benefits from a cash repatriation.  The one-time tax items benefited earnings per diluted Class A Nonvoting Common Share by approximately $0.09 during the six-month period.

Sales for the six-month period ended January 31, 2017, decreased 0.6 percent to $548.2 million compared to $551.7 million in the same quarter last year.  Total organic sales increased 0.5 percent while foreign currency translation decreased sales by 1.1 percent.  By segment, organic sales increased 1.3 percent in Identification Solutions and decreased 1.3 percent in Workplace Safety.

Commentary:
“Our continued focus on developing high-quality products, identifying efficiencies in our SG&A structure, and driving a culture of local ownership and accountability is working.  This quarter marks our sixth consecutive quarter of year-over-year earnings growth.  Our actions to improve organic sales are also working as we realized organic sales growth of 1.3 percent this quarter and are at 0.5 percent organic sales growth year-to-date.  However, we do expect to see choppy organic growth patterns in the future as our initiatives gain traction and due to fewer billing days in the second half of fiscal 2017,” said Brady’s President and Chief Executive Officer, J. Michael Nauman.  “We believe our actions are starting to result in long-term positive organic sales trends, which we expect will translate into future profit improvements.  Looking forward, our priorities remain unchanged, which are to grow our pipeline of innovative new products, deliver efficiency gains, and serve our customers extremely well.  We are pleased that we have been able to consistently improve our performance while simultaneously driving our long-term strategy.”

“We continue to see profitability improvements as we focus on driving efficiencies throughout our manufacturing operations while actively reducing our selling, general and administrative expense structure, all while investing in organic growth opportunities,” said Brady’s Chief Financial Officer, Aaron Pearce.  “Cash generation for the quarter ended January 31, 2017, was below that of last year due to the timing of certain payments.  After taking the impact of these timing items into account, it is clear that our trend of solid cash generation continues as we finished with net debt of $37.7 million as of January 31, 2017, compared to net debt of $132.5 million as of January 31, 2016.  As a result of this cash generation, our balance sheet is solid and provides significant flexibility for future investment and returning funds to our shareholders.”

Fiscal 2017 Guidance:
The Company is increasing its earnings per diluted Class A Common Share guidance from a range of $1.55 to $1.70 to a range of $1.75 to $1.85 for the full year ending July 31, 2017.  Included in this guidance are organic sales ranging from a low single-digit decline to slightly positive growth for the year ending July 31, 2017.  Offsetting this challenging revenue environment are ongoing efficiency gains in the Company’s manufacturing facilities and selling, general, and administrative expenses.  This guidance is based upon foreign currency exchange rates as of January 31, 2017, a full-year income tax rate in the mid-20 percent range, depreciation and amortization expense of $30 million, and capital expenditures approximating $20 million.

A webcast regarding Brady’s fiscal 2017 second quarter financial results will be available at www.bradycorp.com beginning at 9:30 a.m. Central Time today.

Brady Corporation is an international manufacturer and marketer of complete solutions that identify and protect people, products and places.  Brady’s products help customers increase safety, security, productivity and performance and include high-performance labels, signs, safety devices, printing systems and software.  Founded in 1914, the Company has a diverse customer base in electronics, telecommunications, manufacturing, electrical, construction, medical, aerospace and a variety of other industries.  Brady is headquartered in Milwaukee, Wisconsin and as of July 31, 2016, employed approximately 6,500 people in its worldwide businesses.  Brady’s fiscal 2016 sales were approximately $1.12 billion.  Brady stock trades on the New York Stock Exchange under the symbol BRC.  More information is available on the Internet at www.bradycorp.com.

In this news release, statements that are not reported financial results or other historic information are “forward-looking statements.” These forward-looking statements relate to, among other things, the Company's future financial position, business strategy, targets, projected sales, costs, earnings, capital expenditures, debt levels and cash flows, and plans and objectives of management for future operations.

The use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “should,” “project” or “plan” or similar terminology are generally intended to identify forward-looking statements.  These forward-looking statements by their nature address matters that are, to different degrees, uncertain and are subject to risks, assumptions, and other factors, some of which are beyond Brady’s control, that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.  For Brady, uncertainties arise from:  our ability to compete effectively or to successfully execute our strategy; Brady’s ability to develop technologically advanced products that meet customer demands; difficulties in protecting our websites, networks, and systems against security breaches; deterioration or instability in the global economy and financial markets; decreased demand for our products; Brady’s ability to retain large customers; risks associated with the loss of key employees; changes in tax legislation and tax rates; Brady’s ability to execute facility consolidations and maintain acceptable operational service metrics; extensive regulations by U.S. and non-U.S. governmental and self-regulatory entities; litigation, including product liability claims; divestitures and contingent liabilities from divestitures; Brady’s ability to properly identify, integrate, and grow acquired companies; foreign currency fluctuations; potential write-offs of Brady’s substantial intangible assets; differing interests of voting and non-voting shareholders; Brady’s ability to meet certain financial covenants required by our debt agreements; numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive, and regulatory nature contained from time to time in Brady’s U.S. Securities and Exchange Commission filings, including, but not limited to, those factors listed in the “Risk Factors” section within Item 1A of Part I of Brady’s Form 10-K for the year ended July 31, 2016.

These uncertainties may cause Brady's actual future results to be materially different than those expressed in its forward-looking statements. Brady does not undertake to update its forward-looking statements except as required by law.

         
BRADY CORPORATION AND SUBSIDIARIES
      
CONSOLIDATED STATEMENTS OF EARNINGS       
(Unaudited; Dollars in thousands, except per share data)       
         
  Three months ended January 31, Six months ended January 31,
   2017   2016   2017   2016 
Net sales $  268,001  $  268,630  $  548,177  $  551,703 
Cost of products sold   133,843    135,738    273,661    279,462 
Gross margin   134,158    132,892    274,516    272,241 
Operating expenses:        
Research and development   9,481    9,097    18,627    17,666 
Selling, general and administrative   94,715    100,206    192,719    200,884 
Total operating expenses   104,196    109,303    211,346    218,550 
         
Operating income    29,962    23,589    63,170    53,691 
         
Other income (expense):        
Investment and other income (expense)    596    (992)   107    (1,751)
Interest expense   (1,458)   (2,130)   (3,190)   (4,281)
         
Earnings before income taxes   29,100    20,467    60,087    47,659 
         
Income tax expense   3,803    5,177    12,237    13,666 
         
Net earnings $  25,297  $  15,290  $  47,850  $  33,993 
         
Net earnings per Class A Nonvoting Common Share:        
Basic  $  0.50  $  0.30  $  0.94  $  0.67 
Diluted  $  0.49  $  0.30  $  0.93  $  0.67 
Dividends $  0.21  $  0.20  $  0.41  $  0.41 
         
Net earnings per Class B Voting Common Share:        
Basic  $  0.50  $  0.30  $  0.93  $  0.65 
Diluted  $  0.49  $  0.30  $  0.91  $  0.65 
Dividends $  0.21  $  0.20  $  0.39  $  0.39 
         
Weighted average common shares outstanding (in thousands):        
Basic   51,054    50,527    50,844    50,778 
Diluted   51,954    50,647    51,721    50,868 

 

BRADY CORPORATION AND SUBSIDIARIES   
CONSOLIDATED BALANCE SHEETS   
(Unaudited; Dollars in thousands)   
    
 January 31, 2017 July 31, 2016
ASSETS   
Current assets:   
Cash and cash equivalents$  125,208  $  141,228 
Accounts receivable—net  140,018    147,333 
Inventories:   
Finished products  60,642    64,313 
Work-in-process  17,029    16,678 
Raw materials and supplies  19,737    18,436 
Total inventories  97,408    99,427 
Prepaid expenses and other current assets  19,051    19,436 
Total current assets  381,685    407,424 
Other assets:   
Goodwill  424,857    429,871 
Other intangible assets  55,980    59,806 
Deferred income taxes  27,403    27,238 
Other  16,327    17,181 
Property, plant and equipment:   
Cost:   
Land  7,272    5,809 
Buildings and improvements  94,542    95,355 
Machinery and equipment  254,688    256,549 
Construction in progress  3,168    2,842 
   359,670    360,555 
Less accumulated depreciation  262,786    258,111 
Property, plant and equipment—net  96,884    102,444 
Total$  1,003,136  $  1,043,964 
LIABILITIES AND STOCKHOLDERS’ INVESTMENT   
Current liabilities:   
Notes payable$  5,691  $  4,928 
Accounts payable  58,515    62,245 
Wages and amounts withheld from employees  39,157    45,998 
Taxes, other than income taxes  6,617    7,403 
Accrued income taxes  2,011    6,136 
Other current liabilities  38,210    40,017 
Total current liabilities  150,201    166,727 
Long-term obligations, less current maturities  157,223    211,982 
Other liabilities  60,820    61,657 
Total liabilities  368,244    440,366 
Stockholders’ investment:   
Common stock:   
Class A nonvoting common stock—Issued 51,261,487 and 51,261,487 shares, respectively and outstanding 47,594,684 and 46,920,974 shares, respectively  513    513 
Class B voting common stock—Issued and outstanding, 3,538,628 shares  35    35 
Additional paid-in capital  317,587    317,001 
Earnings retained in the business  480,368    453,371 
Treasury stock—3,666,803 and 4,340,513 shares, respectively of Class A nonvoting common stock, at cost  (90,998)   (108,714)
Accumulated other comprehensive loss  (68,214)   (54,745)
Other  (4,399)   (3,863)
Total stockholders’ investment  634,892    603,598 
Total$  1,003,136  $  1,043,964 

 

BRADY CORPORATION AND SUBSIDIARIES   
CONSOLIDATED STATEMENTS OF CASH FLOWS   
(Unaudited; Dollars in thousands)   
 Six months ended January 31,
  2017   2016 
Operating activities:   
Net earnings$  47,850  $  33,993 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization  14,102    17,502 
Stock-based compensation expense  5,394    4,569 
Deferred income taxes  (4,547)   3,338 
Changes in operating assets and liabilities:   
Accounts receivable  3,407    3,204 
Inventories  224    3,403 
Prepaid expenses and other assets  220    (3,811)
Accounts payable and other liabilities  (9,384)   (1,618)
Income taxes  (3,932)   (2,326)
Net cash provided by operating activities  53,334    58,254 
    
Investing activities:   
Purchases of property, plant and equipment  (7,235)   (3,928)
Other  593    2,521 
Net cash used in investing activities  (6,642)   (1,407)
    
Financing activities:   
Payment of dividends  (20,852)   (20,425)
Proceeds from exercise of stock options  14,659    53 
Purchase of treasury stock  —    (23,397)
Repayment of borrowing on credit facilities  (50,469)   (437)
Debt issuance costs  —    (803)
Income tax on equity-based compensation, and other  (640)   (1,299)
Net cash used in financing activities  (57,302)   (46,308)
    
Effect of exchange rate changes on cash  (5,410)   (4,833)
    
Net (decrease) increase in cash and cash equivalents  (16,020)   5,706 
Cash and cash equivalents, beginning of period  141,228    114,492 
    
Cash and cash equivalents, end of period$  125,208  $  120,198 

 

BRADY CORPORATION AND SUBSIDIARIES       
SEGMENT INFORMATION       
(Unaudited; Dollars in thousands)       
        
 Three Months Ended January 31, Six Months Ended January 31,
  2017   2016   2017   2016 
SALES TO EXTERNAL CUSTOMERS       
ID Solutions$  190,962  $  189,780  $  392,226  $  390,800 
Workplace Safety   77,039     78,850     155,951     160,903 
Total$  268,001  $  268,630  $  548,177  $  551,703 
        
SALES INFORMATION       
ID Solutions       
Organic 1.9%  0.9%  1.3%  (0.7)%
Currency (1.3)%  (4.6)%  (0.9)%  (5.0)%
Total 0.6%  (3.7)%  0.4%  (5.7)%
Workplace Safety       
Organic (0.2)%  (0.6)%  (1.3)%  (1.4)%
Currency (2.1)%  (7.2)%  (1.8)%  (8.5)%
Total (2.3)%  (7.8)%  (3.1)%  (9.9)%
Total Company       
Organic  1.3%  0.4%  0.5%  (0.9)%
Currency (1.5)%  (5.4)%  (1.1)%  (6.0)%
Total (0.2)%  (5.0)%  (0.6)%  (6.9)%
        
SEGMENT PROFIT       
ID Solutions$  28,961  $  23,056  $  62,035  $  48,487 
Workplace Safety   6,059     6,296     12,504     15,678 
Total$  35,020  $  29,352  $  74,539  $  64,165 
SEGMENT PROFIT AS A PERCENT OF SALES       
ID Solutions 15.2%  12.1%  15.8%  12.4%
Workplace Safety 7.9%  8.0%  8.0%  9.7%
Total 13.1%  10.9%  13.6%  11.6%
        
        
 Three Months Ended January 31, Six Months Ended January 31,
  2017   2016   2017   2016 
Total segment profit$  35,020  $  29,352  $  74,539  $  64,165 
Unallocated amounts:       
Administrative costs   (5,058)    (5,763)    (11,369)    (10,474)
Investment and other income (expense)   596     (992)    107     (1,751)
Interest expense   (1,458)    (2,130)    (3,190)    (4,281)
Earnings before income taxes$  29,100  $  20,467  $  60,087  $  47,659 

 


            

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