Brady Corporation Reports Fiscal 2016 First Quarter Results and Increases Share Buyback Program

  • GAAP net earnings of $18.7 million in the first quarter of fiscal 2016 compared to GAAP and non-GAAP earnings from continuing operations* of $15.5 million and $18.4 million, respectively, in the same quarter of the prior year.
  • First quarter organic revenue decline of 2.2 percent.
  • Earnings per diluted Class A Nonvoting Common Share of $0.37 in the first quarter of fiscal 2016 compared to GAAP and non-GAAP earnings from continuing operations per diluted Class A Nonvoting Common Share* of $0.30 and $0.36, respectively, in the same quarter of the prior year.
  • Returned $16.2 million to shareholders through share repurchases and $10.2 million in the form of dividends.
  • Net cash provided by operating activities was $30.4 million during the first quarter of fiscal 2016, compared to $18.6 million in the same quarter of the prior year.
  • Share buyback program increased to a total share repurchase authorization of up to 2 million shares of the Company’s Class A Common Stock.

MILWAUKEE--()--Brady Corporation (NYSE: BRC) (“Brady” or “Company”), a world leader in identification solutions, today reported its financial results for its fiscal 2016 first quarter ended October 31, 2015.

Quarter Ended October 31, 2015 Financial Results:

Net earnings for the quarter ended October 31, 2015 were $18.7 million compared to earnings from continuing operations of $15.5 million in the same quarter last year. Non-GAAP earnings from continuing operations* were $18.4 million for the quarter ended October 31, 2014.

Earnings per diluted Class A Nonvoting Common Share were $0.37 for the first quarter ended October 31, 2015 compared to earnings from continuing operations per diluted Class A Nonvoting Common Share of $0.30 in the same quarter last year. Non-GAAP earnings from continuing operations per diluted Class A Nonvoting Common Share* were $0.36 for the quarter ended October 31, 2014.

Sales for the quarter ended October 31, 2015 decreased 8.8 percent to $283.1 million compared to $310.2 million in the first quarter of fiscal 2015. Total organic sales decreased 2.2 percent and foreign currency translation decreased sales by 6.6 percent. By segment, organic sales decreased 2.4 percent in Identification Solutions and decreased 1.7 percent in Workplace Safety.

Share Buyback Program:

On November 18, 2015, Brady’s Board of Directors authorized an increase in the Company’s share buyback program, authorizing the repurchase of up to a total of two million shares of the Company’s Class A Common Stock, inclusive of the shares in the existing share buyback program. The share buyback plan may be implemented from time to time on the open market or in privately negotiated transactions.

Commentary:

“We’re seeing positive gross margin and net earnings impacts from our activities to improve operational efficiencies. In addition, we’re making significant progress improving the overall buying experience for our customers, which as we’ve stated is a top priority for fiscal 2016,” said Brady’s President and Chief Executive Officer, J. Michael Nauman. “Organic sales declined in both business segments in the first quarter, and although we expect that our growth initiatives and slightly easier comparables will improve our year-over-year organic sales growth rate in the second half of the fiscal year, we ultimately expect organic sales growth to be challenged by macro-economic conditions in certain industrial markets and geographies, including North America. We will remain focused on enhancing efficiency and building an organization where local teams are empowered to own and are held accountable for their financial results, which will help us to successfully compete over the long term.”

“Our continuous drive to increase efficiency is offsetting the net earnings impact of our organic sales decline. We are seeing gross margin benefits from our activities to improve productivity and we are seeing steady improvements in selling, general and administrative expenses,” said Brady’s Chief Financial Officer, Aaron Pearce. “Our cash flow is strong. During the quarter ended October 31, 2015, we generated net cash from operating activities of $30.4 million, returned $10.2 million to our shareholders in the form of dividends, and repurchased 807,692 shares at an average price of $20 per share, all while maintaining our strong balance sheet with a conservative net debt-to-EBITDA ratio of 1.1 to 1.”

Fiscal 2016 Guidance:

The Company’s earnings per diluted Class A Nonvoting Common Share guidance for the year ending July 31, 2016 remains unchanged at $1.10 to $1.30. Included in this guidance is slightly down organic sales for the balance of fiscal 2016 which is reflective of economic challenges in certain industrial markets and geographies, including North America. Offsetting this weaker sales outlook are efficiency gains in the Company’s manufacturing facilities as well as increased efficiencies in selling, general, and administrative expenses. This guidance is based on exchange rates as of October 31, 2015, a full-year income tax rate in the upper 20 percent range, capital expenditures of approximately $25 million, and depreciation and amortization of up to approximately $40 million.

A webcast regarding Brady’s fiscal 2016 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, 2015, employed approximately 6,400 people in its worldwide businesses. Brady’s fiscal 2015 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.

* See accompanying notes for Non-GAAP measures.

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: implementation of the Workplace Safety strategy; Brady’s ability to develop and successfully market technologically advanced new products; risks associated with restructuring plans and maintaining acceptable operational service metrics; technology changes and potential security violations to the Company’s information technology systems; future competition; future financial performance of major markets Brady serves, which include, without limitation, telecommunications, hard disk drive, manufacturing, electrical, construction, laboratory, education, governmental, public utility, computer, healthcare and transportation; fluctuations in currency rates versus the U.S. dollar; risks associated with international operations; difficulties associated with exports; changes in the supply of, or price for, parts and components; increased price pressure from suppliers and customers; Brady’s ability to retain significant contracts and customers; risk associated with loss of key talent; risks associated with obtaining governmental approvals and maintaining regulatory compliance; risk associated with product liability claims; environmental, health and safety compliance costs and liabilities; potential write-offs of Brady’s substantial intangible assets; unforeseen tax consequences; risks associated with divestitures; risks associated with identifying, completing, and integrating acquisitions; risks associated with our ownership structure; Brady’s ability to maintain compliance with its debt covenants; increase in our level of debt; and 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, 2015.

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,
2015 2014
Net sales $ 283,073 $ 310,240
Cost of products sold   143,724     160,079  
Gross margin 139,349 150,161
Operating expenses:
Research and development 8,569 9,631
Selling, general and administrative 100,678 109,279
Restructuring charges       4,278  
Total operating expenses 109,247 123,188
 
Operating income 30,102 26,973
 
Other (expense) income:
Investment and other (expense) income (759 ) 323
Interest expense   (2,151 )   (2,891 )
 
Earnings from continuing operations before income taxes 27,192 24,405
 
Income tax expense   8,489     8,906  
 
Earnings from continuing operations $ 18,703 $ 15,499
 
Loss from discontinued operations, net of income taxes       (1,915 )
 
Net earnings $ 18,703   $ 13,584  
 
Earnings from continuing operations per Class A Nonvoting Common Share:
Basic $ 0.37 $ 0.30
Diluted $ 0.37 $ 0.30
 
Earnings from continuing operations per Class B Voting Common Share:
Basic $ 0.35 $ 0.29
Diluted $ 0.35 $ 0.29
 
Loss from discontinued operations per Class A Nonvoting Common Share:
Basic $ $ (0.03 )
Diluted $ $ (0.04 )
 
Loss from discontinued operations per Class B Voting Common Share:
Basic $ $ (0.04 )
Diluted $ $ (0.04 )
 
Net Earnings per Class A Nonvoting Common Share:
Basic $ 0.37 $ 0.27
Diluted $ 0.37 $ 0.26
Dividends $ 0.20 $ 0.20
 
Net Earnings per Class B Voting Common Share:
Basic $ 0.35 $ 0.25
Diluted $ 0.35 $ 0.25
Dividends $ 0.19 $ 0.18
 
Weighted average common shares outstanding (in thousands):
Basic 51,029 51,251
Diluted 51,089 51,313
   
BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands)
October 31, 2015 July 31, 2015

ASSETS

Current assets:
Cash and cash equivalents $ 110,610 $ 114,492
Accounts receivable—net 159,174 157,386
Inventories:
Finished products 63,500 66,700
Work-in-process 17,458 16,958
Raw materials and supplies   21,059     20,849  
Total inventories 102,017 104,507
Prepaid expenses and other current assets   35,407     32,197  
Total current assets 407,208 408,582
Other assets:
Goodwill 430,972 433,199
Other intangible assets 66,242 68,888
Deferred income taxes 20,811 22,310
Other 17,508 18,704
Property, plant and equipment:
Cost:
Land 5,097 5,284
Buildings and improvements 93,803 94,423
Machinery and equipment 257,602 270,086
Construction in progress   2,901     2,164  
359,403 371,957
Less accumulated depreciation   253,295     260,743  
Property, plant and equipment—net   106,108     111,214  
Total $ 1,048,849   $ 1,062,897  

LIABILITIES AND STOCKHOLDERS’ INVESTMENT

Current liabilities:
Notes payable $ 9,173 $ 10,411
Accounts payable 72,703 73,020
Wages and amounts withheld from employees 29,726 30,282
Taxes, other than income taxes 7,026 7,250
Accrued income taxes 9,609 7,576
Other current liabilities 41,723 38,194
Current maturities on long-term debt       42,514  
Total current liabilities 169,960 209,247
Long-term obligations, less current maturities 241,434 200,774
Other liabilities   64,697     65,188  
Total liabilities 476,091 475,209
Stockholders’ investment:
Common stock:
Class A nonvoting common stock—Issued 51,261,487 and 51,261,487 shares, respectively and outstanding 47,040,129 and 47,781,184 shares, respectively 513 513
Class B voting common stock—Issued and outstanding, 3,538,628 shares 35 35
Additional paid-in capital 313,879 314,403
Earnings retained in the business 422,589 414,069
Treasury stock—4,221,358 and 3,480,303 shares, respectively of Class A nonvoting

common stock, at cost

(107,420 ) (93,234 )
Accumulated other comprehensive loss (53,426 ) (45,034 )
Other   (3,412 )   (3,064 )
Total stockholders’ investment   572,758     587,688  
Total $ 1,048,849   $ 1,062,897  
   
BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
Three months ended October 31,
2015 2014
Operating activities:
Net earnings $ 18,703 $ 13,584
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 8,889 10,123
Non-cash portion of stock-based compensation expense 2,596 1,319
Non-cash portion of restructuring charges 196
Loss on sale of business, net 426
Deferred income taxes 726 2,346
Changes in operating assets and liabilities (net of effects of business acquisitions/divestitures):
Accounts receivable (3,342 ) (3,916 )
Inventories 1,368 (7,077 )
Prepaid expenses and other assets (3,081 ) (2,999 )
Accounts payable and accrued liabilities 2,402 2,897
Income taxes   2,109     1,705  
Net cash provided by operating activities 30,370 18,604
 
Investing activities:
Purchases of property, plant and equipment (2,334 ) (11,451 )
Sale of business, net of cash retained 8,771
Other   1,539     592  
Net cash used in investing activities (795 ) (2,088 )
 
Financing activities:
Payment of dividends (10,183 ) (10,191 )
Proceeds from issuance of common stock 91
Purchase of treasury stock (16,160 )
Net (repayments) proceeds from borrowing on credit facilities (2,738 ) 33,286
Debt issuance costs (803 )
Income tax on equity-based compensation, and other   (1,007 )   (1,296 )
Net cash (used in) provided by financing activities (30,891 ) 21,890
 
Effect of exchange rate changes on cash (2,566 ) (3,766 )
 
Net (decrease) increase in cash and cash equivalents (3,882 ) 34,640
Cash and cash equivalents, beginning of period   114,492     81,834  
 
Cash and cash equivalents, end of period $ 110,610   $ 116,474  
 
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,144 $ 3,032
Income taxes, net of refunds 4,533 7,323
 
BRADY CORPORATION AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited; Dollars in thousands)
   
Three Months Ended October 31,
2015 2014
SALES TO EXTERNAL CUSTOMERS
ID Solutions $ 196,327 $ 212,097
Workplace Safety   86,746     98,143  
Total $ 283,073   $ 310,240  
 
SALES INFORMATION
ID Solutions
Organic (2.4 )% 2.4 %
Currency   (5.0 )%   (1.2 )%
Total   (7.4 )%   1.2 %
Workplace Safety
Organic (1.7 )% 2.4 %
Currency   (9.9 )%   (2.2 )%
Total   (11.6 )%   0.2 %
Total Company
Organic (2.2 )% 2.4 %
Currency   (6.6 )%   (1.5 )%
Total   (8.8 )%   0.9 %
 
SEGMENT PROFIT
ID Solutions $ 40,004 $ 43,467
Workplace Safety   16,664       15,539  
Total $ 56,668     $ 59,006  
SEGMENT PROFIT AS A PERCENT OF SALES
ID Solutions 20.4 % 20.5 %
Workplace Safety   19.2 %   15.8 %
Total   20.0 %   19.0 %
 
 
Three Months Ended October 31,
2015 2014
Total segment profit $ 56,668 $ 59,006
Unallocated amounts:
Administrative costs (26,566 ) (27,755 )
Restructuring charges - (4,278 )
Investment and other (expense) income (759 ) 323
Interest expense   (2,151 )   (2,891 )
Earnings from continuing operations before income taxes $ 27,192   $ 24,405  
 
GAAP to NON-GAAP MEASURES
(Unaudited; Dollars in Thousands, Except Per Share Amounts)
                 
In accordance with the U.S. Securities and Exchange Commission’s Regulation G, the following provides definitions of the non-GAAP measures used in the earnings release and the reconciliation to the most closely related GAAP measure.
 
 
Earnings from Continuing Operations Before Income Taxes Excluding Certain Items:
Brady is presenting the Non-GAAP measure "Earnings from Continuing Operations Before Income Taxes Excluding Certain Items." This is not a calculation based upon GAAP. The amounts included in this Non-GAAP measure are derived from amounts included in the Condensed Consolidated Financial Statements and supporting footnote disclosures. We do not view these items to be part of our sustainable results. We believe this profit measure provides an important perspective of underlying business trends and results and provides a more comparable measure from year to year. The table below provides a reconciliation of Earnings from Continuing Operations Before Income Taxes to Earnings from Continuing Operations Before Income Taxes Excluding Certain Items:
 
Three Months Ended October 31,
2015 2014
Earnings from Continuing Operations Before Income Taxes (GAAP measure) $ 27,192 $ 24,405
Restructuring charges     4,278

Earnings from Continuing Operations Before Income Taxes Excluding Certain Items (non-GAAP measure)

$ 27,192 $ 28,683
 
 
Income Taxes on Continuing Operations Excluding Certain Items:
Brady is presenting the Non-GAAP measure "Income Taxes on Continuing Operations Excluding Certain Items." This is not a calculation based upon GAAP. The amounts included in this Non-GAAP measure are derived from amounts included in the Condensed Consolidated Financial Statements and supporting footnote disclosures. We do not view these items to be part of our sustainable results. We believe this measure provides an important perspective of underlying business trends and results and provides a more comparable measure from year to year. The table below provides a reconciliation of Income Taxes on Continuing Operations to Income Taxes on Continuing Operations Excluding Certain Items:
 
Three Months Ended October 31,
2015 2014
Income Taxes on Continuing Operations (GAAP measure) $ 8,489 $ 8,906
Restructuring charges     1,331
Income Taxes on Continuing Operations Excluding Certain Items (non-GAAP measure) $ 8,489 $ 10,237
 
 
Net Earnings from Continuing Operations Excluding Certain Items:
Brady is presenting the Non-GAAP measure "Net Earnings from Continuing Operations Excluding Certain Items." This is not a calculation based upon GAAP. The amounts included in this Non-GAAP measure are derived from amounts included in the Condensed Consolidated Financial Statements and supporting footnote disclosures. We do not view these items to be part of our sustainable results. We believe this measure provides an important perspective of underlying business trends and results and provides a more comparable measure from year to year. The table below provides a reconciliation of Net Earnings from Continuing Operations to Net Earnings from Continuing Operations Excluding Certain Items:
 
Three Months Ended October 31,
2015 2014
Net Earnings from Continuing Operations (GAAP measure) $ 18,703 $ 15,499
Restructuring charges     2,947
Net Earnings from Continuing Operations Excluding Certain Items (non-GAAP measure) $ 18,703 $ 18,446
 
 
Net Earnings from Continuing Operations Per Diluted Class A Nonvoting Common Share Excluding Certain Items:
Brady is presenting the Non-GAAP measure "Net Earnings from Continuing Operations Per Diluted Class A Nonvoting Common Share Excluding Certain Items." This is not a calculation based upon GAAP. The amounts included in this Non-GAAP measure are derived from amounts included in the Condensed Consolidated Financial Statements. We do not view these items to be part of our sustainable results. We believe this measure provides an important perspective of underlying business trends and results and provides a more comparable measure from year to year. The table below provides a reconciliation of Net Earnings from Continuing Operations Per Diluted Class A Nonvoting Common Share to Net Earnings from Continuing Operations Per Diluted Class A Nonvoting Common Share Excluding Certain Items:
 
Three Months Ended October 31,
2015 2014
Net Earnings from Continuing Operations Per Diluted Class A Nonvoting Common Share (GAAP measure) $ 0.37 $ 0.30
Restructuring charges     0.06

Net Earnings from Continuing Operations Per Diluted Class A Nonvoting Common Share Excluding Certain Items (non-GAAP measure)

$ 0.37 $ 0.36

Contacts

Brady Corporation
Investor contact:
Ann Thornton, 414-438-6887
or
Media contact:
Carole Herbstreit, 414-438-6882

Contacts

Brady Corporation
Investor contact:
Ann Thornton, 414-438-6887
or
Media contact:
Carole Herbstreit, 414-438-6882