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Brady Corporation Reports Fiscal 2016 Second Quarter Results and Increases its Fiscal 2016 EPS Guidance

  • Earnings per diluted Class A Nonvoting Common Share of $0.30 in the second quarter of fiscal 2016 were up 30.4 percent and 3.4 percent compared to GAAP and non-GAAP earnings from continuing operations per diluted Class A Nonvoting Common Share* of $0.23 and $0.29, respectively, in the same quarter of the prior year.
  • Organic revenue growth of 0.4 percent for the quarter ended January 31, 2016.
  • Net cash provided by operating activities was $27.9 million during the second quarter of fiscal 2016, compared to $5.3 million in the same quarter of the prior year.
  • Returned $10.2 million to shareholders in the form of dividends and $7.2 million through the repurchase of 338,579 shares during the quarter ended January 31, 2016.
  • Earnings per diluted Class A Common Share guidance for the full year ending July 31, 2016, increased to a range of $1.20 to $1.35.

MILWAUKEE--(BUSINESS WIRE)--Feb. 19, 2016-- Brady Corporation (NYSE: BRC) (“Brady” or “Company”), a world leader in identification solutions, today reported its financial results for its fiscal 2016 second quarter ended January 31, 2016.

Quarter Ended January 31, 2016 Financial Results:

Net earnings for the quarter ended January 31, 2016, were $15.3 million compared to $11.6 million in the same quarter last year. Non-GAAP net earnings* were $15.0 million for the quarter ended January 31, 2015.

Earnings per diluted Class A Nonvoting Common Share were $0.30 for the second quarter ended January 31, 2016, compared to $0.23 in the same quarter last year. Non-GAAP earnings per diluted Class A Nonvoting Common Share* were $0.29 for the quarter ended January 31, 2015.

Sales for the quarter ended January 31, 2016, decreased 5.0 percent to $268.6 million compared to $282.6 million in the second quarter of fiscal 2015. Total organic sales increased 0.4 percent and foreign currency translation decreased sales by 5.4 percent. By segment, organic sales increased 0.7 percent in Identification Solutions and decreased 0.1 percent in Workplace Safety.

Six-Month Period Ended January 31, 2016 Financial Results:

Net earnings for the six-month period ended January 31, 2016, were $34.0 million compared to $25.2 million in the same period last year. Non-GAAP earnings from continuing operations* were $33.5 million for the six-month period ended January 31, 2015.

Earnings per diluted Class A Nonvoting Common Share were $0.67 for the six-month period ended January 31, 2016, compared to earnings from continuing operations per diluted Class A Nonvoting Common Share of $0.53 in the same period in fiscal 2015. Non-GAAP earnings from continuing operations per diluted Class A Nonvoting Common Share* were $0.65 for the six-month period ended January 31, 2015.

Sales for the six-month period ended January 31, 2016, decreased 6.9 percent to $551.7 million compared to $592.9 million in the same period in fiscal 2015. Total organic sales decreased 0.9 percent and the impact of foreign currency translation decreased sales by 6.0 percent. Organic sales decreased 0.9 percent in both the Identification Solutions and Workplace Safety segments.

Share Buyback Program:

On February 16, 2016, Brady’s Board of Directors authorized an increase in the Company’s share buyback program, bringing the amount of the Company’s Class A Common Stock authorized for repurchase up to a total of two million shares, 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:

“Our focus on operational efficiency and local accountability resulted in increased organic sales and net earnings in the second quarter. Our GAAP EPS increased 30.4 percent and our Non-GAAP EPS* increased 3.4 percent when compared with the second quarter of last year. We continue making improvements in our customer service metrics while gaining efficiencies throughout the organization,” said Brady’s President and Chief Executive Officer, J. Michael Nauman. “Although organic sales increased in the second quarter, we expect to continue to be challenged by macro-economic conditions in certain industrial markets and geographies, including the U.S., Canada, Brazil, and China, which will continue to work against our efforts to improve results. Our top priorities include growing our pipeline of innovative new products while delivering operational efficiencies, which will position Brady to compete successfully and deliver improved results to our shareholders. These results include our efforts to invest properly in creating complete solutions for our customers’ current and future needs. We are pleased that we have been able to improve our performance while simultaneously driving a longer-term vision.”

“Our focus on driving increased cash flow is apparent in our second quarter financial results where net cash provided by operating activities increased more than 400 percent over the second quarter of last year. Our year-to-date net cash provided by operating activities has more than doubled as we finished with $58.3 million for the six-month period ended January 31, 2016, compared with $23.9 million for the same period last year,” said Brady’s Chief Financial Officer, Aaron Pearce. “In the first six months of this year, we have returned $20.4 million to our shareholders in the form of dividends and we have repurchased 1,146,271 shares for a total of $23.4 million, all while reducing our net debt position by $6.7 million since the start of this fiscal year. We will continue to be diligent in the allocation of our capital with our first priority being to drive organic growth and our remaining priorities to return funds to our shareholders in the form of dividends and to execute share buybacks in an opportunistic manner to ensure that our uses of cash are generating incremental value for our shareholders.”

Fiscal 2016 Guidance:

The Company is increasing its earnings per share guidance for the full year ending July 31, 2016, and currently anticipates earnings per diluted Class A Common Share to range from $1.20 to $1.35. Included in this guidance is a low-single digit decline in organic sales for the full fiscal year, which is reflective of economic challenges in certain industrial markets and geographies. Offsetting the weaker sales outlook are expected efficiency gains in the Company’s manufacturing facilities as well as improvements in selling, general and administrative expenses. This guidance is based upon exchange rates as of January 31, 2016, a full-year income tax rate in the mid-to-upper 20 percent range, depreciation and amortization of approximately $35 million to $38 million, and capital expenditures of approximately $17 million to $20 million.

A webcast regarding Brady’s fiscal 2016 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, 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; 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 restructuring plans and maintaining acceptable operational service metrics; 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 January 31,   Six months ended January 31,
2016 2015 2016 2015
Net sales $ 268,630 $ 282,628 $ 551,703 $ 592,868
Cost of products sold   135,738     144,425     279,462     304,503  
Gross margin 132,892 138,203 272,241 288,365
Operating expenses:
Research and development 9,097 8,948 17,666 18,579
Selling, general and administrative 100,206 107,565 200,884 216,846
Restructuring charges       4,879         9,157  
Total operating expenses 109,303 121,392 218,550 244,582
 
Operating income 23,589 16,811 53,691 43,783
 
Other (expense) income:
Investment and other (expense) income (992 ) 211 (1,751 ) 535
Interest expense   (2,130 )   (3,000 )   (4,281 )   (5,891 )
 
Earnings from continuing operations before income taxes 20,467 14,022 47,659 38,427
 
Income tax expense   5,177     2,438     13,666     11,344  
 
Earnings from continuing operations $ 15,290 $ 11,584 $ 33,993 $ 27,083
 
Loss from discontinued operations, net of income taxes               (1,915 )
 
Net earnings $ 15,290   $ 11,584   $ 33,993   $ 25,168  
 
Earnings from continuing operations per Class A Nonvoting Common Share:
Basic $ 0.30 $ 0.23 $ 0.67 $ 0.53
Diluted $ 0.30 $ 0.23 $ 0.67 $ 0.53
 
Earnings from continuing operations per Class B Voting Common Share:
Basic $ 0.30 $ 0.23 $ 0.65 $ 0.51
Diluted $ 0.30 $ 0.23 $ 0.65 $ 0.51
 
Loss from discontinued operations per Class A Nonvoting Common Share:
Basic $ $ $ $ (0.04 )
Diluted $ $ $ $ (0.04 )
 
Loss from discontinued operations per Class B Voting Common Share:
Basic $ $ $ $ (0.03 )
Diluted $ $ $ $ (0.04 )
 
Net earnings per Class A Nonvoting Common Share:
Basic $ 0.30 $ 0.23 $ 0.67 $ 0.49
Diluted $ 0.30 $ 0.23 $ 0.67 $ 0.49
Dividends $ 0.20 $ 0.20 $ 0.41 $ 0.40
 
Net earnings per Class B Voting Common Share:
Basic $ 0.30 $ 0.23 $ 0.65 $ 0.48
Diluted $ 0.30 $ 0.23 $ 0.65 $ 0.47
Dividends $ 0.20 $ 0.20 $ 0.39 $ 0.38
 
Weighted average common shares outstanding (in thousands):
Basic 50,527 51,272 50,778 51,262
Diluted 50,647 51,348 50,868 51,330
   
BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands)
January 31, 2016 July 31, 2015

ASSETS

Current assets:
Cash and cash equivalents $ 120,198 $ 114,492
Accounts receivable—net 150,615 157,386
Inventories:
Finished products 62,127 66,700
Work-in-process 15,445 16,958
Raw materials and supplies   21,681     20,849  
Total inventories 99,253 104,507
Prepaid expenses and other current assets   35,843     32,197  
Total current assets 405,909 408,582
Other assets:
Goodwill 427,460 433,199
Other intangible assets 63,630 68,888
Deferred income taxes 16,333 22,310
Other 16,497 18,704
Property, plant and equipment:
Cost:
Land 5,012 5,284
Buildings and improvements 92,672 94,423
Machinery and equipment 258,044 270,086
Construction in progress   2,577     2,164  
358,305 371,957
Less accumulated depreciation   256,849     260,743  
Property, plant and equipment—net   101,456     111,214  
Total $ 1,031,285   $ 1,062,897  

LIABILITIES AND STOCKHOLDERS’ INVESTMENT

Current liabilities:
Notes payable $ 4,974 $ 10,411
Accounts payable 66,189 73,020
Wages and amounts withheld from employees 33,767 30,282
Taxes, other than income taxes 6,682 7,250
Accrued income taxes 5,091 7,576
Other current liabilities 40,429 38,194
Current maturities on long-term debt   -     42,514  
Total current liabilities 157,132 209,247
Long-term obligations, less current maturities 247,689 200,774
Other liabilities   63,976     65,188  
Total liabilities 468,797 475,209
Stockholders’ investment:
Common stock:
Class A nonvoting common stock—Issued 51,261,487 and 51,261,487 shares, respectively and outstanding 46,705,559 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 314,905 314,403
Earnings retained in the business 427,637 414,069

Treasury stock—4,555,928 and 3,480,303 shares, respectively of Class A nonvoting common stock, at cost

(114,547 ) (93,234 )
Accumulated other comprehensive loss (62,355 ) (45,034 )
Other   (3,700 )   (3,064 )
Total stockholders’ investment   562,488     587,688  
Total $ 1,031,285   $ 1,062,897  
   
BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
Six months ended January 31,
2016 2015
Operating activities:
Net earnings $ 33,993 $ 25,168
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 17,502 20,066
Non-cash portion of stock-based compensation expense 4,569 2,471
Non-cash portion of restructuring charges 896
Loss on sale of business, net 426
Deferred income taxes 3,338 (781 )
Changes in operating assets and liabilities (net of effects of business acquisitions/divestitures):
Accounts receivable 3,204 10,918
Inventories 3,403 (10,840 )
Prepaid expenses and other assets (3,811 ) (3,053 )
Accounts payable and other liabilities (1,618 ) (15,423 )
Income taxes   (2,326 )   (5,918 )
Net cash provided by operating activities 58,254 23,930
 
Investing activities:
Purchases of property, plant and equipment (3,928 ) (17,808 )
Sale of business, net of cash retained 6,111
Other   2,521     4,173  
Net cash used in investing activities (1,407 ) (7,524 )
 
Financing activities:
Payment of dividends (20,425 ) (20,449 )
Proceeds from issuance of common stock 53 847
Purchase of treasury stock (23,397 )
Net (repayments) proceeds from borrowing on credit facilities (437 ) 29,428
Debt issuance costs (803 )
Income tax on equity-based compensation, and other   (1,299 )   (3,830 )
Net cash (used in) provided by financing activities (46,308 ) 5,996
 
Effect of exchange rate changes on cash (4,833 ) (10,937 )
 
Net increase in cash and cash equivalents 5,706 11,465
Cash and cash equivalents, beginning of period   114,492     81,834  
 
Cash and cash equivalents, end of period $ 120,198   $ 93,299  
       
BRADY CORPORATION AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited; Dollars in thousands)
 
Three Months Ended January 31, Six Months Ended January 31,
2016 2015 2016 2015
SALES TO EXTERNAL CUSTOMERS
ID Solutions $ 184,880 $ 192,065 $ 381,207 $ 404,162
Workplace Safety   83,750     90,563     170,496     188,706  
Total $ 268,630   $ 282,628   $ 551,703   $ 592,868  
 
SALES INFORMATION
ID Solutions
Organic 0.7 % 1.9 % (0.9 )% 2.1 %
Currency   (4.4 )%   (3.3 )%   (4.8 )%   (2.1 )%
Total   (3.7 )%   (1.4 )%   (5.7 )%   %
Workplace Safety
Organic (0.1 )% 0.6 % (0.9 )% 1.5 %
Currency   (7.4 )%   (6.7 )%   (8.7 )%   (4.5 )%
Total   (7.5 )%   (6.1 )%   (9.6 )%   (3.0 )%
Total Company
Organic 0.4 % 1.4 % (0.9 )% 1.9 %
Currency   (5.4 )%   (4.3 )%   (6.0 )%   (2.9 )%
Total   (5.0 )%   (2.9 )%   (6.9 )%   (1.0 )%
 
SEGMENT PROFIT
ID Solutions $ 37,004 $ 35,719 $ 77,008 $ 79,186
Workplace Safety   13,395     12,776     30,059     28,315  
Total $ 50,399   $ 48,495   $ 107,067   $ 107,501  
SEGMENT PROFIT AS A PERCENT OF SALES
ID Solutions 20.0 % 18.6 % 20.2 % 19.6 %
Workplace Safety   16.0 %   14.1 %   17.6 %   15.0 %
Total   18.8 %   17.2 %   19.4 %   18.1 %
 
 
Three Months Ended January 31, Six Months Ended January 31,
2016 2015 2016 2015
Total segment profit $ 50,399 $ 48,495 $ 107,067 $ 107,501
Unallocated amounts:
Administrative costs (26,810 ) (26,805 ) (53,376 ) (54,561 )
Restructuring charges - (4,879 ) - (9,157 )
Investment and other (expense) income (992 ) 211 (1,751 ) 535
Interest expense   (2,130 )   (3,000 )   (4,281 )   (5,891 )
Earnings from continuing operations before income taxes $ 20,467   $ 14,022   $ 47,659   $ 38,427  
           
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 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 January 31, Six Months Ended January 31,
2016 2015 2016 2015
Earnings from Continuing Operations Before Income Taxes (GAAP measure) $ 20,467 $ 14,022 $ 47,659 $ 38,427
Restructuring charges - 4,879 - 9,157
       

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

$ 20,467 $ 18,901 $ 47,659 $ 47,584
 
 
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 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 January 31, Six Months Ended January 31,
2016 2015 2016 2015
Income Taxes on Continuing Operations (GAAP measure) $ 5,177 $ 2,438 $ 13,666 $ 11,344
Restructuring charges - 1,434 - 2,770

 

       

Income Taxes on Continuing Operations Excluding Certain Items (non-GAAP measure)

$ 5,177 $ 3,872 $ 13,666 $ 14,114
 
 
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 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 January 31, Six Months Ended January 31,
2016 2015 2016 2015
Net Earnings from Continuing Operations (GAAP measure) $ 15,290 $ 11,584 $ 33,993 $ 27,083
Restructuring charges - 3,445 - 6,387

 

       

Net Earnings from Continuing Operations Excluding Certain Items (non- GAAP measure)

$ 15,290 $ 15,029 $ 33,993 $ 33,470
 
 
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 January 31, Six Months Ended January 31,
2016 2015 2016

2015

Net Earnings from Continuing Operations Per Diluted Class A $ 0.30 $ 0.23 $ 0.67 $ 0.53
Nonvoting Common Share (GAAP measure)
Restructuring charges - 0.07 - 0.12

 

       

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

$ 0.30 $ 0.29 $ 0.67 $ 0.65

Source: Brady Corporation

Brady Corporation
Investor contact:
Ann Thornton, 414-438-6887
or
Media contact:
Kate Venne, 414-358-5176

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