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Brady Corporation Reports its Fiscal 2018 Fourth Quarter Results and Announces its Fiscal 2019 EPS Guidance

September 13, 2018 7:00 AM

MILWAUKEE, Sept. 13, 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 fourth quarter ended July 31, 2018.

Quarter Ended July 31, 2018 Financial Results:Earnings before income taxes increased 26.0 percent to $45.2 million for the fourth quarter of fiscal 2018 compared to $35.9 million for the fourth quarter of fiscal 2017. Earnings before income taxes includes a gain on the sale of the Runelandhs business of $4.7 million in the fourth quarter of fiscal 2018. The gain on the sale represents approximately half of the increase in earnings before income taxes.

Net earnings for the quarter ended July 31, 2018, were $35.0 million compared to $25.2 million in the same quarter last year. The sale of the Runelandhs business increased net earnings by $4.7 million in the fourth quarter of fiscal 2018.

Earnings per diluted Class A Nonvoting Common Share were $0.66 for the fourth quarter of fiscal 2018, compared to $0.48 in the same quarter last year. Results were increased by approximately $0.09 per diluted Class A Nonvoting Common Share due to the sale of the Runelandhs business.

Sales for the quarter ended July 31, 2018 increased 2.9 percent to $297.5 million compared to $289.2 million in the same quarter last year. By segment, sales increased 3.1 percent in Identification Solutions and 2.3 percent in Workplace Safety, which consisted of organic sales growth of 2.4 percent in Identification Solutions and 3.0 percent in Workplace Safety.

Year Ended July 31, 2018 Financial Results:Earnings before income taxes increased 20.0 percent, finishing at $152.0 million for the year ended July 31, 2018, compared to $126.6 million last year. Fiscal 2018 results include a gain on the sale of the Runelandhs business of $4.7 million.

Net earnings for the year ended July 31, 2018, were $91.1 million compared to $95.6 million last year. During the year ended July 31, 2018, net earnings were reduced by $21.1 million due to income tax charges primarily related to the enactment of the U.S. tax legislation in the second quarter. The sale of the Runelandhs business increased net earnings by $4.7 million in the current fiscal year. The prior year ended July 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 $1.73 for the year ended July 31, 2018, compared to $1.84 in the same period last year. Fiscal 2018 results were decreased by approximately $0.40 per diluted Class A Nonvoting Common Share due to income tax charges primarily related to the enactment of the U.S. tax legislation, and results were increased by approximately $0.09 per diluted Class A Nonvoting Common Share due to the sale of the Runelandhs business. Income tax expense in the prior year was impacted by a cash repatriation which increased earnings per diluted Class A Nonvoting Common Share by approximately $0.09.

Sales for the year ended July 31, 2018 increased 5.4 percent to $1.17 billion compared to $1.11 billion for the year ended July 31, 2017. By segment, sales increased 5.7 percent in Identification Solutions and 4.7 percent in Workplace Safety, which consisted of organic sales growth of 3.4 percent in Identification Solutions and 0.7 percent in Workplace Safety.

Commentary:“This quarter marks our twelfth consecutive quarter of year-over-year pre-tax earnings growth and our fifth consecutive quarter of organic sales growth. This is a direct result of our team’s consistent focus and commitment to our strategic initiatives, which are to drive the development of high-quality products while executing sustainable efficiency gains throughout our businesses,” said Brady’s President and Chief Executive Officer, J. Michael Nauman. “We believe that continued development of innovative new products and a strong new product pipeline are essential to Brady’s long-term success and will result in future organic sales growth in both our Identification Solutions and Workplace Safety businesses. Our priorities in fiscal 2019 are to grow our pipeline of innovative new products, provide excellent customer service, accelerate organic sales growth, and deliver sustainable efficiencies throughout the business.”

“We realized benefits from our organic sales growth and our focus on operational efficiencies continues to drive profit improvements,” said Brady’s Chief Financial Officer, Aaron Pearce. “Our spending on research and development increased by 14.2 percent this fiscal year while pre-tax earnings grew by 20.0 percent this year. Even after this significant investment in research and development, we generated $143.0 million of cash from operating activities this year, which represents 157 percent of net earnings. Our cash generation was primarily used to return funds to our shareholders in the form of dividends and to strengthen our balance sheet. We finished the year in a net cash position of $128.8 million compared to a net cash position of $26.2 million at the beginning of this fiscal year. Our balance sheet continues to provide significant flexibility for investments to drive long-term shareholder value and to return funds to our shareholders.”

Fiscal 2019 Guidance:The Company expects organic sales growth to range from 2.0 percent to 4.0 percent for the year ending July 31, 2019. Brady expects earnings per diluted Class A Nonvoting Common Share to range from $2.15 to $2.25. This guidance is based upon a full-year income tax rate in the mid-20 percent range, and depreciation and amortization expense of approximately $26 million. The Company expects to achieve efficiency gains in its manufacturing facilities and in selling, general and administrative expenses while continuing to increase investments in research and development. Capital expenditures are anticipated to be approximately $35 million during the year ending July 31, 2019. The Company’s fiscal 2019 guidance is based on foreign currency exchange rates as of July 31, 2018.

A webcast regarding Brady’s fiscal 2018 fourth 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, 2018, employed approximately 6,200 people in its worldwide businesses. Brady’s fiscal 2018 sales were approximately $1.17 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; 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; litigation, including product liability claims; Brady’s ability to execute facility consolidations and maintain acceptable operational service metrics; 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, 2018.

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 July 31, Year ended July 31,
2018 2017 2018 2017
Net sales$ 297,499 $ 289,212 $ 1,173,851 $ 1,113,316
Cost of products sold 150,047 145,345 585,560 555,024
Gross margin 147,452 143,867 588,291 558,292
Operating expenses:
Research and development 11,741 11,047 45,253 39,624
Selling, general and administrative 90,931 96,525 390,342 387,653
Total operating expenses 102,672 107,572 435,595 427,277
Operating income 44,780 36,295 152,696 131,015
Other income (expense):
Investment and other income 1,184 561 2,487 1,121
Interest expense (715) (939) (3,168) (5,504)
Earnings before income taxes 45,249 35,917 152,015 126,632
Income tax expense 10,298 10,675 60,955 30,987
Net earnings$ 34,951 $ 25,242 $ 91,060 $ 95,645
Net earnings per Class A Nonvoting Common Share:
Basic $ 0.67 $ 0.49 $ 1.76 $ 1.87
Diluted $ 0.66 $ 0.48 $ 1.73 $ 1.84
Dividends$ 0.21 $ 0.21 $ 0.83 $ 0.82
Net earnings per Class B Voting Common Share:
Basic $ 0.67 $ 0.49 $ 1.75 $ 1.86
Diluted $ 0.66 $ 0.48 $ 1.72 $ 1.83
Dividends$ 0.21 $ 0.21 $ 0.81 $ 0.80
Weighted average common shares outstanding:
Basic 51,822 51,307 51,677 51,056
Diluted 52,658 52,180 52,524 51,956

BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands)
July 31, 2018 July 31, 2017
ASSETS
Current assets:
Cash and cash equivalents$ 181,427 $ 133,944
Accounts receivable—net 161,282 149,638
Inventories:
Finished products 73,133 69,760
Work-in-process 19,903 18,117
Raw materials and supplies 20,035 19,147
Total inventories 113,071 107,024
Prepaid expenses and other current assets 15,559 17,208
Total current assets 471,339 407,814
Other assets:
Goodwill 419,815 437,697
Other intangible assets 42,588 53,076
Deferred income taxes 7,582 35,456
Other 17,662 18,077
Property, plant and equipment:
Cost:
Land 6,994 7,470
Buildings and improvements 96,245 98,228
Machinery and equipment 270,989 261,192
Construction in progress 4,495 4,109
378,723 370,999
Less accumulated depreciation 280,778 272,896
Property, plant and equipment—net 97,945 98,103
Total$ 1,056,931 $ 1,050,223
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
Notes payable$ — $ 3,228
Accounts payable 66,538 66,817
Wages and amounts withheld from employees 67,619 58,192
Taxes, other than income taxes 8,318 7,970
Accrued income taxes 3,885 7,373
Other current liabilities 44,567 43,618
Total current liabilities 190,927 187,198
Long-term obligations 52,618 104,536
Other liabilities 61,274 58,349
Total liabilities 304,819 350,083
Stockholders’ investment:
Common stock:
Class A nonvoting common stock—Issued 51,261,487 and 51,261,487 shares, respectively, and outstanding 48,393,617 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 325,631 322,608
Earnings retained in the business 553,454 507,136
Treasury stock—2,867,870 and 3,446,669 shares, respectively, of Class A nonvoting common stock, at cost (71,120) (85,470)
Accumulated other comprehensive loss (56,401) (44,682)
Total stockholders’ investment 752,112 700,140
Total$ 1,056,931 $ 1,050,223

BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
Year ended July 31,
2018 2017
Operating activities:
Net earnings$ 91,060 $ 95,645
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 25,442 27,303
Non-cash portion of stock-based compensation expense 9,980 9,495
Gain on sale of business, net (4,666) —
Deferred income taxes 33,656 (8,618)
Changes in operating assets and liabilities:
Accounts receivable (16,612) 766
Inventories (7,563) (5,687)
Prepaid expenses and other assets 1,747 1,812
Accounts payable and other liabilities 13,091 22,255
Income taxes (3,093) 1,061
Net cash provided by operating activities 143,042 144,032
Investing activities:
Purchases of property, plant and equipment (21,777) (15,167)
Divestiture of business, net of cash transferred with business 19,141 —
Other (269) (86)
Net cash used in investing activities (2,905) (15,253)
Financing activities:
Payment of dividends (42,873) (41,880)
Proceeds from exercise of stock options 12,099 19,728
Proceeds from borrowing on credit facilities 23,221 180,320
Repayment of borrowing on credit facilities (78,419) (244,268)
Principal payments on debt — (49,302)
Income tax on equity-based compensation, and other (4,708) (839)
Net cash used in financing activities (90,680) (136,241)
Effect of exchange rate changes on cash (1,974) 178
Net increase (decrease) in cash and cash equivalents 47,483 (7,284)
Cash and cash equivalents, beginning of period 133,944 141,228
Cash and cash equivalents, end of period$ 181,427 $ 133,944
Supplemental disclosures:
Cash paid during the period for:
Interest$ 2,976 $ 5,766
Income taxes 33,267 31,885

BRADY CORPORATION AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited; Dollars in thousands)
Three Months Ended July 31, Year Ended July 31,
2018 2017 2018 2017
NET SALES
ID Solutions$217,796 $211,286 $846,087 $800,392
Workplace Safety 79,703 77,926 327,764 312,924
Total$297,499 $289,212 $1,173,851 $1,113,316
SALES INFORMATION
ID Solutions
Organic 2.4% 4.4% 3.4% 1.6%
Currency 0.7% (0.4)% 2.3% (1.0)%
Divestiture —% —% —% —%
Total 3.1% 4.0% 5.7% 0.6%
Workplace Safety
Organic 3.0% (0.6)% 0.7% (2.0)%
Currency 1.6% (0.6)% 4.6% (1.7)%
Divestiture (2.3)% —% (0.6)% —%
Total 2.3% (1.2)% 4.7% (3.7)%
Total Company
Organic 2.5% 3.0% 2.6% 0.5%
Currency 1.0% (0.5)% 3.0% (1.2)%
Divestiture (0.6)% —% (0.2)% —%
Total 2.9% 2.5% 5.4% (0.7)%
SEGMENT PROFIT
ID Solutions$36,515 $35,896 $143,411 $130,572
Workplace Safety 10,675 7,939 31,712 25,554
Total$47,190 $43,835 $175,123 $156,126
SEGMENT PROFIT AS A PERCENT OF SALES
ID Solutions 16.8% 17.0% 16.9% 16.3%
Workplace Safety 13.4% 10.2% 9.7% 8.2%
Total 15.9% 15.2% 14.9% 14.0%
Three Months Ended July 31, Year Ended July 31,
2018 2017 2018 2017
Total segment profit$47,190 $43,835 $175,123 $156,126
Unallocated amounts:
Administrative costs (7,076) (7,540) (27,093) (25,111)
Gain on divestiture 4,666 - 4,666 -
Investment and other income 1,184 561 2,487 1,121
Interest expense (715) (939) (3,168) (5,504)
Earnings before income taxes$45,249 $35,917 $152,015 $126,632

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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