BRADY CORP - FORM 8-K - EX-99.1 - THIRD QUARTER FISCAL 2018 PRESS RELEASE - May 24, 2018

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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 2018 Third Quarter Results and Increases the Bottom of its Fiscal 2018 EPS Guidance

•
Earnings before income taxes increased 20.7 percent, finishing at $37.0 million in the third quarter of fiscal 2018 compared to $30.6 million in the third quarter of fiscal 2017. This marks our 11th consecutive quarter of profit growth.
•
Earnings per diluted Class A Nonvoting Common Share were $0.49 in the third quarter of fiscal 2018 compared to $0.43 in the same quarter of the prior year.
•
Total revenues increased 8.2 percent, which consisted of organic revenue growth of 3.2 percent and an increase of 5.0 percent from foreign currency translation. This is our fourth consecutive quarter of organic revenue growth.
•
Earnings per diluted Class A Common Share guidance for the full year ending July 31, 2018 was tightened to a range of $1.95 to $2.00 from a previous range of $1.90 to $2.00, exclusive of tax charges primarily related to the enactment of the U.S. tax legislation.

MILWAUKEE (May 24, 2018)--Brady Corporation (NYSE: BRC) (“Brady” or “Company”), a world leader in identification solutions, today reported its financial results for its fiscal 2018 third quarter ended April 30, 2018.

Quarter Ended April 30, 2018 Financial Results:
Earnings before income taxes increased 20.7 percent, finishing at $37.0 million for the third quarter of fiscal 2018 compared to $30.6 million for the third quarter of fiscal 2017.
Net earnings for the quarter ended April 30, 2018, were $26.0 million compared to $22.6 million in the same quarter last year.
Earnings per diluted Class A Nonvoting Common Share were $0.49 for the third quarter of fiscal 2018, compared to $0.43 in the same quarter last year.
Sales for the quarter ended April 30, 2018 increased 8.2 percent to $298.4 million compared to $275.9 million in the same quarter last year. By segment, sales increased 7.8 percent in Identification Solutions and 9.1 percent in Workplace Safety, which consisted of organic sales growth of 3.7 percent in Identification Solutions and 1.7 percent in Workplace Safety.







Nine-Month Period Ended April 30, 2018 Financial Results:
Earnings before income taxes increased 17.7 percent, finishing at $106.8 million for the nine-month period ended April 30, 2018, compared to $90.7 million in the same period last year.
Net earnings for the nine-month period ended April 30, 2018 were $56.1 million compared to $70.4 million in the same period last year. During the nine-month period ended April 30, 2018, net earnings were reduced by $21.1 million due to tax charges primarily related to the passage of the U.S. Tax Cuts and Jobs Act of 2017. The prior nine-month period ended April 30, 2017 was impacted by a cash repatriation which resulted in a lower than normal income tax rate.
Earnings per diluted Class A Nonvoting Common Share were $1.07 for the nine-month period ended April 30, 2018, compared to $1.36 in the same period last year. Income tax expense in the prior nine-month period ended April 30, 2017 was impacted by a cash repatriation which increased earnings per diluted Class A Nonvoting Common Share by approximately $0.09, whereas the impact on income tax expense for the nine-month period ended April 30, 2018 from tax charges primarily related to the enactment of U.S. tax legislation was a reduction of approximately $0.40 of earnings per diluted Class A Nonvoting Common Share.
Sales for the nine-month period ended April 30, 2018 increased 6.3 percent to $876.4 million compared to $824.1 million in the same period last year. By segment, sales increased 6.7 percent in Identification Solutions and 5.6 percent in Workplace Safety, which consisted of organic sales growth of 3.7 percent in Identification Solutions and an organic sales decline of 0.1 percent in Workplace Safety.

Commentary:
“Our continued focus on innovation and the development of high-quality products resulted in organic sales growth of 3.2 percent in the quarter, which was driven by both the Identification Solutions and Workplace Safety businesses. This marks our fourth consecutive quarter of organic sales growth and our eleventh consecutive quarter of year-over-year pre-tax earnings growth. We take a consistent and balanced approach to driving organic sales growth while executing sustainable efficiency gains throughout our global operations and SG&A structure,” said Brady’s President and Chief Executive Officer, J. Michael Nauman. “We expect this positive organic sales trend to continue as we launch innovative new products in our Identification Solutions business, and as our Workplace Safety business returns to consistent quarterly organic sales growth and realizes benefits over the long-term due to its product innovation efforts.”
“Our cash generation remains strong,” said Brady’s Chief Financial Officer, Aaron Pearce. “Even after significantly increasing our investments in research and development, we still increased our net cash provided by operating activities by 23.6% this quarter and significantly increased our investments in capital expenditures. We also repaid $11.7 million in debt and finished in a net cash position of $72.7 million as of April 30, 2018. Our strong balance sheet provides us with significant flexibility for investing in opportunities to drive long-term value for our shareholders.”






Fiscal 2018 Guidance:
The Company is tightening its full year fiscal 2018 earnings per diluted Class A Nonvoting Common Share guidance from its previous range of $1.90 to $2.00 to a range of $1.95 to $2.00, exclusive of tax charges primarily related to the enactment of the U.S. Tax Cuts and Jobs Act of 2017. Included in this guidance is low-single digit organic sales growth, depreciation and amortization expense of approximately $26 million, and capital expenditures of approximately $20 to $25 million during the year ending July 31, 2018. The Company expects its full-year income tax rate, exclusive of charges primarily related to the enactment of the U.S. Tax Cuts and Jobs Act of 2017, to range from approximately 27 percent to 29 percent. The full benefit of the enactment of U.S. tax legislation will not be realized until next fiscal year. This guidance is based upon foreign exchange rates as of April 30, 2018.

A webcast regarding Brady’s fiscal 2018 third 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, 2017, employed approximately 6,300 people in its worldwide businesses. Brady’s fiscal 2017 sales were approximately $1.11 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; Brady’s ability to execute facility consolidations and maintain acceptable operational service metrics; litigation, including product liability claims; 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; 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, 2017.

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 April 30,
 
Nine months ended April 30,
 
2018
 
2017
 
2018
 
2017
Net sales
$
298,421

 
$
275,927

 
$
876,352

 
$
824,104

Cost of products sold
147,339

 
136,018

 
435,513

 
409,679

Gross margin
151,082

 
139,909

 
440,839

 
414,425

Operating expenses:
 
 
 
 
 
 
 
Research and development
11,678

 
9,950

 
33,512

 
28,577

Selling, general and administrative
101,695

 
98,409

 
299,411

 
291,128

Total operating expenses
113,373

 
108,359

 
332,923

 
319,705

 
 
 
 
 
 
 
 
Operating income
37,709

 
31,550

 
107,916

 
94,720

 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Investment and other income
31

 
453

 
1,303

 
560

Interest expense
(761
)
 
(1,375
)
 
(2,453
)
 
(4,565
)
 
 
 
 
 
 
 
 
Earnings before income taxes
36,979

 
30,628

 
106,766

 
90,715

 
 
 
 
 
 
 
 
Income tax expense
10,979

 
8,075

 
50,657

 
20,312

 
 
 
 
 
 
 
 
Net earnings
$
26,000

 
$
22,553

 
$
56,109

 
$
70,403

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

 
$
0.44

 
$
1.09

 
$
1.38

Diluted
$
0.49

 
$
0.43

 
$
1.07

 
$
1.36

Dividends
$
0.21

 
$
0.21

 
$
0.62

 
$
0.62

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

 
$
0.44

 
$
1.07

 
$
1.37

Diluted
$
0.49

 
$
0.43

 
$
1.05

 
$
1.34

Dividends
$
0.21

 
$
0.21

 
$
0.61

 
$
0.60

 
 
 
 
 
 
 
 
Weighted average common shares outstanding (in thousands):
 
 
 
 
 
 
 
Basic
51,747

 
51,227

 
51,628

 
50,972

Diluted
52,729

 
52,201

 
52,610

 
51,882





BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands)
 
April 30, 2018
 
July 31, 2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
130,903

 
$
133,944

Accounts receivable—net
161,319

 
149,638

Inventories:
 
 
 
Finished products
72,809

 
69,760

Work-in-process
20,126

 
18,117

Raw materials and supplies
22,598

 
19,147

Total inventories
115,533

 
107,024

Prepaid expenses and other current assets
17,295

 
17,208

Total current assets
425,050

 
407,814

Other assets:
 
 
 
Goodwill
435,426

 
437,697

Other intangible assets
48,036

 
53,076

Deferred income taxes
8,688

 
35,456

Other
17,758

 
18,077

Property, plant and equipment:
 
 
 
Cost:
 
 
 
Land
7,332

 
7,470

Buildings and improvements
98,005

 
98,228

Machinery and equipment
268,736

 
261,192

Construction in progress
6,557

 
4,109

 
380,630

 
370,999

Less accumulated depreciation
282,181

 
272,896

Property, plant and equipment—net
98,449

 
98,103

Total
$
1,033,407

 
$
1,050,223

LIABILITIES AND STOCKHOLDERS’ INVESTMENT
 
 
 
Current liabilities:
 
 
 
Notes payable
$
—

 
$
3,228

Accounts payable
68,627

 
66,817

Wages and amounts withheld from employees
56,995

 
58,192

Taxes, other than income taxes
7,772

 
7,970

Accrued income taxes
5,564

 
7,373

Other current liabilities
42,436

 
43,618

Total current liabilities
181,394

 
187,198

Long-term obligations
58,157

 
104,536

Other liabilities
59,209

 
58,349

Total liabilities
298,760

 
350,083

Stockholders’ investment:
 
 
 
Common Stock:
 
 
 
Class A nonvoting common stock—Issued 51,261,487 and 51,261,487 shares, respectively, and outstanding 48,205,763 and 47,814,818 shares, respectively
513

 
513

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

 
35

Additional paid-in capital
327,401

 
322,608

Earnings retained in the business
531,135

 
507,136

Treasury stock—3,055,724 and 3,446,669 shares, respectively of Class A nonvoting common stock, at cost
(76,291
)
 
(85,470
)
Accumulated other comprehensive loss
(48,146
)
 
(44,682
)
Total stockholders’ investment
734,647

 
700,140

Total
$
1,033,407

 
$
1,050,223






BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
 
Nine months ended April 30,
 
2018
 
2017
Operating activities:
 
 
 
Net earnings
$
56,109

 
$
70,403

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
19,047

 
20,789

Non-cash portion of stock-based compensation expense
7,581

 
7,445

Deferred income taxes
26,501

 
(2,707
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(10,710
)
 
(931
)
Inventories
(7,790
)
 
666

Prepaid expenses and other assets
480

 
(1,987
)
Accounts payable and accrued liabilities
(133
)
 
754

Income taxes
(1,863
)
 
(3,270
)
Net cash provided by operating activities
89,222

 
91,162

 
 
 
 
Investing activities:
 
 
 
Purchases of property, plant and equipment
(14,755
)
 
(10,856
)
Other
(197
)
 
38

Net cash used in investing activities
(14,952
)
 
(10,818
)
 
 
 
 
Financing activities:
 
 
 
Payment of dividends
(32,110
)
 
(31,362
)
Proceeds from exercise of stock options
10,011

 
18,674

Purchase of treasury stock
(1,278
)
 
—

Proceeds from borrowing on credit facilities
17,439

 
154,653

Repayment of borrowing on credit facilities
(69,012
)
 
(215,068
)
Principal payments on debt
—

 
(16,371
)
Income tax on equity-based compensation, and other
(2,344
)
 
(512
)
Net cash used in financing activities
(77,294
)
 
(89,986
)
 
 
 
 
Effect of exchange rate changes on cash
(17
)
 
(2,509
)
 
 
 
 
Net decrease in cash and cash equivalents
(3,041
)
 
(12,151
)
Cash and cash equivalents, beginning of period
133,944

 
141,228

 
 
 
 
Cash and cash equivalents, end of period
$
130,903

 
$
129,077





BRADY CORPORATION AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited; Dollars in thousands)
 
Three months ended April 30,
 
Nine months ended April 30,
 
2018
 
2017
 
2018
 
2017
NET SALES
 
 
 
 
 
 
 
ID Solutions
$
212,154

 
$
196,880

 
$
628,291

 
$
589,106

Workplace Safety
86,267

 
79,047

 
248,061

 
234,998

Total
$
298,421

 
$
275,927

 
$
876,352

 
$
824,104

 
 
 
 
 
 
 
 
SALES INFORMATION
 
 
 
 
 
 
 
ID Solutions
 
 
 
 
 
 
 
Organic
3.7
%
 
(0.8
)%
 
3.7
 %
 
0.6
 %
Currency
4.1
%
 
(1.5
)%
 
3.0
 %
 
(1.1
)%
Total
7.8
%
 
(2.3
)%
 
6.7
 %
 
(0.5
)%
Workplace Safety
 
 
 
 
 
 
 
Organic
1.7
%
 
(4.6
)%
 
(0.1
)%
 
(2.5
)%
Currency
7.4
%
 
(2.9
)%
 
5.7
 %
 
(2.1
)%
Total
9.1
%
 
(7.5
)%
 
5.6
 %
 
(4.6
)%
Total Company
 
 
 
 
 
 
 
Organic
3.2
%
 
(1.9
)%
 
2.7
 %
 
(0.3
)%
Currency
5.0
%
 
(1.9
)%
 
3.6
 %
 
(1.4
)%
Total
8.2
%
 
(3.8
)%
 
6.3
 %
 
(1.7
)%
 
 
 
 
 
 
 
 
SEGMENT PROFIT
 
 
 
 
 
 
 
ID Solutions
$
36,970

 
$
32,633

 
$
106,896

 
$
94,676

Workplace Safety
7,537

 
5,120

 
21,037

 
17,615

Total
$
44,507

 
$
37,753

 
$
127,933

 
$
112,291

SEGMENT PROFIT AS A PERCENT OF SALES
 
 
 
 
 
 
 
ID Solutions
17.4
%
 
16.6
 %
 
17.0
 %
 
16.1
 %
Workplace Safety
8.7
%
 
6.5
 %
 
8.5
 %
 
7.5
 %
Total
14.9
%
 
13.7
 %
 
14.6
 %
 
13.6
 %

 
Three months ended April 30,
 
Nine months ended April 30,
 
2018
 
2017
 
2018
 
2017
Total segment profit
$
44,507

 
$
37,753

 
$
127,933

 
$
112,291

Unallocated amounts:
 
 
 
 
 
 
 
Administrative costs
(6,798
)
 
(6,203
)
 
(20,017
)
 
(17,571
)
Investment and other income
31

 
453

 
1,303

 
560

Interest expense
(761
)
 
(1,375
)
 
(2,453
)
 
(4,565
)
Earnings before income taxes
$
36,979

 
$
30,628

 
$
106,766

 
$
90,715




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