Brady (NYSE:BRC) reported third-quarter financial results on Monday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Brady reported a record high adjusted earnings per share of $1.50, up 23% year-over-year, with organic sales growth of 8.2% and a gross profit margin nearly reaching 52%.
The company announced an agreement to acquire Honeywell’s productivity solutions and services business, expected to be immediately accretive with an estimated $0.80 of adjusted EPS accretion in the first year.
Brady’s cash generation was robust, with operating cash flow increasing by 35% year-to-date, positioning the company well for the acquisition and continued investment in R&D and sales force expansion.
The company raised its full-year adjusted EPS guidance range to $5.20 to $5.30 per share and expects organic sales growth in the mid-single digits for the fiscal year.
Management emphasized the success of new product introductions, particularly the i4311 portable printer, and highlighted strong growth in the data center segment, contributing significantly to sales.
Full Transcript
OPERATOR
Good day and thank you for standing by. Welcome to The Brady Corporation third quarter 2026 earnings conference call. At this time, all participants are in a listen only mode. After the speaker’s presentation, there will be a question and answer session. To ask a question during the session, you’ll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised to withdraw your question. Please press star 11 again. Please be advised that today’s conference is being recorded. I’d now like to hand the call over to Anne Thornton, Chief Financial Officer. Please go ahead.
Anne Thornton (Chief Financial Officer)
Thank you. Good morning and welcome to the Brady Corporation Fiscal Year 2026 Third Quarter Earnings Conference Call. The slides for this morning’s call are located on the website at www.bradycorp.com/investors. We will begin our prepared remarks on slide number three. Please note that during this call we may make comments about forward looking information. Words such as expect, will, may, believe, forecast and anticipate are just a few examples of words identifying a forward looking statement. It’s important to note that forward looking information is subject to various risk factors and uncertainties which could significantly impact expected results. Risk factors were noted in our news release this morning and in Brady’s fiscal 2025 form 10K which was filed with the SEC in September. Also, please note that this teleconference is copyrighted by Brady Corporation and may not be rebroadcast without the consent of Brady. We will be recording this call and broadcasting it on the Internet. As such, your participation in the Q&A session will constitute your consent to being recorded. I’ll now turn the call over to Brady’s President and Chief Executive Officer, Russell Schaller.
Russell Shaller
Russell, thanks Anne and thank you all for joining. Today. I’m pleased to announce a fantastic quarter. We reported a new record high adjusted earnings per share of $1.50, an increase of 23% versus the third quarter of last year. Organic sales grew 8.2% and gross profit margin was nearly 52% while both regions reported significant growth in operating income and profitability. We’re growing in our key product lines in both of our regions and we continue to see positive response to the new products we’ve introduced over the last several years. Launched In February, our i4311 is a 4 inch portable printer which is tailored for plant safety and manufacturing professionals and it’s selling well above expectations. Our development team worked with a wide variety of users shape this product and customer feedback has been fantastic and we’re seeing continued growth in wiring identification this quarter, particularly in data centers, which is a key end market for this highly critical identification solution. Our top priorities are profitable sales growth and a constant focus on cash generation, and this quarter absolutely delivered both. In addition to 23% adjusted earnings per share growth in the quarter, our cash generation was nearly $80 million. Operating cash flow is up 35% so far this fiscal year. Last month we announced that we entered into an agreement to acquire Honeywell’s productivity solutions and services business. This marked an exciting moment in Brady’s history and we’re looking forward to combining our highly engineered durable labels, printers and software with the data and devices powering the entire supply chain. This is an exciting moment in our company’s history. Over the past several years, Brady has carefully evaluated the competitive landscape while identifying new growth opportunities that expand our addressable market. With this acquisition, the PSS more than doubles the markets Brady can serve. At the same time, we believe emerging marking and identification standards, including GS1 and Europe’s digital Product Passport initiatives, along with new applications for RFID based product identification will support a long Runway for future growth. Additionally, our early work with AI augmented products points the way to exciting new use cases to improve our customer safety and efficiency. We see PSS as a unique opportunity to expand our portfolio into leading edge mobility and scanning solutions trusted by some of the world’s largest transportation, warehousing and logistics companies. By combining Brady’s high performance printers, software and specialty adhesive materials with PSS’s full suite of mobility and scanning solutions, we will be able to offer a single source solution to a broader set of customers. This PSS business has an incredible product portfolio, a talented R and D team with deep technical expertise and critical sales and support functions who know their business extremely well. We’re looking forward to closing the transaction and to bringing our businesses together. We have a bright future ahead of us and we know this is an opportunity to drive a significant amount of long term value for our shareholders. I’ll turn the call over to Ann to provide details on our financial results and then I’ll return to discuss our regional results and to share some additional thoughts regarding the PSS transaction.
Anne Thornton (Chief Financial Officer)
Ann thanks, Russell. Our record adjusted earnings per share results this quarter were the result of strong organic sales growth, improved gross profit margin efficiencies throughout SG&A and growth in operating income throughout our global businesses. Organic sales grew 8.2% which was driven by both of our regions. The Americas and Asia grew 10.1% and Europe and Australia grew 4.5%. We also funded a significant increase in research and development we reduced our SG&A expense as a percentage of sales and we increased our net cash position to $148.6 million. Our financial position allows us to continue to invest in our organic business and it puts us in an incredibly strong position to finance the PSS transaction, all while remaining committed to our dividend and to opportunistic share buybacks. Slide number four details our quarterly sales trends. Organic sales grew 8.2% this quarter, acquisitions added 2.1% and foreign currency translation increased sales by 3.5% for total sales growth of 13.8% in the quarter. Turning to slide number five, this details our quarterly gross margin trending. Our gross Profit margin was 51.8% this quarter compared to 51% in the second quarter of last year. Last year we took actions to streamline our cost structure and we closed manufacturing facilities in Beijing, China and in Buffalo, New York. These actions reduced gross profit margin by 30 basis points approximately last year. So we’re seeing the gross profit margin benefit from cost reduction actions taken last year along with our sales growth led by our highly engineered products, all of which resulted in the 50 basis point improvement in our gross profit margin this quarter. Slide number six details our SG&A expense trending. SG&A was 1 28.7 million this quarter compared to 108.7 million in the third quarter of last year. As a percent of sales, SG&A was 29.6% compared to 28.4% last year. If you exclude amortization expense and acquisition related expenses from the current year, and exclude amortization expense and facility closure and other reorganization costs incurred last year, Then SG&A was 25.3% of sales compared to 26.5% of sales last third quarter, which is a reduction of 120 basis points. We continue to invest in growth through targeted additions to our sales force and we’re realizing the benefits of our facility closure and other cost-structure actions that we took last year. Turning to slide number seven, you’ll find the trending of our investments in research and development. We continue to increase our investment in new product development throughout our key product lines and we’re seeing these multi year investments paying off in our organic sales growth. Printer unit sales are up nearly 8% this quarter compared to last year’s third quarter, which is exactly what we’re looking for because the consumable revenue will follow. R&D expense was $23.5 million or 5.4% of sales this quarter, which was an increase from 19.2 million or 5% of sales in last year’s third quarter. We funded a 23% increase in R&D in the quarter while improving our profitability and reporting record. Adjusted eps slide number 8 details the trending of our pre tax earnings. Pre tax earnings on a GAAP basis increased 11.6% from 65.7 million to 73.4 million in the quarter. If you exclude amortization and acquisition related expenses in the current period and exclude amortization and the facility closure and other reorganization charges we incurred last year, pre tax earnings increased 23.8% from 74.4 million to 92.1 million. Moving to slide number nine, this outlines the trending of our net income and earnings per share. Net income increased 10.6% from 52.3 million to 57.8 million. Adjusted net income increased 22.3% from 58.8 million to 71.9 million. GAAP-diluted earnings per share was $1.21 compared to $1.09 last year and our adjusted GAAP-diluted earnings per share was $1.50 compared to $1.22 last year which was 23% growth and a new quarterly record. Our investments in R&D and in our sales force are paying off and we’re growing in all of our major product lines and improving our profitability. Cash generation is detailed on slide number 10. Operating cash flow increased 30.7% to $78.2 million in the quarter from $59.9 million in third quarter of last year and free cash flow increased 20.8% to $67.2 million this quarter compared to $55.6 million in last year’s third quarter. Year to date our operating cash flow is up nearly 35% versus last year which shows our consistent focus on cash based decision making and our high quality earnings. Slide number 11 details the impact that our cash generation has had on our balance sheet. As of April 30th we were in a net cash position of 148.6 million which is more than triple our net cash position from a year ago. We’re in an excellent position to finance the acquisition of the PSS business. We plan to structure our financing with $500 million in term …
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