Press release·05/16/2025 12:10:58

Financial Strength Positions Brady Corporation for Growth

Brady Corporation, a leading manufacturer of identification solutions, has reported strong financial results for the first nine months of fiscal year 2025. Despite challenges from global trade tensions and inflationary pressures, the company has maintained its profitability and strategic focus on driving organic growth and pursuing strategic acquisitions.

Navigating Trade Uncertainties

The U.S. government has implemented new tariffs on imported goods, leading to retaliatory actions from trading partners. While this has increased Brady’s costs, the company’s strategy of manufacturing products close to their end markets has helped mitigate its overall exposure to tariffs. Brady has taken steps to offset these higher costs, including targeted price increases, sourcing adjustments, and ongoing efficiency improvements across its operations.

Solid Financial Position

Brady ended the quarter with $152.2 million in cash and $195.2 million in available credit, providing ample liquidity to fund its growth initiatives. The company’s credit agreement was recently expanded to allow for up to $1.085 billion in total borrowing capacity, giving Brady significant financial flexibility.

Management believes Brady’s strong balance sheet and cash flow generation will enable it to continue investing in acquisitions and organic growth opportunities, while also returning capital to shareholders through dividends and share repurchases. The company remains committed to maintaining a prudent capital structure and managing its exposure to economic or geopolitical risks.

Revenue and Profit Trends

In the first nine months of fiscal 2025, Brady’s net sales increased 11.9% to $1.116 billion, driven by a combination of organic growth and contributions from recent acquisitions. Organic sales grew 2.6%, while acquired businesses added 10.2% to top-line results. Foreign currency translation had a modest 0.5% negative impact.

The company’s two reporting segments - Americas & Asia and Europe & Australia - exhibited divergent performance. The Americas & Asia segment achieved 5.0% organic sales growth, while Europe & Australia saw a 1.9% organic decline. Acquisitions boosted sales in both regions, with the Europe & Australia segment benefiting more from inorganic growth.

Gross margin decreased slightly to 50.2% of net sales, primarily due to the impact of tariffs, facility closure costs, and purchase accounting adjustments related to acquisitions. However, Brady was able to offset these headwinds through organic sales growth in higher-margin product lines.

Operating income remained relatively flat at $177.3 million, as the benefits of organic growth were offset by increased operating expenses. These included higher amortization costs from acquired intangible assets, as well as facility closure and reorganization charges. Net income for the nine-month period was $139.4 million, or 12.5% of net sales.

Segment Performance

The Americas & Asia segment, which accounts for around two-thirds of Brady’s total sales, saw a 11.4% increase in net sales. Organic growth of 5.0% was complemented by an 7.9% contribution from acquisitions. Segment profit increased 10.2% to $158.1 million, though it declined slightly as a percentage of sales to 21.6%.

In contrast, the Europe & Australia segment experienced a 12.8% sales increase, driven entirely by acquisitions, as organic sales declined 1.9%. Segment profit fell 18.4% to $41.9 million, or 10.9% of net sales, due to higher amortization and reorganization costs.

The divergent performance between the two segments highlights Brady’s geographic diversification, as well as the importance of its acquisition strategy in driving top-line growth. While the Europe & Australia region faces some near-term headwinds, the company’s overall portfolio remains well-balanced.

Investing for the Future

Brady continues to invest in research and development (R&D) to drive innovation and new product development. R&D expenses increased 13.2% to $56.8 million, or 5.1% of net sales, as the company focused on areas like new printing systems, materials, and product enhancements across its recent acquisitions.

The company also remains committed to strategic acquisitions to complement its organic growth initiatives. During the first nine months of fiscal 2025, Brady deployed $147.2 million to acquire Gravotech, AB&R, and Microfluidic Solutions. These bolt-on transactions have expanded Brady’s product offerings and geographic reach, while also adding new capabilities in areas like industrial automation and specialty materials.

While the integration of these acquired businesses has contributed to higher operating expenses in the short term, management believes the long-term benefits will outweigh the near-term costs. Brady’s strong balance sheet and cash flow generation provide ample resources to continue pursuing value-enhancing acquisitions.

Outlook and Key Risks

Looking ahead, Brady expects its financial strength and liquidity to support the execution of its growth strategy, even in the face of potential economic or geopolitical headwinds. The company anticipates its ongoing annual income tax rate will be approximately 21%, based on its current global business mix and prevailing tax laws.

However, Brady does face several risks that could impact its future performance. These include:

• Continued cost pressures from materials, labor, and supply chain disruptions
• Potential declines in customer demand
• Challenges in integrating and growing acquired businesses
• Cybersecurity threats and data breaches
• Regulatory changes and environmental regulations
• Foreign currency fluctuations
• Litigation and product liability claims

To mitigate these risks, Brady remains focused on driving operational efficiency, diversifying its supply chain, and maintaining a strong balance sheet. The company’s experienced management team and commitment to innovation also position it well to navigate the evolving business landscape.

Conclusion

Despite the ongoing global uncertainties, Brady Corporation has demonstrated its financial resilience and strategic agility. The company’s solid balance sheet, diverse product portfolio, and disciplined approach to growth have enabled it to navigate the current environment effectively.

Looking ahead, Brady’s focus on organic innovation, strategic acquisitions, and operational excellence should continue to drive value for shareholders. As the company leverages its financial strength to invest in the future, investors can be confident in Brady’s ability to capitalize on emerging opportunities and weather potential challenges.