Brady Corporation Reports Fiscal 2014 First Quarter Results

Brady Corporation (NYSE: BRC) (“Brady” or “Company”), a world leader in identification solutions, today reported its financial results for the fiscal 2014 first quarter ended October 31, 2013.

Quarter Ended October 31, 2013 Financial Results:

Sales from continuing operations for the quarter ended October 31, 2013 were up 13.0 percent to $306.0 million compared to $270.9 million in the first quarter of fiscal 2013. Organic sales were down 2.2 percent, the acquisition of Precision Dynamics Corporation (“PDC”) added 15.6 percent to sales, and the impact of foreign currency translation decreased sales by 0.4 percent. By segment, organic sales were up 3.0 percent in Identification Solutions and down 10.0 percent in Workplace Safety.

Net earnings for the quarter ended October 31, 2013 were $23.9 million compared to $27.2 million in the same quarter last year. Net earnings from continuing operations for the quarter ended October 31, 2013, were $17.4 million compared to $25.8 million in the same quarter last year. Non-GAAP net earnings from continuing operations* for the fiscal first quarter ended October 31, 2013, were $22.1 million compared to $25.8 million in the same quarter last year.

Net earnings per Class A Nonvoting Common Share were $0.46 for the first quarter ended October 31, 2013 compared to $0.53 in the same quarter last year. Earnings from continuing operations per diluted Class A Nonvoting Common Share were $0.33 for the first quarter of fiscal 2014 compared to $0.50 in the same quarter last year. Non-GAAP earnings from continuing operations per diluted Class A Nonvoting Common Share* were $0.42 in the first quarter of fiscal 2014 and $0.50 per share in the first quarter of fiscal 2013.

Commentary and Guidance:

“We completed the reorganization of our company to focus on two business platforms, Identification Solutions and Workplace Safety that will provide long-term growth for Brady. Although total sales increased 13.0 percent in our first quarter, our Workplace Safety business experienced an organic sales decline of 10.0 percent. In the fourth quarter of last year, we accelerated our investment in our Workplace Safety business to drive organic sales growth and we will be investing another $14 million in fiscal 2014 as we improve our e-commerce capabilities, expand our product offerings and enhance our pricing capabilities. We are starting to see positive signs from this accelerated investment and expect to return to organic sales growth in the second half of the year,” said Brady’s Chief Financial Officer and Interim President and Chief Executive Officer, Thomas J. Felmer. “Our Identification Solutions business remains strong as we see improvements in our Asian and European results and continue to see growth opportunities driven by our new product pipeline and increased focus on industries such as healthcare; food and beverage; chemical, oil and gas; and aerospace and mass transit.”

The Company anticipates organic sales from continuing operations in fiscal 2014 to range from a slight contraction to low single-digit growth, with organic sales down in the first half of the year and returning to growth in the second half of fiscal 2014. Guidance for earnings from continuing operations per diluted Class A Nonvoting Common Share remains unchanged at $1.80 to $2.00, exclusive of restructuring charges. This guidance is based on current exchange rates, a full-year income tax rate in the mid-to-upper 20 percent range, depreciation and amortization of approximately $45 to $50 million, and approximately $30 million of restructuring charges in fiscal 2014, the timing of which is subject to change as we execute our restructuring plan. Our guidance also includes capital expenditures of approximately $40 million in fiscal 2014.

A webcast regarding Brady’s fiscal 2014 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 premises, products and people. Brady’s products help customers increase safety, security, productivity and performance and include high-performance labels, signs, safety devices, printing systems and software, and precision die-cut materials. 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 July 31, 2013, employed approximately 7,400 people in its worldwide businesses. Brady’s fiscal 2013 sales were approximately $1.15 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; the length or severity of the current worldwide economic downturn or timing or strength of a subsequent recovery; 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; future competition; 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; fluctuations in currency rates versus the U.S. dollar; risks associated with international operations; difficulties associated with exports; risks associated with obtaining governmental approvals and maintaining regulatory compliance; Brady's ability to develop and successfully market new products; risks associated with identifying, completing, and integrating acquisitions; risks associated with divestitures and businesses held for sale; risks associated with restructuring plans; environmental, health and safety compliance costs and liabilities; risk associated with loss of key talent; risk associated with product liability claims; technology changes and potential security violations to the Company's information technology systems; Brady's ability to maintain compliance with its debt covenants; increase in our level of debt; potential write-offs of Brady's substantial intangible assets; unforeseen tax consequences; risk, associated with our ownership structure; 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, 2013.

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
(Dollars in thousands, except per share data)
       
Three months ended October 31,
2013 2012
Net sales $ 305,974 $ 270,866
Cost of products sold   149,029     121,342  
Gross margin 156,945 149,524
Operating expenses:
Research and development 8,587 7,887
Selling, general and administrative 112,687 99,009
Restructuring charges   6,840      
Total operating expenses 128,114 106,896
 
Operating income 28,831 42,628
 
Other income and (expense):
Investment and other income 762 397
Interest expense   (3,721 )   (4,163 )
 
Earnings from continuing operations before income taxes 25,872 38,862
 
Income tax expense   8,449     13,077  
 
Earnings from continuing operations $ 17,423 $ 25,785
 
Earnings from discontinued operations, net of income taxes   6,505     1,403  
 
Net earnings $ 23,928   $ 27,188  
 
Earnings from continuing operations per Class A Nonvoting Common Share:
Basic $ 0.33 $ 0.50
Diluted $ 0.33 $ 0.50
 
Earnings from continuing operations per Class B Voting Common Share:
Basic $ 0.32 $ 0.49
Diluted $ 0.32 $ 0.49
 
Earnings from discontinued operations per Class A Nonvoting Common Share:
Basic $ 0.13 $ 0.03
Diluted $ 0.13 $ 0.03
 
Earnings from discontinued operations per Class B Voting Common Share:
Basic $ 0.12 $ 0.03
Diluted $ 0.12 $ 0.02
 
Net Earnings per Class A Nonvoting Common Share:
Basic $ 0.46 $ 0.53
Diluted $ 0.46 $ 0.53
Dividends $ 0.195 $ 0.19
 
Net Earnings per Class B Voting Common Share:
Basic $ 0.44 $ 0.52
Diluted $ 0.44 $ 0.51
Dividends $ 0.178 $ 0.173
 
Weighted average common shares outstanding (in thousands):
Basic 52,071 51,039
Diluted 52,419 51,312
 
BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
    October 31, 2013     July 31, 2013

ASSETS
Current assets:
Cash and cash equivalents $ 81,869 $ 91,058
Accounts receivable—net 184,099 169,261
Inventories:
Finished products 69,085 64,544
Work-in-process 17,757 14,776
Raw materials and supplies   18,102     15,387  
Total inventories 104,944 94,707
Assets held for sale 132,616 119,864
Prepaid expenses and other current assets   46,671     37,600  
Total current assets 550,199 512,490
Other assets:
Goodwill 624,165 617,236
Other intangible assets 152,812 156,851
Deferred income taxes 10,469 8,623
Other 21,821 21,325
Property, plant and equipment:
Cost:
Land 7,978 7,861
Buildings and improvements 94,545 91,471
Machinery and equipment 270,371 266,787
Construction in progress   15,112     11,842  
388,006 377,961
Less accumulated depreciation   263,112     255,803  
Property, plant and equipment—net   124,894     122,158  
Total $ 1,484,360   $ 1,438,683  

LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
Notes payable $ 26,442 $ 50,613
Accounts payable 92,044 82,519
Wages and amounts withheld from employees 47,968 42,413
Liabilities held for sale 43,976 34,583
Taxes, other than income taxes 8,968 8,243
Accrued income taxes 8,996 7,056
Other current liabilities 39,531 36,806
Current maturities on long-term debt   61,264     61,264  
Total current liabilities 329,189 323,497
Long-term obligations, less current maturities 204,413 201,150
Other liabilities   84,784     83,239  
Total liabilities 618,386 607,886
Stockholders’ investment:
Common stock:
Class A nonvoting common stock—Issued 51,261,487 and 51,261,487 shares, respectively and outstanding 48,594,617 and 48,408,544 shares, respectively 513 513
Class B voting common stock—Issued and outstanding, 3,538,628 shares 35 35
Additional paid-in capital 308,835 306,191
Earnings retained in the business 552,291 538,512

Treasury stock—2,435,203 and 2,626,276 shares, respectively of Class A nonvoting common stock, at cost
(65,255 ) (69,797 )
Accumulated other comprehensive income 70,132 56,063
Other   (577 )   (720 )
Total stockholders’ investment   865,974     830,797  
Total $ 1,484,360   $ 1,438,683  
 
BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
    Three months ended October 31,
2013     2012
Operating activities:
Net earnings $ 23,928 $ 27,188
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 10,878 10,675
Non-cash portion of stock-based compensation expense 2,600 4,399
Loss (gain) on sales of businesses 3,138
Deferred income taxes (2,421 ) (109 )
 
Changes in operating assets and liabilities (net of effects of business acquisitions/divestitures):
Accounts receivable (18,551 ) (18,426 )
Inventories (12,461 ) (8,141 )
Prepaid expenses and other assets (5,372 ) (2,710 )
Accounts payable and accrued liabilities 25,903 6,752
Income taxes   1,089     (2,548 )
Net cash provided by operating activities 25,593 20,218
 
Investing activities:
Purchases of property, plant and equipment (9,086 ) (6,177 )
Sales of businesses, net of cash retained 10,178
Other   (70 )   (70 )
Net cash (used in) provided by investing activities (9,156 ) 3,931
 
Financing activities:
Payment of dividends (10,149 ) (9,705 )
Proceeds from issuance of common stock 5,209 1,684
Purchase of treasury stock (5,121 )
Repayment of borrowings on notes payable (24,000 )
Income tax on the exercise of stock options and deferred compensation distribution, and other   (719 )   401  
Net cash used in financing activities (29,659 ) (12,741 )
 
Effect of exchange rate changes on cash 4,033 4,001
 
Net (decrease) increase in cash and cash equivalents (9,189 ) 15,409
Cash and cash equivalents, beginning of period   91,058     305,900  
 
Cash and cash equivalents, end of period $ 81,869   $ 321,309  
 
Supplemental disclosures:
Cash paid during the period for:
Interest, net of capitalized interest $ 4,151 $ 4,953
Income taxes, net of refunds 10,006 12,199
 
BRADY CORPORATION AND SUBSIDIARIES
SEGMENT INFORMATION
(Dollars in Thousands)
       
 
Three Months Ended October 31,
2013 2012
SALES TO EXTERNAL CUSTOMERS
ID Solutions $ 207,990 $ 161,244
Workplace Safety   97,984     109,622  
Total $ 305,974   $ 270,866  
 
SALES INFORMATION
ID Solutions
Organic 3.0 % 0.4 %
Currency (0.2 )% (2.5 )%
Acquisitions   26.2 %   0.4 %
Total   29.0 %   (1.7 )%
Workplace Safety
Organic (10.0 )% (3.3 )%
Currency (0.6 )% (2.3 )%
Acquisitions   %   5.8 %
Total   (10.6 )%   0.2 %
Total Company
Organic (2.2 )% (1.1 )%
Currency (0.4 )% (2.4 )%
Acquisitions   15.6 %   2.6 %
Total   13.0 %   (0.9 )%
 
SEGMENT PROFIT
ID Solutions $ 50,110 $ 43,973
Workplace Safety   18,374       27,829  
Total $ 68,484     $ 71,802  
SEGMENT PROFIT AS A PERCENT OF SALES
ID Solutions 24.1 % 27.3 %
Workplace Safety   18.8 %   25.4 %
Total   22.4 %   26.5 %
 
 
Three Months Ended October 31,
2013 2012
Total segment profit $ 68,484 $ 71,802
Unallocated amounts:
Administrative costs (32,813 ) (29,174 )
Restructuring charges (6,840 ) -
Investment and other income 762 397
Interest expense   (3,721 )   (4,163 )
Earnings from continuing operations before income taxes $ 25,872   $ 38,862  
 
EBITDA from Continuing Operations
Brady is presenting EBITDA from Continuing Operations because it is used by many of our investors and lenders, and is presented as a convenience to them. EBITDA from Continuing Operations represents earnings (loss) from continuing operations before interest expense, income taxes, depreciation, amortization and impairment charges. EBITDA from Continuing Operations is not a calculation based on generally accepted accounting principles ("GAAP"). The amounts included in the EBITDA from Continuing Operations calculation, however, are derived from amounts included in the Consolidated Financial Statements and supporting footnote disclosures. EBITDA from Continuing Operations should not be considered as an alternative to net earnings or operating income as an indicator of the Company's operating performance, or as an alternative to net cash provided by operating activities as a measure of liquidity. The EBITDA from Continuing Operations measure presented may not always be comparable to similarly titled measures reported by other companies due to differences in the components of the calculation.
 
 
    Fiscal 2014
       
Q1 Q2 Q3 Q4 Total
EBITDA from Continuing Operations:
Earnings from continuing operations $ 17,423 $ 17,423
Interest expense 3,721 3,721
Income taxes 8,449 8,449
Depreciation and amortization   10,878         10,878  
EBITDA from Continuing Operations (non-GAAP measure) $ 40,471       $ 40,471  
 
 
Fiscal 2013
 
Q1 Q2 Q3 Q4 Total
EBITDA from Continuing Operations:
Earnings (loss) from continuing operations $ 25,785 $ (11,365 ) $ 20,998 $ (176,234 ) $ (140,816 )
Interest expense 4,163 4,406 4,186 3,886 16,641
Income taxes 13,077 28,823 6,065 (5,895 ) 42,070
Depreciation and amortization 7,684 8,490 11,065 12,688 39,927
Intangible asset write-down in restructuring charges 3,207 3,207
Impairment charges           204,448     204,448  
EBITDA from Continuing Operations (non-GAAP measure) $ 50,709 $ 30,354   $ 45,521 $ 38,893   $ 165,477  
 
EBITDA from Discontinued Operations
Brady is presenting EBITDA from Discontinued Operations because it is used by many of our investors and lenders, and is presented as a convenience to them. EBITDA from Discontinued Operations represents earnings (loss) from discontinued operations before interest expense, income taxes, depreciation, amortization, and impairment charges. EBITDA from Discontinued Operations is not a calculation based on generally accepted accounting principles ("GAAP"). The amounts included in the EBITDA from Discontinued Operations calculation, however, are derived from amounts included in the Consolidated Financial Statements and supporting footnote disclosures. EBITDA from Discontinued Operations should not be considered as an alternative to net earnings or operating income as an indicator of the Company's operating performance, or as an alternative to net cash provided by operating activities as a measure of liquidity. The EBITDA from Discontinued Operations measure presented may not always be comparable to similarly titled measures reported by other companies due to differences in the components of the calculation.
 
 
    Fiscal 2014
       
Q1 Q2 Q3 Q4 Total
EBITDA from Discontinued Operations:
Earnings from discontinued operations $ 6,505 $ 6,505
Interest expense
Income taxes 2,680 2,680
Depreciation and amortization            
EBITDA from Discontinued Operations (non-GAAP measure) $ 9,185       $ 9,185  
 
 
Fiscal 2013
 
Q1 Q2 Q3 Q4 Total
EBITDA from Discontinued Operations:
Earnings (loss) from discontinued operations $ 1,403 $ 2,680 $ (16,765 ) $ (1,037 ) $ (13,719 )
Interest expense
Income taxes 404 1,802 1,530 1,478 5,214
Depreciation and amortization 2,991 2,881 2,926 8,798
Loss on write-down of assets held for sale       15,658         15,658  
EBITDA from Discontinued Operations (non-GAAP measure) $ 4,798 $ 7,363 $ 3,349   $ 441   $ 15,951  
 
EBITDA:
Brady is presenting EBITDA because it is used by many of our investors and lenders, and is presented as a convenience to them. EBITDA represents net earnings (loss) before interest expense, income taxes, depreciation, amortization and impairment charges. EBITDA is not a calculation based on generally accepted accounting principles ("GAAP"). The amounts included in the EBITDA calculation, however, are derived from amounts included in the Consolidated Financial Statements and supporting footnote disclosures. EBITDA should not be considered as an alternative to net earnings or operating income as an indicator of the Company's operating performance, or as an alternative to net cash provided by operating activities as a measure of liquidity. The EBITDA measure presented may not always be comparable to similarly titled measures reported by other companies due to differences in the components of the calculation.
 
 
    Fiscal 2014
       
Q1 Q2 Q3 Q4 Total
EBITDA:
Net earnings $ 23,928 $ 23,928
Interest expense 3,721 3,721
Income taxes 11,129 11,129
Depreciation and amortization   10,878         10,878  
EBITDA (non-GAAP measure) $ 49,656       $ 49,656  
 
 
Fiscal 2013
 
Q1 Q2 Q3 Q4 Total
EBITDA:
Net earnings (loss) $ 27,188 $ (8,685 ) $ 4,233 $ (177,271 ) $ (154,535 )
Interest expense 4,163 4,406 4,186 3,886 16,641
Income taxes 13,481 30,625 7,595 (4,417 ) 47,284
Depreciation and amortization 10,675 11,371 13,991 12,688 48,725
Intangible asset write-down in restructuring charges 3,207 3,207
Loss on write-down of assets held for sale 15,658 15,658
Impairment charges           204,448     204,448  
EBITDA (non-GAAP measure) $ 55,507 $ 37,717   $ 48,870 $ 39,334   $ 181,428  
 
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 October 31,
2013   2012
Earnings from Continuing Operations Before Income Taxes (GAAP measure) $ 25,872 $ 38,862
Restructuring charges   6,840  

Earnings from Continuing Operations Before Income Taxes Excluding Certain Items (non-GAAP measure)
$ 32,712 $ 38,862
 
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 October 31,
2013   2012
Income Taxes on Continuing Operations (GAAP measure) $ 8,449 $ 13,077
Restructuring charges   2,205  
Income Taxes on Continuing Operations Excluding Certain Items (non-GAAP measure) $ 10,654 $ 13,077
 
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 October 31,
2013     2012
Net Earnings from Continuing Operations (GAAP measure) $ 17,423 $ 25,785
Restructuring charges   4,635  
Net Earnings from Continuing Operations Excluding Certain Items (non-GAAP measure) $ 22,058 $ 25,785
 
Net Earnings from Continuing Operations Per Diluted Class A Diluted 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 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 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,
2013   2012
Net Earnings from Continuing Operations Per Class A Diluted Nonvoting Share (GAAP measure) $ 0.33 $ 0.50
Restructuring charges   0.09  

Net Earnings from Continuing Operations Per Class A Diluted Nonvoting Share Excluding Certain Items (non-GAAP measure)
$ 0.42 $ 0.50
 

Copyright Business Wire 2010

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