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Brady Corporation Reports Fiscal 2018 Third Quarter Results and Increases the Bottom of its Fiscal 2018 EPS Guidance

May 24, 2018 7:00 AM

MILWAUKEE, May 24, 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 third quarter ended April 30, 2018.

Quarter Ended April 30, 2018 Financial Results:Earnings before income taxes increased 20.7 percent, finishing at $37.0 million for the third quarter of fiscal 2018 compared to $30.6 million for the third quarter of fiscal 2017.

Net earnings for the quarter ended April 30, 2018, were $26.0 million compared to $22.6 million in the same quarter last year.

Earnings per diluted Class A Nonvoting Common Share were $0.49 for the third quarter of fiscal 2018, compared to $0.43 in the same quarter last year.

Sales for the quarter ended April 30, 2018 increased 8.2 percent to $298.4 million compared to $275.9 million in the same quarter last year. By segment, sales increased 7.8 percent in Identification Solutions and 9.1 percent in Workplace Safety, which consisted of organic sales growth of 3.7 percent in Identification Solutions and 1.7 percent in Workplace Safety.

Nine-Month Period Ended April 30, 2018 Financial Results:Earnings before income taxes increased 17.7 percent, finishing at $106.8 million for the nine-month period ended April 30, 2018, compared to $90.7 million in the same period last year.

Net earnings for the nine-month period ended April 30, 2018 were $56.1 million compared to $70.4 million in the same period last year. During the nine-month period ended April 30, 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 nine-month period ended April 30, 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 $1.07 for the nine-month period ended April 30, 2018, compared to $1.36 in the same period last year. Income tax expense in the prior nine-month period ended April 30, 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 nine-month period ended April 30, 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 nine-month period ended April 30, 2018 increased 6.3 percent to $876.4 million compared to $824.1 million in the same period last year. By segment, sales increased 6.7 percent in Identification Solutions and 5.6 percent in Workplace Safety, which consisted of organic sales growth of 3.7 percent in Identification Solutions and an organic sales decline of 0.1 percent in Workplace Safety.

Commentary:“Our continued focus on innovation and the development of high-quality products resulted in organic sales growth of 3.2 percent in the quarter, which was driven by both the Identification Solutions and Workplace Safety businesses. This marks our fourth consecutive quarter of organic sales growth and our eleventh consecutive quarter of year-over-year pre-tax earnings growth. We take a consistent and balanced approach to driving organic sales growth while executing sustainable efficiency gains throughout our global operations and SG&A structure,” said Brady’s President and Chief Executive Officer, J. Michael Nauman. “We expect this positive organic sales trend to continue as we launch innovative new products in our Identification Solutions business, and as our Workplace Safety business returns to consistent quarterly organic sales growth and realizes benefits over the long-term due to its product innovation efforts.”

“Our cash generation remains strong,” said Brady’s Chief Financial Officer, Aaron Pearce. “Even after significantly increasing our investments in research and development, we still increased our net cash provided by operating activities by 23.6% this quarter and significantly increased our investments in capital expenditures. We also repaid $11.7 million in debt and finished in a net cash position of $72.7 million as of April 30, 2018. Our strong balance sheet provides us with significant flexibility for investing in opportunities to drive long-term value for our shareholders.”

Fiscal 2018 Guidance:The Company is tightening its full year fiscal 2018 earnings per diluted Class A Nonvoting Common Share guidance from its previous range of $1.90 to $2.00 to a range of $1.95 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 to $25 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. The full benefit of the enactment of U.S. tax legislation will not be realized until next fiscal year. This guidance is based upon foreign exchange rates as of April 30, 2018.

A webcast regarding Brady’s fiscal 2018 third quarter financial results will be available at www.bradycorp.com/investors 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 April 30, Nine months ended April 30,
2018 2017 2018 2017
Net sales$ 298,421 $ 275,927 $ 876,352 $ 824,104
Cost of products sold 147,339 136,018 435,513 409,679
Gross margin 151,082 139,909 440,839 414,425
Operating expenses:
Research and development 11,678 9,950 33,512 28,577
Selling, general and administrative 101,695 98,409 299,411 291,128
Total operating expenses 113,373 108,359 332,923 319,705
Operating income 37,709 31,550 107,916 94,720
Other income (expense):
Investment and other income 31 453 1,303 560
Interest expense (761) (1,375) (2,453) (4,565)
Earnings before income taxes 36,979 30,628 106,766 90,715
Income tax expense 10,979 8,075 50,657 20,312
Net earnings$ 26,000 $ 22,553 $ 56,109 $ 70,403
Net earnings per Class A Nonvoting Common Share:
Basic $ 0.50 $ 0.44 $ 1.09 $ 1.38
Diluted $ 0.49 $ 0.43 $ 1.07 $ 1.36
Dividends$ 0.21 $ 0.21 $ 0.62 $ 0.62
Net earnings per Class B Voting Common Share:
Basic $ 0.50 $ 0.44 $ 1.07 $ 1.37
Diluted $ 0.49 $ 0.43 $ 1.05 $ 1.34
Dividends$ 0.21 $ 0.21 $ 0.61 $ 0.60
Weighted average common shares outstanding (in thousands):
Basic 51,747 51,227 51,628 50,972
Diluted 52,729 52,201 52,610 51,882

BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands)
April 30, 2018 July 31, 2017
ASSETS
Current assets:
Cash and cash equivalents$ 130,903 $ 133,944
Accounts receivable—net 161,319 149,638
Inventories:
Finished products 72,809 69,760
Work-in-process 20,126 18,117
Raw materials and supplies 22,598 19,147
Total inventories 115,533 107,024
Prepaid expenses and other current assets 17,295 17,208
Total current assets 425,050 407,814
Other assets:
Goodwill 435,426 437,697
Other intangible assets 48,036 53,076
Deferred income taxes 8,688 35,456
Other 17,758 18,077
Property, plant and equipment:
Cost:
Land 7,332 7,470
Buildings and improvements 98,005 98,228
Machinery and equipment 268,736 261,192
Construction in progress 6,557 4,109
380,630 370,999
Less accumulated depreciation 282,181 272,896
Property, plant and equipment—net 98,449 98,103
Total$ 1,033,407 $ 1,050,223
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
Notes payable$ — $ 3,228
Accounts payable 68,627 66,817
Wages and amounts withheld from employees 56,995 58,192
Taxes, other than income taxes 7,772 7,970
Accrued income taxes 5,564 7,373
Other current liabilities 42,436 43,618
Total current liabilities 181,394 187,198
Long-term obligations 58,157 104,536
Other liabilities 59,209 58,349
Total liabilities 298,760 350,083
Stockholders’ investment:
Common stock:
Class A nonvoting common stock—Issued 51,261,487 and 51,261,487 shares, respectively, and outstanding 48,205,763 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 327,401 322,608
Earnings retained in the business 531,135 507,136
Treasury stock—3,055,724 and 3,446,669 shares, respectively, of Class A nonvoting common stock, at cost (76,291) (85,470)
Accumulated other comprehensive loss (48,146) (44,682)
Total stockholders’ investment 734,647 700,140
Total$ 1,033,407 $ 1,050,223

BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
Nine months ended April 30,
2018 2017
Operating activities:
Net earnings$ 56,109 $ 70,403
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 19,047 20,789
Non-cash portion of stock-based compensation expense 7,581 7,445
Deferred income taxes 26,501 (2,707)
Changes in operating assets and liabilities:
Accounts receivable (10,710) (931)
Inventories (7,790) 666
Prepaid expenses and other assets 480 (1,987)
Accounts payable and other liabilities (133) 754
Income taxes (1,863) (3,270)
Net cash provided by operating activities 89,222 91,162
Investing activities:
Purchases of property, plant and equipment (14,755) (10,856)
Other (197) 38
Net cash used in investing activities (14,952) (10,818)
Financing activities:
Payment of dividends (32,110) (31,362)
Proceeds from exercise of stock options 10,011 18,674
Proceeds from borrowing on credit facilities 17,439 154,653
Repayment of borrowing on credit facilities (69,012) (215,068)
Principal payments on debt — (16,371)
Income tax on equity-based compensation, and other (3,622) (512)
Net cash used in financing activities (77,294) (89,986)
Effect of exchange rate changes on cash (17) (2,509)
Net decrease in cash and cash equivalents (3,041) (12,151)
Cash and cash equivalents, beginning of period 133,944 141,228
Cash and cash equivalents, end of period$ 130,903 $ 129,077

BRADY CORPORATION AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited; Dollars in thousands)
Three Months Ended April 30, Nine Months Ended April 30,
2018 2017 2018 2017
NET SALES
ID Solutions$ 212,154 $ 196,880 $ 628,291 $ 589,106
Workplace Safety 86,267 79,047 248,061 234,998
Total$ 298,421 $ 275,927 $ 876,352 $ 824,104
SALES INFORMATION
ID Solutions
Organic 3.7% (0.8)% 3.7% 0.6%
Currency 4.1% (1.5)% 3.0% (1.1)%
Total 7.8% (2.3)% 6.7% (0.5)%
Workplace Safety
Organic 1.7% (4.6)% (0.1)% (2.5)%
Currency 7.4% (2.9)% 5.7% (2.1)%
Total 9.1% (7.5)% 5.6% (4.6)%
Total Company
Organic 3.2% (1.9)% 2.7% (0.3)%
Currency 5.0% (1.9)% 3.6% (1.4)%
Total 8.2% (3.8)% 6.3% (1.7)%
SEGMENT PROFIT
ID Solutions$ 36,970 $ 32,633 $ 106,896 $ 94,676
Workplace Safety 7,537 5,120 21,037 17,615
Total$ 44,507 $ 37,753 $ 127,933 $ 112,291
SEGMENT PROFIT AS A PERCENT OF SALES
ID Solutions 17.4% 16.6% 17.0% 16.1%
Workplace Safety 8.7% 6.5% 8.5% 7.5%
Total 14.9% 13.7% 14.6% 13.6%
Three Months Ended April 30, Nine Months Ended April 30,
2018 2017 2018 2017
Total segment profit$ 44,507 $ 37,753 $ 127,933 $ 112,291
Unallocated amounts:
Administrative costs (6,798) (6,203) (20,017) (17,571)
Investment and other income 31 453 1,303 560
Interest expense (761) (1,375) (2,453) (4,565)
Earnings before income taxes$ 36,979 $ 30,628 $ 106,766 $ 90,715

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

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Source: Brady Corporation

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