8-K
BRADY CORP (BRC)
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 20, 2020
BRADY CORPORATION
(Exact name of registrant as specified in its charter)
Commission File Number 1-14959
| Wisconsin | 39-0971239 | ||||
|---|---|---|---|---|---|
| (State or other jurisdiction of incorporation or organization) | (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)) |
| Securities registered pursuant to Section 12(b) of the Act: | Title of each class | Trading<br><br>Symbol | Name of each exchange on which registered |
|---|---|---|---|
| Class A Nonvoting Common Stock, par value $0.01 per share | BRC | New York Stock Exchange |
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 20, 2020, Brady Corporation (the “Company”) issued a press release announcing its fiscal 2020 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 20, 2020, the Company hosted a conference call related to its fiscal 2020 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 | Press Release of Brady Corporation, dated February 20, 2020, relating to second quarter fiscal 2020 financial results. |
| 99.2 | Informational slides provided by Brady Corporation, dated February 20, 2020, relating to second quarter fiscal 2020 financial results. |
| 101 | Cover Page Interactive Data File (embedded within Inline XBRL document). |
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 20, 2020 | |
| /s/ AARON J. PEARCE | |
| Aaron J. Pearce | |
| Chief Financial Officer and Treasurer |
Exhibit
EXHIBIT 99.1
For More Information:
Investor contact: Ann Thornton 414-438-6887
Media contact: Kate Venne 414-358-5176
Brady Corporation Reports Fiscal 2020 Second Quarter Results and Increases its Fiscal 2020 EPS Guidance
| • | Income before income taxes increased 15.4 percent to $42.4 million in the second quarter of fiscal 2020 compared to $36.7 million in the same quarter of the prior year. |
|---|---|
| • | Diluted EPS increased 12.7 percent to $0.62 in the second quarter of fiscal 2020 compared to $0.55 in the same quarter of the prior year. |
| --- | --- |
| • | Sales for the quarter declined 2.0 percent. Organic sales declined 1.2 percent and the impact of foreign currency translation decreased sales by 0.8 percent. |
| --- | --- |
| • | Diluted EPS guidance for the full year ending July 31, 2020 was increased to a range of $2.55 to $2.65 from the previous range of $2.50 to $2.60. |
| --- | --- |
MILWAUKEE (February 20, 2020) -- Brady Corporation (NYSE: BRC) (“Brady” or “Company”), a world leader in identification solutions, today reported its financial results for its fiscal 2020 second quarter ended January 31, 2020.
Quarter Ended January 31, 2020 Financial Results:
Income before income taxes increased 15.4 percent to $42.4 million for the quarter ended January 31, 2020, compared to $36.7 million in the same quarter last year.
Net income for the quarter ended January 31, 2020 increased 14.8 percent to $33.6 million compared to $29.2 million in the same quarter last year. Earnings per diluted Class A Nonvoting Common Share were $0.62 for the second quarter of fiscal 2020, compared to $0.55 in the same quarter last year.
Sales for the quarter ended January 31, 2020 declined 2.0 percent, which consisted of an organic sales decline of 1.2 percent and a decrease of 0.8 percent from foreign currency translation. Sales for the quarter ended January 31, 2020 were $276.7 million compared to $282.4 million in the same quarter last year. By segment, sales declined 1.8 percent in Identification Solutions and declined 2.6 percent in Workplace Safety, which consisted of organic sales declines of 1.3 percent in Identification Solutions and 1.0 percent in Workplace Safety.
Six-Month Period Ended January 31, 2020 Financial Results:
Income before income taxes increased 9.6 percent to $83.9 million for the six-month period ended January 31, 2020, compared to $76.6 million for the six-month period ended January 31, 2019.
Net income for the six-month period ended January 31, 2020 increased 18.7 percent to $71.1 million compared to $59.9 million in the same period last year. Earnings per diluted Class A Nonvoting Common Share were $1.32 for the six-month period ended January 31, 2020 compared to $1.13 in the same six-month period last year. Net income
and earnings per share during the six-month period ended January 31, 2020 were impacted by a reduced income tax rate of 15.3 percent primarily due to a favorable tax audit settlement and tax benefits from equity-based compensation in the first quarter of fiscal 2020.
Sales for the six-month period ended January 31, 2020 declined 2.1 percent, which consisted of an organic sales decline of 0.8 percent and a decrease of 1.3 percent from foreign currency translation. Sales for the six-month period ended January 31, 2020 were $563.6 million compared to $575.6 million in the same period last year. By segment, sales declined 1.6 percent in Identification Solutions and declined 3.4 percent in Workplace Safety, which consisted of organic sales declines of 0.7 percent in Identification Solutions and 0.9 percent in Workplace Safety.
Commentary:
“This quarter marks our 18^th^ consecutive quarter of year-on-year pre-tax income growth,” said Brady’s President and Chief Executive Officer, J. Michael Nauman. “Global demand for industrial products has declined in many markets which led to a modest decrease in organic sales this quarter. Our investments in developing innovative new products and our relentless focus on executing sustainable efficiency gains throughout our manufacturing facilities and SG&A structure enabled Brady to once again post solid financial results in a challenging industrial economic environment. Our investments in new products and our focus on efficiency gains has enabled us to deliver improved financial results over the last four years and positions us well for strong revenue and earnings growth as our end markets recover from the recent macro-economic weakness.”
“In the first half of this year we increased our gross profit margin, decreased selling, general and administrative expenses, increased earnings, and increased net cash provided by operating activities all while continuing to invest in our future. This solid financial performance combined with a balance sheet that provides significant flexibility for future investments and to return funds to our shareholders, puts Brady in a strong financial position,” said Brady’s Chief Financial Officer, Aaron Pearce.
Fiscal 2020 Guidance:
The Company is increasing its full year fiscal 2020 earnings per diluted Class A Nonvoting Common Share guidance from its previous range of $2.50 to $2.60 to a range of $2.55 to $2.65. Included in this guidance is organic sales growth of approximately flat to slightly positive, a full-year income tax rate of approximately 20 percent, and depreciation and amortization of approximately $25 million. The Company expects to continue capturing efficiency gains in its manufacturing facilities and in selling, general and administrative expenses. Capital expenditures are expected to approximate $35 million during the year ending July 31, 2020. This guidance is based upon foreign currency exchange rates as of January 31, 2020.
A webcast regarding Brady’s fiscal 2020 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, 2019, employed approximately 6,100 people in its worldwide businesses. Brady’s fiscal 2019 sales were approximately $1.16 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; raw material and other cost increases; 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; 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; numerous other matters of national, regional and global scale, including major public health issues and 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, 2019.
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 INCOME
(Unaudited; Dollars in thousands, except per share data)
| Three months ended January 31, | Six months ended January 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |||||||||
| Net sales | $ | 276,665 | $ | 282,426 | $ | 563,612 | $ | 575,622 | ||||
| Cost of goods sold | 137,538 | 142,616 | 283,080 | 289,273 | ||||||||
| Gross margin | 139,127 | 139,810 | 280,532 | 286,349 | ||||||||
| Operating expenses: | ||||||||||||
| Research and development | 10,517 | 11,074 | 21,484 | 22,400 | ||||||||
| Selling, general and administrative | 87,366 | 92,706 | 176,913 | 187,297 | ||||||||
| Total operating expenses | 97,883 | 103,780 | 198,397 | 209,697 | ||||||||
| Operating income | 41,244 | 36,030 | 82,135 | 76,652 | ||||||||
| Other income (expense): | ||||||||||||
| Investment and other income | 1,760 | 1,377 | 3,140 | 1,360 | ||||||||
| Interest expense | (647 | ) | (717 | ) | (1,348 | ) | (1,429 | ) | ||||
| Income before income taxes | 42,357 | 36,690 | 83,927 | 76,583 | ||||||||
| Income tax expense | 8,804 | 7,463 | 12,876 | 16,719 | ||||||||
| Net income | $ | 33,553 | $ | 29,227 | $ | 71,051 | $ | 59,864 | ||||
| Net income per Class A Nonvoting Common Share: | ||||||||||||
| Basic | $ | 0.63 | $ | 0.56 | $ | 1.33 | $ | 1.14 | ||||
| Diluted | $ | 0.62 | $ | 0.55 | $ | 1.32 | $ | 1.13 | ||||
| Dividends | $ | 0.22 | $ | 0.21 | $ | 0.44 | $ | 0.43 | ||||
| Net income per Class B Voting Common Share: | ||||||||||||
| Basic | $ | 0.63 | $ | 0.56 | $ | 1.32 | $ | 1.13 | ||||
| Diluted | $ | 0.62 | $ | 0.55 | $ | 1.31 | $ | 1.11 | ||||
| Dividends | $ | 0.22 | $ | 0.21 | $ | 0.42 | $ | 0.41 | ||||
| Weighted average common shares outstanding: | ||||||||||||
| Basic | 53,320 | 52,532 | 53,232 | 52,366 | ||||||||
| Diluted | 53,827 | 53,206 | 53,781 | 53,082 |
BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| January 31, 2020 | July 31, 2019 | |||||
|---|---|---|---|---|---|---|
| (Unaudited) | ||||||
| ASSETS | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 289,803 | $ | 279,072 | ||
| Accounts receivable—net | 151,511 | 158,114 | ||||
| Inventories | 120,788 | 120,037 | ||||
| Prepaid expenses and other current assets | 18,889 | 16,056 | ||||
| Total current assets | 580,991 | 573,279 | ||||
| Property, plant and equipment—net | 112,782 | 110,048 | ||||
| Goodwill | 410,455 | 410,987 | ||||
| Other intangible assets | 33,580 | 36,123 | ||||
| Deferred income taxes | 7,120 | 7,298 | ||||
| Operating lease assets | 49,117 | — | ||||
| Other assets | 21,753 | 19,573 | ||||
| Total | $ | 1,215,798 | $ | 1,157,308 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | 51,233 | $ | 64,810 | ||
| Accrued compensation and benefits | 38,561 | 62,509 | ||||
| Taxes, other than income taxes | 7,703 | 8,107 | ||||
| Accrued income taxes | 6,075 | 6,557 | ||||
| Current operating lease liabilities | 14,901 | — | ||||
| Other current liabilities | 48,590 | 49,796 | ||||
| Current maturities on long-term debt | 49,627 | 50,166 | ||||
| Total current liabilities | 216,690 | 241,945 | ||||
| Long-term operating lease liabilities | 36,993 | — | ||||
| Other liabilities | 62,191 | 64,589 | ||||
| Total liabilities | 315,874 | 306,534 | ||||
| Stockholders’ equity: | ||||||
| Common stock: | ||||||
| Class A nonvoting common stock—Issued 51,261,487 shares, and outstanding 49,810,101 and 49,458,841 shares, respectively | 513 | 513 | ||||
| Class B voting common stock—Issued and outstanding, 3,538,628 shares | 35 | 35 | ||||
| Additional paid-in capital | 329,263 | 329,969 | ||||
| Retained earnings | 685,758 | 637,843 | ||||
| Treasury stock—1,451,386 and 1,802,646 shares, respectively of Class A nonvoting common stock,<br>at cost | (43,155 | ) | (46,332 | ) | ||
| Accumulated other comprehensive loss | (72,490 | ) | (71,254 | ) | ||
| Total stockholders’ equity | 899,924 | 850,774 | ||||
| Total | $ | 1,215,798 | $ | 1,157,308 |
BRADY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
| Six months ended January 31, | ||||||
|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||
| Operating activities: | ||||||
| Net income | $ | 71,051 | $ | 59,864 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
| Depreciation and amortization | 11,672 | 11,909 | ||||
| Stock-based compensation expense | 5,384 | 7,805 | ||||
| Deferred income taxes | 1,272 | 4,423 | ||||
| Other | 1,664 | 1,279 | ||||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable | 6,209 | 2,562 | ||||
| Inventories | (1,311 | ) | (6,602 | ) | ||
| Prepaid expenses and other assets | (2,621 | ) | (2,310 | ) | ||
| Accounts payable and accrued liabilities | (39,777 | ) | (35,334 | ) | ||
| Income taxes | (436 | ) | 592 | |||
| Net cash provided by operating activities | 53,107 | 44,188 | ||||
| Investing activities: | ||||||
| Purchases of property, plant and equipment | (13,100 | ) | (12,127 | ) | ||
| Other | (3,406 | ) | (452 | ) | ||
| Net cash used in investing activities | (16,506 | ) | (12,579 | ) | ||
| Financing activities: | ||||||
| Payment of dividends | (23,136 | ) | (22,263 | ) | ||
| Proceeds from exercise of stock options | 4,686 | 18,498 | ||||
| Payments for employee taxes withheld from stock-based awards | (7,733 | ) | (3,362 | ) | ||
| Proceeds from borrowing on credit facilities | — | 5,737 | ||||
| Repayment of borrowings on credit facilities | — | (5,688 | ) | |||
| Other | 134 | (2,973 | ) | |||
| Net cash used in financing activities | (26,049 | ) | (10,051 | ) | ||
| Effect of exchange rate changes on cash | 179 | (776 | ) | |||
| Net increase in cash and cash equivalents | 10,731 | 20,782 | ||||
| Cash and cash equivalents, beginning of period | 279,072 | 181,427 | ||||
| Cash and cash equivalents, end of period | $ | 289,803 | $ | 202,209 |
BRADY CORPORATION AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited; Dollars in thousands)
| Three months ended January 31, | Six months ended January 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |||||||||
| NET SALES | ||||||||||||
| ID Solutions | $ | 205,362 | $ | 209,205 | $ | 420,349 | $ | 427,304 | ||||
| Workplace Safety | 71,303 | 73,221 | 143,263 | 148,318 | ||||||||
| Total | $ | 276,665 | $ | 282,426 | $ | 563,612 | $ | 575,622 | ||||
| SALES INFORMATION | ||||||||||||
| ID Solutions | ||||||||||||
| Organic | (1.3 | )% | 3.6 | % | (0.7 | )% | 4.6 | % | ||||
| Currency | (0.5 | )% | (2.3 | )% | (0.9 | )% | (1.9 | )% | ||||
| Total | (1.8 | )% | 1.3 | % | (1.6 | )% | 2.7 | % | ||||
| Workplace Safety | ||||||||||||
| Organic | (1.0 | )% | (0.9 | )% | (0.9 | )% | 0.6 | % | ||||
| Currency | (1.6 | )% | (3.3 | )% | (2.5 | )% | (2.9 | )% | ||||
| Divestitures | — | % | (5.8 | )% | — | % | (6.0 | )% | ||||
| Total | (2.6 | )% | (10.0 | )% | (3.4 | )% | (8.3 | )% | ||||
| Total Company | ||||||||||||
| Organic | (1.2 | )% | 2.3 | % | (0.8 | )% | 3.5 | % | ||||
| Currency | (0.8 | )% | (2.6 | )% | (1.3 | )% | (2.2 | )% | ||||
| Divestitures | — | % | (1.6 | )% | — | % | (1.7 | )% | ||||
| Total | (2.0 | )% | (1.9 | )% | (2.1 | )% | (0.4 | )% | ||||
| SEGMENT PROFIT | ||||||||||||
| ID Solutions | $ | 40,655 | $ | 37,857 | $ | 83,098 | $ | 79,419 | ||||
| Workplace Safety | 5,455 | 4,661 | 10,612 | 10,202 | ||||||||
| Total | $ | 46,110 | $ | 42,518 | $ | 93,710 | $ | 89,621 | ||||
| SEGMENT PROFIT AS A PERCENT OF NET SALES | ||||||||||||
| ID Solutions | 19.8 | % | 18.1 | % | 19.8 | % | 18.6 | % | ||||
| Workplace Safety | 7.7 | % | 6.4 | % | 7.4 | % | 6.9 | % | ||||
| Total | 16.7 | % | 15.1 | % | 16.6 | % | 15.6 | % | ||||
| Three months ended January 31, | Six months ended January 31, | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 2020 | 2019 | 2020 | 2019 | |||||||||
| Total segment profit | $ | 46,110 | $ | 42,518 | $ | 93,710 | $ | 89,621 | ||||
| Unallocated amounts: | ||||||||||||
| Administrative costs | (4,866 | ) | (6,488 | ) | (11,575 | ) | (12,969 | ) | ||||
| Investment and other income | 1,760 | 1,377 | 3,140 | 1,360 | ||||||||
| Interest expense | (647 | ) | (717 | ) | (1,348 | ) | (1,429 | ) | ||||
| Income before income taxes | $ | 42,357 | $ | 36,690 | $ | 83,927 | $ | 76,583 |
f20q2conferencecallslide
Brady Corporation F’20 Q2 Financial Results February 20, 2020
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; raw material and other cost increases; 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; 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; numerous other matters of national, regional and global scale, including major public health issues and 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, 2019. 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.
Q2 F’20 Financial Summary 3 • Sales were $276.7M in Q2 of F’20 compared with $282.4M in Q2 of F’19. – Organic sales declined 1.2%. – Foreign currency translation decreased sales 0.8%. • Gross profit margin of 50.3% in Q2 of F’20 compared with 49.5% in Q2 of F’19. • SG&A expense of $87.4M (31.6% of sales) in Q2 of F’20 compared with $92.7M (32.8% of sales) in Q2 of F’19. • R&D expense of $10.5M (3.8% of sales) in Q2 of F’20 compared with $11.1M (3.9% of sales) in Q2 of F’19. • Income before income taxes increased 15.4% to $42.4M in Q2 of F’20 compared with $36.7M in Q2 of F’19. • Net income per Class A Diluted Nonvoting Common Share increased 12.7% to $0.62 in Q2 of F’20 compared with $0.55 in Q2 of F’19.
Sales Overview 4 SALES (millions of USD) $305 $298 $297 $295 $295 $293 $290 $290 $288 $287 $285 $282 $277 $275 $265 $255 Q1 F'18 Q2 F'18 Q3 F'18 Q4 F'18 Q1 F'19 Q2 F'19 Q3 F'19 Q4 F'19 Q1 F'20 Q2 F'20 Organic Sales 1.7% 3.2% 3.2% 2.5% 4.7% 2.3% 2.4% 1.7% (0.4%) (1.2%) Q2 F’20 SALES: Q2 F’20 SALES COMMENTARY: • 1.2% organic sales decline: • ID Solutions – Organic sales were down slightly in the Americas, down low-single digits in Europe and down • ID Solutions – Organic sales decline of 1.3%. mid-single digits in Asia. • Workplace Safety – Organic sales decline of • Workplace Safety – Organic sales were effectively flat 1.0%. in Europe and Australia and down in the low-single • 0.8% decrease due to foreign currency translation. digits in North America. • Foreign currency translation had a negative impact on sales in the quarter.
Gross Profit Margin 5 GROSS PROFIT & GPM% (millions of USD) 50.6% 50.3% 50.3% 50.3% 49.9% 50.0% 49.6% 49.5% 49.6% $151 49.3% 50% $147 $150 $146 $147 $146 $147 $144 $140 $141 $139 45% $125 $100 40% Q1 F'18 Q2 F'18 Q3 F'18 Q4 F'18 Q1 F'19 Q2 F'19 Q3 F'19 Q4 F'19 Q1 F'20 Q2 F'20 Q2 F’20 – GROSS PROFIT MARGIN: • Gross profit margin of 50.3% compared to 49.5% in Q2 of F’19. • We continue to invest in automation and manufacturing efficiencies. • Efficiency activities more than offset input cost increases in Q2 of F’20.
SG&A Expense 6 SG&A EXPENSE AND SG&A EXPENSE AS A % of SALES (millions of USD) $110 34.5% 33.9% 34.1% 35% 32.8% 32.7% $102 32.3% $100 31.6% 33% $100 $98 30.6% 31.2% 30.2% $95 $95 $93 30% $91 $89 $90 $90 $87 28% $80 25% Q1 F'18 Q2 F'18 Q3 F'18 Q4 F'18 Q1 F'19 Q2 F'19 Q3 F'19 Q4 F'19 Q1 F'20 Q2 F'20 Q2 F’20 – SG&A EXPENSE: • SG&A expense was $87.4M (31.6% of sales) in Q2 of F’20 compared to $92.7M (32.8% of sales) in Q2 of F’19. • Approximately 75% of the decrease in SG&A expense was due to on-going efficiency gains and the remaining 25% of the decrease was due to foreign currency translation. • We continue to drive sustainable efficiency gains in administrative expenses and non-customer facing selling expenses while investing in sales-generating resources.
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% 3.9% 3.9% 4.0% 3.8% 3.8% 3.8% $12.0 3.6% $11.7 $11.7 $11.3 $11.3 $11.4 $11.3 $11.1 $11.0 $10.5 $10.5 3.5% $10.0 3.0% $8.0 $6.0 2.5% Q1 F'18 Q2 F'18 Q3 F'18 Q4 F'18 Q1 F'19 Q2 F'19 Q3 F'19 Q4 F'19 Q1 F'20 Q2 F'20 Q2INCREASING F’20 – R&D OUR EXPENSE: INVESTMENT IN RESEARCH & DEVELOPMENT: • Investing in R&D to drive future organic sales growth. • Solid new product pipeline. • Focused on ensuring our R&D spend is efficient and effective.
Income Before Income Taxes 8 INCOME BEFORE INCOME TAXES (millions of USD) $50 $47.1 $45.2 $42.4 $41.0 $41.6 $39.9 $40 $37.0 $36.7 $34.8 $35.0 $30 $20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 F'18 F'18 F'18 F'18 F'19 F'19 F'19 F'19 F'20 F'20 Year on Year Growth 12.2% 20.4% 20.7% 26.0% 14.8% 4.8% 10.8% 4.1% 4.2% 15.4% Q2 F’20 - INCOME BEFORE INCOME TAXES: • Income before income taxes increased 15.4% to $42.4M in Q2 of F’20 compared to $36.7M in Q2 of F’19. • The increase in pre-tax income was primarily driven by on-going efficiency activities.
Net Income & Diluted EPS 9 NET INCOME PER CLASS A DILUTED SHARE NET INCOME (millions of USD) $0.70 $0.66 $0.68 $0.65 $40 $36.6 $37.5 $0.62 $35.0 $34.8 $0.60 $0.58 $33.6 $0.55 $30.6 $0.49 $0.49 $29.2 $30 $25.8 $26.0 $0.40 $20 $0.20 $10 $0.08 $4.3 $0.00 $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 F'18 F'18 F'18 F'18 F'19 F'19 F'19 F'19 F'20 F'20 F'18 F'18 F'18 F'18 F'19 F'19 F'19 F'19 F'20 F'20 Q2 F’20 – NET INCOME & DILUTED EPS: • Net income increased 14.8% to $33.6M in Q2 of F’20 compared to $29.2M in Q2 of F’19. • Diluted EPS increased 12.7% to $0.62 in Q2 of F’20 compared to $0.55 in Q2 of F’19.
Cash Generation & Uses 10 CASH FLOW FROM OPERATING ACTIVITIES (millions of USD) CASH FLOWS IN Q2 OF F’20: $70 $65.3 • Cash flow from operating activities was $14.3M in Q2 of F’20 compared to $25.4M in Q2 of F’19. $60 $53.8 $52.7 • Free cash flow* was $8.9M in Q2 of F’20 $50 $46.8 $38.8 compared to $19.3M in Q2 of F’19. $40 $34.7 • We returned $11.6M to our shareholders in the $30 $25.4 form of dividends in Q2 of F’20. $18.8 $20 $14.3 • Cash flow from operating activities was impacted $10 $7.7 by the timing of annual incentive compensation payments. $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 • Cash flow from operating activities was up F'18 F'18 F'18 F'18 F'19 F'19 F'19 F'19 F'20 F'20 20.2% during the 6 months ended Jan. 31, 2020. (millions of USD) 3 Mos. Ended 3 Mos. Ended 6 Mos. Ended 6 Mos. Ended Jan. 31, 2020 Jan. 31, 2019 Jan. 31, 2020 Jan. 31, 2019 Cash Balance - Beginning of Period $ 295.1 $ 192.2 $ 279.1 $ 181.4 Cash Flow from Operating Activities 14.3 25.4 53.1 44.2 Capital Expenditures (5.4) (6.1) (13.1) (12.1) Dividends (11.6) (11.2) (23.1) (22.3) Debt Borrowings (Repayments) - Net - (3.5) - - Effect of Exchange Rates on Cash 0.5 2.3 0.2 (0.8) Other (3.1) 3.1 (6.4) 11.8 Cash Balance - End of Period $ 289.8 $ 202.2 $ 289.8 $ 202.2 * Free Cash Flow is calculated as Net Cash Provided by Operating Activities less Capital Expenditures.
Net Cash 11 NET CASH (millions of USD) DEBT STRUCTURE (millions of USD) $300 $250 $245 $240 $229 Interest Jan. 31, 2020 July 31, 2019 Rate Balance Balance $200 $188 Private Placements: EUR-den. 2010 Series (10-yr.) 4.24% $ (49.6) $ (50.2) $151 $150 $138 TOTAL DEBT $ (49.6) $ (50.2) $129 Cash and Cash Equivalents 289.8 279.1 $100 $73 NET CASH $ 240.2 $ 228.9 $48 $50 $44 $0 Q1 F'18 Q2 F'18 Q3 F'18 Q4 F'18 Q1 F'19 Q2 F'19 Q3 F'19 Q4 F'19 Q1 F'20 Q2 F'20 STRONG BALANCE SHEET: • January 31, 2020 cash = $289.8M and debt = $49.6M. • More than half of our cash is held in the United States. • Balance sheet provides flexibility for future investments.
Full-Year F’20 EPS Guidance 12 F’20 Diluted EPS $2.55 to $2.65 F’20 Guidance Assumptions: • Approximately flat to slightly positive organic sales growth. • Depreciation and amortization expense of approximately $25M. • Income tax rate of approximately 20%. • Capital expenditures of approximately $35M.
Identification Solutions 13 Q2 F’20 vs. Q2 F’19 (millions of USD) Q2 F’20 SUMMARY: • Revenues decreased - (1.8%): Q2 F’20 Q2 F’19 Change • Organic = - (1.3%) Sales $ 205.4 $ 209.2 - 1.8% • Fx = - (0.5%) Segment Profit 40.7 37.9 + 7.4% • Organic sales decreased due to an overall slowdown in the industrial economy. Segment Profit % 19.8% 18.1% + 170 bps • Segment profit as a percent of sales increased due to ongoing efficiency gains in our operations and SG&A structure. SALES & SEGMENT PROFIT % (millions of USD) 22% 21% $240 20% 20% 19% 20% 18% 19% $230 17% 17% 17% 18% 17% $222 $218 $218 16% $220 $215 $212 $214 $210 $209 14% OUTLOOK: $210 $206 $205 12% • Expect F’20 organic sales to be approximately flat to $200 10% slightly positive. • Anticipate further investments in innovative new $190 8% products and efficiencies in operations and our SG&A $180 6% structure. Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 F'18 F'18 F'18 F'18 F'19 F'19 F'19 F'19 F'20 F'20
Workplace Safety 14 Q2 F’20 vs. Q2 F’19 (millions of USD) Q2 F’20 SUMMARY: • Revenues decreased - (2.6%): Q2 F’20 Q2 F’19 Change • Organic = - (1.0%) Sales $ 71.3 $ 73.2 - 2.6% • Fx = - (1.6%) Segment Profit 5.5 4.7 + 17.0% • Organic sales were effectively flat in Europe and Segment Profit % 7.7% 6.4% + 130 bps Australia and down in the low-single digits in North America. • North America continues to show improving financial trends. SALES & SEGMENT PROFIT % (millions of USD) • Segment profit as a percent of sales increased due to ongoing efficiency gains in our operations and SG&A 13% 14% structure. $120 12% 10% $100 9% 9% 9% 8% 8% 8% 7% 7% 8% $86 6% $80 $81 $80 $80 $75 $76 OUTLOOK: $73 $73 $72 $71 6% 4% • Expect F’20 organic sales to be approximately flat. $60 • Anticipate continued improvements in our operations 2% and SG&A structure. $40 0% • Anticipate our North American business to continue Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 F'18 F'18 F'18 F'18 F'19 F'19 F'19 F'19 F'20 F'20 to recover.
Investor Relations 15 Brady Contact: Ann Thornton Investor Relations 414-438-6887 Ann_Thornton@bradycorp.com See our web site at www.bradycorp.com