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Brady Corporation Reports Fiscal 2018 Second Quarter Results and Increases its Fiscal 2018 EPS Guidance

  • Earnings before income taxes increased 20.4 percent, finishing at $35.0 million in the second quarter of fiscal 2018 compared to $29.1 million in the second quarter of fiscal 2017. This marks the 10th consecutive quarter of growth.
  • Earnings per diluted Class A Nonvoting Common Share were $0.08 in the second quarter of fiscal 2018 compared to $0.49 in the same quarter of the prior year. Results were reduced by approximately $0.40 per diluted Class A Nonvoting Common Share due to tax charges primarily related to U.S. tax legislation enacted during the quarter.
  • Total revenues increased 7.4 percent, which consisted of organic revenue growth of 3.2 percent and an increase of 4.2 percent due to foreign currency translation.
  • Earnings per diluted Class A Common Share guidance for the full year ending July 31, 2018 was increased to a range of $1.90 to $2.00, exclusive of tax charges primarily related to the enactment of the U.S. tax legislation.

MILWAUKEE, Feb. 22, 2018 (GLOBE NEWSWIRE) -- Brady Corporation (NYSE:BRC) (“Brady” or “Company”), a world leader in identification solutions, today reported its financial results for its fiscal 2018 second quarter ended January 31, 2018.

Quarter Ended January 31, 2018 Financial Results:
Earnings before income taxes increased 20.4 percent, finishing at $35.0 million for the second quarter of fiscal 2018 compared to $29.1 million for the second quarter of fiscal 2017.

Net earnings for the quarter ended January 31, 2018, were $4.3 million compared to $25.3 million in the same quarter last year. During the quarter ended January 31, 2018, net earnings were reduced by $21.1 million due to income tax charges primarily related to the passage of the U.S. Tax Cuts and Jobs Act of 2017. The prior year quarter ended January 31, 2017 was impacted by a cash repatriation which resulted in a lower than normal income tax rate.

Earnings per diluted Class A Nonvoting Common Share were $0.08 for the quarter ended January 31, 2018, compared to $0.49 in the same quarter last year. Income tax expense in the prior year quarter ended January 31, 2017 was impacted by a cash repatriation which increased earnings per diluted Class A Nonvoting Common Share by approximately $0.09, whereas the impact on income tax expense for the quarter ended January 31, 2018 from tax charges primarily related to the enactment of the U.S. tax legislation was a reduction in earnings per diluted Class A Nonvoting Common Share of approximately $0.40.

Sales for the quarter ended January 31, 2018 increased 7.4 percent to $287.8 million compared to $268.0 million in the same quarter last year. By segment, sales increased 8.1 percent in Identification Solutions and 5.6 percent in Workplace Safety, which consisted of organic sales growth of 4.7 percent in Identification Solutions and an organic sales decline of 0.5 percent in Workplace Safety.

Six-Month Period Ended January 31, 2018 Financial Results:
Earnings before income taxes increased 16.1 percent, finishing at $69.8 million for the six-month period ended January 31, 2018, compared to $60.1 million for the six-month period ended January 31, 2017.

Net earnings for the six-month period ended January 31, 2018 were $30.1 million compared to $47.9 million for the six-month period ended January 31, 2017. During the six-month period ended January 31, 2018, net earnings were reduced by $21.1 million due to tax charges primarily related to the passage of the U.S. Tax Cuts and Jobs Act of 2017. The prior year six-month period ended January 31, 2017 was impacted by a cash repatriation which resulted in a lower than normal income tax rate.

Earnings per diluted Class A Nonvoting Common Share were $0.57 for the six-month period ended January 31, 2018, compared to $0.93 in the same six-month period last year. Income tax expense in the prior year six-month period ended January 31, 2017 was impacted by a cash repatriation which increased earnings per diluted Class A Nonvoting Common Share by approximately $0.09, whereas the impact on income tax expense for the six-month period ended January 31, 2018 from tax charges primarily related to the enactment of U.S. tax legislation was a reduction of approximately $0.40 of earnings per diluted Class A Nonvoting Common Share.

Sales for the six-month period ended January 31, 2018 increased 5.4 percent to $577.9 million compared to $548.2 million in the same six-month period last year. By segment, sales increased 6.1 percent in Identification Solutions and 3.7 percent in Workplace Safety, which consisted of organic sales growth of 3.8 percent in Identification Solutions and an organic sales decline of 1.0 percent in Workplace Safety.

Commentary:
“Our investment in the development of innovative, high-quality products is paying off as we generated more than three percent organic sales growth this quarter, which was driven by our Identification Solutions business. This marks our tenth consecutive quarter of year-over-year pre-tax earnings improvement, which was a direct result of our focus on driving organic growth while achieving sustainable efficiency gains throughout our SG&A structure,” said Brady’s President and Chief Executive Officer, J. Michael Nauman. “We expect to continue this positive organic sales trend as we gain momentum in our research and development processes and through the execution of our strategy in our Workplace Safety business. Our focus is consistent and remains on the long-term by taking actions today that we believe will result in organic sales growth and profit improvements into the future.”

“Organic sales growth and our continued focus on efficiency opportunities throughout SG&A were the drivers of our profit improvement this quarter,” said Brady’s Chief Financial Officer, Aaron Pearce. “We used our cash generation to return funds to our shareholders and to repay debt. We repaid $27.9 million in debt during the quarter and finished in a net cash position of $44.1 million as of January 31, 2018. Our balance sheet continues to provide significant flexibility for investments in growth opportunities to drive long-term value for our shareholders.”

Fiscal 2018 Guidance:
The Company is increasing its full year fiscal 2018 earnings per diluted Class A Nonvoting Common Share guidance from its previous range of $1.85 to $1.95 to a range of $1.90 to $2.00, exclusive of tax charges primarily related to the enactment of the U.S. Tax Cuts and Jobs Act of 2017. Included in this guidance is low-single digit organic sales growth, depreciation and amortization expense of approximately $26 million, and capital expenditures of approximately $20 million during the year ending July 31, 2018. The Company expects its full-year income tax rate, exclusive of charges primarily related to the enactment of the U.S. Tax Cuts and Jobs Act of 2017, to range from approximately 27 percent to 29 percent. This guidance is based upon foreign exchange rates as of January 31, 2018.

A webcast regarding Brady’s fiscal 2018 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, 2017, employed approximately 6,300 people in its worldwide businesses. Brady’s fiscal 2017 sales were approximately $1.11 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; decreased demand for our products; Brady’s ability to retain large customers; extensive regulations by U.S. and non-U.S. governmental and self-regulatory entities; Brady’s ability to execute facility consolidations and maintain acceptable operational service metrics; litigation, including product liability claims; risks associated with the loss of key employees; divestitures and contingent liabilities from divestitures; Brady’s ability to properly identify, integrate, and grow acquired companies; foreign currency fluctuations; the impact of the Tax Reform Act and any other changes in tax legislation and tax rates; 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, 2017.

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,
2018 2017 2018 2017
Net sales$ 287,780 $ 268,001 $ 577,931 $ 548,177
Cost of products sold 144,088 133,843 288,174 273,661
Gross margin 143,692 134,158 289,757 274,516
Operating expenses:
Research and development 11,314 9,481 21,834 18,627
Selling, general and administrative 97,582 94,715 197,716 192,719
Total operating expenses 108,896 104,196 219,550 211,346
Operating income 34,796 29,962 70,207 63,170
Other income (expense):
Investment and other income 1,056 596 1,272 107
Interest expense (829) (1,458) (1,692) (3,190)
Earnings before income taxes 35,023 29,100 69,787 60,087
Income tax expense 30,750 3,803 39,678 12,237
Net earnings$ 4,273 $ 25,297 $ 30,109 $ 47,850
Net earnings per Class A Nonvoting Common Share:
Basic $ 0.08 $ 0.50 $ 0.58 $ 0.94
Diluted $ 0.08 $ 0.49 $ 0.57 $ 0.93
Dividends$ 0.21 $ 0.21 $ 0.42 $ 0.41
Net earnings per Class B Voting Common Share:
Basic $ 0.08 $ 0.50 $ 0.57 $ 0.93
Diluted $ 0.08 $ 0.49 $ 0.56 $ 0.91
Dividends$ 0.21 $ 0.21 $ 0.40 $ 0.39
Weighted average common shares outstanding (in thousands):
Basic 51,698 51,054 51,569 50,844
Diluted 52,719 51,954 52,551 51,721

BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands)
January 31, 2018 July 31, 2017
ASSETS
Current assets:
Cash and cash equivalents$ 115,327 $ 133,944
Accounts receivable—net 164,400 149,638
Inventories:
Finished products 72,629 69,760
Work-in-process 19,472 18,117
Raw materials and supplies 21,344 19,147
Total inventories 113,445 107,024
Prepaid expenses and other current assets 20,950 17,208
Total current assets 414,122 407,814
Other assets:
Goodwill 443,873 437,697
Other intangible assets 50,131 53,076
Deferred income taxes 9,899 35,456
Other 18,579 18,077
Property, plant and equipment:
Cost:
Land 7,535 7,470
Buildings and improvements 98,256 98,228
Machinery and equipment 265,640 261,192
Construction in progress 6,176 4,109
377,607 370,999
Less accumulated depreciation 279,826 272,896
Property, plant and equipment—net 97,781 98,103
Total$ 1,034,385 $ 1,050,223
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
Notes payable$ 585 $ 3,228
Accounts payable 64,365 66,817
Wages and amounts withheld from employees 49,679 58,192
Taxes, other than income taxes 7,997 7,970
Accrued income taxes 6,085 7,373
Other current liabilities 42,961 43,618
Total current liabilities 171,672 187,198
Long-term obligations 70,615 104,536
Other liabilities 60,125 58,349
Total liabilities 302,412 350,083
Stockholders’ investment:
Common stock:
Class A nonvoting common stock—Issued 51,261,487 and 51,261,487 shares,
respectively, and outstanding 48,238,412 and 47,814,818 shares, respectively
513 513
Class B voting common stock—Issued and outstanding, 3,538,628 shares 35 35
Additional paid-in capital 325,733 322,608
Earnings retained in the business 515,872 507,136
Treasury stock—3,023,075 and 3,446,669 shares, respectively, of Class A nonvoting
common stock, at cost
(75,090) (85,470)
Accumulated other comprehensive loss (35,090) (44,682)
Total stockholders’ investment 731,973 700,140
Total$ 1,034,385 $ 1,050,223

BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
Six months ended January 31,
2018 2017
Operating activities:
Net earnings$ 30,109 $ 47,850
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 12,840 14,102
Non-cash portion of stock-based compensation expense 5,897 5,394
Deferred income taxes 26,028 (4,547)
Changes in operating assets and liabilities:
Accounts receivable (10,945) 3,407
Inventories (4,150) 224
Prepaid expenses and other assets (3,153) 220
Accounts payable and other liabilities (12,695) (9,384)
Income taxes (1,471) (3,932)
Net cash provided by operating activities 42,460 53,334
Investing activities:
Purchases of property, plant and equipment (8,469) (7,235)
Other (729) 593
Net cash used in investing activities (9,198) (6,642)
Financing activities:
Payment of dividends (21,373) (20,852)
Proceeds from exercise of stock options 9,948 14,659
Proceeds from borrowing on credit facilities 17,439 144,533
Repayment of borrowing on credit facilities (57,314) (195,002)
Income tax on equity-based compensation, and other (2,342) (640)
Net cash used in financing activities (53,642) (57,302)
Effect of exchange rate changes on cash 1,763 (5,410)
Net decrease in cash and cash equivalents (18,617) (16,020)
Cash and cash equivalents, beginning of period 133,944 141,228
Cash and cash equivalents, end of period$ 115,327 $ 125,208

BRADY CORPORATION AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited; Dollars in thousands)
Three Months Ended January 31, Six Months Ended January 31,
2018 2017 2018 2017
SALES TO EXTERNAL CUSTOMERS
ID Solutions$ 206,432 $ 190,962 $ 416,137 $ 392,226
Workplace Safety 81,348 77,039 161,794 155,951
Total$ 287,780 $ 268,001 $ 577,931 $ 548,177
SALES INFORMATION
ID Solutions
Organic 4.7% 1.9% 3.8% 1.3%
Currency 3.4% (1.3)% 2.3% (0.9)%
Total 8.1% 0.6% 6.1% 0.4%
Workplace Safety
Organic (0.5)% (0.2)% (1.0)% (1.3)%
Currency 6.1% (2.1)% 4.7% (1.8)%
Total 5.6% (2.3)% 3.7% (3.1)%
Total Company
Organic 3.2% 1.3% 2.4% 0.5%
Currency 4.2% (1.5)% 3.0% (1.1)%
Total 7.4% (0.2)% 5.4% (0.6)%
SEGMENT PROFIT
ID Solutions$ 34,088 $ 28,961 $ 69,925 $ 62,035
Workplace Safety 7,055 6,059 13,500 12,504
Total$ 41,143 $ 35,020 $ 83,425 $ 74,539
SEGMENT PROFIT AS A PERCENT OF SALES
ID Solutions 16.5% 15.2% 16.8% 15.8%
Workplace Safety 8.7% 7.9% 8.3% 8.0%
Total 14.3% 13.1% 14.4% 13.6%
Three Months Ended January 31, Six Months Ended January 31,
2018 2017 2018 2017
Total segment profit$ 41,143 $ 35,020 $ 83,425 $ 74,539
Unallocated amounts:
Administrative costs (6,347) (5,058) (13,218) (11,369)
Investment and other income 1,056 596 1,272 107
Interest expense (829) (1,458) (1,692) (3,190)
Earnings before income taxes$ 35,023 $ 29,100 $ 69,787 $ 60,087

For More Information:
Investor contact: Ann Thornton 414-438-6887
Media contact: Kate Venne 414-358-5176

Source:Brady Corporation