Brady Q2 Earnings Call Highlights

Key Points

• Brady reported its 20th consecutive quarter of organic sales growth, with organic sales up 1.6% and total sales up 7.7% (helped by acquisitions and FX); adjusted EPS rose 9% and gross margin improved to 50.6%.
• Management sharply increased innovation spending — R&D rose nearly 30% to $24.3 million (6.3% of sales) — hiring a new CTO and signaling R&D will remain near 6% as part of a multi-year push toward higher‑margin engineered products.
• Asia led growth (Asia +14.2%, India nearly +25%) while the Americas were modest (+1.4% organic) and Europe declined; operating cash flow jumped ~35% to $53.3M, the company holds a net cash position of $97.8M, and it raised the bottom end of adjusted EPS guidance to $4.95–$5.15 while flagging tariff and currency risks.

Brady NYSE: BRC executives highlighted continued organic sales growth, margin expansion, and increased research and development spending during the company’s fiscal 2026 second-quarter earnings call, while also acknowledging uneven regional demand and ongoing tariff headwinds.

Quarter results: organic growth extends streak, profitability improves

President and CEO Russell Shaller said the quarter marked Brady’s 20th consecutive quarter of organic sales growth, calling the five-year run a demonstration of the company’s business model. He also pointed to improved gross margin, strong cash generation, and 9% growth in adjusted earnings per share.

Chief Financial Officer Ann Thornton reported that organic sales increased 1.6% in the quarter. Acquisitions contributed 2.3% and foreign currency translation added 3.8%, resulting in total sales growth of 7.7%.

Gross margin improved to 50.6% from 49.3% in the prior-year quarter. Thornton noted that last year’s results included actions to streamline Brady’s cost structure, including manufacturing facility closures in Beijing, China, and Buffalo, New York, and an overhead reorganization in Europe. Adjusting for one-time charges in last year’s second quarter, gross margin would have been 49.8%, implying an improvement to 50.6% this year driven by cost actions and sales mix skewing toward “highly engineered products.”

SG&A expense was $107.9 million, up from $105.9 million a year earlier, but declined to 28.1% of sales from 29.7%. Excluding amortization and prior-year closure and reorganization costs, Thornton said SG&A was 26.7% of sales, down 60 basis points from the prior quarter, as the company realized benefits from cost structure actions while continuing targeted investments in sales resources and geographic expansion.

R&D spending rises sharply as company emphasizes engineered products

Both Shaller and Thornton emphasized Brady’s increased commitment to research and development. Thornton said R&D expense rose to $24.3 million, or 6.3% of sales, compared with $18.7 million, or 5.2% of sales, in the prior-year quarter. She said Brady funded a “nearly 30% increase in R&D” while still improving profitability.

For the second half of the year, Thornton said Brady expects R&D to be around 5.5% of sales, putting the company “slightly below 6%” for the full fiscal year 2026.

Shaller tied the higher R&D intensity to the company’s long-term strategy, noting that when he joined Brady more than a decade ago, R&D spending was about 3% of revenue and has risen to nearly 6% in 2026, while pre-tax earnings have more than tripled over the same period. He also said the company hired a new chief technology officer, Jane Li, in January and described her as bringing experience from Honeywell to improve Brady’s technical roadmap.

Regional performance: strength in Asia, softer Europe, modest Americas growth

Thornton said organic growth was led by the Americas and Asia region, partially offset by a slight organic decline in Europe and Australia.

• Americas and Asia: Sales of $251.6 million, up 7.6%; organic sales growth of 3.1%, acquisitions added 3.5%, and currency added 1%.
• Europe and Australia: Sales of $132.5 million; organic sales declined 1.1%, while currency added 9%, resulting in total growth of 7.9%.

In the Q&A session, Shaller clarified that within the combined Americas and Asia segment, the Americas grew 1.4% organically while Asia grew 14.2%. He said November was “a little bit on the weak side” in the Americas, but demand improved as the quarter ended. He also said the Americas business correlates closely with U.S. manufacturing capacity utilization, citing a 77%–78% range and saying levels closer to 80% tend to be “very stimulative” for Brady.

Shaller added that Americas growth was driven by virtually no price, implying volume and mix were the primary drivers.

In Asia, Shaller said India continued to lead performance, with nearly 25% organic sales growth in the quarter, and described India as now Brady’s second-largest business in Asia after expansion into northern and western regions in recent years.

In Europe and Australia, management said the manufacturing environment has been weak for several quarters. Shaller pointed to continued Wire ID growth tied to data center expansion, while Thornton and Shaller said declines in Safety and Facility ID and Product ID were more closely linked to general manufacturing and automotive activity.

Margins and mix: engineered products outperform

Asked about the drivers of strong margins amid limited pricing, Shaller said product mix was favorable, with “more commoditized products” performing less well compared to engineered products. He described engineered products as offsetting declines in more commoditized categories, lifting overall margins.

Later, Shaller said Brady’s non-engineered products collectively have gross margins around the 40% range, while engineered products are “mid-50s and higher.” He framed the increased R&D spend as part of a multi-year strategy, saying investments made today can pay back in three years and should not be evaluated on a quarterly basis.

Cash flow, capital allocation, and updated guidance

Thornton reported improved cash generation, with operating cash flow up 34.7% to $53.3 million and free cash flow up 30.5% to $42.3 million. Year-to-date operating cash flow was up nearly 38% versus the prior year, which she said reflects “high-quality earnings.”

As of Jan. 31, Brady had a net cash position of $97.8 million. Thornton said the company’s capital allocation priorities include funding organic growth and efficiency opportunities, continuing dividend increases, and pursuing disciplined acquisitions and share buybacks. She noted that Brady began fiscal 2026 by announcing its 40th consecutive annual dividend increase. The company bought 121,000 shares for $9 million year-to-date at an average price of $74.23 per share.

For fiscal 2026 guidance, Brady raised the bottom end of its EPS outlook. Adjusted diluted EPS guidance was increased to $4.95 to $5.15 (from $4.90 to $5.15), and GAAP EPS guidance was increased to $4.62 to $4.82 (from $4.57 to $4.82). Thornton reiterated expectations for low single-digit organic sales growth for the year ending July 31, 2026, and provided other guidance items including approximately $44 million in depreciation and amortization, $45 million in capital expenditures, and a full-year tax rate of about 21%.

Management cited potential risks including U.S. dollar strengthening, inflation the company cannot offset quickly enough, and a broader economic slowdown. Shaller also said tariffs remain a headwind in the U.S. versus last year’s second quarter, but Brady still expects the full-year incremental tariff impact to be at the low end of the roughly $8 million range previously provided.

About Brady NYSE: BRC

Brady Corporation is a global provider of identification and safety solutions, specializing in the design, manufacture and sale of products that help businesses improve safety, security and efficiency. The company offers an array of durable labels, signs, safety devices, printing systems and software platforms tailored to a wide range of industrial and commercial environments.

Founded in 1914 by William H. Brady, Brady Corporation has grown from a regional marker manufacturer into a diversified global enterprise.

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