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Press Release

Brady Corporation Reports Fiscal 2017 First Quarter Results

  • Earnings per diluted Class A Nonvoting Common Share increased 18.9 percent to $0.44 in the first quarter of fiscal 2017 compared to $0.37 in the same quarter of the prior year.
  • Organic revenues declined 0.2 percent for the quarter ended October 31, 2016.
  • Net cash provided by operating activities was $34.0 million in the first quarter of fiscal 2017 and net debt was $49.7 million at October 31, 2016 providing flexibility for future investments.

MILWAUKEE--()--Brady Corporation (NYSE: BRC) ("Brady" or "Company"), a world leader in identification solutions, today reported its financial results for its fiscal 2017 first quarter ended October 31, 2016.

Quarter Ended October 31, 2016 Financial Results:

Net earnings for the quarter ended October 31, 2016, increased 20.6 percent to $22.6 million compared to $18.7 million in the same quarter last year.

Earnings per diluted Class A Nonvoting Common Share increased 18.9 percent to $0.44 for the quarter ended October 31, 2016, compared to $0.37 in the same quarter last year.

Sales for the quarter ended October 31, 2016, decreased 1.0 percent to $280.2 million compared to $283.1 million in the same quarter last year. Total organic sales decreased 0.2 percent and foreign currency translation decreased sales by 0.8 percent. By segment, organic sales grew 0.7 percent in Identification Solutions and decreased 2.5 percent in Workplace Safety.

During the quarter ended October 31, 2016, the Company recast its historical segment financial information in response to two changes in its evaluation of segment financial performance.

First, the Company realigned certain businesses between its Workplace Safety segment and its Identification Solutions segment, resulting in increased revenues and segment profit in the Identification Solutions segment and equal and offsetting declines in revenues and segment profit in the Workplace Safety segment.

Second, the Company changed how it evaluates segment profit performance. Previously, administrative costs were excluded from the measure of segment profit. The Company's evaluation of segment profit has been recast to include certain administrative costs within each of the segments, such as the cost of finance, information technology, human resources, and certain other administrative costs. Interest expense, investment and other income (expense), income taxes and certain corporate administrative expenses continue to be excluded when evaluating segment performance.

Included in the accompanying financial information are the recast segment results for fiscal 2016.

Commentary:

"The Brady team is focused on producing high-quality products, providing excellent customer service, developing efficient and effective manufacturing processes, pushing for efficiencies in our SG&A structure, and building a culture where local teams are empowered to own and are held accountable for their financial results. This focus is working as evidenced by our fifth consecutive quarter of year-on-year earnings growth," said Brady's President and Chief Executive Officer, J. Michael Nauman. "Looking to the remainder of this fiscal year, we do not see a clear catalyst to accelerate global economic growth. In an environment such as this, focus and execution are critical. Our top priorities remain unchanged, which are to serve our customers extremely well, to grow our pipeline of innovative new products, and to deliver operational efficiencies in every facet of our business. We believe that our consistent focus on our long-term strategy has positioned Brady to compete effectively and deliver improved results to our shareholders."

"Although organic sales declined by 0.2 percent this quarter, profitability improved compared to last year as our focus on driving operational efficiencies and actively reducing our general and administrative structure provided financial benefits again this quarter. We also remain focused on the business fundamentals that drive cash generation in the short- and long-term. Cash provided by operating activities was $34.0 million this quarter and we finished with net debt of $49.7 million as of October 31, 2016 compared to net debt of $75.7 million at the beginning of the quarter," said Brady's Chief Financial Officer, Aaron Pearce. "As a result of our strong cash generation, our balance sheet provides significant flexibility for future investment and returning funds to our shareholders."

Fiscal 2017 Guidance:

The Company's earnings per diluted Class A Nonvoting Common Share guidance for the year ending July 31, 2017 remains unchanged at $1.55 to $1.70. 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, which is reflective of economic challenges in certain industrial markets and geographies, including North America. 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 October 31, 2016, a full-year income tax rate of approximately 27 percent to 29 percent, capital expenditures approximating $25 million, and depreciation and amortization expense of $30 million.

A webcast regarding Brady's fiscal 2017 first 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; 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; changes in tax legislation and tax rates; 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 October 31,
2016 2015
Net sales $ 280,176 $ 283,073
Cost of products sold 139,818 143,724
Gross margin 140,358 139,349
Operating expenses:
Research and development 9,146 8,569
Selling, general and administrative 98,004 100,678
Total operating expenses 107,150 109,247
Operating income 33,208 30,102
Other expense:
Investment and other (expense) income (489 ) (759 )
Interest expense (1,732 ) (2,151 )
Earnings before income taxes 30,987 27,192
Income tax expense 8,434 8,489
Net earnings $ 22,553 $ 18,703
Net Earnings per Class A Nonvoting Common Share:
Basic $ 0.45 $ 0.37
Diluted $ 0.44 $ 0.37
Dividends $ 0.21 $ 0.20
Net Earnings per Class B Voting Common Share:
Basic $ 0.43 $ 0.35
Diluted $ 0.42 $ 0.35
Dividends $ 0.19 $ 0.19
Weighted average common shares outstanding (in thousands):
Basic 50,634 51,029
Diluted 51,455 51,089
BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands)
October 31, 2016 July 31, 2016

ASSETS

Current assets:
Cash and cash equivalents $ 166,301 $ 141,228
Accounts receivable—net 145,831 147,333
Inventories:
Finished products 61,616 64,313
Work-in-process 16,971 16,678
Raw materials and supplies 18,815 18,436
Total inventories 97,402 99,427
Prepaid expenses and other current assets 20,392 19,436
Total current assets 429,926 407,424
Other assets:
Goodwill 424,345 429,871
Other intangible assets 57,590 59,806
Deferred income taxes 23,032 27,238
Other 15,550 17,181
Property, plant and equipment:
Cost:
Land 7,267 5,809
Buildings and improvements 95,288 95,355
Machinery and equipment 255,544 256,549
Construction in progress 2,093 2,842
360,192 360,555
Less accumulated depreciation 260,368 258,111
Property, plant and equipment—net 99,824 102,444
Total $ 1,050,267 $ 1,043,964

LIABILITIES AND STOCKHOLDERS' INVESTMENT

Current liabilities:
Notes payable $ 5,354 $ 4,928
Accounts payable 58,011 62,245
Wages and amounts withheld from employees 49,510 45,998
Taxes, other than income taxes 7,373 7,403
Accrued income taxes 3,219 6,136
Other current liabilities 42,031 40,017
Total current liabilities 165,498 166,727
Long-term obligations, less current maturities 210,608 211,982
Other liabilities 60,107 61,657
Total liabilities 436,213 440,366
Stockholders' investment:
Common stock:
Class A nonvoting common stock—Issued 51,261,487 and 51,261,487 shares, respectively and outstanding 47,334,496 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 317,044 317,001
Earnings retained in the business 465,554 453,371
Treasury stock—3,926,991 and 4,340,513 shares, respectively of Class A nonvoting

common stock, at cost

(97,840 ) (108,714 )
Accumulated other comprehensive loss (66,914 ) (54,745 )
Other (4,338 ) (3,863 )
Total stockholders' investment 614,054 603,598
Total $ 1,050,267 $ 1,043,964
BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
Three months ended October 31,
2016 2015
Operating activities:
Net earnings $ 22,553 $ 18,703
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 7,234 8,889
Non-cash portion of stock-based compensation expense 3,155 2,596
Deferred income taxes 2,027 726
Changes in operating assets and liabilities:
Accounts receivable (680 ) (3,342 )
Inventories 1,197 1,368
Prepaid expenses and other assets (1,170 ) (3,081 )
Accounts payable and accrued liabilities 2,546 2,402
Income taxes (2,869 ) 2,109
Net cash provided by operating activities 33,993 30,370
Investing activities:
Purchases of property, plant and equipment (3,959 ) (2,334 )
Other 1,511 1,539
Net cash used in investing activities (2,448 ) (795 )
Financing activities:
Payment of dividends (10,370 ) (10,183 )
Proceeds from exercise of stock options 8,813
Purchase of treasury stock (16,160 )
Net proceeds (repayments) from borrowing on credit facilities 426 (2,738 )
Debt issuance costs (803 )
Income tax on equity-based compensation, and other (1,232 ) (1,007 )
Net cash used in financing activities (2,363 ) (30,891 )
Effect of exchange rate changes on cash (4,109 ) (2,566 )
Net increase (decrease) in cash and cash equivalents 25,073 (3,882 )
Cash and cash equivalents, beginning of period 141,228 114,492
Cash and cash equivalents, end of period $ 166,301 $ 110,610
BRADY CORPORATION AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited; Dollars in thousands)
Three Months Ended Year Ended
October 31, 2016 October 31, 2015 January 31, 2016 April 30, 2016 July 31, 2016 July 31, 2016
SALES TO EXTERNAL CUSTOMERS
ID Solutions $ 201,264 $ 201,020 $ 189,780 $ 201,482 $ 203,229 $ 795,511
Workplace Safety 78,912 82,053 78,850 85,334 78,877 325,114
Total $ 280,176 $ 283,073 $ 268,630 $ 286,816 $ 282,106 $ 1,120,625
SALES INFORMATION
ID Solutions
Organic 0.7 % (2.2 )% 0.9 % (0.9 )% (0.6 )% (0.7 )%
Currency (0.6 )% (5.4 )% (4.6 )% (1.1 )% (1.2 )% (3.1 )%
Total 0.1 % (7.6 )% (3.7 )% (2.0 )% (1.8 )% (3.8 )%
Workplace Safety
Organic (2.5 )% (2.2 )% (0.6 )% 1.7 % (1.8 )% (0.7 )%
Currency (1.3 )% (9.8 )% (7.2 )% (0.9 )% (1.8 )% (5.0 )%
Total (3.8 )% (12.0 )% (7.8 )% 0.8 % (3.6 )% (5.7 )%
Total Company
Organic (0.2 )% (2.2 )% 0.4 % (0.1 )% (0.9 )% (0.7 )%
Currency (0.8 )% (6.6 )% (5.4 )% (1.1 )% (1.4 )% (3.7 )%
Total (1.0 )% (8.8 )% (5.0 )% (1.2 )% (2.3 )% (4.4 )%
SEGMENT PROFIT
ID Solutions $ 33,068 $ 25,431 $ 23,056 $ 31,898 $ 31,891 $ 112,276
Workplace Safety 6,450 9,382 6,296 6,012 9,102 30,792
Total $ 39,518 $ 34,813 $ 29,352 $ 37,910 $ 40,993 $ 143,068
SEGMENT PROFIT AS A PERCENT OF SALES
ID Solutions 16.4 % 12.7 % 12.1 % 15.8 % 15.7 % 14.1 %
Workplace Safety 8.2 % 11.4 % 8.0 % 7.0 % 11.5 % 9.5 %
Total 14.1 % 12.3 % 10.9 % 13.2 % 14.5 % 12.8 %
Three Months Ended Year Ended
October 31, 2016 October 31, 2015 January 31, 2016 April 30, 2016 July 31, 2016 July 31, 2016
Total segment profit $ 39,518 $ 34,813 $ 29,352 $ 37,910 $ 40,993 $ 143,068
Unallocated amounts:
Administrative costs (6,310 ) (4,711 ) (5,763 ) (7,126 ) (7,590 ) (25,190 )
Investment and other (expense) income (489 ) (759 ) (992 ) 721 321 (709 )
Interest expense (1,732 ) (2,151 ) (2,130 ) (1,838 ) (1,705 ) (7,824 )
Earnings before income taxes $ 30,987 $ 27,192 $ 20,467 $ 29,667 $ 32,019 $ 109,345

Contacts

Brady Corporation
Investor contact:
Ann Thornton, 414-438-6887
or
Media contact:
Kate Venne, 414-358-5176