BRADY CORP - FORM 8-K - EX-99.1 - SECOND QUARTER FISCAL 2017 PRESS RELEASE - February 23, 2017

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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 2017 Second Quarter Results and Increases its Fiscal 2017 EPS Guidance

•
Earnings per diluted Class A Nonvoting Common Share was $0.49 in the second quarter of fiscal 2017 compared to $0.30 in the same quarter of the prior year. Results for the quarter include $0.09 per share of discrete tax benefits.
•
Organic revenue growth was 1.3 percent for the quarter ended January 31, 2017.
•
Net debt was $37.7 million at January 31, 2017 compared to $132.5 million at January 31, 2016; providing flexibility for future investments.
•
Earnings per diluted Class A Common Share guidance for the full year ending July 31, 2017 increased from a range of $1.55 to $1.70 to a range of $1.75 to $1.85.

MILWAUKEE (February 23, 2017)--Brady Corporation (NYSE: BRC) (“Brady” or “Company”), a world leader in identification solutions, today reported its financial results for its fiscal 2017 second quarter ended January 31, 2017.

Quarter Ended January 31, 2017 Financial Results:
Net earnings for the quarter ended January 31, 2017, were $25.3 million compared to $15.3 million in the same quarter last year.
Earnings per diluted Class A Nonvoting Common Share were $0.49 for the quarter ended January 31, 2017, compared to $0.30 in the same quarter last year.
During the quarter ended January 31, 2017, the Company’s effective tax rate was 13.1%, which was impacted by certain one-time tax benefits from a cash repatriation. The one-time tax items benefited earnings per diluted Class A Nonvoting Common Share by approximately $0.09 during the quarter. Our historical average effective tax rate is approximately 28%.
Sales for the quarter ended January 31, 2017, decreased 0.2 percent to $268.0 million compared to $268.6 million in the same quarter last year. Total organic sales increased 1.3 percent while the impact of foreign currency translation decreased sales by 1.5 percent. By segment, organic sales increased 1.9 percent in Identification Solutions and decreased 0.2 percent in Workplace Safety.

Six-Month Period Ended January 31, 2017 Financial Results:
Net earnings for the six-month period ended January 31, 2017, were $47.9 million compared to $34.0 million in the same quarter last year.




Earnings per diluted Class A Nonvoting Common Share were $0.93 for the six-month period ended January 31, 2017, compared to $0.67 in the same period in fiscal 2016.
During the six-month period ended January 31, 2017, the Company’s effective tax rate was 20.4%, which was impacted by certain one-time tax benefits from a cash repatriation. The one-time tax items benefited earnings per diluted Class A Nonvoting Common Share by approximately $0.09 during the six-month period.
Sales for the six-month period ended January 31, 2017, decreased 0.6 percent to $548.2 million compared to $551.7 million in the same quarter last year. Total organic sales increased 0.5 percent while foreign currency translation decreased sales by 1.1 percent. By segment, organic sales increased 1.3 percent in Identification Solutions and decreased 1.3 percent in Workplace Safety.

Commentary:
“Our continued focus on developing high-quality products, identifying efficiencies in our SG&A structure, and driving a culture of local ownership and accountability is working. This quarter marks our sixth consecutive quarter of year-over-year earnings growth. Our actions to improve organic sales are also working as we realized organic sales growth of 1.3 percent this quarter and are at 0.5 percent organic sales growth year-to-date. However, we do expect to see choppy organic growth patterns in the future as our initiatives gain traction and due to fewer billing days in the second half of fiscal 2017,” said Brady’s President and Chief Executive Officer, J. Michael Nauman. “We believe our actions are starting to result in long-term positive organic sales trends, which we expect will translate into future profit improvements. Looking forward, our priorities remain unchanged, which are to grow our pipeline of innovative new products, deliver efficiency gains, and serve our customers extremely well. We are pleased that we have been able to consistently improve our performance while simultaneously driving our long-term strategy.”
“We continue to see profitability improvements as we focus on driving efficiencies throughout our manufacturing operations while actively reducing our selling, general and administrative expense structure, all while investing in organic growth opportunities,” said Brady’s Chief Financial Officer, Aaron Pearce. “Cash generation for the quarter ended January 31, 2017, was below that of last year due to the timing of certain payments. After taking the impact of these timing items into account, it is clear that our trend of solid cash generation continues as we finished with net debt of $37.7 million as of January 31, 2017, compared to net debt of $132.5 million as of January 31, 2016. As a result of this cash generation, our balance sheet is solid and provides significant flexibility for future investment and returning funds to our shareholders.”

Fiscal 2017 Guidance:
The Company is increasing its earnings per diluted Class A Common Share guidance from a range of $1.55 to $1.70 to a range of $1.75 to $1.85 for the full year ending July 31, 2017. Included in this guidance are organic sales ranging from a low single-digit decline to slightly positive growth for the year ending July 31, 2017. Offsetting this challenging revenue environment are ongoing efficiency gains in the Company’s manufacturing facilities and selling, general, and administrative expenses. This guidance is based upon foreign currency exchange




rates as of January 31, 2017, a full-year income tax rate in the mid-20 percent range, depreciation and amortization expense of $30 million, and capital expenditures approximating $20 million.

A webcast regarding Brady’s fiscal 2017 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, 2016, employed approximately 6,500 people in its worldwide businesses. Brady’s fiscal 2016 sales were approximately $1.12 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; deterioration or instability in the global economy and financial markets; decreased demand for our products; Brady’s ability to retain large customers; risks associated with the loss of key employees; changes in tax legislation and tax rates; Brady’s ability to execute facility consolidations and maintain acceptable operational service metrics; extensive regulations by U.S. and non-U.S. governmental and self-regulatory entities; litigation, including product liability claims; divestitures and contingent liabilities from divestitures; Brady’s ability to properly identify, integrate, and grow acquired companies; foreign currency fluctuations; 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, 2016.

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,
 
2017
 
2016
 
2017
 
2016
Net sales
$
268,001

 
$
268,630

 
$
548,177

 
$
551,703

Cost of products sold
133,843

 
135,738

 
273,661

 
279,462

Gross margin
134,158

 
132,892

 
274,516

 
272,241

Operating expenses:
 
 
 
 
 
 
 
Research and development
9,481

 
9,097

 
18,627

 
17,666

Selling, general and administrative
94,715

 
100,206

 
192,719

 
200,884

Total operating expenses
104,196

 
109,303

 
211,346

 
218,550

 
 
 
 
 
 
 
 
Operating income
29,962

 
23,589

 
63,170

 
53,691

 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Investment and other income (expense)
596

 
(992
)
 
107

 
(1,751
)
Interest expense
(1,458
)
 
(2,130
)
 
(3,190
)
 
(4,281
)
 
 
 
 
 
 
 
 
Earnings before income taxes
29,100

 
20,467

 
60,087

 
47,659

 
 
 
 
 
 
 
 
Income tax expense
3,803

 
5,177

 
12,237

 
13,666

 
 
 
 
 
 
 
 
Net earnings
$
25,297

 
$
15,290

 
$
47,850

 
$
33,993

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net earnings per Class A Nonvoting Common Share:
 
 
 
 
 
 
 
Basic
$
0.50

 
$
0.30

 
$
0.94

 
$
0.67

Diluted
$
0.49

 
$
0.30

 
$
0.93

 
$
0.67

Dividends
$
0.21

 
$
0.20

 
$
0.41

 
$
0.41

 
 
 
 
 
 
 
 
Net earnings per Class B Voting Common Share:
 
 
 
 
 
 
 
Basic
$
0.50

 
$
0.30

 
$
0.93

 
$
0.65

Diluted
$
0.49

 
$
0.30

 
$
0.91

 
$
0.65

Dividends
$
0.21

 
$
0.20

 
$
0.39

 
$
0.39

 
 
 
 
 
 
 
 
Weighted average common shares outstanding (in thousands):
 
 
 
 
 
 
 
Basic
51,054

 
50,527

 
50,844

 
50,778

Diluted
51,954

 
50,647

 
51,721

 
50,868





BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands)
 
January 31, 2017
 
July 31, 2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
125,208

 
$
141,228

Accounts receivable—net
140,018

 
147,333

Inventories:
 
 
 
Finished products
60,642

 
64,313

Work-in-process
17,029

 
16,678

Raw materials and supplies
19,737

 
18,436

Total inventories
97,408

 
99,427

Prepaid expenses and other current assets
19,051

 
19,436

Total current assets
381,685

 
407,424

Other assets:
 
 
 
Goodwill
424,857

 
429,871

Other intangible assets
55,980

 
59,806

Deferred income taxes
27,403

 
27,238

Other
16,327

 
17,181

Property, plant and equipment:
 
 
 
Cost:
 
 
 
Land
7,272

 
5,809

Buildings and improvements
94,542

 
95,355

Machinery and equipment
254,688

 
256,549

Construction in progress
3,168

 
2,842

 
359,670

 
360,555

Less accumulated depreciation
262,786

 
258,111

Property, plant and equipment—net
96,884

 
102,444

Total
$
1,003,136

 
$
1,043,964

LIABILITIES AND STOCKHOLDERS’ INVESTMENT
 
 
 
Current liabilities:
 
 
 
Notes payable
$
5,691

 
$
4,928

Accounts payable
58,515

 
62,245

Wages and amounts withheld from employees
39,157

 
45,998

Taxes, other than income taxes
6,617

 
7,403

Accrued income taxes
2,011

 
6,136

Other current liabilities
38,210

 
40,017

Total current liabilities
150,201

 
166,727

Long-term obligations, less current maturities
157,223

 
211,982

Other liabilities
60,820

 
61,657

Total liabilities
368,244

 
440,366

Stockholders’ investment:
 
 
 
Common Stock:
 
 
 
Class A nonvoting common stock—Issued 51,261,487 and 51,261,487 shares, respectively and outstanding 47,594,684 and 46,920,974 shares, respectively
513

 
513

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

 
35

Additional paid-in capital
317,587

 
317,001

Earnings retained in the business
480,368

 
453,371

Treasury stock—3,666,803 and 4,340,513 shares, respectively of Class A nonvoting common stock, at cost
(90,998
)
 
(108,714
)
Accumulated other comprehensive loss
(68,214
)
 
(54,745
)
Other
(4,399
)
 
(3,863
)
Total stockholders’ investment
634,892

 
603,598

Total
$
1,003,136

 
$
1,043,964






BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
 
Six months ended January 31,
 
2017
 
2016
Operating activities:
 
 
 
Net earnings
$
47,850

 
$
33,993

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
14,102

 
17,502

Stock-based compensation expense
5,394

 
4,569

Deferred income taxes
(4,547
)
 
3,338

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
3,407

 
3,204

Inventories
224

 
3,403

Prepaid expenses and other assets
220

 
(3,811
)
Accounts payable and accrued liabilities
(9,384
)
 
(1,618
)
Income taxes
(3,932
)
 
(2,326
)
Net cash provided by operating activities
53,334

 
58,254

 
 
 
 
Investing activities:
 
 
 
Purchases of property, plant and equipment
(7,235
)
 
(3,928
)
Other
593

 
2,521

Net cash used in investing activities
(6,642
)
 
(1,407
)
 
 
 
 
Financing activities:
 
 
 
Payment of dividends
(20,852
)
 
(20,425
)
Proceeds from exercise of stock options
14,659

 
53

Purchase of treasury stock
—

 
(23,397
)
Repayment of borrowing on credit facilities
(50,469
)
 
(437
)
Debt issuance costs
—


(803
)
Income tax on equity-based compensation, and other
(640
)
 
(1,299
)
Net cash used in financing activities
(57,302
)
 
(46,308
)
 
 
 
 
Effect of exchange rate changes on cash
(5,410
)
 
(4,833
)
 
 
 
 
Net (decrease) increase in cash and cash equivalents
(16,020
)
 
5,706

Cash and cash equivalents, beginning of period
141,228

 
114,492

 
 
 
 
Cash and cash equivalents, end of period
$
125,208

 
$
120,198





BRADY CORPORATION AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited; Dollars in thousands)
 
Three months ended January 31,
 
Six months ended January 31,
 
2017
 
2016
 
2017
 
2016
SALES TO EXTERNAL CUSTOMERS
 
 
 
 
 
 
 
ID Solutions
$
190,962

 
$
189,780

 
$
392,226

 
$
390,800

Workplace Safety
77,039

 
78,850

 
155,951

 
160,903

Total
$
268,001

 
$
268,630

 
$
548,177

 
$
551,703

 
 
 
 
 
 
 
 
SALES INFORMATION
 
 
 
 
 
 
 
ID Solutions
 
 
 
 
 
 
 
Organic
1.9
 %
 
0.9
 %
 
1.3
 %
 
(0.7
)%
Currency
(1.3
)%
 
(4.6
)%
 
(0.9
)%
 
(5.0
)%
Total
0.6
 %
 
(3.7
)%
 
0.4
 %
 
(5.7
)%
Workplace Safety
 
 
 
 
 
 
 
Organic
(0.2
)%
 
(0.6
)%
 
(1.3
)%
 
(1.4
)%
Currency
(2.1
)%
 
(7.2
)%
 
(1.8
)%
 
(8.5
)%
Total
(2.3
)%
 
(7.8
)%
 
(3.1
)%
 
(9.9
)%
Total Company
 
 
 
 
 
 
 
Organic
1.3
 %
 
0.4
 %
 
0.5
 %
 
(0.9
)%
Currency
(1.5
)%
 
(5.4
)%
 
(1.1
)%
 
(6.0
)%
Total
(0.2
)%
 
(5.0
)%
 
(0.6
)%
 
(6.9
)%
 
 
 
 
 
 
 
 
SEGMENT PROFIT
 
 
 
 
 
 
 
ID Solutions
$
28,961

 
$
23,056

 
$
62,035

 
$
48,487

Workplace Safety
6,059

 
6,296

 
12,504

 
15,678

Total
$
35,020

 
$
29,352

 
$
74,539

 
$
64,165

SEGMENT PROFIT AS A PERCENT OF SALES
 
 
 
 
 
 
 
ID Solutions
15.2
 %
 
12.1
 %
 
15.8
 %
 
12.4
 %
Workplace Safety
7.9
 %
 
8.0
 %
 
8.0
 %
 
9.7
 %
Total
13.1
 %
 
10.9
 %
 
13.6
 %
 
11.6
 %

 
Three months ended January 31,
 
Six months ended January 31,
 
2017
 
2016
 
2017
 
2016
Total segment profit
$
35,020

 
$
29,352

 
$
74,539

 
$
64,165

Unallocated amounts:
 
 
 
 
 
 
 
Administrative costs
(5,058
)
 
(5,763
)
 
(11,369
)
 
(10,474
)
Investment and other income (expense)
596

 
(992
)
 
107

 
(1,751
)
Interest expense
(1,458
)
 
(2,130
)
 
(3,190
)
 
(4,281
)
Earnings before income taxes
$
29,100

 
$
20,467

 
$
60,087

 
$
47,659




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