Brady Corporation Q2 FY2026 earnings call

Russell mentioned 20th consecutive quarter of organic sales growth, launched i4311 transportable industrial desktop label printer, R&D spend grew from 3% to almost 6% over a decade, hired Jane Li as CTO. Ann stated organic sales up 1.6%, Americas and Asia led growth, gross margin improved, SG&A expense as percent of sales decreased, R&D expense increased to 6.3% of sales, pretax earnings and earnings per share grew, finished quarter in net cash position.

Americas and Asia region: This quarter, sales were $251.6 million, up 7.6% from Q2 last year. Organic sales growth was 3.1%, acquisitions added 3.5% and foreign currency translation increased sales 1%. Wire identification product line grew nearly 8%. Asia had organic growth of 14.2%, with India leading at nearly 25% organic sales growth. Segment profit increased 16.9% to $53.8 million, and segment profit as a percentage of sales increased from 19.7% to 21.4%. Europe and Australia region: Sales were $132.5 million in the quarter. Organic sales declined 1.1% and foreign currency translated added 9%. Saw growth in Wire ID product line but declines in Safety and Facility ID and Product ID. Reported segment profit increased 35.5% to $15.4 million, and segment profit as a percentage of sales increased from 9.3% to 11.6%.

Increasing the bottom end of full year fiscal 2026 adjusted diluted EPS guidance range from $4.90 to $5.15 per share to $4.95 to $5.15 per share, and increasing the bottom end of full year GAAP EPS guidance range from $4.57 to $4.82 per share to $4.62 to $4.82 per share. Expect organic sales growth in low single-digit percentages for the year ending July 31, 2026. Potential risks include potential strengthening of the U.S. dollar, inflationary pressures unable to offset timely enough, or overall slowdown in economic activity.

Potential strengthening of the U.S. dollar, inflationary pressures that can't be offset timely, overall slowdown in economic activity. European manufacturing environment issues like weak macro activity, energy prices, policies, and influx of lower-cost Chinese products. Gravotech related automotive segment weakness in Europe.

Q: I wanted to start with -- what I -- to us was a negative surprise was the organic sales growth in the Americas, I mean, down to only just over 1%. I mean, if I group that with what you're doing in Europe and Australia, it looks like if I combine those, your organic growth is completely dependent on Asia right now despite the fact you're investing 6% plus sales in R&D. Was this a 1-quarter blip? Or where is the growth going to be?

A: Ann said Americas on its own was up 1.4% and Asia on its own was up 14.2%, Russell said November was a little bit on the weak side in the Americas but exited the quarter with improvement, correlating to U.S. manufacturing capacity utilization.

Q: Russell, your confidence in Europe and Australia returning to growth here in the second half of the year. I guess what's giving you some of that confidence?

A: Russell said he was in Europe two weeks ago, feels manufacturing will be modest, hoping they hit bottom towards end of last calendar year, seeing growth in some noncore European countries but still headwinds from energy prices, policies, and lower-cost Chinese products.

Q: The Gravotech acquisition is probably 1.5 years behind you. You guys have added Mecco or Mecco, I apologize whichever you say it. And how is that performing for you guys? I know you guys had some restructuring you guys were doing there, but how are we doing in terms of growth trajectory?

A: Russell said from technology perspective it has done 100% of what they wanted, European automotive has been weak but rest of business is doing well, luxury personalization segment is best.

Q: Just to get this question out there because I'll ask everybody, I know your printers use a small amount of memory. Any issues you guys are facing in terms of pricing or shortages on memory?

A: Russell said no issues so far on memory, it's a very small effect.

Q: And I appreciate your commentary on R&D and R&D is an investment for the longer term, but maybe you can help reconcile it for investors because, again, we did see 1.1% organic growth or 1.6%, whatever it was, probably less than what we expected, but yet R&D has a significant investment. How should we reconcile the increase in the R&D versus the, I guess, the declining organic growth?

A: Russell said to compare to gross margin, more commoditized products have done less well vs engineered products, investments in R&D are multiyear journey, pay back in 3 years, not relevant on quarterly basis.

Q: As I think about the European business, it probably has always had a more of the commodity type products, but it's been more defensible and the pricing has been better on that. Any signs or concerns that, that pricing for the commodity type of products might be breaking down?

A: Russell said there's deterioration in U.K., but it's part of Brady's journey out of commodity products into manufactured products, a drag on growth but will get through it.