Brady Corporation Q3 FY2026 earnings call

• Overall Financial Performance

• Achieved a new record high adjusted earnings per share of $1.50, up 23% YoY
• 8.2% overall organic sales growth, with total sales growth of 13.8% when including acquisitions (2.1%) and favorable foreign currency translation (3.5%)
• Gross profit margin improved 50 basis points YoY to 51.8%, driven by 2025 cost structure streamlining (facility closures in Beijing, China and Buffalo, New York) and growth of high-margin engineered products
• R&D investment increased 23% YoY to $23.5 million (5.4% of sales, up from 5% of sales last year), while SG&A as a percentage of adjusted sales fell 120 basis points YoY to 25.3%
• Operating cash flow grew 30.7% YoY to $78.2 million, and year-to-date operating cash flow is up 35% YoY; net cash position reached $148.6 million, more than triple its level one year prior
• Global printer unit sales grew 7.8% YoY, which management expects to drive follow-on consumable revenue growth

• New Product Performance

• The newly launched I4311 4-inch portable printer for plant safety and manufacturing professionals is selling 50% above launch expectations, with strong positive customer feedback; no comparable product exists in the market, and it is driving incremental halo demand for other Brady products
• Wire ID products for data center end markets are a core growth driver across both segments, with double-digit growth in both regions

• PSS Acquisition Update

• Brady has entered into an agreement to acquire Honeywell's productivity solutions and services (PSS) business, which more than doubles Brady's addressable market
• PSS adds enterprise-level workforce productivity mobility and scanning solutions, complementing Brady's existing identification, labeling, printer, and safety product portfolio to create a complete single-source solution for large enterprise customers across transportation, warehousing, and logistics
• PSS had a ~2% year-over-year sales decline in calendar 2025, but grew nearly 5% YoY in Q1 2026; management expects the acquisition to be immediately accretive, adding ~$0.80 to adjusted EPS in the first full year post-close, with no synergies included in this estimate
• Expected close date is August 1, 2026, pending regulatory approval; financing will consist of $500 million in term loans and $800 million in private placement debt, with an expected interest rate below 6%, a net leverage ratio of ~2.5x at close, and deleveraging to below 2x within two years

• Strategic Growth Tailwinds

• Emerging industry identification standards (including GS1 and Europe's digital product passport) and new RFID-based identification applications are expected to support long-term growth
• Early development of AI-augmented products is opening new use cases to improve customer safety and efficiency

Brady operates two geographic segments: Americas and Asia, and Europe and Australia.

• Americas and Asia: Total Q3 sales were $290.1 million, growing 14.4% year-over-year (10.1% organic growth, 3.1% from acquisitions, 1.2% from foreign currency translation). Reported segment profit increased 20.2% YoY to $68.7 million, with segment profit as a percentage of sales rising from 22.5% to 23.7%. Wire ID, which contributes 20% of segment revenue, grew 19% YoY. Organic sales grew 9.7% in the Americas and 11.9% in Asia.
• Europe and Australia: Total Q3 sales were $145.2 million, growing 12.6% YoY (4.5% organic growth, 8.1% from foreign currency translation). Reported segment profit increased 22.8% YoY to $21.5 million, with segment profit as a percentage of sales rising from 13.6% to 14.8%. Wire ID, which contributes 13% of segment revenue, grew 13% YoY.

• Full year fiscal 2026 adjusted EPS guidance was raised from the prior range of $4.95-$5.15 to a new range of $5.20-$5.30, representing 13%-15.2% YoY adjusted EPS growth • Full year GAAP EPS guidance was raised from the prior range of $4.62-$4.82 to a new range of $4.66-$4.76 • Full year organic sales growth is expected to land in the mid-single digits • Additional guidance metrics: depreciation and amortization of ~$44 million, capital expenditures of ~$45 million, and a full year effective income tax rate of ~21% • Management notes the income tax rate is typically slightly lower in Q4 than the full year expectation due to historical profit mix and discrete timing adjustments

• Potential strengthening of the U.S. dollar could negatively impact results • Persistent inflationary pressures that cannot be offset in a timely manner present a downside risk • A broad slowdown in global economic activity could hurt sales and profitability

• Ongoing geopolitical disruption, including the conflict in the Middle East, creates uncertainty for European operations, though management noted no meaningful demand or supply chain impacts in the third quarter
• Regulatory delays could push the PSS acquisition closing date beyond the current target of August 1, 2026
• Uncertainty around future tariff policy creates volatility for gross margin projections
• The sharply increased post-acquisition workload for the Brady board of directors requires sustained high levels of engagement that some existing board members cannot commit to

Q: After nearly 10 straight quarters of organic growth below 5%, what drove this quarter's 8.2% organic growth outperformance, and how impactful is the new I4311 printer to this result? / A: Approximately 1-2% of growth stemmed from pulling delayed contract volume from a weaker-than-expected Q2. The largest driver was 19% YoY growth in wire ID for data centers, which contributed a ~4% organic uplift to the Americas and Asia segment overall, alongside broad-based strength across Brady's product lines. The I4311 is a unique new portable 4-inch printer selling 50% above launch expectations and driving incremental halo demand for other products, but it is not material to this quarter's growth result, though management expects it to contribute meaningfully to future growth.

Q: Does the $0.80 first-year adjusted EPS accretion for the PSS acquisition include synergies? What is the current expected closing timeline? / A: The $0.80 accretion estimate does not include any cost synergy realization; it reflects the standalone performance of the PSS business with planned incremental investment in R&D and sales coverage. The current target closing date is August 1, 2026; any delay would stem from external regulatory factors, not issues with Brady or Honeywell.

Q: What is Brady's visibility into long-term data center growth, how does product adoption track the data center construction timeline, and what types of customers purchase Brady data center products? / A: Data center growth is tracking current trends with no visible acceleration or deceleration; construction backlog is at capacity, which creates a multi-year growth tailwind rather than a short-term demand spike. Brady products are used from groundbreaking through full commissioning, with the largest volume of demand occurring during rack installation and inter-rack wiring, plus recurring revenue from 3-4 year block technology upgrades. Buyers vary across the value chain, including cable manufacturers, data center integrators, and on-site operations teams, with no single standard customer type across different developers.

Q: What explains the recent resignation of two Brady board members, and does the departure relate to the PSS acquisition? / A: All board members voted unanimously to approve the PSS acquisition, with no dissent over the deal's merits. The resignations stem from the vastly increased time commitment required from the board post-acquisition: the board moved from meeting once quarterly to meeting weekly (sometimes on weekends) for due diligence and integration planning, and this elevated workload will continue through 2026. Two existing board members could not commit to this level of ongoing engagement, so they stepped down voluntarily.