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Brady Corporation Reports Fiscal 2015 First Quarter Results

  • First quarter organic revenue growth of 2.4 percent, with consistent organic growth in both Workplace Safety and Identification Solutions.
  • Non-GAAP earnings from continuing operations per diluted Class A Nonvoting Common Share* of $0.36 during the quarter ended October 31, 2014 compared to $0.43 in the same quarter of the prior year. Non-GAAP earnings from continuing operations per diluted Class A Nonvoting Common Share* in the first quarter of fiscal 2015 was impacted by a tax rate of approximately 36%.
  • Fiscal 2015 Non-GAAP earnings from continuing operations per diluted Class A Nonvoting Common Share* guidance is reconfirmed at a range from $1.50 to $1.70.

MILWAUKEE--(BUSINESS WIRE)--Nov. 20, 2014-- Brady Corporation (NYSE: BRC) (“Brady” or “Company”), a world leader in identification solutions, today reported its financial results for its fiscal 2015 first quarter ended October 31, 2014.

Quarter Ended October 31, 2014 Financial Results:

Sales for the quarter ended October 31, 2014 increased 0.9 percent to $310.2 million compared to the first quarter of fiscal 2014. Total organic sales increased 2.4 percent and foreign currency translation decreased sales by 1.5 percent.

Earnings from continuing operations for the quarter ended October 31, 2014 were $15.5 million compared to $18.1 million in the same quarter last year. Non-GAAP net earnings from continuing operations* for the quarter ended October 31, 2014, were $18.4 million compared to $22.8 million in the same quarter last year.

Net earnings from continuing operations per Class A Nonvoting Common Share were $0.30 for the first quarter ended October 31, 2014 compared to $0.35 in the same quarter last year. Non-GAAP earnings from continuing operations per diluted Class A Nonvoting Common Share* were $0.36 in the first quarter of fiscal 2015 and $0.43 per share in the first quarter of fiscal 2014.

Commentary:

“We were encouraged by our revenue growth in the first quarter, which marks the third consecutive quarter of organic sales growth,” said Brady President and Chief Executive Officer, J. Michael Nauman. “Although we had organic sales growth, we continued to incur costs related to the consolidation of our manufacturing facilities and have been experiencing challenges in terms of sales mix. We have scaled back our facility consolidation efforts and our remaining facility consolidation activities will be executed in a manner that will allow us to maintain the highest service levels and least disruptions to our customers while still achieving efficiency gains over the long run. We expect to incur additional incremental costs from these facility consolidation activities in the near-term and expect to complete our facility consolidation activities by July 31, 2015. We are focused on executing business fundamentals to drive organic sales growth and improve profitability while investing in research and development, focusing on selected markets to drive organic growth, and building an improved, scalable digital platform that will generate value for Brady and its customers.”

“During the quarter ended October 31, 2014, we generated cash flow from operating activities of $18.6 million, returned $10.2 million to our shareholders in the form of dividends and we reduced our net debt position by $7.2 million, further strengthening our balance sheet. Looking forward, we expect to deploy a prioritized capital allocation approach, whereby our first priority will be to invest in organic growth initiatives followed by returning funds to our shareholders through dividends. Share buybacks are expected to be our third priority for cash deployment and will be conducted in an opportunistic manner. We do not anticipate acquisitions to be a significant use of cash in the near-term,” said Brady’s Chief Financial Officer, Aaron J. Pearce.

Fiscal 2015 Guidance:

The Company anticipates low single-digit organic sales growth in fiscal 2015, with organic sales growth in both the Identification Solutions and Workplace Safety platforms. Brady also expects earnings from continuing operations per diluted Class A Nonvoting Common Share of between $1.50 and $1.70, exclusive of restructuring charges and other non-routine charges. This guidance is based on current exchange rates and a full-year income tax rate in the mid-to-upper 20 percent range. The Company also anticipates approximately $15 million of restructuring charges and capital expenditures of approximately $30 million in fiscal 2015.

A webcast regarding Brady’s fiscal 2015 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, education, medical and a variety of other industries. Brady is headquartered in Milwaukee, Wisconsin and as of August 1, 2014, employed approximately 6,400 people in its worldwide businesses. Brady’s fiscal 2014 sales were approximately $1.23 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 healthcare strategy; implementation of the Workplace Safety strategy; future competition; risks associated with restructuring plans; 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; technology changes and potential security violations to the Company's information technology system; fluctuations in currency rates versus the U.S. dollar; risks associated with international operations; difficulties associated with exports; Brady's ability to develop and successfully market new products; risks associated with identifying, completing, and integrating acquisitions; 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 divestitures and businesses held for sale; 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; risks associated with our ownership structure; unforeseen tax consequences; 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, 2014.

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,
2014 2013
Net sales $ 310,240 $ 307,530
Cost of products sold   160,079     149,683  
Gross margin 150,161 157,847
Operating expenses:
Research and development 9,631 8,587
Selling, general and administrative 109,279 112,733
Restructuring charges   4,278     6,840  
Total operating expenses 123,188 128,160
 
Operating income 26,973 29,687
 
Other income and (expense):
Investment and other income 323 762
Interest expense   (2,891 )   (3,720 )
 
Earnings from continuing operations before income taxes 24,405 26,729
 
Income tax expense   8,906     8,595  
 
Earnings from continuing operations $ 15,499 $ 18,134
 
(Loss) earnings from discontinued operations, net of income taxes   (1,915 )   5,794  
 
Net earnings $ 13,584   $ 23,928  
 
Earnings from continuing operations per Class A Nonvoting Common Share:
Basic $ 0.30 $ 0.35
Diluted $ 0.30 $ 0.35
 
Earnings from continuing operations per Class B Voting Common Share:
Basic $ 0.29 $ 0.33
Diluted $ 0.29 $ 0.33
 
(Loss) earnings from discontinued operations per Class A Nonvoting Common Share:
Basic $ (0.03 ) $ 0.11
Diluted $ (0.04 ) $ 0.11
 
(Loss) earnings from discontinued operations per Class B Voting Common Share:
Basic $ (0.04 ) $ 0.11
Diluted $ (0.04 ) $ 0.11
 
Net Earnings per Class A Nonvoting Common Share:
Basic $ 0.27 $ 0.46
Diluted $ 0.26 $ 0.46
Dividends $ 0.20 $ 0.195
 
Net Earnings per Class B Voting Common Share:
Basic $ 0.25 $ 0.44
Diluted $ 0.25 $ 0.44
Dividends $ 0.183 $ 0.178
 
Weighted average common shares outstanding (in thousands):
Basic 51,251 52,071
Diluted 51,313 52,419
   
BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands)
October 31, 2014 July 31, 2014

ASSETS

Current assets:
Cash and cash equivalents $ 116,474 $ 81,834
Accounts receivable—net 174,926 177,648
Inventories:
Finished products 74,428 73,096
Work-in-process 19,271 17,689
Raw materials and supplies   24,109     22,490  
Total inventories 117,808 113,275
Assets held for sale 49,542
Prepaid expenses and other current assets   43,475     41,543  
Total current assets 452,683 463,842
Other assets:
Goodwill 501,794 515,004
Other intangible assets 86,651 91,014
Deferred income taxes 23,094 27,320
Other 21,633 22,314
Property, plant and equipment:
Cost:
Land 7,710 7,875
Buildings and improvements 106,636 101,866
Machinery and equipment 292,183 288,409
Construction in progress   10,331     12,500  
416,860 410,650
Less accumulated depreciation   280,277     276,479  
Property, plant and equipment—net   136,583     134,171  
Total $ 1,222,438   $ 1,253,665  

LIABILITIES AND STOCKHOLDERS’ INVESTMENT

Current liabilities:
Notes payable $ 94,708 $ 61,422
Accounts payable 84,199 88,099
Wages and amounts withheld from employees 33,596 38,064
Liabilities held for sale 10,640
Taxes, other than income taxes 7,890 7,994
Accrued income taxes 9,227 7,893
Other current liabilities 46,362 35,319
Current maturities on long-term debt   42,514     42,514  
Total current liabilities 318,496 291,945
Long-term obligations, less current maturities 153,476 159,296
Other liabilities   69,472     69,348  
Total liabilities 541,444 520,589
Stockholders’ investment:
Common stock:
Class A nonvoting common stock—Issued 51,261,487 and 51,261,487 shares, respectively and outstanding 47,714,986 and 47,704,196 shares, respectively 513 513
Class B voting common stock—Issued and outstanding, 3,538,628 shares 35 35
Additional paid-in capital 314,128 311,811
Earnings retained in the business 455,450 452,057

Treasury stock—3,546,501 and 3,477,291 shares, respectively of Class A nonvoting common stock, at cost

 

(95,011 ) (93,337 )
Accumulated other comprehensive income 8,565 64,156
Other   (2,686 )   (2,159 )
Total stockholders’ investment   680,994     733,076  
Total $ 1,222,438   $ 1,253,665  
   
BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
Three months ended October 31,
2014 2013
Operating activities:
Net earnings $ 13,584 $ 23,928
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 10,123 10,878
Non-cash portion of stock-based compensation expense 1,319 2,600
Non-cash portion of restructuring charges 196
Loss on sale of business, net 426
Deferred income taxes 2,346 (2,421 )
Changes in operating assets and liabilities (net of effects of business acquisitions/divestitures):
Accounts receivable (3,916 ) (18,551 )
Inventories (7,077 ) (12,461 )
Prepaid expenses and other assets (2,999 ) (5,372 )
Accounts payable and accrued liabilities 2,897 25,903
Income taxes   1,705     1,089  
Net cash provided by operating activities 18,604 25,593
 
Investing activities:
Purchases of property, plant and equipment (11,451 ) (9,086 )
Sale of business, net of cash retained 8,771
Other   592     (70 )
Net cash used in investing activities (2,088 ) (9,156 )
 
Financing activities:
Payment of dividends (10,191 ) (10,149 )
Proceeds from issuance of common stock 91 5,209
Proceeds from borrowings on notes payable 41,000
Repayment of borrowings on notes payable (7,714 ) (24,000 )
Income tax on the exercise of stock options and deferred compensation distribution, and other   (1,296 )   (719 )
Net cash provided by (used in) financing activities 21,890 (29,659 )
 
Effect of exchange rate changes on cash (3,766 ) 4,033
 
Net increase (decrease) in cash and cash equivalents 34,640 (9,189 )
Cash and cash equivalents, beginning of period   81,834     91,058  
 
Cash and cash equivalents, end of period $ 116,474   $ 81,869  
 
Supplemental disclosures:
Cash paid during the period for:
Interest $ 3,032 $ 4,151
Income taxes, net of refunds 7,323 10,006
   
BRADY CORPORATION AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited; Dollars in thousands)
 
Three Months Ended October 31,
2014 2013
SALES TO EXTERNAL CUSTOMERS
ID Solutions $ 212,097 $ 209,546
Workplace Safety   98,143     97,984  
Total $ 310,240   $ 307,530  
 
SALES INFORMATION
ID Solutions
Organic 2.4 % 3.3 %
Currency (1.2 )% (0.3 )%
Acquisitions   %   26.0 %
Total   1.2 %   29.0 %
Workplace Safety
Organic 2.4 % (10.0 )%
Currency (2.2 )% (0.6 )%
Acquisitions   %   %
Total   0.2 %   (10.6 )%
Total Company
Organic 2.4 % (2.1 )%
Currency (1.5 )% (0.4 )%
Acquisitions   %   15.6 %
Total   0.9 %   13.1 %
 
SEGMENT PROFIT
ID Solutions $ 43,467 $ 50,967
Workplace Safety   15,539       18,374  
Total $ 59,006     $ 69,341  
SEGMENT PROFIT AS A PERCENT OF SALES
ID Solutions 20.5 % 24.3 %
Workplace Safety   15.8 %   18.8 %
Total   19.0 %   22.5 %
 
 
Three Months Ended October 31,
2014 2013
Total segment profit $ 59,006 $ 69,341
Unallocated amounts:
Administrative costs (27,755 ) (32,814 )
Restructuring charges (4,278 ) (6,840 )
Investment and other income 323 762
Interest expense   (2,891 )   (3,720 )
Earnings from continuing operations before income taxes $ 24,405   $ 26,729  
   
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 Consolidated Financial Statements. 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,
2014 2013
Earnings from Continuing Operations Before Income Taxes (GAAP measure) $ 24,405 $ 26,729
Restructuring charges   4,278   6,840

Earnings from Continuing Operations Before Income Taxes Excluding Certain Items

(non-GAAP measure)

$ 28,683 $ 33,569
 
 
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 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 Income Taxes on Continuing Operations to Income Taxes on Continuing Operations Excluding Certain Items:
 
 
Three Months Ended October 31,
2014 2013
Income Taxes on Continuing Operations (GAAP measure) $ 8,906 $ 8,595
Restructuring charges   1,331   2,205
Income Taxes on Continuing Operations Excluding Certain Items (non-GAAP measure) $ 10,237 $ 10,800
 
 
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 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 to Net Earnings from Continuing Operations Excluding Certain Items:
 
 
Three Months Ended October 31,
2014 2013
Net Earnings from Continuing Operations (GAAP measure) $ 15,499 $ 18,134
Restructuring charges   2,947   4,635
Net Earnings from Continuing Operations Excluding Certain Items (non-GAAP measure) $ 18,446 $ 22,769
 
 
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 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,
2014 2013
Net Earnings from Continuing Operations Per Diluted Class A Nonvoting Share (GAAP measure) $ 0.30 $ 0.35
Restructuring charges   0.06   0.09
Net Earnings from Continuing Operations Per Diluted Class A Nonvoting Share Excluding Certain Items
(non-GAAP measure) $ 0.36 $ 0.43

Source: Brady Corporation

Brady Corporation
Investor contact:
Aaron Pearce, 414-438-6895
or
Media contact:
Carole Herbstreit, 414-438-6882

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