Brady Corporation (BRC) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call indicates strong financial performance with a 7.7% sales growth and improved profit margins. Despite some concerns about organic sales growth in the Americas, the company shows resilience with significant R&D investment and a strategic shift towards higher-margin engineered products. Positive sentiment is further supported by increased EPS guidance and robust cash flow. While there are some uncertainties, particularly in Europe, the overall outlook remains optimistic, justifying a positive stock price movement prediction.
Key Financial Performance
Organic Sales Growth 1.6% increase year-over-year. Growth led by the Americas and Asia regions (3.1% organic growth), partially offset by a 1.1% decline in Europe and Australia.
Total Sales Growth 7.7% increase year-over-year. Breakdown: 1.6% organic growth, 2.3% from acquisitions, and 3.8% from foreign currency translation.
Gross Profit Margin 50.6% this quarter compared to 49.3% last year. Adjusted for one-time charges, last year's margin was 49.8%. Improvement due to cost reduction actions and sales growth in highly engineered products.
SG&A Expense $107.9 million this quarter compared to $105.9 million last year. As a percentage of sales, SG&A decreased to 28.1% from 29.7% last year. Excluding certain costs, SG&A was 26.7% of sales this quarter compared to 27.3% last year.
R&D Expense $24.3 million or 6.3% of sales this quarter, up from $18.7 million or 5.2% of sales last year. Nearly 30% increase in R&D spending.
Pretax Earnings 19.1% increase year-over-year, from $52 million to $62 million. Adjusted pretax earnings increased 7.7%, from $62.4 million to $67.2 million.
Net Income 19.1% increase year-over-year, from $40.3 million to $48.1 million. Adjusted net income increased 8%, from $48.1 million to $52 million.
Adjusted Diluted EPS $1.09 this quarter compared to $1 last year, a 9% increase. GAAP diluted EPS was $1.01 compared to $0.83 last year.
Operating Cash Flow $53.3 million this quarter, a 34.7% increase from $39.6 million last year.
Free Cash Flow $42.3 million this quarter, a 30.5% increase from $32.5 million last year.
Net Cash Position $97.8 million as of January 31, 2026.
Americas and Asia Sales $251.6 million this quarter, up 7.6% year-over-year. Organic growth of 3.1%, acquisitions added 3.5%, and foreign currency translation added 1%. Segment profit increased 16.9% to $53.8 million, with profit margin improving from 19.7% to 21.4%.
Europe and Australia Sales $132.5 million this quarter, a 7.9% increase year-over-year. Organic sales declined 1.1%, but foreign currency translation added 9%. Segment profit increased 35.5% to $15.4 million, with profit margin improving from 9.3% to 11.6%.
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Operating Highlights
Launch of i4311 transportable industrial desktop label printer: The i4311 is the first transportable printer capable of printing on materials up to 4 inches wide. It features an all-day battery, WiFi and Bluetooth connectivity, and LabelSense software technology. It can print up to 5,000 labels on a single charge and is suitable for various applications, including indoor and outdoor uses, safety requirements, and harsh environments.
Expansion in India: India achieved nearly 25% organic sales growth this quarter, driven by expansion into North and West regions. India is now the second-largest business in Asia for Brady.
Cost structure improvements: Actions taken last year, including facility closures in Beijing and Buffalo and overhead reorganization in Europe, led to improved gross profit margins from 49.8% to 50.6%.
Increased R&D investment: R&D expenses increased by nearly 30% to $24.3 million, representing 6.3% of sales this quarter, up from 5.2% last year. This investment supports new product development and acquisitions.
Hiring of new CTO: Jane Li was hired as the new Chief Technology Officer in January to enhance the company's technical roadmap and R&D capabilities.
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Risk or Challenges
Tariffs in the U.S.: Tariffs remain a headwind in the U.S., with an expected full-year incremental impact of approximately $8 million. This could affect profitability and cost management.
Weak manufacturing environment in Europe: The manufacturing environment in Europe has been weak for several quarters, leading to a 1.1% organic sales decline in the Europe and Australia region. This impacts sales in Safety and Facility ID and Product ID, which are tied to general manufacturing and automotive sectors.
Inflationary pressures: Inflationary pressures are noted as a potential risk to the company's fiscal 2026 guidance, particularly if they cannot be offset in a timely manner.
Strengthening of the U.S. dollar: A potential strengthening of the U.S. dollar is identified as a risk to fiscal 2026 guidance, which could impact international sales and profitability.
Economic slowdown: An overall slowdown in economic activity is highlighted as a risk to achieving fiscal 2026 guidance, potentially affecting sales and growth.
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Guidance & Outlook
Adjusted Diluted EPS Guidance: The company has increased the bottom end of its full-year fiscal 2026 adjusted diluted EPS guidance range from $4.90-$5.15 per share to $4.95-$5.15 per share, representing growth of 7.6% to 12% compared to 2025.
Organic Sales Growth: The company expects organic sales growth in the low single-digit percentages for the year ending July 31, 2026.
Depreciation and Amortization Expense: Expected to be approximately $44 million for fiscal 2026.
Capital Expenditures: Projected to be approximately $45 million for fiscal 2026.
Income Tax Rate: The full-year income tax rate is expected to be approximately 21%, with a slightly lower rate in the fourth quarter.
R&D Investment: R&D as a percentage of sales is expected to be around 5.5% in the second half of fiscal 2026, slightly below 6% for the full fiscal year.
Potential Risks to Guidance: Risks include potential strengthening of the U.S. dollar, inflationary pressures, and an overall slowdown in economic activity.
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Shareholder Return Plan
Dividend Increase: At the beginning of this fiscal year, Brady Corporation announced its 40th consecutive annual dividend increase.
Share Buybacks: Brady Corporation has purchased 121,000 shares for $9 million so far this year, with an average price of $74.23 per share.
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Key Q&A
Q:What caused the negative surprise in organic sales growth in the Americas, and is it a one-quarter blip?
A:The organic growth in the Americas was up 1.4%, while Asia was up 14.2%. The Americas experienced a step back in momentum. November was weak, but improvement was seen as the quarter ended. U.S. manufacturing struggles, though not as bad as Europe, contributed to the slower growth.
Q:How much of the 1.4% growth in the Americas was price versus volume?
A:Virtually no price contributed to the growth; it was primarily volume-driven.
Q:What will help the company return to a growth trajectory in the Americas?
A:Growth is closely tied to U.S. manufacturing capacity utilization, which is currently at 77-78%. A level closer to 80% would be stimulative. The trend is improving but not yet at the desired level.
Q:What contributed to the healthy margins this quarter?
A:The margin improvement was due to a mix shift. Commoditized products performed less well, while engineered products compensated and boosted margins.
Q:What gives confidence in Europe and Australia returning to growth in the second half of the year?
A:Modest growth is expected, moving from contraction to about 1% growth. Some non-core European regions like the Middle East, Poland, and Scandinavia are performing well, though major economies like Germany, France, and the U.K. are still struggling.
Q:How is the Gravotech acquisition performing?
A:From a technology perspective, it has met expectations, particularly in direct part marking. However, European automotive market weakness has impacted one segment, while the luxury personalization segment is performing well.
Q:Are there any issues with memory pricing or shortages affecting the company?
A:No significant issues have been faced. The company is a light user of memory and locks up supplies for long periods, so the impact is minimal.
Q:How should investors reconcile the increase in R&D spending with declining organic growth?
A:R&D investments are long-term and have contributed to tripling operating income over the last decade. The focus is on engineered products with higher margins, and the benefits of current R&D will be realized in 3 years. The company aims to continue this trend.
Q:Are there concerns about pricing for commodity-type products in Europe?
A:Pricing concerns are more pronounced in the U.K. due to its weaker economy. However, the company is transitioning from commodity products to engineered products, which is a long-term strategy.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing whether the negative organic growth in the Americas was a one-quarter blip or indicative of a longer-term trend. The response lacked clarity on specific actions being taken to address the issue beyond general macroeconomic dependencies.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Accounting Officer
Beijing China
Buffalo New
CFO Chief
CTO wealth
Chief Accounting
Chief Financial
China Buffalo
Europe charge
Financial Officer
ID battery
ID safety
LabelSense software
Officer Treasurer
QA
RD
SGA sale
Slide detail
Slide trending
application
benefit
closure reorganization
cost reduction
end share
facility closure
milestone
period facility
reduction action
reorganization charge
result sale
sale increase
sale line
share end
strength
BRC Transcript
Brady Corporation (BRC) Q2 2026 Earnings Call Transcript
Positive2-19
The earnings call indicates strong financial performance with a 7.7% sales growth and improved profit margins. Despite some concerns about organic sales growth in the Americas, the company shows resilience with significant R&D investment and a strategic shift towards higher-margin engineered products. Positive sentiment is further supported by increased EPS guidance and robust cash flow. While there are some uncertainties, particularly in Europe, the overall outlook remains optimistic, justifying a positive stock price movement prediction.
Brady Corporation (BRC) Q1 2026 Earnings Call Transcript
Positive11-17
The earnings call summary shows strong financial performance with increased net income, operating cash flow, and free cash flow. The Q&A section reveals positive sentiment, with management addressing gross margin improvements, R&D investments, and potential synergies from acquisitions. Despite some uncertainties in inventory management and regional performance, the overall guidance and financial metrics are optimistic. Considering the company's market cap, the stock price is likely to experience a positive movement of 2% to 8% over the next two weeks.
Brady Corporation (BRC) Q4 2025 Earnings Call Transcript
Positive9-4
The company reported strong financial metrics, including record EPS growth and successful acquisitions, despite some challenges in Europe and Australia. The 40th consecutive year of dividend increases and share buybacks signal strong shareholder returns. Although gross margins declined slightly, the company's strategic cost-cutting and tariff mitigation efforts are promising. The Q&A reveals management's confidence in addressing challenges, despite some vague responses. Considering the company's market cap, these factors suggest a positive stock price movement in the short term.
Brady Corporation (NYSE:BRC) Q3 2025 Earnings Call Transcript
Unknown5-20
Despite strong EPS growth and dividend increases, challenges like declining gross profit margins, increased SG&A expenses, and tariff-related uncertainties could offset positives. The Q&A revealed cautious management responses, particularly regarding tariffs and regional growth. With only low single-digit sales growth expected and a moderate market cap, the stock is likely to remain stable, leading to a neutral prediction.
BRC Slides
BRC Report
Frequently Asked Questions
Where does this earnings call transcript come from?
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Why do some answers appear as “Unclear” or “Inaudible”?
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
