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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 
 
 
FORM 8-K
 
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 21, 2019
 
 
 
BRADY CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
Commission File Number 1-14959
 
 
 
Wisconsin
 
39-0971239
(State of
Incorporation)
 
(IRS Employer
Identification No.)
6555 West Good Hope Road
Milwaukee, Wisconsin 53223
(Address of Principal Executive Offices and Zip Code)
(414) 358-6600
(Registrant’s Telephone Number)
 
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR 230.405) or Rule 12b-2 or the Securities Exchange Act of 1934 (17 CFR 240.12b-2).
Emerging growth company  ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨






Item 2.02
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On February 21, 2019, Brady Corporation (the “Company”) issued a press release announcing its fiscal 2019 second quarter financial results. A copy of the press release is being furnished to the Securities and Exchange Commission as Exhibit 99.1 attached hereto and is incorporated herein by reference.

Item 7.01
REGULATION FD DISCLOSURE

On February 21, 2019, the Company hosted a conference call related to its fiscal 2019 second quarter financial results. A copy of the slides referenced in the conference call, which is also posted on the Corporation’s website, is being furnished to the Securities and Exchange Commission as Exhibit 99.2 attached hereto and is incorporated herein by reference.
Item 9.01
FINANCIAL STATEMENTS AND EXHIBITS

(d) Exhibits
EXHIBIT NUMBER
DESCRIPTION
99.1
99.2

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
BRADY CORPORATION
 
 
 
 
 
 
Date: February 21, 2019
 
/s/ AARON J. PEARCE
 
 
Aaron J. Pearce
 
 
Chief Financial Officer and Treasurer



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EXHIBIT 99.1


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


Brady Corporation Reports Fiscal 2019 Second Quarter Results and Increases its Fiscal 2019 EPS Guidance

Organic revenues increased 2.3 percent in the second quarter of fiscal 2019.
Earnings before income taxes increased 4.8 percent to $36.7 million in the second quarter of fiscal 2019 compared to $35.0 million in the same quarter of the prior year.
Earnings per diluted Class A Nonvoting Common Share were $0.55 in the second quarter of fiscal 2019 compared to $0.08 in the same quarter of the prior year. Results in the same quarter of the prior year were reduced by approximately $0.40 due to income tax charges primarily related to U.S. tax legislation that was enacted in December 2017.
Diluted EPS guidance for the full year ending July 31, 2019 was increased to a range of $2.25 to $2.35 from the previous range of $2.20 to $2.30.

MILWAUKEE (February 21, 2019)--Brady Corporation (NYSE: BRC) (“Brady” or “Company”), a world leader in identification solutions, today reported its financial results for its fiscal 2019 second quarter ended January 31, 2019.

Quarter Ended January 31, 2019 Financial Results:
Earnings before income taxes increased 4.8 percent to $36.7 million for the quarter ended January 31, 2019, compared to $35.0 million in the same quarter last year.
Net earnings for the quarter ended January 31, 2019 were $29.2 million compared to $4.3 million in the same quarter last year. Net earnings during the prior year quarter ended January 31, 2018 were reduced by $21.1 million due to income tax charges primarily related to the passage of the U.S. Tax Cuts and Jobs Act of 2017.
Net earnings per diluted Class A Nonvoting Common Share were $0.55 for the second quarter of fiscal 2019 compared to $0.08 in the same quarter last year. The impact on income tax expense for the prior year quarter ended January 31, 2018 from tax charges primarily related to the enactment of the U.S. tax legislation was a reduction in earnings per diluted share of approximately $0.40.
Sales for the quarter ended January 31, 2019 decreased 1.9 percent, which consisted of organic sales growth of 2.3 percent, a decrease in sales of 2.6 percent from foreign currency translation, and a decline in sales of 1.6 percent from the divestiture of a business during the fourth quarter of fiscal 2018. Sales for the quarter ended January 31, 2019 were $282.4 million compared to $287.8 million in the same quarter last year. By segment, sales increased 1.3 percent in Identification Solutions and decreased 10.0 percent in Workplace Safety, which consisted of





organic sales growth of 3.6 percent in Identification Solutions and an organic sales decline of 0.9 percent in Workplace Safety.

Six-Month Period Ended January 31, 2019 Financial Results:
Earnings before income taxes increased 9.7 percent to $76.6 million for the six-month period ended January 31, 2019, compared to $69.8 million for the six-month period ended January 31, 2018.
Net earnings for the six-month period ended January 31, 2019 were $59.9 million compared to $30.1 million for the six-month period ended January 31, 2018. Net earnings during the prior year six-month period ended January 31, 2018 were reduced by $21.1 million due to income tax charges primarily related to the enactment of the U.S. tax legislation.
Net earnings per diluted Class A Nonvoting Common Share were $1.13 for the six-month period ended January 31, 2019 compared to $0.57 in the same six-month period last year. The impact on income tax expense for the prior six-month period ended January 31, 2018 from tax charges primarily related to the enactment of the U.S. tax legislation was a reduction in diluted EPS of approximately $0.40.
Sales for the six-month period ended January 31, 2019 decreased 0.4 percent, which consisted of organic sales growth of 3.5 percent, a decrease in sales of 2.2 percent from foreign currency translation, and a reduction in sales of 1.7 percent from the divestiture of a business during the fourth quarter of 2018. Sales for the six-month period ended January 31, 2019 were $575.6 million compared to $577.9 million in the same six-month period last year. By segment, sales increased 2.7 percent in Identification Solutions and decreased 8.3 percent in Workplace Safety, which consisted of organic sales growth of 4.6 percent in Identification Solutions and 0.6 percent in Workplace Safety.

Commentary:
“Our investment in the development of innovative, high-quality products is paying off as we continue to grow organic sales and improve our new product pipeline. This organic growth, combined with our focus on driving efficiencies throughout our factories and our selling, general, and administrative structure are driving our pre-tax profit improvements,” said Brady’s President and Chief Executive Officer, J. Michael Nauman. “Our focus is on a consistent set of priorities, which are to continue to invest in innovative new products to grow organic sales, to invest in automation in our manufacturing facilities, to drive sustainable efficiencies throughout our operations and SG&A structure, and to improve our underperforming businesses. We remain committed to taking actions today that we believe will result in continued long-term improvement in our financial results.”
“Brady’s cash position and balance sheet remain strong. At January 31, 2019 we had over $200 million of cash on hand and are in a net cash position of $150.6 million,” said Brady’s Chief Financial Officer, Aaron Pearce. “During the quarter, we continued our commitment of investing back into our business to drive organic sales growth by increasing our investment in new machinery, equipment, and facilities by 31.1 percent when compared to the same quarter in the prior year. We invested over $11 million in research and development and remain on track to increase research and development spend by approximately 6 percent for the year ending July 31, 2019. We also





returned $11.2 million to our shareholders in the form of dividends and repurchased $1.3 million of stock in the quarter. Our balance sheet provides flexibility to invest in growth opportunities to drive long-term value for our shareholders.”
 
Fiscal 2019 Guidance:
The Company is increasing its full year fiscal 2019 earnings per diluted Class A Nonvoting Common Share guidance from its previous range of $2.20 to $2.30 to a range of $2.25 to $2.35. Included in this guidance is organic sales growth of 3.0 percent to 5.0 percent, a full-year income tax rate of 22 percent to 24 percent, 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 $30 million to $35 million during the year ending July 31, 2019. This guidance is based upon foreign currency exchange rates as of January 31, 2019.

A webcast regarding Brady’s fiscal 2019 second 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 January 31,
 
Six months ended January 31,
 
2019
 
2018
 
2019
 
2018
Net sales
$
282,426

 
$
287,780

 
$
575,622

 
$
577,931

Cost of products sold
142,616

 
144,088

 
289,273

 
288,174

Gross margin
139,810

 
143,692

 
286,349

 
289,757

Operating expenses:
 
 
 
 
 
 
 
Research and development
11,074

 
11,314

 
22,400

 
21,834

Selling, general and administrative
92,706

 
97,582

 
187,297

 
197,716

Total operating expenses
103,780

 
108,896

 
209,697

 
219,550

 
 
 
 
 
 
 
 
Operating income
36,030

 
34,796

 
76,652

 
70,207

 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Investment and other income
1,377

 
1,056

 
1,360

 
1,272

Interest expense
(717
)
 
(829
)
 
(1,429
)
 
(1,692
)
 
 
 
 
 
 
 
 
Earnings before income taxes
36,690

 
35,023

 
76,583

 
69,787

 
 
 
 
 
 
 
 
Income tax expense
7,463

 
30,750

 
16,719

 
39,678

 
 
 
 
 
 
 
 
Net earnings
$
29,227

 
$
4,273

 
$
59,864

 
$
30,109

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net earnings per Class A Nonvoting Common Share:
 
 
 
 
 
 
 
Basic
$
0.56

 
$
0.08

 
$
1.14

 
$
0.58

Diluted
$
0.55

 
$
0.08

 
$
1.13

 
$
0.57

Dividends
$
0.21

 
$
0.21

 
$
0.43

 
$
0.42

 
 
 
 
 
 
 
 
Net earnings per Class B Voting Common Share:
 
 
 
 
 
 
 
Basic
$
0.56

 
$
0.08

 
$
1.13

 
$
0.57

Diluted
$
0.55

 
$
0.08

 
$
1.11

 
$
0.56

Dividends
$
0.21

 
$
0.21

 
$
0.41

 
$
0.40

 
 
 
 
 
 
 
 
Weighted average common shares outstanding (in thousands):
 
 
 
 
 
 
 
Basic
52,532

 
51,698

 
52,366

 
51,569

Diluted
53,206

 
52,719

 
53,082

 
52,551






BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
 
January 31, 2019
 
July 31, 2018
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
202,209

 
$
181,427

Accounts receivable—net
161,981

 
161,282

Inventories
118,519

 
113,071

Prepaid expenses and other current assets
18,973

 
15,559

Total current assets
501,682

 
471,339

Property, plant and equipment—net
99,378

 
97,945

Goodwill
417,240

 
419,815

Other intangible assets
39,652

 
42,588

Deferred income taxes
7,076

 
7,582

Other
18,312

 
17,662

Total
$
1,083,340

 
$
1,056,931

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
60,504

 
$
66,538

Wages and amounts withheld from employees
41,510

 
67,619

Taxes, other than income taxes
7,145

 
8,318

Accrued income taxes
4,426

 
3,885

Other current liabilities
50,103

 
44,567

Total current liabilities
163,688

 
190,927

Long-term obligations
51,610

 
52,618

Other liabilities
64,661

 
61,274

Total liabilities
279,959

 
304,819

Stockholders’ equity:
 
 
 
Class A nonvoting common stock—Issued 51,261,487 shares, and outstanding 49,101,192 and 48,393,617 shares, respectively
513

 
513

Class B voting common stock—Issued and outstanding, 3,538,628 shares
35

 
35

Additional paid-in capital
328,978

 
325,631

Retained earnings
588,918

 
553,454

Treasury stock—2,160,295 and 2,867,870 shares, respectively of Class A nonvoting common stock, at cost
(54,498
)
 
(71,120
)
Accumulated other comprehensive loss
(60,565
)
 
(56,401
)
Total stockholders’ equity
803,381

 
752,112

Total
$
1,083,340

 
$
1,056,931







BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
 
Six months ended January 31,
 
2019
 
2018
Operating activities:
 
 
 
Net earnings
$
59,864

 
$
30,109

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
11,909

 
12,840

Non-cash portion of stock-based compensation expense
7,805

 
5,897

Deferred income taxes
4,423

 
26,028

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
2,562

 
(10,945
)
Inventories
(6,602
)
 
(4,150
)
Prepaid expenses and other assets
(2,310
)
 
(3,153
)
Accounts payable and accrued liabilities
(34,055
)
 
(12,695
)
Income taxes
592

 
(1,471
)
Net cash provided by operating activities
44,188

 
42,460

 
 
 
 
Investing activities:
 
 
 
Purchases of property, plant and equipment
(12,127
)
 
(8,469
)
Other
(452
)
 
(729
)
Net cash used in investing activities
(12,579
)
 
(9,198
)
 
 
 
 
Financing activities:
 
 
 
Payment of dividends
(22,263
)
 
(21,373
)
Proceeds from exercise of stock options
17,317

 
9,948

Proceeds from borrowing on credit facilities
5,737

 
17,439

Repayment of borrowing on credit facilities
(5,688
)
 
(57,314
)
Other
(5,154
)
 
(2,342
)
Net cash used in financing activities
(10,051
)
 
(53,642
)
 
 
 
 
Effect of exchange rate changes on cash
(776
)
 
1,763

 
 
 
 
Net increase (decrease) in cash and cash equivalents
20,782

 
(18,617
)
Cash and cash equivalents, beginning of period
181,427

 
133,944

 
 
 
 
Cash and cash equivalents, end of period
$
202,209

 
$
115,327






BRADY CORPORATION AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited; Dollars in thousands)
 
Three months ended January 31,
 
Six months ended January 31,
 
2019
 
2018
 
2019
 
2018
NET SALES
 
 
 
 
 
 
 
ID Solutions
$
209,205

 
$
206,432

 
$
427,304

 
$
416,137

Workplace Safety
73,221

 
81,348

 
148,318

 
161,794

Total
$
282,426

 
$
287,780

 
$
575,622

 
$
577,931

 
 
 
 
 
 
 
 
SALES INFORMATION
 
 
 
 
 
 
 
ID Solutions
 
 
 
 
 
 
 
Organic
3.6
 %
 
4.7
 %
 
4.6
 %
 
3.8
 %
Currency
(2.3
)%
 
3.4
 %
 
(1.9
)%
 
2.3
 %
Total
1.3
 %
 
8.1
 %
 
2.7
 %
 
6.1
 %
Workplace Safety
 
 
 
 
 
 
 
Organic
(0.9
)%
 
(0.5
)%
 
0.6
 %
 
(1.0
)%
Currency
(3.3
)%
 
6.1
 %
 
(2.9
)%
 
4.7
 %
Divestitures
(5.8
)%
 
 %
 
(6.0
)%
 
 %
Total
(10.0
)%
 
5.6
 %
 
(8.3
)%
 
3.7
 %
Total Company
 
 
 
 
 
 
 
Organic
2.3
 %
 
3.2
 %
 
3.5
 %
 
2.4
 %
Currency
(2.6
)%
 
4.2
 %
 
(2.2
)%
 
3.0
 %
Divestitures
(1.6
)%
 
 %
 
(1.7
)%
 
 %
Total
(1.9
)%
 
7.4
 %
 
(0.4
)%
 
5.4
 %
 
 
 
 
 
 
 
 
SEGMENT PROFIT
 
 
 
 
 
 
 
ID Solutions
$
37,857

 
$
34,088

 
$
79,419

 
$
69,925

Workplace Safety
4,661

 
7,055

 
10,202

 
13,500

Total
$
42,518

 
$
41,143

 
$
89,621

 
$
83,425

 
 
 
 
 
 
 
 
SEGMENT PROFIT AS A PERCENT OF NET SALES
 
 
 
 
 
 
 
ID Solutions
18.1
 %
 
16.5
 %
 
18.6
 %
 
16.8
 %
Workplace Safety
6.4
 %
 
8.7
 %
 
6.9
 %
 
8.3
 %
Total
15.1
 %
 
14.3
 %
 
15.6
 %
 
14.4
 %

 
Three months ended January 31,
 
Six months ended January 31,
 
2019
 
2018
 
2019
 
2018
Total segment profit
$
42,518

 
$
41,143

 
$
89,621

 
$
83,425

Unallocated amounts:
 
 
 
 
 
 
 
Administrative costs
(6,488
)
 
(6,347
)
 
(12,969
)
 
(13,218
)
Investment and other income
1,377

 
1,056

 
1,360

 
1,272

Interest expense
(717
)
 
(829
)
 
(1,429
)
 
(1,692
)
Earnings before income taxes
$
36,690

 
$
35,023

 
$
76,583

 
$
69,787




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Brady Corporation F’19 Q2 Financial Results February 21, 2019
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Forward-Looking Statements 2 In this presentation, 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.
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Q2 F’19 Financial Summary 3 • Sales were $282.4M in Q2 of F’19 compared with $287.8M in Q2 of F’18. – Organic sales increased 2.3%. – Foreign currency translation decreased sales 2.6%. – Sale of business decreased sales 1.6%. • Gross profit margin of 49.5% in Q2 of F’19 compared with 49.9% in Q2 of F’18. • SG&A expense of $92.7M (32.8% of sales) in Q2 of F’19 compared with $97.6M (33.9% of sales) in Q2 of F’18. • R&D expense of $11.1M (3.9% of sales) in Q2 of F’19 compared with $11.3M (3.9% of sales) in Q2 of F’18. • Earnings before income taxes increased 4.8% to $36.7M in Q2 of F’19 compared with $35.0M in Q2 of F’18. • Net earnings were $29.2M in Q2 of F’19 compared with $4.3M in Q2 of F’18. – Q2 F’18 negatively impacted by $21.1M of tax charges. • Net earnings per Class A Diluted Nonvoting Common Share were $0.55 in Q2 of F’19 compared with $0.08 in Q2 of F’18. – Q2 F’18 negatively impacted by $0.40 of tax charges.
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Sales Overview 4 SALES (millions of USD) $305 $298 $297 $295 $293 $289 $290 $288 $285 $282 $276 $275 $268 $265 $255 Q2 F'17 Q3 F'17 Q4 F'17 Q1 F'18 Q2 F'18 Q3 F'18 Q4 F'18 Q1 F'19 Q2 F'19 Organic Sales 1.3% (1.9%) 3.0% 1.7% 3.2% 3.2% 2.5% 4.7% 2.3% Growth Q2 F’19 SALES: Q2 F’19 SALES COMMENTARY: • 2.3% increase in organic sales: • ID Solutions - Organic sales increased in all three regions. • ID Solutions – Organic sales increased 3.6%. • Workplace Safety - Organic sales increased in Europe • Workplace Safety – Organic sales decreased and Australia and declined in North America. 0.9%. • Foreign currency translation had a negative impact on • 2.6% decrease due to foreign currency translation. sales in the quarter. • 1.6% decrease due to the sale of a business.
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Gross Profit Margin 5 GROSS PROFIT & GPM% (millions of USD) 50.7% 50.6% 50.3% 50.1% 49.9% 50.0% 49.7% 49.6% 49.5% $151 50% $150 $146 $147 $147 $144 $144 $140 $140 $134 45% $125 $100 40% Q2 F'17 Q3 F'17 Q4 F'17 Q1 F'18 Q2 F'18 Q3 F'18 Q4 F'18 Q1 F'19 Q2 F'19 Q2 F’19 – GROSS PROFIT MARGIN: • Slight decline in GPM from 49.9% in Q2 of F’18 to 49.5% in Q2 of F’19. • Costs increased in certain areas including freight and personnel. • We continue to invest in automation and manufacturing optimization to offset cost increases.
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SG&A Expense 6 SG&A EXPENSE AND SG&A EXPENSE AS A % of SALES (millions of USD) 35.3% 35.7% 33.9% 34.1% $110 34.5% 35% 33.4% 32.8% $102 32.3% $100 33% $98 $98 $100 $97 30.6% $95 $95 $93 30% $91 $90 28% $80 25% Q2 F'17 Q3 F'17 Q4 F'17 Q1 F'18 Q2 F'18 Q3 F'18 Q4 F'18 Q1 F'19 Q2 F'19 Q2 F’19 – SG&A EXPENSE: • SG&A expense was $92.7M (32.8% of sales) in Q2 of F’19 compared to $97.6M (33.9% of sales) in Q2 of F’18. • SG&A expense is down in absolute dollars as a result of foreign currency translation, the sale of a business in the fourth quarter of F’18, and due to on-going efficiency gains. • We continue to drive sustainable efficiency gains in administrative expenses and non-customer facing selling expenses while investing in sales-generating resources.
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R&D Expense 7 R&D EXPENSE AND R&D EXPENSE AS A % of SALES (millions of USD) $14.0 3.9% 3.9% 3.9% 3.9% 4.0% 3.8% 3.9% 3.6% $12.0 3.6% $11.7 $11.7 3.5% $11.3 $11.3 $11.0 $11.1 $10.5 3.5% $10.0 $10.0 $9.5 3.0% $8.0 $6.0 2.5% Q2 F'17 Q3 F'17 Q4 F'17 Q1 F'18 Q2 F'18 Q3 F'18 Q4 F'18 Q1 F'19 Q2 F'19 INCREASING OUR INVESTMENT IN RESEARCH & DEVELOPMENT:DEVELOPMENT: • Investing in R&D to drive future organic sales growth. • Improved new product pipeline. • Anticipate R&D expense to be up approximately 6% for the full year ending July 31, 2019.
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Earnings Before Income Taxes 8 EARNINGS BEFORE INCOME TAXES (millions of USD) $45.2 $45 $39.9 $40 $37.0 $35.9 $36.7 $34.8 $35.0 $35 $30.6 $30 $29.1 $25 $20 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 F'17 F'17 F'17 F'18 F'18 F'18 F'18 F'19 F'19 Year on Year Growth 42.2% 3.2% 12.2% 12.2% 20.4% 20.7% 26.0% 14.8% 4.8% EARNINGS BEFORE INCOME TAXES: • Earnings before income taxes increased 4.8% to $36.7M in Q2 of F’19 compared to $35.0M in Q2 of F’18. • The increase in pre-tax earnings was primarily driven by organic sales growth and reductions in SG&A expenses.
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Net Earnings & Earnings per Share 9 NET EARNINGS (millions of USD) NET EARNINGS PER CLASS A DILUTED SHARE $40 $0.66 $35.0 $0.58 $0.60 $0.55 $30.6 $29.2 $30 $0.49 $0.48 $0.49 $0.49 $25.3 $25.2 $25.8 $26.0 $0.43 $22.6 $0.40 $20 $0.20 $10 $4.3 $0.08 $0 $0.00 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 F'17 F'17 F'17 F'18 F'18 F'18 F'18 F'19 F'19 F'17 F'17 F'17 F'18 F'18 F'18 F'18 F'19 F'19 Q2 F’19 – NET EARNINGS & EPS: • Net earnings increased to $29.2M in Q2 of F’19 compared to $4.3M in Q2 of F’18. • Diluted EPS increased to $0.55 in Q2 of F’19 compared to $0.08 in Q2 of F’18. • Net earnings in Q2 of F’18 includes a tax charge of $21.1M, or $0.40 of diluted EPS from the enactment of the U.S. Tax Cuts and Jobs Act.
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Cash Generation & Uses 10 CASH FLOW FROM OPERATING ACTIVITIES (millions of USD) CASH FLOWS IN Q2 OF F’19: • Cash flow from operating activities was $25.4M $60 $52.9 $53.8 in Q2 of F’19 compared to $7.7M in Q2 of F’18. $50 $46.8 $37.8 • Free cash flow* was $19.3M in Q2 of F’19 $40 $34.7 compared to $3.0M in Q2 of F’18. $30 $25.4 • The increase in cash flow from operating $19.3 $18.8 $20 activities was primarily due to the change in $7.7 timing of the annual incentive payments. In $10 F’19, a portion of the annual incentive awards $0 was paid in Q1 whereas all incentive Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 compensation payments were made in Q2 of the F'17 F'17 F'17 F'18 F'18 F'18 F'18 F'19 F'19 prior year. % of Net Earnings 76% 168% 210% 134% 181% 180% 154% 54% 87% (millions of USD) 3 Mos. Ended 3 Mos. Ended 6 Mos. Ended 6 Mos. Ended Jan. 31, 2019 Jan. 31, 2018 Jan. 31, 2019 Jan. 31, 2018 Cash Balance - Beginning of Period $ 192.2 $ 142.2 $ 181.4 $ 133.9 Cash Flow from Operating Activities 25.4 7.7 44.2 42.4 Capital Expenditures (6.1) (4.7) (12.1) (8.5) Dividends (11.2) (10.7) (22.3) (21.3) Debt Borrowings (Repayments) - Net (3.5) (27.9) - (39.9) Effect of Exchange Rates on Cash 2.3 3.7 (0.8) 1.8 Other 3.1 5.0 11.8 6.9 Cash Balance - End of Period $ 202.2 $ 115.3 $ 202.2 $ 115.3 * Free Cash Flow is calculated as Net Cash Provided by Operating Activities less Capital Expenditures.
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Net Cash (Debt) 11 NET CASH (DEBT) (millions of USD) DEBT STRUCTURE (millions of USD) $151 $138 $140 $129 Interest Jan. 31, 2019 July 31, 2018 Rate Balance Balance $90 $73 Private Placements: EUR-den. 2010 Series (10-yr.) 4.24% $ (51.6) $ (52.6) $48 $44 TOTAL DEBT $ (51.6) $ (52.6) $40 $26 Cash and Cash Equivalents 202.2 181.4 NET CASH $ 150.6 $ 128.8 -$10 $(9) $(38) -$60 Q2 F'17 Q3 F'17 Q4 F'17 Q1 F'18 Q2 F'18 Q3 F'18 Q4 F'18 Q1 F'19 Q2 F'19 STRONG BALANCE SHEET: • January 31, 2019 cash = $202.2M and debt = $51.6M. • Net cash increased $12.8M in Q2 of F’19. • Approximately $76M of cash is held in the United States. • Balance sheet provides flexibility for future investments.
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Full-Year F’19 Guidance 12 F’19 Diluted EPS guidance increased to $2.25 to $2.35 (previous guidance range was $2.20 to $2.30). F’19 Guidance Assumptions: • Full-year organic sales growth of approximately 3% - 5%. • Full-year depreciation and amortization expense of approximately $26M. • Full-year income tax rate range of 22% - 24%. • Full-year capital expenditures of approximately $30M - $35M.
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Identification Solutions 13 Q2 F’19 vs. Q2 F’18 (millions of USD) Q2 F’19 SUMMARY: • Revenues increased 1.3%: Q2 F’19 Q2 F’18 Change • Organic = +3.6% Sales $ 209.2 $ 206.4 + 1.3% • Fx = - (2.3)% Segment Profit 37.9 34.1 + 11.1% • Organic sales increased in the mid-single digits in the Americas and Asia and increased in the low-single Segment Profit % 18.1% 16.5% + 160 bps digits in Europe. • R&D expenses were up due to increased investments to develop innovative products. • Segment profit as a percent of sales increased due to SALES & SEGMENT PROFIT % (millions of USD) ongoing efficiency gains in our operations and SG&A $240 20% structure. 17% 18% 17% 17% 19% 18% $230 17% 17% 17% 15% $218 16% $220 $218 $211 $210 $212 $209 14% $210 $206 OUTLOOK: 12% $200 $197 • Expect F’19 organic sales to grow from 4% to 5%. 10% $191 • Anticipate further increases in investments in R&D $190 8% and certain sales-generating resources. $180 6% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 F'17 F'17 F'17 F'18 F'18 F'18 F'18 F'19 F'19
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Workplace Safety 14 Q2 F’19 vs. Q2 F’18 (millions of USD) Q2 F’19 SUMMARY: • Revenues decreased (10.0%): Q2 F’19 Q2 F’18 Change • Organic = - (0.9%) Sales $ 73.2 $ 81.3 - 10.0% • Fx = - (3.3%) Segment Profit 4.7 7.1 - 33.9% • Divestiture = - (5.8%) Segment Profit % 6.4% 8.7% - 230 bps • Organic sales increased in the mid-single digits in Australia, increased in the low-single digits in Europe and decreased in the high-single digits in North America. SALES & SEGMENT PROFIT % (millions of USD) • Segment profit negatively impacted by organic sales decline, foreign currency translation, certain costs to 13% 14% right-size the cost structure, and the sale of the $100 Runelandhs business in Q4 of F’18. 12% $95 10% 9% 9% 10% $90 8% 8% 7% 6% $86 8% 6% $85 OUTLOOK: 6% $80 $81 $80 $79 $80 • Expect F’19 organic sales to grow from 1% to 3%. $77 $78 4% $75 • Anticipate Europe and Australia to continue to $75 $73 2% perform well while our Americas business continues $70 0% its choppy recovery. Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 F'17 F'17 F'17 F'18 F'18 F'18 F'18 F'19 F'19
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Investor Relations 15 Brady Contact: Ann Thornton Investor Relations 414-438-6887 Ann_Thornton@bradycorp.com See our web site at www.bradycorp.com
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